The Dixie Group(DXYN) - 2018 Q4 - Annual Report

FORM 10-K Filing Information Registrant Information This section provides basic registrant information for The Dixie Group, Inc., including its NASDAQ-listed common stock and smaller reporting company status - The Dixie Group, Inc.'s common stock is listed on the NASDAQ Stock Market with a par value of $3.00[4] - The company is classified as a "smaller reporting company", not a large accelerated filer, accelerated filer, or non-accelerated filer[6] Outstanding Shares as of February 22, 2019 | Class | Outstanding as of February 22, 2019 | |:---|:---|\ | Common Stock, $3.00 Par Value | 15,522,588 shares | | Class B Common Stock, $3.00 Par Value | 839,304 shares | | Class C Common Stock, $3.00 Par Value | 0 shares | Table of Contents FORWARD-LOOKING INFORMATION This section contains forward-looking statements on future financial performance, business prospects, and liquidity, subject to various risk factors - Forward-looking statements cover future financial performance, business prospects, growth strategies, and liquidity[16] - Key factors influencing future results include capital and raw material costs, energy supply, customer attrition, talent retention, economic changes, and other risks[16] PART I Item 1. BUSINESS The company markets, manufactures, and sells high-end residential and commercial floorcovering products, focusing on the upstream carpet market - The company focuses on the high-end residential and commercial floorcovering markets, marketing, manufacturing, and selling products through brands like Fabrica, Masland, Dixie Home, Atlas, and Masland Contract[18] - To address the growing hard surface flooring market, the company introduced luxury vinyl flooring (LVF) and high-end engineered wood flooring products[19] - The company operates with a single reportable segment, floorcoverings, which combines residential and commercial operating segments due to similar economic characteristics and operating models[20] Sales by End-User Market | | 2018 | 2017 | 2016 | |:---|:---|:---|:---|\ | Residential floorcovering products | 72% | 68% | 66% | | Commercial floorcovering products | 28% | 32% | 34% | Our Brands The company's brands, including Fabrica, Masland Residential, Dixie Home, and Atlas | Masland Contract, offer differentiated products for various high-end customer segments - The Fabrica brand specializes in luxury residential and custom carpets, with prices approximately five times the industry average for residential soft surface flooring[22] - The Masland Residential brand offers design-driven high-end residential carpets and luxury vinyl flooring, with broadloom products priced approximately three times the industry average[23] - The Dixie Home brand provides stylish and affordably priced residential carpets and luxury vinyl flooring, with average product prices approximately twice the soft surface flooring industry average[24] - Atlas | Masland Contract, a commercial brand consolidated in 2018, serves the high-end commercial market with modular carpet tile, broadloom, luxury vinyl flooring, and commercial wool/nylon carpets[25] Industry The U.S. floorcovering industry saw $25.5 billion in sales in 2017, with carpets remaining dominant but hard surface products growing rapidly amid intense competition - The U.S. floorcovering industry generated $25.5 billion in sales in 2017, an increase of approximately 4.8% from 2016[28] 2017 U.S. Floorcovering Market by Major Category (by Sales) | Category | Sales Percentage | |:---|:---|\ | Carpet and rug | 45% | | Wood | 14% | | Ceramic tile | 14% | | Luxury vinyl flooring (LVF) | 9% | | Vinyl | 6% | | Stone | 6% | | Laminate and other | 6% | - The carpet and rug industry consists of fewer than 100 manufacturers, with most production concentrated in the lower-end market, creating opportunities for the company in the mid-to-high-end segments[30] Competition The floorcovering industry is highly competitive, with the company differentiating itself through styling, design, quality, and service against both carpet and hard surface flooring providers - The floorcovering industry is highly competitive, with the company competing against carpet manufacturers and hard surface flooring suppliers like luxury vinyl tile and wood[31] - The company believes its primary competitive factors are styling, color, product design, quality, and service, maintaining a leading position in the high-end residential and commercial carpet markets[32] - The company enhances product differentiation and competitive advantage through an attractive brand portfolio, investments in new yarns like Stainmaster® LiveWell™ and PetProtect™, and innovative tufting and dyeing technologies[32] Customer and Product Concentration Lowe's is the company's largest customer, accounting for 13% of net sales in 2018, while no single product category exceeds 10% of sales - Lowe's is the company's largest customer, accounting for 13% of net sales in 2018, 14% in 2017, and 10% in 2016[35] - No single product category accounts for more than 10% of the company's sales[37] Sales by End-User Market | | 2018 | 2017 | 2016 | |:---|:---|:---|:---|\ | Residential floorcovering products | 72% | 68% | 66% | | Commercial floorcovering products | 28% | 32% | 34% | Raw Materials The company's primary raw materials are bulk continuous filament yarns, predominantly nylon, with significant reliance on a single supplier for most nylon yarn - The company's primary raw materials are bulk continuous filament yarns, mainly nylon, supplemented by wool and polyester yarns[40] - The company sources most of its primary raw material (nylon yarn) from a single supplier and procures most luxury vinyl tile from outside the U.S[40] Item 1A. RISK FACTORS This section details significant risks that could adversely affect the company's business, financial condition, and operating results - The floorcovering industry is sensitive to overall economic conditions, and a decline in residential or commercial construction activity could materially harm the company's business[48][49][50] - The company's sales are highly dependent on a specific mass merchandiser (Lowe's), and a reduction in sales through this channel could adversely affect the business[51][52] - The company faces substantial debt, which could lead to insufficient cash flow, impaired profitability, or inadequate asset value to repay obligations[53][54] - The company risks delisting from the NASDAQ Stock Market if its stock price remains below $1.00 for an extended period[57][58] - The floorcovering industry is highly competitive, with accelerating growth of hard surface alternatives leading to declining demand and market share loss for soft surface products[59][60] - The company relies on a single supplier for most of its nylon yarn, and an unexpected termination or interruption of supply could materially harm the business[66][67] - Government trade actions, such as tariffs, could impact the competitiveness of imported luxury vinyl flooring (LVF) and wood products, adversely affecting the company's costs and operating results[71] Item 1B. UNRESOLVED STAFF COMMENTS This section states that the company has no unresolved staff comments - The company has no unresolved staff comments[83] Item 2. PROPERTIES The company owns and leases various administrative, manufacturing, and distribution facilities totaling over 3 million square feet, with most owned properties mortgaged to secure credit financing Company Facilities List as of February 22, 2019 | Location | Type of Operation | Approximate Square Feet | |:---|:---|:---|\ | Administrative: | | |\ | Saraland, AL | Administrative | 29,000 | | Commerce, CA* | Administrative | 21,800 | | Santa Ana, CA | Administrative | 4,000 | | Calhoun, GA | Administrative | 10,600 | | Dalton, GA* | Administrative | 50,800 | | Total Administrative | | 116,200 | | Manufacturing and Distribution: | | |\ | Atmore, AL | Carpet Manufacturing, Distribution | 610,000 | | Roanoke, AL | Carpet Yarn Processing |