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 footnotes 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 Company's 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 26, 2015. Operating results for the three and nine month periods ended September 24, 2016 are not necessarily indicative of the results that may be expected for the entire 2016 year.
The Company has one reportable segment, carpet and rug manufacturing.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "
Revenue from Contracts with Customers (Topic 606)
". The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU and all subsequently issued clarifying ASUs will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14,
"Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date."
The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Management has not yet selected a transition method and is currently evaluating the impact of the pending adoption of this ASU on the Company’s Consolidated Condensed Financial Statements.
In August 2014, the FASB issued ASU No. 2014-15,
"Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern."
The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Condensed Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, "
Inventory (Topic 330): Simplifying the Measurement of Inventory.
" Topic 330 currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This ASU does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company measures substantially all inventories using the LIFO method; therefore, the Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Condensed Financial Statements.
In January 2016, the FASB issued ASU 2016-01,
"Financial Instruments─Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,"
which addresses the recognition, measurement, presentation and disclosure of financial assets and liabilities. The ASU primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not believe the adoption of this ASU will have a significant impact on the Consolidated Condensed Financial Statements.
In February 2016, the FASB issued ASU 2016-02, "
Leases (Topic 842),"
which requires lessees to recognize on the balance sheet a right-of use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Consolidated Condensed Financial Statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
In March 2016, the FASB issued ASU 2016-09, "
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,"
which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Consolidated Condensed Financial Statements.
In June 2016, the FASB issued ASU 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 currently used incurred loss methodology, which will result in the more timely recognition of losses. For public entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this ASU on the Consolidated Condensed Financial Statements.
In August 2016, the FASB issued ASU 2016-15,
"Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,"
which provides clarification guidance on certain cash flow presentation issues that have developed due to diversity in practice. These issues include certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. For public entities, ASU 2016-15 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Consolidated Condensed Financial Statements.
NOTE 3 - RECEIVABLES, NET
Receivables are summarized as follows:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Customers, trade
|
$
|
45,060
|
|
|
$
|
46,110
|
|
Other receivables
|
2,710
|
|
|
5,166
|
|
Gross receivables
|
47,770
|
|
|
51,276
|
|
Less: allowance for doubtful accounts
|
(202
|
)
|
|
(470
|
)
|
Receivables, net
|
$
|
47,568
|
|
|
$
|
50,806
|
|
Bad debt expense (credit) was
$25
and
$(70)
for the three and nine months ended September 24, 2016, respectively, and
$51
and
$110
for the three and nine months ended September 26, 2015, respectively.
NOTE 4 - INVENTORIES, NET
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Raw materials
|
$
|
37,790
|
|
|
$
|
46,164
|
|
Work-in-process
|
19,878
|
|
|
21,306
|
|
Finished goods
|
58,667
|
|
|
58,037
|
|
Supplies and other
|
119
|
|
|
192
|
|
LIFO reserve
|
(8,489
|
)
|
|
(10,553
|
)
|
Inventories, net
|
$
|
107,965
|
|
|
$
|
115,146
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Land and improvements
|
$
|
7,781
|
|
|
$
|
7,610
|
|
Buildings and improvements
|
62,032
|
|
|
61,396
|
|
Machinery and equipment
|
176,416
|
|
|
174,636
|
|
Assets under construction
|
2,493
|
|
|
2,819
|
|
|
248,722
|
|
|
246,461
|
|
Accumulated depreciation
|
(154,032
|
)
|
|
(145,315
|
)
|
Property, plant and equipment, net
|
$
|
94,690
|
|
|
$
|
101,146
|
|
Depreciation of property, plant and equipment, including amounts for capital leases, totaled
$3,264
and
$9,791
, respectively, in the three and nine months ended September 24, 2016 and
$3,503
and
$10,508
, respectively, in the three and nine months ended September 26, 2015.
NOTE 6 - GOODWILL AND OTHER INTANGIBLES
The carrying amount of goodwill is
$3,389
as of September 24, 2016 and December 26, 2015. The Company has a net carrying amount of
$2,843
and
$3,072
as of September 24, 2016 and December 26, 2015, respectively, for certain intangible assets subject to amortization. Amortization expense was
$76
for the three months ended September 24, 2016 and September 26, 2015, respectively. Amortization expense was
$229
for the nine months ended September 24, 2016 and September 26, 2015, respectively.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Compensation and benefits
|
$
|
8,328
|
|
|
$
|
9,173
|
|
Provision for customer rebates, claims and allowances
|
9,231
|
|
|
8,995
|
|
Advanced customer deposits
|
8,321
|
|
|
6,674
|
|
Outstanding checks in excess of cash
|
1,152
|
|
|
3,006
|
|
Other
|
8,816
|
|
|
6,490
|
|
Accrued expenses
|
$
|
35,848
|
|
|
$
|
34,338
|
|
NOTE 8 - PRODUCT WARRANTY RESERVES
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products. Product warranty reserves are included in accrued expenses in the Company's Consolidated Condensed Financial Statements. The following is a summary of the Company's product warranty activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
Product warranty reserve at beginning of period
|
$
|
2,214
|
|
|
$
|
2,115
|
|
|
$
|
2,159
|
|
|
$
|
2,214
|
|
Warranty liabilities accrued
|
1,537
|
|
|
1,430
|
|
|
4,574
|
|
|
4,707
|
|
Warranty liabilities settled
|
(1,583
|
)
|
|
(1,880
|
)
|
|
(5,128
|
)
|
|
(6,682
|
)
|
Changes for pre-existing warranty liabilities
|
(45
|
)
|
|
616
|
|
|
518
|
|
|
2,042
|
|
Product warranty reserve at end of period
|
$
|
2,123
|
|
|
$
|
2,281
|
|
|
$
|
2,123
|
|
|
$
|
2,281
|
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 9 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Revolving credit facility
|
$
|
76,692
|
|
|
$
|
80,569
|
|
Notes payable - buildings
|
13,332
|
|
|
13,881
|
|
Acquisition note payable - Development Authority of Gordon County
|
1,446
|
|
|
2,314
|
|
Acquisition note payable - Robertex
|
1,555
|
|
|
2,321
|
|
Notes payable - equipment and other
|
11,497
|
|
|
15,008
|
|
Capital lease obligations
|
11,992
|
|
|
12,751
|
|
Deferred financing costs, net
|
(889
|
)
|
|
(795
|
)
|
Total long-term debt
|
115,625
|
|
|
126,049
|
|
Less: current portion of long-term debt
|
9,230
|
|
|
10,142
|
|
Long-term debt
|
$
|
106,395
|
|
|
$
|
115,907
|
|
Revolving Credit Facility
On September 23, 2016, the Company amended its revolving credit facility to revise certain definitions and extend the maturity date from March 2019 to September 2021. The revolving credit facility provides for a maximum of
$150,000
of revolving credit, subject to borrowing base availability. The borrowing base is currently equal to specified percentages of the Company's eligible accounts receivable, inventories, fixed assets and real property less reserves established, from time to time, by the administrative agent under the facility. The revolving credit facility is secured by a first priority lien on substantially all of the Company's assets.
At the Company's election, advances of the revolving credit facility bear interest at annual rates equal to either (a) LIBOR for 1, 2 or 3 month periods, as selected by the Company, plus an applicable margin ranging between
1.50%
and
2.00%
, or (b) the higher of the prime rate, the Federal Funds rate plus
0.5%
, or a daily LIBOR rate plus
1.00%
, plus an applicable margin ranging between
0.50%
and
1.00%
. The applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability decreases, with the exception that the applicable margin cannot go below
1.75%
until after March 31, 2017. As of September 24, 2016, the applicable margin on our revolving credit facility was
1.75%
. The Company pays an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to
0.375%
per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was
4.09%
at September 24, 2016 and
3.12%
at December 26, 2015.
The revolving credit facility includes certain affirmative and negative covenants that impose restrictions on the Company's financial and business operations. The revolving credit facility requires the Company to maintain a fixed charge coverage ratio of
1.1
to 1.0 during any period that borrowing availability was less than
$16,500
. As of September 24, 2016, the unused borrowing availability under the revolving credit facility was
$41,806
; however, since the Company's fixed charge coverage ratio was less than
1.1
to 1.0, the unused availability accessible by the Company was
$25,306
(the amount above
$16,500
) at September 24, 2016.
Notes Payable - Buildings
On November 7, 2014, the Company entered into a ten-year
$8,330
note payable to purchase a previously leased distribution center in Adairsville, Georgia. The note payable is scheduled to mature on November 7, 2024 and is secured by the distribution center. The note payable bears interest at a variable rate equal to one month LIBOR plus
2.0%
and is payable in equal monthly installments of principal of
$35
, plus interest calculated on the declining balance of the note, with a final payment of
$4,165
due on maturity. In addition, the Company entered into an interest rate swap with an amortizing notional amount effective November 7, 2014 which effectively fixes the interest rate at
4.50%
.
On January 23, 2015, the Company entered into a ten-year
$6,290
note payable to finance an owned facility in Saraland, Alabama. The note payable is scheduled to mature on January 7, 2025 and is secured by the facility. The note payable bears interest at a variable rate equal to one month LIBOR plus
2.0%
and is payable in equal monthly installments of principal of
$26
, plus interest calculated on the declining balance of the note, with a final payment of
$3,145
due on maturity. In addition, the Company entered into a forward interest rate swap with an amortizing notional amount effective January 7, 2017 which will effectively fix the interest rate at
4.30%
.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Acquisition Note Payable - Development Authority of Gordon County
On November 2, 2012, the Company signed a
6.00%
seller-financed note of
$5,500
with Lineage PCR, Inc. (
“
Lineage
”
) related to the acquisition of a continuous carpet dyeing facility in Calhoun, Georgia. Effective December 28, 2012, through a series of agreements between the Company, the Development Authority of Gordon County, Georgia (the
“
Authority
”
) and Lineage, obligations with identical payment terms as the original note to Lineage became payment obligations to the Authority. These transactions were consummated in order to provide a tax abatement to the Company related to the real estate and equipment at this facility. The tax abatement plan provides for abatement for certain components of the real and personal property taxes for up to ten years. At any time, the Company has the option to pay off the obligation, plus a nominal amount. The debt to the Authority bears interest at
6.00%
and is payable in equal monthly installments of principal and interest of
$106
over
57
months.
Acquisition Note Payable - Robertex
On July 1, 2013, the Company signed a
4.50%
seller-financed note of
$4,000
, which was recorded at a fair value of
$3,749
, with Robert P. Rothman related to the acquisition of Robertex Associates, LLC ("Robertex") in Calhoun, Georgia. The note is payable in
five
annual installments of principal of
$800
plus interest. The note matures June 30, 2018.
Notes Payable - Equipment and Other
The Company's equipment financing notes have terms ranging from
3
to
7
years, bear interest ranging from
1.00%
to
6.86%
and are due in monthly or quarterly 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.
Capital Lease Obligations
The Company's capitalized lease obligations have terms ranging from
3
to
7
years, bear interest ranging from
2.90%
to
7.37%
and are due in monthly or quarterly installments through their maturity dates. The Company's capital lease obligations are secured by the specific equipment leased.
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 following table reflects the fair values of assets and liabilities measured and recognized at fair value on a recurring basis on the Company's Consolidated Condensed Balance Sheets as of September 24, 2016 and December 26, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
|
Fair Value Hierarchy Level
|
Liabilities:
|
|
|
|
|
|
Interest rate swaps (1)
|
$
|
6,456
|
|
|
$
|
4,689
|
|
|
Level 2
|
Contingent consideration (2)
|
280
|
|
|
584
|
|
|
Level 3
|
|
|
(1)
|
The Company uses certain external sources in deriving the fair value of the interest rate swaps. The interest rate swaps were valued using observable inputs (e.g., LIBOR yield curves, credit spreads). Valuations of interest rate swaps may fluctuate considerably from period-to-period due to volatility in underlying interest rates, which are driven by market conditions and the duration of the instrument. Credit adjustments could have a significant impact on the valuations due to changes in credit ratings of the Company or its counterparties.
|
|
|
(2)
|
As a result of the Colormaster acquisition in 2012 and the Robertex acquisition in 2013, the Company recorded contingent consideration liabilities at fair value. These fair value measurements were based on calculations that utilize significant inputs not observable in the market including forecasted revenues, gross margins and discount rates and thus represent Level 3 measurements. These fair value measurements are directly impacted by the Company's estimates. Accordingly, if the estimates within the fair value measurement are higher or lower, the Company would record additional charges or benefits, respectively, as appropriate.
|
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Changes in the fair value measurements using significant unobservable inputs (Level 3) during the nine months ending September 24, 2016 and September 26, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
September 26,
2015
|
Beginning balance
|
$
|
584
|
|
|
$
|
1,855
|
|
Fair value adjustments
|
(168
|
)
|
|
(387
|
)
|
Settlements
|
(136
|
)
|
|
(375
|
)
|
Ending balance
|
$
|
280
|
|
|
$
|
1,093
|
|
There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the three and nine months ending September 24, 2016 or September 26, 2015. If any, the Company recognizes the transfers in or transfers out at the end of the reporting period.
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 24,
2016
|
|
December 26,
2015
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Financial Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
88
|
|
|
$
|
88
|
|
|
$
|
281
|
|
|
$
|
281
|
|
Notes receivable, including current portion
|
308
|
|
|
308
|
|
|
282
|
|
|
282
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Long-term debt and capital leases, including current portion
|
115,625
|
|
|
115,934
|
|
|
126,049
|
|
|
123,318
|
|
Interest rate swaps
|
6,456
|
|
|
6,456
|
|
|
4,689
|
|
|
4,689
|
|
The fair values of the Company's long-term debt and capital leases were estimated using market rates the Company believes would be available for similar types of financial instruments and represent level 2 measurements. The fair values of cash and cash equivalents and notes receivable approximate their carrying amounts due to the short-term nature of the financial instruments.
NOTE 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 entering into interest rate swaps for a portion of its variable rate debt to minimize interest rate volatility.
The following is a summary of the Company's interest rate swaps as of September 24, 2016:
|
|
|
|
|
|
|
|
|
Type
|
Notional Amount
|
|
Effective Date
|
Fixed Rate
|
Variable Rate
|
Interest rate swap
|
$
|
25,000
|
|
|
September 1, 2016 through September 1, 2021
|
3.105%
|
1 Month LIBOR
|
Interest rate swap
|
$
|
25,000
|
|
|
September 1, 2015 through September 1, 2021
|
3.304%
|
1 Month LIBOR
|
Interest rate swap
|
$
|
7,566
|
|
(1)
|
November 7, 2014 through November 7, 2024
|
4.500%
|
1 Month LIBOR
|
Interest rate swap
|
$
|
5,661
|
|
(2)
|
January 7, 2017 through January 7, 2025
|
4.300%
|
1 Month LIBOR
|
(1) Interest rate swap notional amount amortizes by
$35
monthly to maturity.
(2) Interest rate swap notional amount amortizes by
$26
monthly to maturity.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following table summarizes the fair values of derivative instruments included in the Company's Consolidated Condensed Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
Location on Consolidated Balance Sheets
|
|
Fair Value
|
|
|
September 24,
2016
|
|
December 26,
2015
|
Liability Derivatives:
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Interest rate swaps, current portion
|
Accrued Expenses
|
|
$
|
1,477
|
|
|
$
|
1,159
|
|
Interest rate swaps, long-term portion
|
Other Long-Term Liabilities
|
|
4,979
|
|
|
3,530
|
|
Total Liability Derivatives
|
|
|
$
|
6,456
|
|
|
$
|
4,689
|
|
The following tables summarize the pre-tax impact of derivative instruments on the Company's financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Recognized in AOCIL on the effective portion of the Derivative
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Cash flow hedges - interest rate swaps
|
$
|
24
|
|
|
$
|
(1,923
|
)
|
|
$
|
(2,648
|
)
|
|
$
|
(2,466
|
)
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Reclassified from AOCIL on the effective portion into Income (1)(2)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Cash flow hedges - interest rate swaps
|
$
|
(308
|
)
|
|
$
|
(187
|
)
|
|
$
|
(891
|
)
|
|
$
|
(453
|
)
|
|
|
(1)
|
The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's Consolidated Condensed Statements of Operations.
|
|
|
(2)
|
The amount of loss expected to be reclassified from AOCIL into earnings during the next 12 months subsequent to September 24, 2016 is
$1,477
.
|
The amount of gain (loss) recognized in income on the ineffective portion of interest rate swaps, if any, is included in other (income) expense, net on the Company's Consolidated Condensed Statements of Operations. There was
no
ineffective portion for the periods presented.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers approximately
86%
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
$(132)
and
$223
for the three months ended September 24, 2016 and September 26, 2015, respectively, and
$333
and
$683
for the nine months ended September 24, 2016 and September 26, 2015, respectively. The reduction in the matching contribution expense for the three months ended September 24, 2016 was a result of revising the estimated match for the year.
Additionally, the Company sponsors a 401(k) defined contribution plan that covers approximately
14%
of the Company's current associates at one facility who are under a collective-bargaining agreement. Under this plan, the Company generally matches participants' contributions, on a sliding scale, up to a maximum of
2.75%
of the participant's earnings. Matching contribution expense for the collective-bargaining 401(k) plan was
$18
and
$17
for the three months ended September 24, 2016 and September 26, 2015, respectively, and
$53
and
$62
for the nine months ended September 24, 2016 and September 26, 2015, respectively.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Non-Qualified Retirement Savings Plan
The Company sponsors a non-qualified retirement savings plan that allows eligible associates to defer a specified percentage of their compensation. The obligations owed to participants under this plan were
$14,659
at September 24, 2016 and
$14,155
at December 26, 2015 and are included in other long-term liabilities in the Company's Consolidated Condensed Balance Sheets. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the cash surrender value of the policies was
$15,555
at September 24, 2016 and
$14,981
at December 26, 2015 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
$68
and
$66
for the three months ended September 24, 2016 and September 26, 2015, respectively, and
$202
and
$197
for the nine months ended September 24, 2016 and September 26, 2015, respectively.
NOTE 13 - INCOME TAXES
The benefit rate applied to the pretax loss for the nine months ending September 24, 2016 was
43.0%
compared with a benefit rate of
38.6%
for the nine months ending September 26, 2015. The nine months ended September 24, 2016 included certain tax credits of approximately
$542
that increased the tax benefit recognized during the period. The Company is in a net deferred tax asset position of
$7,029
and
$4,726
at September 24, 2016 and December 26, 2015, respectively. The increase in the net deferred tax asset was primarily attributable to an increase in the federal tax credit carry carryforwards and the federal net operating loss carryforwards.
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were
$377
and
$375
at September 24, 2016 and December 26, 2015, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were
no
significant interest or penalties accrued as of September 24, 2016 and December 26, 2015.
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 2011 remain open to examination for U.S. federal income taxes. The majority of state jurisdictions remain open for tax years subsequent to 2011. A few state jurisdictions remain open to examination for tax years subsequent to 2010.
NOTE 14 - EARNINGS (LOSS) PER SHARE
Earnings (Loss) Per Share
The Company's unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and are included in the computation of earnings per share. The accounting guidance requires additional disclosure of EPS for common stock and unvested share-based payment awards, separately disclosing distributed and undistributed earnings. Undistributed earnings represent earnings that were available for distribution but were not distributed. Common stock and unvested share-based payment awards earn dividends equally. All earnings were undistributed in all periods presented.
THE 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 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
573
|
|
|
$
|
84
|
|
|
$
|
(2,569
|
)
|
|
$
|
(1,780
|
)
|
Less: Allocation of earnings to participating securities
|
(17
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Income (loss) from continuing operations available to common shareholders - basic
|
$
|
556
|
|
|
$
|
82
|
|
|
$
|
(2,569
|
)
|
|
$
|
(1,780
|
)
|
Basic weighted-average shares outstanding (1)
|
15,648
|
|
|
15,573
|
|
|
15,631
|
|
|
15,518
|
|
Basic earnings (loss) per share - continuing operations
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to common shareholders - basic
|
$
|
556
|
|
|
$
|
82
|
|
|
$
|
(2,569
|
)
|
|
$
|
(1,780
|
)
|
Add: Undistributed earnings reallocated to unvested shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income (loss) from continuing operations available to common shareholders - basic
|
$
|
556
|
|
|
$
|
82
|
|
|
$
|
(2,569
|
)
|
|
$
|
(1,780
|
)
|
Basic weighted-average shares outstanding (1)
|
15,648
|
|
|
15,573
|
|
|
15,631
|
|
|
15,518
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options (2)
|
—
|
|
|
37
|
|
|
—
|
|
|
—
|
|
Directors' stock performance units (2)
|
96
|
|
|
56
|
|
|
—
|
|
|
—
|
|
Diluted weighted-average shares outstanding (1)(2)
|
15,744
|
|
|
15,666
|
|
|
15,631
|
|
|
15,518
|
|
Diluted earnings (loss) per share - continuing operations
|
$
|
0.04
|
|
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.11
|
)
|
|
|
(1)
|
Includes Common and Class B Common shares, in thousands.
|
|
|
(2)
|
Shares issuable under stock option plans where the exercise price is greater than the average market price of the Company's Common Stock during the relevant period and directors' stock performance units have been excluded to the extent they are anti-dilutive. Aggregate shares excluded for the three and nine months ended September 24, 2016 were
104
and
220
, respectively, and for the three and nine months ended September 26, 2015 were
220
and
308
, respectively.
|
NOTE 15 - STOCK COMPENSATION EXPENSE
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity instrument issued and records such expense in selling and administrative expenses in the Company's Consolidated Condensed Financial Statements. The number of shares to be issued is determined by dividing the specified dollar value of the award by the market value per share on the grant date. The Company's stock compensation expense was
$269
and
$1,021
for the three and nine months ended September 24, 2016, respectively, and
$346
and
$1,071
for the three and nine months ended September 26, 2015, respectively.
On March 11, 2016, the Company issued
149,215
shares of restricted stock to officers and other key employees. The grant-date fair value of the awards was
$651
, or
$4.360
per share, and is expected to be recognized as stock compensation expense over a weighted-average period of
8.7
years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each share of restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
2016 Incentive Compensation Plan
On May 3, 2016, the Company's shareholders' approved and adopted the Company's 2016 Incentive Compensation Plan (the "2016 Incentive Compensation Plan") which provides for the issuance of a maximum of
800,000
shares of Common Stock and/or Class B Common Stock for the grant of options, and/or other stock-based or stock-denominated awards to employees, officers, directors, and agents of the Company and its participating subsidiaries. The 2016 Incentive Compensation Plan and the allocation of shares thereunder superseded and replaced The Dixie Group, Inc. Stock Awards Plan, as amended (the "2006 Plan") and the allocation of shares thereunder. The 2006 Plan was terminated with respect to new awards. Awards previously granted under the 2006 Plan continue to be governed by the terms of that plan and are not affected by its termination.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Components of accumulated other comprehensive income (loss), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps
|
|
Post-Retirement Liabilities
|
|
Total
|
Balance at December 26, 2015
|
(2,853
|
)
|
|
280
|
|
|
(2,573
|
)
|
Unrealized loss on interest rate swaps, net of tax of $1,006
|
(1,642
|
)
|
|
—
|
|
|
(1,642
|
)
|
Reclassification of loss into earnings from interest rate swaps, net of tax of $339
|
552
|
|
|
—
|
|
|
552
|
|
Reclassification of net actuarial gain into earnings from postretirement benefit plans, net of tax of $12
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
Reclassification of prior service credits into earnings from postretirement benefit plans, net of tax of $1
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Balance at September 24, 2016
|
$
|
(3,943
|
)
|
|
$
|
260
|
|
|
$
|
(3,683
|
)
|
NOTE 17 - CONTINGENCIES
The Company assesses its exposure related to legal matters, including those pertaining to product liability, safety and health matters and other items that arise in the regular course of its business. If the Company determines that it is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded.
Environmental Remediation
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and estimable. Remediation obligations are accrued based on the latest available information and are recorded at undiscounted amounts. The Company regularly monitors the progress of environmental remediation. If studies indicate that the cost of remediation has changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such determination is made. (See Notes 19 & 20)
Legal Proceedings
The Company has been sued, together with the 3M Company and approximately 30 other carpet manufacturers, by the Gadsden (Alabama) Water Works in the circuit court of Etowah County Alabama [The Water Works and Sewer Board of the City of Gadsden v. 3M Company, et al, civil action No. 31-CV-2016-900676.00], in a case seeking monetary damages and injunctive relief related to the use of certain chemical compounds in the manufacture and finishing of carpet products “in and around Dalton Georgia.” On motion of the defendants, the case was removed to the U.S. District Court for the Northern District of Alabama (Middle Division) Case No. 4:16-CV-01755-SGC. As alleged in the lawsuit, the chemicals are perflourinated compounds (“PFC”) perflourinated acid (“PFOA”) and perfluorooctane sulfonate (“PFOS”) manufactured by 3M and used in certain finishing and treatment processes by the defendants and, as a consequence of such use, either discharged into or leached into the water systems around Dalton, Georgia. The Complaint seeks damages “in excess of
$10
”, but otherwise unspecified in amount in addition to injunctive relief. The Company has not yet answered the complaint; however it has reviewed the allegations of the complaint, engaged counsel, and intends to defend the matter vigorously and is unable to estimate its potential exposure to loss, if any, at this time.
The Company is one of multiple parties to two lawsuits, both filed in Madison County Illinois, styled Sandra D. Watts, Individually and as Special Administrator of the Estate of Dianne Averett, Deceased vs. 4520 Corp., Inc. f/k/a Benjamin F. Shaw Company, et al No. 12-L-2032 and styled Brenda Bridgeman, Individually and as Special Administrator of the Estate of Robert Bridgeman, Deceased, vs. American Honda Motor Co., Inc., f/k/a Metropolitan Life Insurance Co., et al No. 15-L-374. Each lawsuit entails a claim for damages to be determined in excess of
$50
filed on behalf of the estate of an individual which alleges that the deceased contracted mesothelioma as a result of exposure to asbestos while employed by the Company. Discovery in both matters is ongoing, and tentative trial dates of February 2017 and January 2018 have been set. The Company has denied liability, is defending the matters vigorously and is unable to estimate its potential exposure to loss, if any, at this time.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 18 - OTHER OPERATING EXPENSE, NET
Other operating expense, net is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
|
|
|
|
|
|
|
|
Other operating expense, net:
|
|
|
|
|
|
|
|
(Gain) loss on property, plant and equipment disposals
|
$
|
—
|
|
|
$
|
(79
|
)
|
|
$
|
259
|
|
|
$
|
(187
|
)
|
(Gain) loss on currency exchanges
|
88
|
|
|
85
|
|
|
85
|
|
|
530
|
|
Amortization of intangibles
|
76
|
|
|
76
|
|
|
229
|
|
|
229
|
|
Retirement expenses
|
27
|
|
|
83
|
|
|
102
|
|
|
173
|
|
Miscellaneous (income) expense
|
(50
|
)
|
|
(34
|
)
|
|
(150
|
)
|
|
(61
|
)
|
Other operating expense, net
|
$
|
141
|
|
|
$
|
131
|
|
|
$
|
525
|
|
|
$
|
684
|
|
NOTE 19 - FACILITY CONSOLIDATION EXPENSES
2014 Warehousing, Distribution & Manufacturing Consolidation Plan
The Company developed a plan to align its warehousing, distribution and manufacturing to support its growth and manufacturing strategy resulting in better cost structure and improved distribution capabilities and customer service. The key element and first major step of this plan was the acquisition of a facility to serve as a finished goods warehouse and a cut-order and distribution center in Adairsville, Georgia. Costs related to the consolidation included moving and relocation expenses, information technology expenses and expenses relating to conversion and realignment of equipment. In addition, this plan included the elimination of both carpet dyeing and yarn dyeing in the Company's Atmore, Alabama facility designed to more fully accommodate the distribution and manufacturing realignment. As a result, the dyeing operations in Atmore were moved to the Company's continuous dyeing facility, skein dyeing operation and other outside dyeing processors.
To complete the Warehousing, Distribution & Manufacturing Consolidation Plan, the Company moved its Saraland rug operation from an expiring leased building to an owned facility in March. The Company incurred some minor costs in the second quarter of 2016 as it completed the consolidation plan. As a result of eliminating its dyeing operations in Atmore, Alabama, the Company disposed of its waste water treatment plant in 2014. Subsequently, after extensive testing, it was determined that the Company still had some contaminants above background levels and that it would need to install a soil cap. During the first quarter of 2016, the Company accrued
$690
to finalize the cleanup of the site of the Company's former waste water treatment plant. Accordingly, if the actual costs are higher or lower, the Company would record an additional charge or benefit, respectively, as appropriate.
2014 Atlas Integration Plan
As a part of the March 19, 2014 acquisition of Atlas, the Company developed a plan to close the operations of the Atlas dyeing facility in Los Angeles and move the carpet dyeing of their products to the Company's dyeing operation located in Santa Ana, California. Costs related to the consolidation included equipment relocation, computer systems modifications and severance costs. These costs were completed in fiscal 2015.
2015 Corporate Office Consolidation Plan
In April 2015, the Company's Board of Directors approved the Corporate Office Consolidation Plan, to cover the costs of consolidating three of the Company's existing leased divisional and corporate offices to a single leased facility located in Dalton, Georgia. The Company paid a fee to terminate one of the leased facilities, did not renew a second facility and vacated the third facility. Related to the vacated facility, the Company recorded the estimated costs related to the fulfillment of its contractual lease obligation and on-going facility maintenance, net of an estimate of sub-lease expectations. Accordingly, if the estimates differ, the Company would record an additional charge or benefit, as appropriate. Costs related to the consolidation included the lease termination fee, contractual lease obligations and moving costs.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Costs related to the facility consolidation plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 24, 2016
|
|
Accrued Balance at December 26, 2015
|
|
2016 Expenses To Date
|
|
2016 Cash Payments
|
|
Accrued Balance at September 24, 2016
|
|
Total Costs Incurred To Date
|
|
Total Expected Costs
|
Warehousing, Distribution & Manufacturing Consolidation Plan
|
$
|
—
|
|
|
$
|
1,740
|
|
|
$
|
1,065
|
|
|
$
|
675
|
|
|
$
|
7,806
|
|
|
$
|
7,806
|
|
Atlas Integration Plan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,669
|
|
|
1,669
|
|
Corporate Office Consolidation Plan
|
341
|
|
|
76
|
|
|
148
|
|
|
269
|
|
|
804
|
|
|
804
|
|
Totals
|
$
|
341
|
|
|
$
|
1,816
|
|
(1)
|
$
|
1,213
|
|
|
$
|
944
|
|
|
$
|
10,279
|
|
|
$
|
10,279
|
|
(1) Costs incurred under these plans are classified as "facility consolidation expenses" in the Company's Consolidated Condensed Statements of Operations.
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 24,
2016
|
|
September 26,
2015
|
|
September 24,
2016
|
|
September 26,
2015
|
|
|
|
|
|
|
|
|
Net sales - Carousel operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
Income (loss) from Carousel operations
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
$
|
—
|
|
|
$
|
(89
|
)
|
Workers' compensation costs from former textile operations
|
5
|
|
|
(12
|
)
|
|
21
|
|
|
(48
|
)
|
Environmental remediation costs from former textile operations
|
(65
|
)
|
|
(13
|
)
|
|
(101
|
)
|
|
(56
|
)
|
Income on disposal of discontinued operations
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
Income (loss) from discontinued operations, before taxes
|
(60
|
)
|
|
(37
|
)
|
|
20
|
|
|
(193
|
)
|
Income tax provision (benefit)
|
(21
|
)
|
|
(19
|
)
|
|
7
|
|
|
(75
|
)
|
Income (loss) from discontinued operations, net of tax
|
$
|
(39
|
)
|
|
$
|
(18
|
)
|
|
$
|
13
|
|
|
$
|
(118
|
)
|
In the fourth quarter of 2014, the Company discontinued the Carousel specialty tufting and weaving operation that was part of the 2013 Robertex, Inc. acquisition. Operating results associated with Carousel have been classified as discontinued operations for all periods presented.
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.
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has an accrual for environmental remediation obligations related to discontinued operations of
$1,619
as of September 24, 2016 and
$1,591
as of December 26, 2015. 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 our estimates. Pre-tax cost for environmental remediation obligations classified as discontinued operations were primarily a result of specific events requiring action and additional expense in each period.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 21 - RELATED PARTY TRANSACTIONS
The Company is a party to a 5-year lease with the seller of Atlas Carpet Mills, Inc. to lease three manufacturing facilities as part of the acquisition in 2014. The lessor is controlled by an associate of the Company. Rent paid to the lessor during the three and nine months ended September 24, 2016 was
$226
and
$567
, respectively. Rent paid to the lessor during the three and nine months ended September 26, 2015 was
$114
and
$343
, respectively. The lease was based on current market values for similar facilities.
The Company purchases a portion of its product needs in the form of fiber, yarn and carpet from Engineered Floors, an entity substantially controlled by Robert E. Shaw, a shareholder of the Company. An affiliate of Mr. Shaw holds approximately
8.4%
of the Company's Common Stock, which represents approximately
3.9%
of the total vote of all classes of the Company's Common Stock. Engineered Floors is one of several suppliers of such materials to the Company. Total purchases from Engineered Floors during the three and nine months ended September 24, 2016 were approximately
$1,844
and
$5,478
, respectively; or approximately
2.5%
, respectively, of the Company's cost of goods sold. Total purchases from Engineered Floors during the three and nine months ended September 26, 2015 were approximately
$2,396
and
$6,889
, respectively; or approximately
2.9%
, respectively, of the Company's cost of goods sold. Purchases from Engineered Floors are based on market value, negotiated prices. The Company has no contractual commitments with Mr. Shaw associated with its business relationship with Engineered Floors. Transactions with Engineered Floors are reviewed annually by the Company's board of directors.
The Company is a party to a 10-year lease with the Rothman Family Partnership to lease a manufacturing facility as part of the Robertex acquisition in 2013. The lessor is controlled by an associate of the Company. Rent paid to the lessor during the three and nine months ended September 24, 2016 was
$67
and
$200
, respectively. Rent paid to the lessor during the three and nine months ended September 26, 2015 was
$66
and
$196
, respectively. The lease was based on current market values for similar facilities. In addition, the Company has a note payable to Robert P. Rothman related to the acquisition of Robertex Inc. (See Note 9).