Dixie Group Inc 10-Q for FY2023 Q3
Dixie Group Inc (DXYN)
10-Q
2023-11-13
For: 2023-09-30
View Original
Added on
April 06, 2026
About this 10-Q
Dixie Group Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $68.58M
- down 4.4% from $71.76M a year earlier
- Net loss
- $2.39M
- compared with a net loss of $8.78M a year earlier
- Diluted EPS
- -$0.16
- compared with -$0.58 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form | ||||||||
(Mark One)
For the quarterly period ended September 30, 2023
OR
For the transition period from ___________ to __________
Commission File Number: 0-2585
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
( | ||||||||||||||
| (Address of principal executive offices) | (zip code) | (Registrant's telephone number, including area code) | ||||||||||||
| Not Applicable | ||||||||||||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. R Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). R Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||||||||
| o | Smaller reporting company | ||||||||||||||||
| Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) ☐ Yes R No
The number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date.
| Class | Outstanding as of November 3, 2023 | |||||||
| Common Stock, $3 Par Value | ||||||||
| Class B Common Stock, $3 Par Value | ||||||||
| Class C Common Stock, $3 Par Value | ||||||||
THE DIXIE GROUP, INC.
Table of Contents
| PART I. FINANCIAL INFORMATION | Page | |||||||||||||
| Item 1. | Financial Statements | |||||||||||||
| Item 2. | ||||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | ||||||||||||||
| PART II. OTHER INFORMATION | ||||||||||||||
| Item 1. | ||||||||||||||
| Item 1A. | ||||||||||||||
| Item 2. | ||||||||||||||
| Item 3. | ||||||||||||||
| Item 4. | ||||||||||||||
| Item 5. | ||||||||||||||
| Item 6. | ||||||||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | (Unaudited) | ||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid and other current assets | |||||||||||
| Current assets of discontinued operations | |||||||||||
| TOTAL CURRENT ASSETS | |||||||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | |||||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | |||||||||||
| OTHER ASSETS | |||||||||||
| LONG-TERM ASSETS OF DISCONTINUED OPERATIONS | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of long-term debt | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current liabilities of discontinued operations | |||||||||||
| TOTAL CURRENT LIABILITIES | |||||||||||
| LONG-TERM DEBT, NET | |||||||||||
| OPERATING LEASE LIABILITIES | |||||||||||
| OTHER LONG-TERM LIABILITIES | |||||||||||
| LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 17) | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Common Stock ($ | |||||||||||
Class B Common Stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| TOTAL STOCKHOLDERS' EQUITY | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | |||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| NET SALES | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| GROSS PROFIT | |||||||||||||||||||||||
| Selling and administrative expenses | |||||||||||||||||||||||
| Other operating (income) expense, net | ( | ( | |||||||||||||||||||||
| Facility consolidation and severance expenses, net | |||||||||||||||||||||||
| OPERATING LOSS | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE TAXES | ( | ( | ( | ( | |||||||||||||||||||
| Income tax provision (benefit) | ( | ( | |||||||||||||||||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ( | ( | ( | |||||||||||||||||||
| Loss from discontinued operations, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| NET LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| BASIC EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Discontinued operations | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| BASIC SHARES OUTSTANDING | |||||||||||||||||||||||
| DILUTED EARNINGS (LOSS) PER SHARE: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Discontinued operations | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| DILUTED SHARES OUTSTANDING | |||||||||||||||||||||||
| DIVIDENDS PER SHARE: | |||||||||||||||||||||||
| Common Stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| NET LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | |||||||||||||||||||||||
| Reclassification of gain into earnings from interest rate swaps (1) | ( | ||||||||||||||||||||||
| Income taxes | ( | ||||||||||||||||||||||
| Reclassification of gain into earnings from interest rate swaps, net | ( | ||||||||||||||||||||||
| Reclassification of unrealized loss into earnings from dedesignated interest rate swaps (1) | |||||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Reclassification of unrealized loss into earnings from dedesignated interest rate swaps, net | |||||||||||||||||||||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans (2) | ( | ( | ( | ||||||||||||||||||||
| Income taxes | |||||||||||||||||||||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans, net | ( | ( | ( | ||||||||||||||||||||
| TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | ( | ( | |||||||||||||||||||||
| COMPREHENSIVE LOSS | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1) Amounts for cash flow hedges reclassified from accumulated other comprehensive income to net loss were included in interest expense in the Company's consolidated condensed statements of operations.
(2) Amounts for postretirement plans reclassified from accumulated other comprehensive income to net loss were included in selling and administrative expenses in the Company's consolidated condensed statements of operations.
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
| Nine Months Ended | |||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Loss from continuing operations | $ | ( | $ | ( | |||||||
| Loss from discontinued operations | ( | ( | |||||||||
| Net loss | ( | ( | |||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Benefit for deferred income taxes | ( | ||||||||||
| Net gain on property, plant and equipment disposals | ( | ( | |||||||||
| Stock-based compensation expense | |||||||||||
| Expense for expected credit losses | |||||||||||
| Gain on extinguishment of debt | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | ( | ||||||||||
| Inventories | ( | ||||||||||
| Prepaid and other current assets | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Other operating assets and liabilities | |||||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | ( | ||||||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES - DISCONTINUED OPERATIONS | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Net proceeds from sales of property, plant and equipment | |||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||
| Cash paid for investment in joint venture | ( | ||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ( | |||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net borrowings (payments) on revolving credit facility | ( | ||||||||||
| Borrowings on notes payable - buildings | |||||||||||
| Payments on notes payable - buildings and other term loans | ( | ( | |||||||||
| Payments on notes payable - equipment and other | ( | ( | |||||||||
| Payments on finance leases | ( | ( | |||||||||
| Change in outstanding checks in excess of cash | ( | ||||||||||
| Repurchases of Common Stock | ( | ( | |||||||||
| Payments for debt issuance costs | ( | ||||||||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ( | ||||||||||
| DECREASE IN CASH AND CASH EQUIVALENTS | ( | ( | |||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Interest paid for financing leases | |||||||||||
| Income taxes paid, net of (tax refunds) | ( | ||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||||||
| Equipment purchased under finance lease | |||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(amounts in thousands, except share data)
| Common Stock | Class B Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Repurchases of Common Stock - | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
Class B converted into Common Stock - | ( | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Cumulative effect of CECL adoption | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Restricted stock grants issued - | ( | — | — | ||||||||||||||||||||||||||||||||
Restricted stock grants forfeited - | ( | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Common Stock | Class B Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at December 25, 2021 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Repurchases of Common Stock - | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
Restricted stock grants issued - | ( | — | — | ||||||||||||||||||||||||||||||||
Restricted stock grants forfeited - | ( | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at March 26, 2022 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Restricted stock grants issued - | ( | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at June 25, 2022 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
Repurchases of Common Stock - | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at September 24, 2022 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial statements which do not include all the information and notes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (generally consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Dixie Group, Inc.'s and its wholly-owned subsidiaries (the "Company") 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2022. The balance sheet as of December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. Operating results for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the entire 2023 year.
Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering. The Company's Floorcovering products have similar economic characteristics and are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.
The consolidated condensed financial statements separately report discontinued operations and the results of continuing operations. Unless specifically noted otherwise, footnote disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in Note 20.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further amended by additional accounting standards updates issued by the FASB. The new standard replaced the incurred loss impairment methodology for recognizing credit losses with a new methodology that requires recognition of lifetime expected credit losses when a financial asset is originated or purchased, even if the risk of loss is remote. The new methodology (referred to as the current expected credit losses model, or "CECL") applies to most financial assets measured at amortized cost, including trade receivables, and requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses. The Company adopted the new standard effective January 1, 2023 using a modified retrospective transition approach, with the cumulative impact of $198 recorded as an increase in the accumulated deficit.
NOTE 3 - REVENUE
Revenue Recognition Policy
The Company derives its revenues primarily from the sale of floorcovering products and processing services. Revenues are recognized when control of these products or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. The Company determined revenue recognition through the following steps:
•Identification of the contract with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the performance obligation is satisfied
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by end-user markets for the three and nine month periods ended September 30, 2023 and September 24, 2022:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Residential floorcovering products | $ | $ | $ | $ | |||||||||||||||||||
| Other services | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
Residential floorcovering products. Residential floorcovering products include broadloom carpet, rugs, luxury vinyl flooring and engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets.
Other services. Other services include carpet yarn processing and carpet dyeing services.
Contract Balances
Other than receivables that represent an unconditional right to consideration, which are presented in Note 4, the Company does not recognize any contract assets which give conditional rights to receive consideration, because the Company does not incur costs to obtain customer contracts that are recoverable. The Company often receives cash payments from customers in advance of the Company’s performance for limited production run orders resulting in contract liabilities. These contract liabilities are classified in accrued expenses in the consolidated condensed balance sheets based on the timing of when the Company expects to recognize revenue, which is typically less than a year. The net decrease or increase in the contract liabilities is primarily driven by order activity for limited runs requiring deposits offset by the recognition of revenue and the application of deposit on the receivables ledger for such activity during the period.
The activity in the advanced deposits for the three and nine month periods ended September 30, 2023 and September 24, 2022 is as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Beginning contract liability | $ | $ | $ | $ | |||||||||||||||||||
| Revenue recognized from contract liabilities included in the beginning balance | ( | ( | ( | ( | |||||||||||||||||||
| Increases due to cash received, net of amounts recognized in revenue during the period | |||||||||||||||||||||||
| Ending contract liability | $ | $ | $ | $ | |||||||||||||||||||
Performance Obligations
For performance obligations related to residential floorcovering products, control transfers at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point and FOB Destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products or services.
Variable Consideration
The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on product returns, price concessions or achieving certain levels of sales activity.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. Estimates of variable consideration are based upon historical experience and known trends.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Warranties
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products for a period of up to two years . The Company accrues for estimated future assurance warranty costs in the period in which the sale is recorded. The costs are included in cost of sales in the consolidated condensed statements of operations and the product warranty reserve is included in accrued expenses in the consolidated condensed balance sheets. The Company calculates its accrual using the portfolio approach based upon historical experience and known trends. The Company does not provide an additional service-type warranty.
NOTE 4 - RECEIVABLES, NET
The Company grants credit to its customers with defined payment terms, performs ongoing evaluations of the credit worthiness of its customers and generally does not require collateral. Accounts receivable are carried at their outstanding principal amounts, less an anticipated amount for discounts and an allowance for expected credit losses. The Company's allowance for credit losses is computed using a number of factors including past credit loss experience and the aging of amounts due from our customers, in addition to other customer-specific factors. The Company also considered recent trends and developments related to the current macroeconomic environment in determining its ending allowance for credit losses for accounts receivable. If the financial condition of the Company's customers were to deteriorate, resulting in a change in their ability to make payments, or additional changes in macroeconomic factors occur, additional allowances may be required. Receivables are summarized as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Customers, trade | $ | $ | |||||||||
| Other receivables | |||||||||||
| Gross receivables | |||||||||||
Less: allowance for expected credit losses (1) | ( | ( | |||||||||
| Receivables, net | $ | $ | |||||||||
(1)The Company adopted the new standard, ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2023 using a modified retrospective transition approach, with the cumulative impact being $388 from continuing operations. The Company recognized an expense to the provision for expected credit losses of $49 and $21 and recognized write-offs, net of recoveries of $21 and $82 for the three and nine months ended September 30, 2023, respectively.
NOTE 5 - INVENTORIES, NET
Inventories are summarized as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Supplies and other | |||||||||||
| LIFO reserve | ( | ( | |||||||||
| Inventories, net | $ | $ | |||||||||
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Assets under construction | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation of property, plant and equipment, including amounts for finance leases, totaled $1,684 and $4,832 in the three and nine months ended September 30, 2023, respectively and $1,959 and $5,933 in the three and nine months ended September 24, 2022, respectively.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Compensation and benefits | $ | $ | |||||||||
| Provision for customer rebates, claims and allowances | |||||||||||
| Advanced customer deposits | |||||||||||
| Outstanding checks in excess of cash | |||||||||||
| Other | |||||||||||
| Accrued expenses | $ | $ | |||||||||
NOTE 8 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Revolving credit facility | $ | $ | |||||||||
| Term loans | |||||||||||
| Notes payable - buildings | |||||||||||
| Notes payable - equipment and other | |||||||||||
| Finance lease - buildings | |||||||||||
| Finance lease obligations | |||||||||||
| Deferred financing costs, net | ( | ( | |||||||||
| Total debt | |||||||||||
| Less: current portion of long-term debt | |||||||||||
| Long-term debt | $ | $ | |||||||||
Revolving Credit Facility
On October 30, 2020, the Company entered into a $75,000 Senior Secured Revolving Credit Facility with Fifth Third Bank National Association as lender. The loan is secured by a first priority security interest on all accounts receivable, cash, and inventory, and provides for borrowing limited by certain percentages of values of the accounts receivable and inventory. The revolving credit facility matures on October 30, 2025.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
At the Company's election, advances of the revolving credit facility bear interest at annual rates equal to either (a) SOFR (plus a 0.10 % SOFR adjustment) for 1 or 3 month periods, as defined with a floor of 0.75 % or published SOFR, plus an applicable margin ranging between 1.50 % and 2.00 %, or (b) the higher of the prime rate 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. The applicable margin can be increased by 0.50 % if the fixed charge coverage ratio is below a 1.10 to 1.00 ratio. As of September 30, 2023, the applicable margin on the Company's revolving credit facility was 2.50 % for SOFR and 1.50 % for Prime due to the fixed charge coverage ratio being below 1.10 to 1.00. The Company pays an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to 0.25 % per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 8.08 % at September 30, 2023 and 6.81 % at December 31, 2022.
The agreement is subject to customary terms and conditions and annual administrative fees with pricing varying on excess availability and a fixed charge coverage ratio. The agreement is also subject to certain compliance, affirmative, and financial covenants. The Company is only subject to the financial covenants if borrowing availability is less than $9,013 , which is equal to 12.5 % of the lesser of the total loan availability of $75,000 or total collateral available, and remains until the availability is greater than 12.5 % for consecutive days. As of September 30, 2023, the unused borrowing availability under the revolving credit facility was $15,855 .
Term Loans
Effective October 28, 2020, the Company entered into a $10,000 principal amount USDA Guaranteed term loan with AmeriState Bank as lender. The term of the loan is 25 years and bears interest at a minimum 5.00 % rate or 4.00 % above 5-year treasury, to be reset every 5 years at 3.5 % above 5-year treasury. The loan is secured by a first mortgage on the Company’s Atmore, Alabama and Roanoke, Alabama facilities and requires certain compliance, affirmative, and financial covenants.
Effective October 29, 2020, the Company entered into a $15,000 principal amount USDA Guaranteed term loan with the Greater Nevada Credit Union as lender. The term of the loan is 10 years and bears interest at a minimum 5.00 % rate or 4.00 % above 5-year treasury, to be reset after 5 years at 3.5 % above 5-year treasury. Payments on the loan are interest only over the first three years and principal and interest over the remaining seven years . The loan is secured by a first lien on a substantial portion of the Company’s machinery and equipment and a second lien on the Company’s Atmore and Roanoke facilities. The loan requires certain compliance, affirmative, and financial covenants.
Notes Payable - Buildings
On March 16, 2022, the Company entered into a twenty year $11,000 note payable to refinance its existing note payable on its distribution facility in Adairsville, GA (the "Property"). The refinanced note payable bears interest at a fixed annual rate of 3.81 %. Concurrent with the closing of this note, the Company paid off the existing loans secured by the Property in the amount of $5,456 and terminated an existing interest rate swap agreement. The refinanced note is secured by the Property and a guarantee of the Company.
Debt Covenant Compliance and Liquidity Considerations
The Company's agreements for its Revolving Credit Facility and its term loans include certain compliance, affirmative, and financial covenants and, as of the reporting date, the Company is in compliance with all such applicable financial covenants or has obtained an appropriate waiver for such applicable financial covenants.
In the Company's self-assessment of going concern, with reflection on the Company's operating loss in 2022, the Company considered its future ability to comply with the financial covenants in its existing debt agreements. ASU 2014-15 as issued by the FASB requires Company management to perform a going concern self-assessment each annual and interim reporting period. In performing its evaluation, management considered known and reasonably knowable information as of the reporting date. The Company also considered the significant unfavorable impact if it were unable to maintain compliance with financial covenants by its primary lenders. As part of the evaluation, the Company considered cost reductions that began in 2022 related to its change to lower cost raw materials, decreased freight expense on imported goods and cost reductions implemented under its East Coast Consolidation Plan, as well as plans for the sale and leaseback of existing assets. The financial statements do not include any adjustments that might result from the outcome of the uncertainty of the ability to maintain compliance with the financial covenants.
Notes Payable - Equipment and Other
On September 15, 2023, the Company entered into a debt amendment on an existing debt arrangement for manufacturing equipment that was previously set to mature on September 30, 2023. The Company's amended equipment and other financing
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
note has a term of 1 year, 3 months , bears interest at 7.84 % and is due in monthly installments through its maturity date. The Company's equipment and other financing note does not contain any financial covenants.
In accordance with ASC Topic No. 470, “Debt – Modifications and Extinguishments” (Topic 470), the amendment noted above was determined to be an extinguishment of the existing debt and an issuance of new debt resulting in the addition of a non-cash financing activity of $919 and the removal of a non-cash financing activity of $1,544 . As a result, we recorded a gain on the extinguishment of debt in the amount of $625 within “Other income, net ” in our consolidated condensed statements of operations.
Finance Lease - Buildings
On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland, Alabama (the “Property”) to the Purchaser for a purchase price of $11,500 . Concurrent with the sale of the Property, the Company and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of $977 , subject to annual rent increases of 1.25 %. Under the Lease Agreement, the Company has two (2 ) consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale and leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.
Finance Lease Obligations
The Company's finance lease obligations are due in monthly installments through their maturity dates. The Company's finance lease obligations are secured by the specific equipment leased.
NOTE 9 - LEASES
Leases as Lessee
Balance sheet information related to right-of-use assets and liabilities is as follows:
| Balance Sheet Location | September 30, 2023 | December 31, 2022 | ||||||||||||
| Operating Leases: | ||||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | $ | |||||||||||
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | $ | $ | |||||||||||
| Noncurrent portion of operating lease liabilities | Operating lease liabilities | |||||||||||||
| Total operating lease liabilities | $ | $ | ||||||||||||
| Finance Leases: | ||||||||||||||
Finance lease right-of-use assets (1) | $ | $ | ||||||||||||
Current portion of finance lease liabilities (1) | $ | $ | ||||||||||||
Noncurrent portion of finance lease liabilities (1) | ||||||||||||||
| Total financing lease liabilities | $ | $ | ||||||||||||
(1) Includes leases classified as failed sale-leaseback transactions.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Lease cost recognized in the consolidated condensed financial statements is summarized as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||||
Amortization of lease assets (1) | $ | $ | $ | $ | ||||||||||||||||||||||
Interest on lease liabilities (1) | ||||||||||||||||||||||||||
Total finance lease costs (1) | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Includes leases classified as failed sale-leaseback transactions.
Other supplemental information related to leases is summarized as follows:
| September 30, 2023 | September 24, 2022 | |||||||||||||
| Weighted average remaining lease term (in years): | ||||||||||||||
| Operating leases | ||||||||||||||
Finance leases (1) | ||||||||||||||
| Weighted average discount rate: | ||||||||||||||
| Operating leases | % | % | ||||||||||||
Finance leases (1) | % | % | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | $ | ||||||||||||
Operating cash flows from finance leases (1) | ||||||||||||||
Financing cash flows from finance leases (1) | ||||||||||||||
(1) Includes leases classified as failed sale-leaseback transactions.
The following table summarizes the Company's future minimum lease payments under non-cancellable contractual obligations for operating and financing liabilities as of September 30, 2023:
| Fiscal Year | Operating Leases | Finance Leases | |||||||||
| 2023 | $ | $ | |||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total future minimum lease payments (undiscounted) | |||||||||||
| Less: Present value discount | |||||||||||
| Total lease liability | $ | $ | |||||||||
Leases as Lessor
The Company leases or subleases certain excess space in its facilities to third parties, which are included as fixed assets. The leases are accounted for as operating leases and the lease or sublease income is included in other operating (income) expense, net. The Company recognizes lease income on a straight-line basis as collectability is probable, including any escalation or lease incentives, as applicable, and the Company continues to recognize the underlying asset. The Company has elected the practical
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
expedient to combine all non-lease components as a combined component. The nature of the Company’s sublease agreements do not provide for variable lease payments, options to purchase, or extensions.
Lease income and sublease income related to fixed lease payments recognized in the consolidated condensed financial statements is summarized as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||
| Operating lease income | $ | $ | $ | $ | ||||||||||||||||||||||
The following table summarizes the Company's undiscounted lease payments to be received under operating leases including amounts to be paid by the Company to the head lessor for the next five years and thereafter as of September 30, 2023:
| Fiscal Year | Gross Lease Payments | Payments to Head Lessor | Net Lease Payments | ||||||||
| 2023 | $ | $ | $ | ||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total | $ | $ | $ | ||||||||
NOTE 10 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;
Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or other means; and
Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant management judgment or estimation.
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | ||||||||||||||||||||
| Amount | Value | Amount | Value | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Long-term debt, including current portion | $ | $ | $ | $ | |||||||||||||||||||
| Finance leases, including current portion | |||||||||||||||||||||||
The fair values of the Company's long-term debt and finance leases were estimated using market rates the Company believes would be available for similar types of financial instruments and represent level 2 measurements. The fair values of cash and cash equivalents approximate their carrying amounts due to the short-term nature of the financial instruments.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 11 - DERIVATIVES
The Company's earnings, cash flows and financial position are exposed to market risks relating to interest rates. It is the Company's policy to minimize its exposure to adverse changes in interest rates and manage interest rate risks inherent in funding the Company with debt. The Company addresses this risk by maintaining a mix of fixed and floating rate debt and evaluating opportunities to enter into interest rate swaps for portions of its variable rate debt to minimize interest rate volatility. As of September 30, 2023, the Company had no interest rate swaps outstanding.
The following tables summarize the pre-tax impact of derivative instruments on the Company's consolidated condensed financial statements:
| Amount of Gain (Loss) Reclassified from AOCIL on the effective portion into Earnings (1) | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Cash flow hedges - interest rate swaps | $ | $ | $ | $ | ( | ||||||||||||||||||
| Amount of Gain or (Loss) Recognized on the Dedesignated Portion in Income on Derivative (2) | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Derivatives dedesignated as hedging instruments: | |||||||||||||||||||||||
| Cash flow hedges - interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
(1)The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's consolidated condensed financial statements.
(2)The amount of gain (loss) recognized in income on the dedesignated and terminated portions of interest rate swaps is included in interest expense on the Company's consolidated condensed statements of operations.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers approximately 98 % of the Company's current associates. This plan includes a mandatory Company match on the first 1 % of participants' contributions. The Company matches the next 2 % of participants' contributions if the Company meets prescribed earnings levels. The plan also provides for additional Company contributions above the 3 % level if the Company attains certain additional performance targets. Matching contribution expense for this 401(k) plan was $63 and $94 for the three months ended September 30, 2023 and September 24, 2022, respectively and $230 and $189 for the nine months ended September 30, 2023 and September 24, 2022, respectively.
Additionally, the Company sponsors a 401(k) defined contribution plan that covers associates at one facility who are under a collective-bargaining agreement. The number of associates under the plan represents approximately 2 % of the Company's total current associates. Under this plan, the Company generally matches participants' contributions, on a sliding scale, up to a maximum of 2.75 % of the participant's earnings. Matching contribution expense for the collective-bargaining 401(k) plan was $2 and $14 for the three months ended September 30, 2023 and September 24, 2022, respectively and $8 and $60 for the nine months ended September 30, 2023 and September 24, 2022, respectively.
Non-Qualified Retirement Savings Plan
The Company sponsors a non-qualified retirement savings plan that allows eligible associates to defer a specified percentage of their compensation. The obligations for continuing operations owed to participants under this plan were $12,804 at September 30, 2023 and $12,346 at December 31, 2022 and are included in other long-term liabilities in the Company's consolidated condensed balance sheets. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the cash surrender value of the policies for continuing operations was $13,396 at September 30, 2023 and $12,296 at December 31, 2022 and is included in other assets in the Company's consolidated condensed balance sheets.
Multi-Employer Pension Plan
The Company contributes to a multi-employer pension plan under the terms of a collective-bargaining agreement that covers its union-represented employees. Expenses related to the multi-employer pension plan were $6 and $38 for the three months ended September 30, 2023 and September 24, 2022, respectively and $16 and $141 for the nine months ended September 30, 2023 and September 24, 2022, respectively. If the Company were to withdraw from the multi-employer plan, a withdrawal liability would be due, the amount of which would be determined by the plan. The withdrawal liability, as determined by the plan, would be a function of contribution rates, fund status, discount rates and various other factors at the time of any such withdrawal.
NOTE 13 - INCOME TAXES
TE 13 - INCOME TAXES
The effective income tax rate for the nine months ending September 30, 2023 was 3.04 % compared with a benefit rate of 0.59 % for the nine months ending September 24, 2022. Because the Company maintains a full valuation allowance against its deferred income tax balances, the Company is only able to recognize refundable credits and a small amount of state taxes in the tax expense for the first nine months of 2023. The Company is in a net deferred tax liability position of $91
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $549 and $518 at September 30, 2023 and December 31, 2022, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no
The Company and its subsidiaries are subject to United States federal income taxes, as well as income taxes in a number of state jurisdictions. The tax years subsequent to 2018 remain open to examination for U.S. federal income taxes. The majority of state jurisdictions remain open for tax years subsequent to 2018. A few state jurisdictions remain open to examination for tax years subsequent to 2017.
NOTE 14 - EARNINGS (LOSS) PER SHARE
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Basic earnings (loss) per share: | |||||||||||||||||||||||
| Loss from continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: Allocation of earnings to participating securities | |||||||||||||||||||||||
| Loss from continuing operations available to common shareholders - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Basic weighted-average shares outstanding (1) | |||||||||||||||||||||||
| Basic earnings (loss) per share - continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| Loss from continuing operations available to common shareholders - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Add: Undistributed earnings reallocated to unvested shareholders | |||||||||||||||||||||||
| Loss from continuing operations available to common shareholders - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Basic weighted-average shares outstanding (1) | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options (2) | |||||||||||||||||||||||
| Directors' stock performance units (2) | |||||||||||||||||||||||
| Diluted weighted-average shares outstanding (1)(2) | |||||||||||||||||||||||
| Diluted earnings (loss) per share - continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1)Includes Common and Class B Common shares, excluding unvested participating securities of 732 thousand as of September 30, 2023 and 944 thousand as of September 24, 2022.
(2)Shares issuable under stock option plans where the exercise price is greater than the average market price of the Company's Common Stock during the relevant period and directors' stock performance units have been excluded to the extent they are anti-dilutive. There were 574 thousand and 130 thousand aggregate shares excluded for the three and nine months ended September 30, 2023 and September 24, 2022, respectively.
NOTE 15 - STOCK-BASED COMPENSATION EXPENSE
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity instrument issued and records such expense in selling and administrative expenses in the Company's consolidated condensed statements of operations. The Company's stock compensation expense was $182 and $207 for the three months ended September 30, 2023 and September 24, 2022, respectively. The Company's stock compensation expense was $550 and $559 for the nine months ended September 30, 2023 and September 24, 2022, respectively.
On May 3, 2023, the Company issued 40,000 shares of restricted stock to the Company's non-employee directors. The grant-date fair value of the awards was $28 , or $0.70 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 1.0 year from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
On May 25, 2023, the Company granted 444,000 options with a market condition to certain key employees of the Company at a weighted-average exercise price of $1.00 . The grant-date fair value of these options was $186 . These options vest over a -year period and require the Company's stock to trade at or above $3.00 for five consecutive trading days during the term of the option to meet the market condition.
The fair value of each option was estimated on the date of grant using a lattice model. Expected volatility was based on historical volatility of the Company's stock, using the most recent period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield for a term equal to the expected life of the option at the time of grant. The Company uses historical exercise behavior data of similar employee groups to determine the expected life of the options.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following weighted-average assumptions were used to estimate the fair value of stock options granted during nine months ended September 30, 2023:
| Risk-free interest rate | % | |||||||
| Expected volatility | % | |||||||
| Expected dividends | % | |||||||
| Expected life of options | ||||||||
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive income, net of tax, are as follows:
| Post-Retirement Liabilities | |||||||||||||||||
| Balance at December 31, 2022 | $ | ||||||||||||||||
| Reclassification of net actuarial gain into earnings from postretirement benefit plans | ( | ||||||||||||||||
| Balance at September 30, 2023 | $ | ||||||||||||||||
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Contingencies
The Company assesses its exposure related to legal matters, including those pertaining to product liability, safety and health matters and other items that arise in the regular course of its business. If the Company determines that it is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded. The Company has not identified any legal matters that could have a material adverse effect on its consolidated condensed results of operations, financial position or cash flows.
Environmental Remediation
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and estimable. Remediation obligations are accrued based on the latest available information and are recorded at undiscounted amounts. The Company regularly monitors the progress of environmental remediation. If studies indicate that the cost of remediation has changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such determination is made (see Note 20).
NOTE 18 - OTHER (INCOME) EXPENSE, NET
Other operating (income) expense, net is summarized as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Other operating (income) expense, net: | |||||||||||||||||||||||
| Gain on property, plant and equipment disposals | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| (Gain) loss on currency exchanges | ( | ||||||||||||||||||||||
| Retirement expense | |||||||||||||||||||||||
| Insurance proceeds | ( | ( | |||||||||||||||||||||
| Lease income | ( | ( | |||||||||||||||||||||
| Miscellaneous (income) expense | ( | ||||||||||||||||||||||
| Other operating (income) expense, net | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Included in the $622 and $634 other income, net for the three and nine months ended September 30, 2023 is a gain of $625 related to an extinguishment of a debt arrangement.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 19 - FACILITY CONSOLIDATION AND SEVERANCE EXPENSES, NET
2022 Consolidation of East Coast Manufacturing Plan
During 2022, the Company implemented a plan to consolidate its East Coast manufacturing in order to reduce its manufacturing costs. Under this plan, the Company consolidated its East Coast tufting operations into one plant in North Georgia, relocated the distribution of luxury vinyl flooring from its Saraland, Alabama facility to its Atmore, Alabama facility and identified space in its Saraland, Alabama and Atmore, Alabama facilities as available for lease or sublease. Costs for the plan include machinery and equipment relocation, inventory relocation, staff reductions and unabsorbed fixed costs during conversion of the Atmore facility.
2020 COVID-19 Continuity Plan
As the extent of the COVID-19 pandemic became apparent, the Company implemented a continuity plan to maintain the health and safety of associates, preserve cash, and minimize the impact on customers. The response included restrictions on travel, implementation of telecommuting where appropriate and limiting contact and maintaining social distancing between associates and with customers. Cost reductions were implemented including cutting non-essential expenditures, reducing capital expenditures, rotating layoffs and furloughs, selected job eliminations and temporary salary reductions.
Costs related to the facility consolidation plans are summarized as follows:
| As of September 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Accrued Balance at December 31, 2022 | 2023 Expenses To Date (1) | 2023 Cash Payments | Accrued Balance at September 30, 2023 | Total Costs Incurred To Date | Total Expected Costs | |||||||||||||||||||||||||||||||||
| Consolidation of East Coast Manufacturing Plan | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| COVID-19 Continuity Plan | ||||||||||||||||||||||||||||||||||||||
| Total All Plans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Asset Impairments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Accrued Balance at December 25, 2021 | 2022 Expenses To Date (1) | 2022 Cash Payments | Accrued Balance at September 24, 2022 | |||||||||||||||||||||||||||||||||||
| Consolidation of East Coast Manufacturing Plan | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| COVID-19 Continuity Plan | ||||||||||||||||||||||||||||||||||||||
| Totals | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Asset Impairments | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(1) Costs incurred under these plans are classified as "facility consolidation and severance expenses, net" in the Company's consolidated
condensed statements of operations.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 20 - DISCONTINUED OPERATIONS
The Company has either sold or discontinued certain operations that are accounted for as "Discontinued Operations" under applicable accounting guidance. Discontinued operations are summarized as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Loss from discontinued operations: | |||||||||||||||||||||||
| Workers' compensation costs from former textile operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Environmental remediation costs from former textile operations | ( | ( | ( | ( | |||||||||||||||||||
| Commercial business operations | ( | ( | ( | ( | |||||||||||||||||||
| Loss from discontinued operations, before taxes | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Income tax benefit | ( | ( | |||||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Workers' compensation costs from former textile operations
Undiscounted reserves are maintained for the self-insured workers' compensation obligations related to the Company's former textile operations. These reserves are administered by a third-party workers' compensation service provider under the supervision of Company personnel. Such reserves are reassessed on a quarterly basis. Pre-tax cost incurred for workers' compensation as a component of discontinued operations primarily represents a change in estimate for each period from unanticipated medical costs associated with the Company's obligations.
Environmental remediation costs from former textile operations
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has an accrual for environmental remediation obligations related to discontinued operations of $2,205 as of September 30, 2023 and $2,205 as of December 31, 2022. The liability established represents the Company's best estimate of possible loss and is the reasonable amount to which there is any meaningful degree of certainty given the periods of estimated remediation and the dollars applicable to such remediation for those periods. The actual timeline to remediate, and thus, the ultimate cost to complete such remediation through these remediation efforts, may differ significantly from the Company's estimates. Pre-tax cost for environmental remediation obligations classified as discontinued operations were primarily a result of specific events requiring action and additional expense in each period.
Commercial business operations
On September 13, 2021, the Company sold assets that included certain inventory, certain items of machinery and equipment used exclusively in the Commercial Business, and related intellectual property. The Company retained the Commercial Business’ cash deposits, all accounts receivable, and certain inventory and equipment. Additionally, the Company agreed not to compete with the specified commercial business and the Atlas|Masland markets for a period of 5 years following September 13, 2021. The Company was allowed to sell the commercial inventory retained by the Company after the divestiture.
At closing, $2,100 of the proceeds were withheld and deposited in escrow to cover any claims arising with respect to the Commercial business for which the Company may be liable. The $2,100 was agreed to be released to the Company (net of claims paid, if any) in two installments with 50 % of the escrow paid in 90 days from closing and the remaining amount paid 18 months from the closing date. As of September 30, 2023, the Company had received payment for both installments.
In order to release liens on certain fixed assets included in the Asset Purchase Agreement, the Company placed $2,100 in cash collateral in an account with the lender (Greater Nevada Credit Union). In the first quarter of 2023, the lender released the funds to the Company.
The Company reclassified the following assets and liabilities for discontinued operations in the accompanying consolidated condensed balance sheets:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Current Assets of Discontinued Operations: | |||||||||||
| Receivables, net | $ | $ | |||||||||
| Inventories, net | |||||||||||
| Prepaid expenses | |||||||||||
| Current Assets Held for Discontinued Operations | $ | $ | |||||||||
| Long Term Assets of Discontinued Operations: | |||||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
| Operating lease right of use assets | |||||||||||
| Other assets | |||||||||||
| Long Term Assets Held for Discontinued Operations | $ | $ | |||||||||
| Current Liabilities of Discontinued Operations: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current Liabilities Held for Discontinued Operations | $ | $ | |||||||||
| Long Term Liabilities of Discontinued Operations: | |||||||||||
| Other long term liabilities | $ | $ | |||||||||
| Long Term Liabilities Held for Discontinued Operations | $ | $ | |||||||||
For the three and nine months ended September 30, 2023 and September 24, 2022, the Company reclassified the following operations of the Commercial business included in discontinued operations in the accompanying consolidated condensed statements of operations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | ( | ( | ( | ||||||||||||||||||||
| Selling and administrative expenses | |||||||||||||||||||||||
| Other operating (income) expense, net | ( | ||||||||||||||||||||||
| Loss from discontinued Commercial business operations | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
NOTE 21 - RELATED PARTY TRANSACTIONS
Item 2. 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 condensed financial statements and related notes appearing elsewhere in this report.
FORWARD-LOOKING INFORMATION
This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include the use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such forward-looking statements relate to, among other matters, our future financial performance, business prospects, growth strategies or liquidity. The following important factors may affect our future results and could cause those results to differ materially from our historical results; these factors include, in addition to those “Risk Factors” detailed in item 1A of this report, and described elsewhere in this document, the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant customer or group of customers, the ability to attract, develop and retain qualified personnel, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.
OVERVIEW
Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end customers through our various sales forces and brands. We focus primarily 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. Dixie International sells all of our brands outside of the North American market.
Historically, we participated in the upper end specified commercial flooring marketplace through our Atlas | Masland Contract brand. On September 13, 2021, we sold our Commercial business. The results of our Commercial business activity are included in discontinued operations in the included financial statements.
RESULTS OF OPERATIONS
The following tables provide information derived from our unaudited condensed consolidated financial statements for the periods indicated. Percentages used are expressed as a percent of net sales. The discussion that follows each table should be read in conjunction with our unaudited condensed consolidated financial statements as well as our 2022 Annual Report on Form 10-K for the year ended December 31, 2022.
Three Months Ended September 30, 2023 Compared with the Three Months Ended September 24, 2022
Net Sales from Continuing Operations
| Three Months Ended | |||||||||||||||||
| ($ in thousands) | September 30, 2023 | September 24, 2022 | Inc./(Dec.) | Inc./(Dec.) | |||||||||||||
| Net Sales | $ | 68,576 | $ | 71,762 | (3,186) | (4.4)% | |||||||||||
For the third quarter of 2023, our net sales from continuing operations decreased 4.4% compared with the third quarter of 2022. The lower net sales were partially attributed to a decrease in sales of existing homes, and associated remodeling activity, in the United States market driven by higher interest rates.
| Three Months Ended | |||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Cost of sales | 73.4 | % | 82.5 | % | |||||||
| Gross profit | 26.6 | % | 17.5 | % | |||||||
| Selling and administrative expenses | 27.3 | % | 25.9 | % | |||||||
| Other operating (income) expenses, net | (0.2) | % | 0.2 | % | |||||||
| Facility consolidation and severance expenses, net | 0.8 | % | 1.3 | % | |||||||
| Operating loss | (1.3) | % | (9.9) | % | |||||||
Gross Profit
Gross profit as a percentage of net sales was 26.6% in the third quarter of 2023 compared with 17.5% in the third quarter of 2022. The higher gross profit percentage in 2023 was primarily driven by decreases in raw material costs, headcount reductions throughout the company, cost reductions resulting from facility consolidations, and improved operational efficiencies in our manufacturing facilities. The lower gross profit percentage in 2022 was driven by increases in raw material costs and the conversion from Invista to other raw material suppliers. The decision, in the fourth quarter of 2021, by our primary raw material provider, Invista, to exit the business had a significant negative impact on our gross margins in the third quarter of 2022.
Selling and Administrative Expenses
Selling and administrative expenses were $18.7 million, or 27.3% of net sales, in the third quarter of 2023 compared with $18.6 million, or 25.9% of the higher net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales increased in the third quarter of 2023 as compared to the third quarter of 2022 primarily due to higher samples and marketing expenses and lower sales volume in the third quarter of 2023.
Other Operating (Income) Expense, Net
Net other operating (income) expense was $147 thousand of income in the third quarter of 2023 compared with $113 thousand of expense in the third quarter of 2022. The increase in other operating income was a result of the lease revenue from excess warehouse capacity and lower retirement expenses in 2023.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the third quarter of 2023 were $552 thousand compared with $968 thousand expense in the third quarter of 2022. The expenses in the third quarter of 2023 and 2022 related to our restructuring plan for the consolidation of our east coast manufacturing.
Other Income, Net
Net other income was $622 thousand in the third quarter of 2023 compared with $2 thousand in the third quarter of 2022. Net other income included a gain of $625 thousand related to an extinguishment of a debt arrangement.
Operating Loss
We reported an operating loss of $913 thousand in the third quarter of 2023 compared with an operating loss of $7.2 million in the third quarter of 2022. Improved operating margins as the result of efficiencies in manufacturing operations driven by facility consolidations and cost reductions had a significant favorable impact on our results in the third quarter of 2023.
Interest Expense
Interest expense increased $493 thousand in the third quarter of 2023 compared with the third quarter of 2022. The increase is primarily the result of increased borrowings on our senior credit line and rising interest rates on our variable rate debt.
Income Tax Provision (Benefit)
We recorded an income tax expense from continuing operations of $125 thousand in the third quarter of 2023 compared to an income tax benefit of $78 thousand in the third quarter of 2022.
The effective income tax rate for the three months ending September 30, 2023 was 6.00% compared with a benefit rate of 0.92% for the three months ending September 24, 2022. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the third quarter of 2023 and 2022. We are in a net deferred tax liability position of $91 thousand at September 30, 2023 and December 31, 2022, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $549 thousand and $518 thousand at September 30, 2023 and December 31, 2022, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of September 30, 2023 and December 31, 2022.
Net Loss
Continuing operations reflected a loss of $2.2 million, or $0.15 per diluted share, in the third quarter of 2023 compared with a loss of $8.4 million, or $0.55 per diluted share, in the same period in 2022. The loss from discontinued operations was $183 thousand in the third quarter of 2023 compared to a loss of $408 thousand in the third quarter of 2022. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 24, 2022
Net Sales from Continuing Operations
| Nine Months Ended | |||||||||||||||||
| ($ in thousands) | September 30, 2023 | September 24, 2022 | Inc./(Dec.) | Inc./(Dec.) | |||||||||||||
| Net Sales | $ | 209,669 | $ | 233,034 | (23,365) | (10.0)% | |||||||||||
For the first nine months of 2023, our net sales from continuing operations decreased 10.0% compared with the first nine months of 2022. In the second quarter of 2022, our largest retail customer changed strategies to a focus on lower price point products which prevented us from participating. The loss in net sales related to this account for the comparative periods was $7.7 million. Additionally, lower sales of existing homes in the United States market, driven by higher interest rates, had an unfavorable impact on sale volume in the first nine months of 2023.
| Nine Months Ended | |||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Cost of sales | 73.4 | % | 81.2 | % | |||||||
| Gross profit | 26.6 | % | 18.8 | % | |||||||
| Selling and administrative expenses | 25.9 | % | 23.5 | % | |||||||
| Other operating (income) expenses, net | (0.2) | % | 0.1 | % | |||||||
| Facility consolidation and severance expenses, net | 1.1 | % | 0.4 | % | |||||||
| Operating loss | (0.2) | % | (5.2) | % | |||||||
Gross Profit
Gross profit as a percentage of net sales was 26.6% in the first nine months of 2023 compared with 18.8% in the first nine months of 2022. The higher gross profit percentage in 2023 was primarily driven by decreases in raw material costs, headcount reductions throughout the company, cost reductions resulting from facility consolidations, and improved operational efficiencies in our manufacturing facilities. The lower gross profit percentage in 2022 was driven by increases in raw material costs and the conversion from Invista to other raw material suppliers. The decision, in the fourth quarter of 2021, by our primary raw material provider, Invista, to exit the business had a significant negative impact on our gross margins in the first nine months of 2022.
Selling and Administrative Expenses
Selling and administrative expenses were $54.2 million, or 25.9% of net sales, in the first nine months of 2023 compared with $54.9 million, or 23.5% of net sales, in the year earlier period. Selling and administrative expenses as a percentage of net sales increased in the first nine months of 2023 as compared to the first nine months of 2022 primarily due to higher samples and marketing expenses and lower sales volume in the first nine months of 2023.
Other Operating (Income) Expense, Net
Net other operating (income) expense was $313 thousand of income in the first nine months of 2023 compared with $258 thousand of expense in the first nine months of 2022. The increase in other operating income was a result of the receipt of insurance proceeds from the 2021 ransomware attack, lease revenue from excess warehouse capacity and lower retirement expenses in 2023.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the first nine months of 2023 were $2.3 million compared with $968 thousand of expense in the first nine months of 2022. The expenses in the first nine months of 2023 and 2022 related to our restructuring plan for the consolidation of our east coast manufacturing.
Other Income, Net
Net other income was $634 thousand in the first nine months of 2023 compared with $3 thousand in the third quarter of 2022. Net other income included a gain of $625 thousand related to an extinguishment of a debt arrangement.
Operating Loss
We reported an operating loss of $354 thousand in the first nine months of 2023 compared with an operating loss of $12.3 million in the first nine months of 2022. Improved operating margins as the result of efficiencies in manufacturing operations driven by facility consolidations and cost reductions had a significant favorable impact on our results in the first nine months of 2023.
Interest Expense
Interest expense increased $2.0 million in the first nine months of 2023 compared with the first nine months of 2022. The increase is primarily the result of increased borrowings on our senior credit line and rising interest rates on our variable rate debt.
Income Tax Provision (Benefit)
We recorded an income tax expense from continuing operations of $159 thousand in the first nine months of 2023 compared to an income tax benefit of $94 thousand in the first nine months of 2022.
The effective income tax rate for the nine months ending September 30, 2023 was 3.04% compared with a benefit rate of 0.59% for the nine months ending September 24, 2022. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the first nine months of 2023 and 2022. We are in a net deferred tax liability position of $91 thousand at September 30, 2023 and December 31, 2022, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $549 thousand and $518 thousand at September 30, 2023 and December 31, 2022, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of September 30, 2023 and December 31, 2022.
Net Loss
Continuing operations reflected a loss of $5.4 million, or $0.36 per diluted share, in the first nine months of 2023 compared with a loss of $15.7 million, or $1.04 per diluted share, in the same period in 2022. The loss from discontinued operations was $496 thousand in the first nine months of 2023 compared to a loss of $890 thousand in the first nine months of 2022. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2023, cash provided by operating activities in continuing operations was $5.0 million. An increase in accounts receivable used $3.3 million during the first nine months of 2023. Prepaid and other current assets used $2.0 million primarily as a result of deferred sample and marketing expenses. A decrease in inventory generated $3.8 million and an increase in accounts payable and accrued expenses generated $6.1 million primarily driven by the quarter end timing of payments based on supplier terms. Improved operating margins as a result of efficiencies in manufacturing operations driven by facility consolidations and cost reductions had a significant favorable impact on our results in the first nine months of 2023.
Purchases of capital assets for the nine months September 30, 2023 resulted in a $763 thousand cash out flow to the business primarily for purchase of production equipment. Depreciation and amortization for the nine months ended September 30, 2023 were $5.0 million. We expect capital expenditures to be approximately $3.0 million in 2023 while depreciation and amortization is expected to be approximately $6.3 million. Planned capital expenditures in 2023 are primarily for new equipment.
During the nine months ended September 30, 2023, cash used in financing activities was $3.3 million. We had net payments on our revolving credit facility of $528 thousand and net payments on notes payable and financing leases of $2.5 million.
We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. We have specifically considered the impact of continued operating losses on our liquidity position and our ability to comply with financial covenants by our primary lenders. As part of our evaluation, we considered cost reductions that began in 2022 related to our change to lower cost raw materials, decreased freight expense on imported goods and cost reductions implemented under our East Coast Consolidation Plan, as well as plans for the sale and leaseback of existing assets. Availability under our Senior Secured Revolving Credit Facility on September 30, 2023 was $15.9 million. Significant additional cash expenditures above our normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources. There can be no assurance that a sale leaseback transaction, other such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us. We cannot predict, and are unable to know, the long-term impact of the COVID-19 pandemic and the related economic consequences or how these events may affect our future liquidity.
Changes to Critical Accounting Policies
Our critical accounting policies were outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 2 to the consolidated condensed financial statements.
Item 3. 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.
At September 30, 2023, $75,643, or approximately 79% of our total debt, was subject to short-term 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 $756. Included in the $75,643, is the amount outstanding for term loans of $24,376. Both loans are currently set to bear interest of 5% for five years. Every five years, these rates will be reset to reflect the then current 5-year treasury rate plus a margin. A one-hundred basis point fluctuation in the interest rates applicable to this floating rate debt would have an annual after-tax impact of approximately $244. See Note 8 to the consolidated condensed financial statements for further discussion of these loans.
Item 4. 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 September 30, 2023, the date of the financial statements included in this Form 10-Q (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.
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 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
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.
Our financial condition and results of operations have been and could likely be adversely impacted in the future by COVID-19 or other pandemics and the related negative impact on economic conditions.
Global and/or local pandemics, such as COVID-19, have negatively impacted areas where we operate and sell our products and services. The COVID-19 outbreak in the second quarter of 2020 had a material adverse effect on our ability to operate and our results of operations as public health organizations recommended, and many governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Although the accessibility of vaccines and other preventive measures have lessened the impact, new variants may necessitate a return of such restrictive, preventive measures which may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services. These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.
The floorcovering industry is sensitive to changes in general economic conditions and a decline in residential activity or home 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 interest rate levels, consumer confidence and income, corporate and government spending, availability of credit and demand for housing. We derive a majority of our sales from the replacement segment of the market. Therefore, unfavorable economic changes, such as an economic recession, could result in a significant or prolonged decline in spending for remodeling and replacement activities which could have a material adverse effect on our business and results of operations.
The residential floorcovering market is highly dependent on housing activity, including remodeling. The U.S. and global economies, along with the residential markets in such economies, can negatively impact the floorcovering industry and our business. Although the impact of a decline in new housing activity is typically accompanied by an increase in remodeling and replacement activity, these activities typically lag during a cyclical downturn. Additional or extended downturns could cause prolonged deterioration. A significant or prolonged decline in residential housing 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 recent past sales were generated through a certain mass merchant retailer. A change in strategy by this customer to emphasize products at a lower price point than we currently offer has limited future sales opportunities with this customer. In response to this loss in sales volume and other factors, we implemented our restructuring plan to consolidate our east coast manufacturing operations to better match production demand. If we are unable to maintain volume in line with expected production capacity, any excess capacity in the manufacturing facilities could result in an unfavorable impact on gross margins due to under absorbed fixed costs.
We have significant levels of indebtedness that could result in negative consequences to us.
We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability, or the value of our assets securing our loans could have a material adverse effect on our ability to generate sufficient funds to satisfy the terms of our senior loan agreements and other debt obligations. Additionally, the inability to access debt or equity markets at competitive rates in sufficient amounts to satisfy our obligations could adversely impact our business. Significant increases in interest rates tied to
our floating rate debt could have a material adverse effect on the Company's financial results. Further, our trade relations depend on our economic viability and insufficient capital could harm our ability to attract and retain customers and or supplier relationships.
Uncertainty in the credit market or downturns in the economy and our business could affect our overall availability and cost of credit.
Economic factors, including an economic recession, could have a material adverse effect on demand for our products and on our financial condition and operating results. Uncertainty in the credit markets could affect the availability and cost of credit. If banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents to the extent those funds are not insured or otherwise protected by the FDIC. Market conditions could impact our ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness. The cost and terms of such financing is uncertain. Continued operating losses could affect our ability to continue to access the credit markets under our current terms and conditions.
If we are not able to maintain a minimum bid price of $1 per share for our common stock, we may be subject to delisting from The NASDAQ Stock Market.
NASDAQ Marketplace Rule 5550(a)(2) requires that, for continued listing on the exchange, we must maintain a minimum bid price of $1 per share. We received notice from NASDAQ on September 27, 2023 that our closing bid price was below $1 per share for 30 consecutive business days. If we are not able to regain compliance before March 25, 2024, we may be eligible for an additional 180 days provided we meet other listing requirements. To the extent that we are unable to stay in compliance with the relevant NASDAQ bid price listing rule, there is a risk that our common stock may be delisted from NASDAQ, which would adversely impact liquidity of our common stock and potentially result in even lower bid prices for our common stock.
Our stock price has been and could remain volatile, which could further adversely affect the market price of our stock, our ability to raise additional capital.
The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress in restructuring our business, our quarterly operating results, our perceived prospects, lack of securities analysts’ recommendations or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic relationships, significant sales of our common stock by existing stockholders, and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. Such market price volatility could adversely affect our ability to raise additional capital.
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 prices and cost of our products. As a result of any of these factors, there could be a material adverse effect on our sales and profitability.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our net revenues and profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain products may make it hard for us to quickly respond to changes in consumer demands. 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 will vary and the inability to either offset or pass on such cost increases or avoid passing on decreases larger than the cost decrease to our customers could have a material adverse effect on our business, results of operations and financial condition.
We require substantial amounts of raw materials to produce our products, including nylon and polyester yarn, as well as wool yarns, synthetic backing, latex, and dyes. Substantially all of the raw materials we require are purchased from outside sources. The prices of raw materials and fuel-related costs have increased significantly due to market conditions and inflationary pressures, the duration and extent of which is difficult to predict. The fact that we source a significant amount of raw materials means that several months of raw materials and work in process are moving through our supply chain at any point in time. We are sourcing the majority of our new luxury vinyl flooring and wood product lines from overseas. We are not able to predict whether commodity costs will significantly increase or decrease in the future. If commodity costs continue to 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.
Disruption to suppliers of raw materials could have a material adverse effect on us.
Nylon yarn is the principal raw material used in our floorcovering products. One of the leading fiber suppliers within the industry had been the exclusive supplier of certain branded fibers upon which we formerly relied. Access to these branded fibers is no longer available. We have developed and are developing products and product offerings using fiber systems from other fiber suppliers, but there can be no certainty as to the success of our efforts to develop and market such products. Additionally, the supply of all nylon yarn and yarn systems has been negatively impacted by a variety of overall market factors. The cost of nylon yarns has risen significantly and availability of nylon yarns has been restricted. Our efforts to develop alternate sources and to diversify our yarn suppliers has been met with success to date; however, supply constraints may impact our ability to successfully develop products and effectively service our customers. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material adverse effect on our business. We continually evaluate our sources of yarn and other raw materials for competitive costs, performance characteristics, brand value, and diversity of supply.
We rely on information systems in managing our operations and any system failure or deficiencies of such systems may have an adverse effect on our business.
Our businesses rely on sophisticated systems to obtain, rapidly process, analyze and manage data. We rely on these systems to, among other things, facilitate the purchase, manufacture and distribution of our products; receive, process and ship orders on a timely basis; and to maintain accurate and up-to-date operating and financial data for the compilation of management information. We rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer. Any damage by unforeseen events or system failure which causes interruptions to the input, retrieval and transmission of data or increase in the service time, whether caused by human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, various forms of cybercrimes including and not limited to hacking, ransomware, intrusions and malware or otherwise, could disrupt our normal operations. Depending upon the severity of the incident, there can be no assurance that we can effectively carry out our disaster recovery plan to handle a 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.
On April 17, 2021, we detected a ransomware attack on portions of our information technology systems. We initiated recovery efforts and implemented additional security measures in response. All companies are subject to such attacks by cyber criminals as they become more frequent and their ability to circumvent security measures become more sophisticated.
The long-term performance of our business relies on our ability to attract, develop and retain qualified personnel.
To be successful, we must attract, develop and retain qualified and talented personnel in management, sales, marketing, product design and operations. We compete with other floorcovering companies for these employees and invest resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect our business, financial condition and results of operations.
We are subject to various governmental actions that may interrupt our supply of materials.
We import most of our luxury vinyl flooring ("LVF"), some of our wood offering, some of our rugs and broadloom offerings. Though currently a small part of our business, the growth in LVF products is an important product offering to provide our customers a complete selection of flooring alternatives. There have been trade proposals that threatened these product categories with added tariffs which would make our offerings less competitive compared to those manufactured in other countries or produced domestically. These proposals, if enacted, or if expanded, or imposed for a significant period of time, would materially interfere with our ability to successfully enter into these product categories and could have a material adverse effect upon the company's cost of goods and results of operations.
Regulatory efforts to monitor political, social, and environmental conditions in foreign countries that produce products or components of products purchased by the Company will necessarily add complexity and cost to the Company’s products and processes and may reduce the availability of certain products. Regulatory efforts to prevent or reduce the risk that certain flooring products or elements of such products are produced in regions where forced or involuntary labor are known or believed to occur will result in increased cost to the Company as it attempts to ensure that none of its products or components of its products are produced in such regions. Such increased cost may make the Company’s products less competitive.
We may experience certain risks associated with internal expansion, acquisitions, joint ventures and strategic investments.
We continually look for strategic and tactical initiatives, including internal expansion, acquisitions and investment in new products, to strengthen our future and to enable us to return to sustained growth and to achieve profitability. Growth through expansion and acquisition involves risks, many of which may continue to affect us after the acquisition or expansion. An acquired company, operation or internal expansion may not achieve the levels of revenue, profitability and production that we expect. The combination of an acquired company’s business with ours involves risks. Further, internally generated growth that involves expansion involves risks as well. Such risks include the integration of computer systems, alignment of human resource policies and the retention of valued talent. Reported earnings may not meet expectations because of goodwill and intangible asset impairment, other asset impairments, increased interest costs and issuance of additional securities or debt as a result of these acquisitions. We may also face challenges in consolidating functions and integrating our organizations, procedures, operations and product lines in a timely and efficient manner.
The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate an acquisition with our existing operations or expansion of our existing operations could lead to the potential loss of customers of the acquired or existing business, the potential loss of employees who may be vital to the new or existing operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if integration occurs successfully, failure of the expansion or acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of operations.
We are subject to various environmental, safety and health regulations that may subject us to costs, liabilities and other obligations, which could have a material adverse effect on our business, results of operations and financial condition.
We are subject to various environmental, safety and health and other regulations that may subject us to costs, liabilities and other obligations which could have a material adverse effect on our business. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. We could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased costs of our operations. Additionally, future laws, ordinances, regulations or regulatory guidelines could give rise to additional compliance or remediation costs that could have a material adverse effect on our business, results of operations and financial condition. For example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our business.
The Environmental Protection Agency has declared an intent to focus on perceived risks posed by certain chemicals (principally PFOA and PFOAS) previously used by the carpet industry. New or revised regulatory actions could result in requirements that industry participants, including the Company, incur costs related to testing and clean up of areas affected by such chemical usage. Other chemicals or materials historically used by the industry and the Company could become the focus of similar governmental action.
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.
The Company is a manufacturer and distributor of flooring products which require processes and materials that necessarily utilize substantial amounts of carbon-based energy and accordingly involve the emission of “greenhouse gasses.” Regulatory monitoring, reporting and, more generally, efforts to eliminate or substantially reduce “greenhouse gasses” will necessarily add complexity and cost to the Company’s products and processes decreasing profitability and consumer demand. Additionally, consumer preferences may be affected by publicly announced issues related to “greenhouse gasses” which may negatively affect demand for the Company’s products. There can be no assurance that the Company can cost effectively respond to any such regulatory efforts or that demand for the Company’s products can be sustained under such pressures.
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Common Stock
The following table provides information regarding our repurchases of our Common Stock Shares during the three months ended September 30, 2023:
| Fiscal Month Ending | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or approximate dollar value) of Shares That May Yet Be Purchased Under Plans or Programs (2) | ||||||||||||||||||||||
| August 5, 2023 | — | $ | — | — | ||||||||||||||||||||||
| September 2, 2023 | — | — | — | |||||||||||||||||||||||
| September 30, 2023 | — | — | — | |||||||||||||||||||||||
| Three Months Ended September 30, 2023 | — | $ | — | — | $ | — | ||||||||||||||||||||
(1) We had no active programs to repurchase shares from the market.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
(a.)Exhibits
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
SIGNATURES
Pursuant to the requirements 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.
| THE DIXIE GROUP, INC. | ||||||||
| (Registrant) | ||||||||
| Date: November 13, 2023 | By: /s/ Allen L. Danzey | |||||||
| Allen L. Danzey Vice President and Chief Financial Officer | ||||||||
EXHIBIT 31.1
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel K. Frierson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dixie Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 13, 2023 | /s/ DANIEL K. FRIERSON | |||||||
| Daniel K. Frierson | ||||||||
| Chief Executive Officer | ||||||||
| The Dixie Group, Inc. | ||||||||
EXHIBIT 31.2
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Allen L. Danzey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Dixie Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: November 13, 2023 | /s/ ALLEN L. DANZEY | |||||||
| Allen L. Danzey | ||||||||
| Chief Financial Officer | ||||||||
| The Dixie Group, Inc. | ||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Dixie Group, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel K. Frierson, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ DANIEL K. FRIERSON | ||
| Daniel K. Frierson, Chief Executive Officer | ||
| Date: November 13, 2023 | ||
A signed original of this written statement required by Section 906 has been provided to The Dixie Group, Inc. and will be retained by The Dixie Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Dixie Group, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Allen L. Danzey, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ ALLEN L. DANZEY | ||
| Allen L. Danzey, Chief Financial Officer | ||
| Date: November 13, 2023 | ||
A signed original of this written statement required by Section 906 has been provided to The Dixie Group, Inc. and will be retained by The Dixie Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.