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Form 10-Q DIXIE GROUP INC For: Jun 25

August 8, 2022 4:39 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549
 
Form 10-Q
 
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 25, 2022
OR

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

Commission File Number: 0-2585

dxyn-20220625_g1.jpg

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  R Yes  o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). R Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  
Large accelerated filero Accelerated filero
Non-accelerated Filer
o(Do not check if a smaller reporting company) 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 August 5, 2022
Common Stock, $3 Par Value 15,059,215 shares
Class B Common Stock, $3 Par Value 1,129,158 shares
Class C Common Stock, $3 Par Value 0 shares







THE DIXIE GROUP, INC.

Table of Contents
PART I.  FINANCIAL INFORMATIONPage
    
 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)
 June 25, 2022December 25, 2021
ASSETS(Unaudited)
CURRENT ASSETS
Cash and cash equivalents$893 $1,471 
Receivables, net36,031 40,291 
Inventories, net86,984 82,739 
Prepaids and other current assets12,430 9,925 
Current assets of discontinued operations2,480 5,991 
TOTAL CURRENT ASSETS138,818 140,417 
  
PROPERTY, PLANT AND EQUIPMENT, NET47,678 48,658 
OPERATING LEASE RIGHT-OF-USE ASSETS21,038 22,534 
OTHER ASSETS17,169 21,138 
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS2,063 2,752 
TOTAL ASSETS$226,766 $235,499 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES  
Accounts payable$19,246 $16,748 
Accrued expenses21,382 26,214 
Current portion of long-term debt1,910 3,361 
Current portion of operating lease liabilities2,512 2,528 
Current liabilities of discontinued operations3,337 5,362 
TOTAL CURRENT LIABILITIES48,387 54,213 
LONG-TERM DEBT, NET83,465 73,701 
OPERATING LEASE LIABILITIES19,460 20,692 
OTHER LONG-TERM LIABILITIES12,672 16,030 
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS3,825 4,488 
TOTAL LIABILITIES167,809 169,124 
COMMITMENTS AND CONTINGENCIES (See Note 17)
STOCKHOLDERS' EQUITY  
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and outstanding - 15,059,215 shares for 2022 and 14,792,647 shares for 2021
45,178 44,378 
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 1,129,158 shares for 2022 and 1,004,975 shares for 2021
3,387 3,015 
Additional paid-in capital156,742 157,658 
Accumulated deficit(146,550)(138,706)
Accumulated other comprehensive income200 30 
TOTAL STOCKHOLDERS' EQUITY58,957 66,375 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$226,766 $235,499 

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 EndedSix Months Ended
 June 25, 2022June 26, 2021June 25, 2022June 26, 2021
As AdjustedAs Adjusted
NET SALES$83,698 $89,982 $161,273 $162,729 
Cost of sales67,642 67,416 130,041 123,290 
GROSS PROFIT16,056 22,566 31,232 39,439 
Selling and administrative expenses18,855 16,894 36,268 32,698 
Other operating (income) expense, net136 33 146 35 
Facility consolidation and severance expenses, net 71  96 
OPERATING INCOME (LOSS)(2,935)5,568 (5,182)6,610 
Interest expense1,081 1,242 2,196 2,571 
Other income, net  (1)(1)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES(4,016)4,326 (7,377)4,040 
Income tax provision (benefit)3 563 (16)535 
INCOME (LOSS) FROM CONTINUING OPERATIONS(4,019)3,763 (7,361)3,505 
Loss from discontinued operations, net of tax(468)(414)(483)(2,184)
NET INCOME (LOSS)$(4,487)$3,349 $(7,844)$1,321 
BASIC EARNINGS (LOSS) PER SHARE:   
Continuing operations$(0.26)$0.24 $(0.48)$0.22 
Discontinued operations(0.03)(0.03)(0.03)(0.14)
Net income (loss)$(0.29)$0.21 $(0.51)$0.08 
BASIC SHARES OUTSTANDING15,225 15,119 15,184 15,102 
DILUTED EARNINGS (LOSS) PER SHARE:   
Continuing operations$(0.26)$0.24 $(0.48)$0.22 
Discontinued operations(0.03)(0.03)(0.03)(0.14)
Net income (loss)$(0.29)$0.21 $(0.51)$0.08 
DILUTED SHARES OUTSTANDING15,225 15,249 15,184 15,232 
DIVIDENDS PER SHARE:   
Common Stock$ $ $ $ 
Class B Common Stock    

See accompanying notes to the consolidated condensed financial statements. 
Table of Contents    4    






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

 Three Months EndedSix Months Ended
 June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
NET INCOME (LOSS)$(4,487)$3,349 $(7,844)$1,321 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gain (loss) on interest rate swaps 5  43 
Income taxes    
Unrealized gain (loss) on interest rate swaps, net 5  43 
Reclassification of (gain) loss into earnings from interest rate swaps (1) 222 (7)443 
Income taxes 64 (2)128 
Reclassification of (gain) loss into earnings from interest rate swaps, net 158 (5)315 
Reclassification of unrealized loss into earnings from dedesignated interest rate swaps (2)  210  
Income taxes  33  
Reclassification of unrealized loss into earnings from dedesignated interest rate swaps, net  177  
Reclassification of net actuarial gain into earnings from postretirement benefit plans (2) (6)(2)(12)
Income taxes    
Reclassification of net actuarial gain into earnings from postretirement benefit plans, net (6)(2)(12)
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX 157 170 346 
COMPREHENSIVE INCOME (LOSS)$(4,487)$3,506 $(7,674)$1,667 

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


See accompanying notes to the consolidated condensed financial statements.
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THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
 Six Months Ended
 June 25,
2022
June 26,
2021
As Adjusted
CASH FLOWS FROM OPERATING ACTIVITIES  
Income (Loss) from continuing operations$(7,361)$3,505 
Income (Loss) from discontinued operations(483)(2,184)
Net income (loss)(7,844)1,321 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Depreciation and amortization 4,069 4,534 
Provision for deferred income taxes(47)(128)
Stock-based compensation expense351 204 
Bad debt expense57 26 
Changes in operating assets and liabilities:  
Receivables4,202 (10,240)
Inventories(4,245)(7,641)
Prepaids and other current assets(2,506)2,795 
Accounts payable and accrued expenses(1,481)12,511 
Other operating assets and liabilities1,071 (380)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES(5,890)5,186 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES - DISCONTINUED OPERATIONS1,029 (1,955)
CASH FLOWS FROM INVESTING ACTIVITIES  
Purchase of property, plant and equipment(2,994)(1,800)
NET CASH USED IN INVESTING ACTIVITIES(2,994)(1,800)
NET CASH USED IN INVESTING ACTIVITIES - DISCONTINUED OPERATIONS (189)
CASH FLOWS FROM FINANCING ACTIVITIES  
Net borrowings on revolving credit facility4,997 3,132 
Borrowings on notes payable - buildings11,000  
Payments on notes payable - buildings and other term loans(5,651)(294)
Payments on notes payable - equipment and other(1,213)(1,669)
Payments on finance leases(681)(1,480)
Change in outstanding checks in excess of cash(853)(396)
Repurchases of Common Stock(95)(57)
Payments for debt issuance costs(227) 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES7,277 (764)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(578)478 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD1,471 1,920 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$893 $2,398 
SUPPLEMENTAL CASH FLOW INFORMATION:  
Interest paid$1,414 $1,372 
Interest paid for financing leases718 770 
Income taxes paid, net of tax refunds55 80 
Equipment purchased under notes payable 174 

See accompanying notes to the consolidated condensed financial statements.





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


 Common StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal Stockholders' Equity
Balance at December 25, 2021$44,378 $3,015 $157,658 $(138,706)$30 $66,375 
Repurchases of Common Stock - 35,160 shares
(105)— 10 — — (95)
Restricted stock grants issued - 284,954 shares
580 274 (854)— —  
Restricted stock grants forfeited - 2,000 shares
(6)— 6 — —  
Stock-based compensation expense— — 154 — — 154 
Net loss— — — (3,357)— (3,357)
Other comprehensive income— — — — 170 170 
Balance at March 26, 2022$44,847 $3,289 $156,974 $(142,063)$200 $63,247 
Restricted stock grants issued - 142,957 shares
331 98 (429)— —  
Stock-based compensation expense— — 197 — — 197 
Net loss— — — (4,487)— (4,487)
Balance at June 25, 2022$45,178 $3,387 $156,742 $(146,550)$200 $58,957 


 Common StockClass B Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Balance at December 26, 2020$43,672 $2,641 $158,329 $(140,321)$(530)$63,791 
Repurchases of Common Stock - 17,359 shares
(52)— (4)— — (56)
Restricted stock grants issued - 347,680 shares
669 374 (1,043)— —  
Restricted stock grants forfeited - 7,477 shares
(22)— 18 — — (4)
Stock-based compensation expense— — 75 — — 75 
Net loss— — — (2,028)— (2,028)
Other comprehensive income— — —  189 189 
Balance at March 27, 2021$44,267 $3,015 $157,375 $(142,349)$(341)$61,967 
Common Stock issued under Directors' Stock Plan - 40,000
120 — (120)— —  
Stock-based compensation expense— — 129 — — 129 
Net income— — — 3,349 — 3,349 
Other comprehensive income— — — — 157 157 
Balance at June 26, 2021$44,387 $3,015 $157,384 $(139,000)$(184)$65,602 

See accompanying notes to the consolidated condensed financial statements.


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

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") 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 25, 2021. Operating results for the three and six month periods ended June 25, 2022 are not necessarily indicative of the results that may be expected for the entire 2022 year.

Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering.
On September 13, 2021, the Company acting by and through its wholly owned operating subsidiary, TDG Operations, LLC, sold its Atlas|Masland commercial business (the “Commercial Business”). We have classified the related assets and liabilities associated with our Commercial Business as held for discontinued operations in our consolidated balance sheet. The results of our Commercial Business have been presented as discontinued operations in our consolidated statement of operations for all periods presented as the sale represents a shift in our business that has a major effect on our operations and financial results. Prior to the consummation of the sale, the Company was neither actively marketing the business for sale nor had intentions to abandon the Commercial Business and as a result did not present the results as assets held for sale or discontinued operations in prior filings. Interest expense and general and administrative expenses were not allocated to discontinued operations. Our consolidated financial statements and disclosures as of and for three and six month periods ended June 26, 2021 have been adjusted to reflect such discontinued operations classifications. See Note 20 for further detail of the Company’s discontinued operations reporting.

Unless specifically noted otherwise, footnote disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in footnote 20.



NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Yet to Be Adopted

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which amends the impairment model to utilize an expected loss methodology in place of the current incurred loss methodology, which will result in the more timely recognition of losses. For smaller reporting entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The ASU, including the subsequently issued codification improvements update ("Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," ASU 2019-04) and the targeted transition relief update ("Financial Instruments-Credit Losses (Topic 326)," ASU 2019-05), is not expected to have a significant impact on the consolidated financial statements due to the nature of the Company's customers and the limited amount of write-offs in past years.


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
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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 six month periods ended June 25, 2022 and June 26, 2021:

Three Months EndedSix Months Ended
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
As AdjustedAs Adjusted
Residential floorcovering products, continuing operations$81,967 $89,223 $157,485 $161,401 
Commercial floorcovering products, discontinued operations2,480 14,851 7,489 28,405 
Other services, continuing operations1,731 759 3,788 1,328 
Total net sales, continuing and discontinued operations$86,178 $104,833 $168,762 $191,134 


Residential floorcovering products. Residential floorcovering products include broadloom carpet, rugs, luxury vinyl flooring and engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets.

Commercial floorcovering products. Commercial floorcovering products include broadloom carpet, carpet tile, rugs, and luxury vinyl flooring. These products are sold into the corporate, hospitality, healthcare, government, and education markets through the use of designers, architects, flooring contractors and independent retailers.

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

Contract Balances

Other than receivables that represent an unconditional right to consideration, which are presented in Note 4, the Company does not recognize any contract assets which give conditional rights to receive consideration, as the Company does not incur costs to obtain customer contracts that are recoverable. The Company often receives cash payments from customers in advance of the Company’s performance for limited production run orders resulting in contract liabilities. These contract liabilities are classified in accrued expenses in the Consolidated Condensed Balance Sheets based on the timing of when the Company expects to recognize revenue, which is typically less than a year. The net decrease or increase in the contract liabilities is primarily driven by order activity for limited runs requiring deposits offset by the recognition of revenue and application of deposit on the receivables ledger for such activity during the period.

The activity in the advanced deposits for the three and six month periods ended June 25, 2022 and June 26, 2021 is as follows:

Three Months EndedSix Months Ended
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
As AdjustedAs Adjusted
Beginning contract liability$1,298 $1,209 $1,285 $1,005 
Revenue recognized from contract liabilities included in the beginning balance(1,055)(875)(1,062)(819)
Increases due to cash received, net of amounts recognized in revenue during the period879 879 899 1,027 
Ending contract liability$1,122 $1,213 $1,122 $1,213 
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
Table of Contents    9    


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

delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products or services.

Variable Consideration

The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on achieving certain levels of sales activity, product returns, or price concessions.

Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends.

Warranties

The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products for a period of up to two years. The Company accrues for estimated future assurance warranty costs in the period in which the sale is recorded. The costs are included in Cost of Sales in the Consolidated Condensed Statements of Operations and the product warranty reserve is included in accrued expenses in the Consolidated Condensed Balance Sheets. The Company calculates its accrual using the portfolio approach based upon historical experience and known trends. The Company does not provide an additional service-type warranty.

NOTE 4 - RECEIVABLES, NET

Receivables are summarized as follows:
June 25,
2022
December 25,
2021
Customers, trade$32,624 $37,148 
Other receivables3,549 3,251 
Gross receivables36,173 40,399 
Less: allowance for doubtful accounts(142)(108)
Receivables, net$36,031 $40,291 

Bad debt expense was $18 for the three months ended June 25, 2022 and $16 for the three months ended June 26, 2021. Bad debt expense was $57 for the six months ended June 25, 2022 and $26 for the six months ended June 26, 2021.


NOTE 5 - INVENTORIES, NET

Inventories are summarized as follows:
June 25,
2022
December 25,
2021
Raw materials$34,576 $35,337 
Work-in-process17,308 15,186 
Finished goods64,791 62,592 
Supplies and other141 122 
LIFO reserve(29,832)(30,498)
Inventories, net$86,984 $82,739 

Table of Contents    10    


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:
June 25,
2022
December 25,
2021
Land and improvements$3,422 $3,422 
Buildings and improvements51,430 51,430 
Machinery and equipment158,457 158,248 
Assets under construction3,483 811 
216,792 213,911 
Accumulated depreciation(169,114)(165,253)
Property, plant and equipment, net$47,678 $48,658 

Depreciation of property, plant and equipment, including amounts for finance leases, totaled $1,975 and $3,974 in the three and six months ended June 25, 2022, respectively, and $2,200 and $4,535 in the three and six months ended June 26, 2021, respectively.

NOTE 7 - ACCRUED EXPENSES

Accrued expenses are summarized as follows:
June 25,
2022
December 25,
2021
Compensation and benefits$6,713 $10,703 
Provision for customer rebates, claims and allowances7,434 7,562 
Advanced customer deposits1,122 1,285 
Outstanding checks in excess of cash2,301 3,153 
Other3,812 3,511 
Accrued expenses$21,382 $26,214 

NOTE 8 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS

Long-term debt consists of the following:
June 25,
2022
December 25,
2021
Revolving credit facility$38,155 $33,158 
Term Loans24,673 24,781 
Notes payable - buildings10,939 5,484 
Notes payable - equipment and other394 1,607 
Finance lease - buildings10,728 10,873 
Finance lease obligations2,380 2,913 
Deferred financing costs, net(1,894)(1,754)
Total debt85,375 77,062 
Less: current portion of long-term debt1,910 3,361 
Long-term debt$83,465 $73,701 

Revolving Credit Facility

During the fourth quarter of 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.

Table of Contents    11    


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) LIBOR for 1, 2, or 3 month periods, as defined with a floor of 0.75% or published LIBOR, 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. As of June 25, 2022, the applicable margin on the Company's revolving credit facility was 1.75%. The Company pays an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to 0.25% per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 2.98% at June 25, 2022 and 3.00% at December 25, 2021.

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. As of the reporting date, the Company is in compliance with all such applicable financial covenants or obtained an appropriate waiver for such applicable financial covenants. The Company is only subject to the financial covenants if borrowing availability is less than $9,375, which is equal to 12.5% of the total loan availability of $75,000, and remains until the availability is greater than 12.5% for thirty consecutive days. As of June 25, 2022, the unused borrowing availability under the revolving credit facility was $32,636.

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. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, the Company is in compliance with all such 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. 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 and, as of the reporting date, the Company is in compliance with all such financial covenants. Payments on the loan are interest only over the first three years and principal and interest over the remaining seven years.

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 new note payable bears interest at a fixed annual rate of 3.81%. The note is secured by the property and a guarantee of the Company. The loan is subject to certain negative financial covenants and as of the reporting date the Company is in compliance with all such financial covenants. Concurrent with the closing of this note, the Company paid off existing loans secured by the Property in the amount of $5,456 and terminated an existing interest rate swap agreement.

Notes Payable - Equipment and Other

The Company's equipment financing notes have terms of up to 7 years, bear interest ranging from 2.54% to 3.09% and are due in monthly installments through their maturity dates. The Company's equipment financing notes are secured by the specific equipment financed and do not contain any financial covenants.

Finance Lease - Buildings

On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland, Alabama (the “Property”) to the Purchaser for a purchase price of $11,500. Concurrent with the sale of the Property, the Company and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of $977, subject to annual rent increases of 1.25%. Under the Lease Agreement, the Company has two (2) consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale and leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term. Concurrently with the sale, the Company paid off the approximately $5,000 mortgage on the property to First Tennessee Bank National Association and terminated the related fixed interest rate swap agreement.
Table of Contents    12    


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


Finance Lease Obligations

The Company's finance lease obligations are due in monthly or quarterly installments through their maturity dates. The Company's finance lease obligations are secured by the specific equipment leased.


NOTE 9 - LEASES
Balance sheet information related to right-of-use assets and liabilities is as follows:
Balance Sheet LocationJune 25, 2022December 25, 2021
Operating Leases:
Operating lease right-of-use assetsOperating lease right-of-use assets$21,038 $22,534 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities2,512 2,528 
Noncurrent portion of operating lease liabilitiesOperating lease liabilities19,460 20,692 
Total operating lease liabilities$21,972 $23,220 
Finance Leases:
Finance lease right-of-use assets (1)
Property, plant, and equipment, net$6,546 $10,111 
Current portion of finance lease liabilities (1)
Current portion of long-term debt899 1,104 
Noncurrent portion of finance lease liabilities (1)
Long-term debt12,209 12,683 
$13,108 $13,787 
(1) Includes leases classified as failed sale-leaseback transactions.

Lease cost recognized in the consolidated condensed financial statements is summarized as follows:
Three Months EndedSix Months Ended
June 25, 2022June 26, 2021June 25, 2022June 26, 2021
As AdjustedAs Adjusted
Operating lease cost$1,117 $1,158 $2,196 $2,548 
Finance lease cost:
     Amortization of lease assets (1)249 702 498 1,404 
     Interest on lease liabilities (1)361 379 718 770 
Total finance lease costs (1)$610 $1,081 $1,216 $2,174 
(1) Includes leases classified as failed sale-leaseback transactions.

Table of Contents    13    


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


Other supplemental information related to leases is summarized as follows:
June 25, 2022June 26, 2021
As Adjusted
Weighted average remaining lease term (in years):
     Operating leases7.237.76
     Finance leases (1)13.8013.03
Weighted average discount rate:
     Operating leases6.32 %6.82 %
     Finance leases (1)9.71 %9.56 %
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases1,964 2,280 
     Operating cash flows from finance leases (1)718 770 
     Financing cash flows from finance leases (1)681 1,480 
(1) Includes leases classified as failed sale-leaseback transactions.

The following table summarizes the Company's future minimum lease payments under non-cancellable contractual obligations for operating and financing liabilities as of June 25, 2022:

Fiscal YearOperating LeasesFinance Leases
20221,954 1,069 
20233,708 3,409 
20243,631 1,045 
20253,670 1,053 
20263,707 1,066 
Thereafter11,004 13,918 
Total future minimum lease payments (undiscounted)27,674 21,560