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") ~~2018~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December ~~29, 2018.~~28, 2019. Operating results for the three and nine month periods ended September ~~28, 2019~~26, 2020 are not necessarily indicative of the results that may be expected for the entire ~~2019~~2020 year.

Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering, comprised of two operating segments, Residential and Commercial. Pursuant to applicable accounting standards, the Company has aggregated the two operating segments into one reporting segment because they have similar economic characteristics, and the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.

NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in Fiscal ~~2019~~2020

In ~~February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)~~," which requires lessees to recognize on the Consolidated Condensed Balance Sheet right-of-use assets, representing the 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. In July 2018,March 2020, the FASB issued ASU ~~No. 2018-11 providing an~~2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update provide optional ~~transition method allowing entities to apply the new lease standard at the adoption date and recognize~~guidance for a ~~cumulative effect adjustment in the~~limited period of ~~adoption.~~time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. In particular, the risk of cessation of the London Interbank Offered Rate (LIBOR). Among the amendments are expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company ~~has elected to take this transition method.~~

~~The Company adopted~~is currently evaluating the ~~new standard effective December 30, 2018, the first day~~impact of the ~~Company's fiscal year. Consistent with the optional~~ transition ~~method allowed as part of the modified retrospective transition approach provided in ASU No. 2018-11, the Company did~~from LIBOR to alternative reference interest rates, but does not ~~adjust comparative periods. The new standard applied~~expect a significant impact to leases that have commenced as of the effective date, December 30, 2018, with a cumulative effect adjustment recorded as of that date. The Company also elected to apply the package of practical expedients allowed in ASC 842-10-65-1 whereby the Company need not reassess whether any expiredits operating results, financial position or existing contracts are or contain leases, the Company need not reassess the lease classification for any expired or existing leases, and the Company need not reassess initial direct costs for any existing leases. The Company's adoption of the ASU resulted in the addition of Right of Use Assets on the Consolidated Condensed Balance Sheet for the right to use the underlying assets of operating leases. The Company did not elect to use hindsight for transition when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset. In addition, the corresponding liability for the remaining balance of the operating leases is included in the liability section of the Consolidated Condensed Balance Sheet. For all asset classes, the Company elected to not recognize a right-of-use asset and lease liability for leases with a term of twelve months or less. The adoption of this ASU did not have a material adjustment to the Consolidated Statements of Stockholders' Equity or the Consolidated Condensed Statements of Operations.cash flows.

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 ~~public~~smaller reporting entities, ASU 2016-13 is effective for annual periods beginning after December 15, ~~2019,~~2022, 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 does not believe the adoption of this~~ 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), ~~will~~is not expected to have a significant impact on the consolidated condensed financial statements due to the nature of the Company's customers and the limited amount of write-offs in past years.

~~In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This update is a part of FASB’s disclosure framework project to improve~~

~~Table of Contents~~9

~~THE DIXIE GROUP, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~(amounts in thousands, except per share data) (Continued)~~

the effectiveness of disclosures in the notes to financial statements. The amendments in this update remove, modify, and add certain disclosure requirements within Topic 820. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of this update and an entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until the effective date. Certain disclosure amendments are to be applied prospectively for only the most recent interim or annual period presented, while other amendments are to be applied retrospectively to all periods presented. The Company does not believe that the adoption of this ASU will have a significant impact on its consolidated condensed financial statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This update is a part of FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after December 15, 2020 and early adoption is permitted. Upon adoption, this update is to be applied on a retrospective basis to all periods presented. The Company does not believe that the adoption of this ASU will have a significant impact on its consolidated condensed financial statements.

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

Table of Contents9

THE DIXIE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts in thousands, except per share data) (Continued)

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

Disaggregation of Revenue from Contracts with Customers

The following table disaggregates the Company’s revenue by end-user markets for the three and nine month periods ended September ~~28, 2019~~26, 2020 and September ~~29, 2018:~~28, 2019:


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Residential floorcovering products	$	69,664	$	67,849	$	174,236	$	204,367
Commercial floorcovering products	15,885		26,679		51,967		77,897
Other services	371		919		1,118		2,184
Total net sales	$	85,920	$	95,447	$	227,321	$	284,448

Three Months Ended Nine Months Ended
September 28,
2019 September 29,
2018 September 28,
2019 September 29,
2018
Residential floorcovering products $ 67,849
$ 74,975
$ 204,367
$ 217,104
Commercial floorcovering products 26,679
26,144
77,897
88,386
Other services 919
443
2,184
1,368
Total net sales $ 95,447
$ 101,562
$ 284,448
$ 306,858

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.

~~Table of Contents~~10

~~THE DIXIE GROUP, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~(amounts in thousands, except per share data) (Continued)~~

Contract Balances

Other than receivables that represent an unconditional right to consideration, which are presented separately (See 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.

Table of Contents10

THE DIXIE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts in thousands, except per share data) (Continued)

The activity in the advanced deposits for the three and nine month periods ended September ~~28, 2019~~26, 2020 and September ~~29, 2018~~28, 2019 is as follows:


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Beginning contract liability	$	4,564	$	5,299	$	4,685	$	6,013
Revenue recognized from contract liabilities included in the beginning balance	(3,141)		(3,911)		(4,305)		(5,296)
Increases due to cash received, net of amounts recognized in revenue during the period	1,862		4,153		2,905		4,824
Ending contract liability	$	3,285	$	5,541	$	3,285	$	5,541

Three Months Ended Nine Months Ended
September 28,
2019 September 29,
2018 September 28,
2019 September 29,
2018
Beginning contract liability $ 5,299
$ 6,724
$ 6,013
$ 5,717
Revenue recognized from contract liabilities included in the beginning balance (3,911 ) (4,685 ) (5,296 ) (5,188 )
Increases due to cash received, net of amounts recognized in revenue during the period 4,153
3,892
4,824
5,402
Ending contract liability $ 5,541
$ 5,931
$ 5,541
$ 5,931

Performance Obligations

For performance obligations related to residential floorcovering and commercial floorcovering products, control transfers at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point and FOB Destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products or services.

Variable Consideration

The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on 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 ~~estimated~~ 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. (See Note 9.8.) The Company does not provide an additional service-type warranty.

~~Bill-and-Hold Arrangement~~

At the customer's request, the Company entered into a bill-and-hold arrangement with one customer. At the point of billing and recognition of revenue by the Company, the Company retained physical possession of the inventory, segregated the inventory and no longer had the ability to use or direct it to another customer. The inventory was available to be physically transferred to the customer at their request. As of September 28, 2019, substantially all orders had been shipped to the customer.

~~Table of Contents~~11

~~THE DIXIE GROUP, INC.~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~(amounts in thousands, except per share data) (Continued)~~

NOTE 4 - RECEIVABLES, NET

Receivables are summarized as follows:


	September 26, 2020		December 28, 2019
Customers, trade	$	37,696	$	34,285
Other receivables	1,221		3,115
Gross receivables	38,917		37,400
Less: allowance for doubtful accounts	(199)		(262)
Receivables, net	$	38,718	$	37,138

September 28,
2019 December 29,
2018
Customers, trade $ 42,844
$ 40,121
Other receivables 2,418
2,595
Gross receivables 45,262
42,716
Less: allowance for doubtful accounts (282 ) (174 )
Receivables, net $ 44,980
$ 42,542

Bad debt expense (credit) was $(1) and $67 for the three and nine months ended September 26, 2020 and $51 and $182 for the three and nine months ended September 28, ~~2019 and $20 and $137 for the three and nine months ended September 29, 2018, respectively.~~2019.

Table of Contents11

THE DIXIE GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts in thousands, except per share data) (Continued)

NOTE 5 - INVENTORIES, NET

Inventories are summarized as follows:


	September 26, 2020		December 28, 2019
Raw materials	$	29,707	$	32,377
Work-in-process	14,218		18,642
Finished goods	61,457		64,978
Supplies and other	173		260
LIFO reserve	(18,613)		(20,748)
Inventories, net	$	86,942	$	95,509

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

FORWARD-LOOKING INFORMATION

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

OVERVIEW

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

Our business is primarily concentrated in areas of the soft floorcovering markets which include broadloom carpet, carpet tiles and rugs. However, ~~over the past few years, there has been~~in response to a significant shift in the flooring marketplace astoward hard surface products, we have ~~grown at a rate much faster than soft surface products. We have responded to this accelerated shift to~~launched multiple hard surface ~~flooring by launching several~~ initiatives in both our residential and commercial ~~brands.~~brands over the last few years. Our commercial ~~business offers luxury vinyl flooring~~brands offer Luxury Vinyl Flooring (“LVF”) products under the Calibré brand in the commercial markets. ~~Within the~~Our residential ~~markets we are expanding our TRUCOR™ line with the introduction of TRUCOR Prime™ through our~~brands, Dixie Home and Masland Residential, offer Stainmaster® TRUCOR™ Luxury Vinyl Flooring and our premium residential brand, Fabrica, offers a high-end engineered wood line.

COVID-19 PANDEMIC

Beginning with the second week of March 2020, we started experiencing reduced volume as the result of the COVID-19 pandemic and related government restrictions. The sales ~~forces. This collection of products enhances our TRUCOR™ SPC offering. Our residential luxury vinyl flooring and wood sales experienced a greater than 40% increase in~~decline continued into the second quarter through the third ~~quarter~~week of ~~the current fiscal year as compared~~April after which we started to ~~the same period~~see a gradual and consistent improvement in ~~the prior year. During the third quarter of 2019, we had great traction with our new TRUCOR™ SPC offering, including placement of over 2 thousand displays in the retail community, and by~~sales through the end of the ~~quarter, TRUCOR™ represented a significant percentage~~third quarter. Once the extent of the pandemic became apparent, we implemented our continuity plan to maintain the health and safety of our ~~total luxury vinyl sales. During~~associates, preserve cash, and minimize the ~~fourth quarter~~impact on our customers. We implemented cost reductions including cutting non-essential expenditures, reducing capital expenditures, rotating layoffs and furloughs, select job eliminations and temporary salary reductions. We also deferred new product introductions and reduced our sample and marketing expenses for 2020. We modified our senior credit facility to provide additional flexibility with regard to loan availability during this uncertain period.

The recovery of ~~2019, we are expanding our TRUCOR™ line with the addition of TRUCOR Prime™, a WPC construction, offered by our Dixie Home and Masland~~ sales ~~forces. By the end of 2019, we anticipate having over 4.8 thousand TRUCOR™ and TRUCOR Prime™ displays~~ in the ~~market. During~~residential markets, that began in the ~~first~~second quarter of 2020, we are expanding our TRUCOR™ rigid core offering with 47 new innovative products in the SPC and WPC constructions. To further drive growth in this segment, during the fourth quarter of 2019 and the first quarter of 2020, we are making investments in talent by adding hard surface sales people in key markets. These investments in product and talent will accelerate our hard surface growth going forward. In addition, we have expanded our soft surface product lines to take advantage of opportunities we perceive in the marketplace. In 2019, we launched Masland California Classics. This collection of 16 styles is manufactured and distributed out of our Santa Anna, California facility which will facilitate shorter delivery times to the core market. In our Dixie Home line, we are expanding the Pacific Living quick ship program, growing our offering from 10 to 19 styles with new retail displays and updated colors. Our Masland and Dixie Home customers in the western United States will benefit from the expansion of this program. Our Envision 6.6 collection, introduced in 2019, has been well received in the marketplace. This new program of products with high-end designs at moderate price points is aimed at reaching a wider range of customers. We have also updated our eNergy main street commercial collection to bring the latest styling and color selection to this segment of the market.

We began our Profit Improvement Plan in late 2017. This Plan included a review of all of our business processes though the primary focus was on the complete restructuring of our commercial business. Subsequent to our starting this plan, a decision by one of our key suppliers to exit the production of commercial piece dyeable yarns caused us to expand the commercial restructuring to be a complete integration of all aspects of the business.

~~As a result of this action, we have completed the combination of our Atlas and Masland businesses into one commercial business, now known as Atlas | Masland Contract. We have spent,~~continued through the third quarter. Sales volume in the commercial markets have continued to be at lower levels. Many of the cost reductions implemented in the second quarter as part of ~~2019, approximately $18.5 million~~our COVID-19 recovery plan have been made permanent even as sales volumes improve. As allowed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we deferred payment of certain payroll related taxes over the second and third quarter in ~~costs to implement the Profit Improvement Plan along with related inventory, intangible asset, and goodwill write-downs. We estimate~~ the total ~~costs~~amount of $1.8 million. We also believe we are eligible for certain employee retention credits as defined in the CARES Act but, due to uncertainties related to the CARES Act, we have deferred recognition of any such credits until further clarification is made available. Despite the improvement in sales activity, as we see a resurgence of cases of COVID-19 and as government authorities consider restoring restrictions that had been previously lifted, we cannot be certain as to any additional future impact of the Plan and related costs, once complete by the end of 2019, to be $18.9 million. The total annualized cost reductions of these restructuring efforts, once fully implemented, is approximately $18.7 million annually, as compared to our cost structure in 2017 when we began this process.

~~Table of Contents~~26

Invista made the decision to exit the production of most piece dyeable yarns for the commercial market, a major source of differentiation for the Atlas product line. Accordingly, we have begun to phase out products dependent on those yarns, and have begun introducing new products to replace those being phased out. The consolidation of our two commercial businesses has aided our response to this change, by reducing costs and simplifying our sales and product development efforts. These consolidation and associated restructuring costs are now substantially complete. We expect to incur $400 in additional consolidation related expenses in the fourth quarter of 2019 mainly due to write downs of dropped products as we continue to rationalize our product offering.

COVID-19 crisis.

During the third quarter of ~~2019,~~2020, our net sales decreased ~~6.0%~~10.0% compared with the third quarter of ~~2018.~~2019. Our residential ~~carpet~~ product sales were ~~down 10.9%~~up 3% for the quarter as compared to the prior ~~year. Our residential carpet sales, without our mass merchant channel,~~year while the industry, we believe, was lower for the third quarter year over year period by 5.1%, thus stronger than our mass merchant channel. Sales to mass merchants have been impacted by one customer's ongoing strategy change regarding product placement of carpet at this mass merchant's retail facilities. We believe this ongoing strategy change by our customer will create a further decline in sales to the mass merchant channelup similarly in the ~~future.~~lower single digits. Commercial product sales decreased ~~0.9%~~41% versus the prior year quarter while the industry, we believe, experienced a decrease inof approximately 25%. Our hard surface product offerings had a year over year sales growth of 76% for the ~~low single digits. Our commercial luxury vinyl flooring sales were up over 40% comparing~~quarter and 59% on the ~~third quarter~~year.

Table of ~~2019 with the same quarter in 2018.~~Contents27

RESULTS OF OPERATIONS

Three and Nine Months Ended September 26, 2020 Compared with the Three and Nine Months Ended September 28, 2019 ~~Compared with Three and Nine Months Ended September 29, 2018~~


	Three Months Ended				Nine Months Ended
	September 26,		September 28,		September 26,		September 28,
	2020		2019		2020		2019
Net Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of Sales	74.1	%	77.9	%	76.5	%	77.7	%
Gross Profit	25.9	%	22.1	%	23.5	%	22.3	%
Selling and Administrative Expenses	22.5	%	22.0	%	24.7	%	22.4	%
Other Operating (Income) Expenses, Net	(0.2)	%	—	%	(0.1)	%	0.1	%
Facility Consolidation and Severance Expenses, Net	0.6	%	1.1	%	0.8	%	1.7	%

Operating Income (Loss)	3.0	%	(1.0)	%	(1.9)	%	(1.9)	%

Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
2019 2018 2019 2018
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of Sales 77.9 % 78.5 % 77.7 % 77.6 %
Gross Profit 22.1 % 21.5 % 22.3 % 22.4 %
Selling and Administrative Expenses 22.0 % 22.7 % 22.4 % 22.8 %
Other Operating (Income) Expenses, Net — % (0.8 )% 0.1 % 0.1 %
Facility Consolidation and Severance Expenses, Net 1.1 % 0.5 % 1.7 % 0.3 %
Impairment of Assets — % .3 % — % 0.1 %
Operating Income (Loss) (1.0 )% (1.2 )% (1.9 )% (0.9 )%

Net Sales

Net sales for the quarter ended September ~~28, 2019~~26, 2020 were ~~$95.4~~$85.9 million, a decrease of ~~6.0%~~10.0% compared with net sales of ~~$101.6~~$95.4 million for the year-earlier quarter. In the third quarter of ~~2019,~~2020, net sales in our residential ~~floorcovering~~markets began recovering from the COVID-19 pandemic. Our commercial markets continue to experience reduced sales ~~decreased 9.5% and~~activity.

For the nine months ended September 26, 2020, net sales were $227.3 million, a 20.1% decrease compared with net sales of ~~commercial floorcovering increased 2.0% compared with the third quarter of 2018.~~

~~Net sales~~$284.4 million for the nine months ended September 28, ~~2019 were $284.4 million, a decrease of 7.3% from the~~2019. The net sales ~~of $306.9 million~~results in ~~the nine months ended September 29, 2018. In~~ the first nine months of ~~2019, net sales~~2020 were negatively impacted by the COVID-19 pandemic and related government restrictions, primarily concentrated within the period of ~~residential products decreased 5.9% and net sales of commercial products decreased 11.9% compared to the first nine months of 2018.~~April through June.

Gross Profit

Gross profit as a percentage of net sales was 25.9% in the third quarter of 2020 compared with 22.1% in the third quarter of ~~2019 compared with 21.5%~~2019. The higher gross profit percentage in 2020 was driven by cost reductions in our manufacturing facilities as part of our Profit Improvement Plan, which was completed in the ~~third quarter of 2018, or a .4 percentage point increase~~prior year, and our COVID-19 Continuity Plan.

Gross profit as ~~a percentage of sales. The improved margin was mainly the result of a more favorable product mix in the commercial business.~~

As a percentage of net sales ~~gross profit declined .1%~~improved by 1.2% in the first nine months of ~~2019~~2020 as compared ~~with~~to the first nine months of ~~2018. This decline~~2019. Cost reductions resulting from our Profit Improvement Plan, which was implemented in the ~~result~~prior year, and net expense reductions from the implementation of ~~lower~~our COVID-19 Continuity Plan contributed to the improved gross profit margin. These cost savings were partially offset by under absorbed fixed costs due to reduced sales volume ~~resulting~~ in ~~under absorbed manufacturing costs.~~the second and third quarter and cost related to the COVID-19 Recovery Plan.

Selling and Administrative Expenses

~~Table of Contents~~27

Selling and administrative expenses were ~~$21.0~~$19.3 million in the third quarter of ~~2019~~2020 compared with ~~$23.0~~$21.0 million in the year earlier period. ~~Selling~~Although sales in the third quarter of 2020 were significantly improved over the second quarter of 2020, many of the cost saving initiatives implemented as part of our response to the COVID-19 pandemic remained in place including savings from temporary and permanent headcount reductions, pay reductions and reduced travel. Despite the significantly lower year over year expenses, selling and administrative expenses as a percent of ~~sales decreased by .7% over~~ the ~~same period~~lower net sales in the ~~prior year. Selling~~third quarter of 2020 were 22.5% as compared to 22.0% in the third quarter of 2019.

For the nine-month period ending September 26, 2020, selling and administrative ~~spending decreased primarily as a~~expenses were $56.3 million compared to $63.8 million in the nine-month period ended September 28, 2019. The reduction in expenses for selling and administrative for

Table of Contents28

the period was the result of cost ~~savings~~cuts in response to the COVID-19 pandemic and cost reductions in place from ~~the actions taken in~~ the Profit Improvement Plan ~~during 2018.~~implemented in previous years.

Selling and administrative expenses were $63.8 million in the first nine months of 2019 compared to $70.0 million in the same period of 2018. The decrease in expenses was primarily the result of cost reductions from the Profit Improvement Plan.

Other Operating (Income) Expense, Net

~~Other~~Net other operating ~~(income) expense,~~income, was a$172 thousand in the third quarter of 2020 compared with net ~~expense~~other operating expenses of $37 thousand in the third quarter of 2019 compared with net income of $845 million in the third quarter of 2018. Third quarter 2019 net expense was primarily driven by loss on disposals offset slightly by gains on exchange rate adjustments. The net income in the third quarter of 2018 was primarily due to a large gain on sale of equipment.

2019. For the ~~nine months~~nine-month period ended September ~~28, 2019,~~26, 2020, other operating ~~(income) expense~~income was ~~a net~~$163 thousand compared to an expense of $145 thousand ~~compared to a net expense of $421 thousand~~ in the ~~first nine months of 2018. 2019~~nine-month period ended September 28, 2019. The expenses were primarily ~~driven by loss on disposal and loss on currency exchange. The primary factors for the net expense in 2018 was~~ the result of net gains on currency exchange rate adjustments and other adjustments during the ~~settlement of a class action litigation partially offset by a gain on sale of equipment.~~period.

Facility Consolidation and Severance Expenses, Net

Facility consolidation and severance expenses ~~associated~~totaled $515 thousand in the third quarter of 2020 compared with ~~the Profit Improvement Plan totaled~~expense of $1.0 million in the third quarter of ~~2019 compared with expense of $529 thousand in the third quarter of 2018.~~2019. The expenses in the third quarter of ~~2019~~2020 were ~~mainly~~ comprised of ~~facility consolidations, related~~ costs ~~of relocating inventory and inventory write downs~~ related to ~~discontinued products.~~

~~For the nine months ended September 28, 2019, facility consolidation~~our COVID-19 Continuity Plan including severance and severance expenses totaled $4.9 million compared to $936 thousand in the same nine month period of the prior year. The expenses for the first nine months of 2019 reflect the higher activity in the period for exiting the plant on the West Coast, consolidating the commercial businesses and rationalizing the product offeringsfinancing related charges, as ~~part of the~~well as residual costs from our Profit Improvement Plan. Facility consolidation expenses recorded in the third quarter of 2019 were part of our Profit Improvement Plan and were primarily made up of workers' compensation related charges.

Operating Income (Loss)

We reported an operating profit of $2.6 million in the third quarter of 2020 compared with an operating loss of $1.0 million in the third quarter of ~~2019 compared with an operating loss of $1.2 million in the third quarter of 2018. Reduced spending in~~2019. Net expense reductions resulting from our Profit Improvement Plan and our COVID-19 Continuity Plan contributed to a higher gross margin and lower selling and administrative ~~expenses~~expenses. Facility and ~~other operating expenses was offset by lower sales and higher facility~~ consolidation expenses ~~in the three months ended September 28, 2019 compared~~related to the ~~three months ended September 29, 2018.~~

For the nine months ended September 28, 2019, we reported an operating loss of $5.3 million compared to an operating loss of $3.0 million in the nine months ended September 29, 2018. The results for the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018COVID-19 Continuity Plan were ~~negatively impacted by lower sales and higher facility consolidation expenses partially offset by lower expenses in other operating expenses and selling and administration expenses.~~

~~Interest Expense~~

~~Interest expense decreased $16 thousand in the first quarter of 2019. The result was driven by changes in debt and the applicable interest rates during the period.~~

For the nine months ended September 28, 2019 compared to the nine months ended September 29, 2018, interest expense increased $245 thousand as a result of changes in debt and the applicable interest rates during the period.

~~Income Tax Provision (Benefit)~~

~~We recorded an income tax benefit of $109~~$515 thousand in the third quarter of 2019 compared to ~~an income tax provision~~facility and consolidation expenses for the third quarter of ~~$40~~2019, related to the Profit Improvement Plan, of $1.0 million.

Interest Expense

Interest expense decreased $87 thousand in the third quarter of ~~2018.~~2020 compared with the third quarter of 2019. Interest expense for the nine months ended September 26, 2020 was $881k lower than the nine-month period ended September 28, 2019. The reduction is the result of generally lower interest rates and lower levels of debt in 2020.

Income Tax Provision (Benefit)

We recorded an income tax provision of $4 thousand in the third quarter of 2020. The adjustment required in the third quarter of 2019 was an income tax benefit of $109 thousand.

The effective tax rate for the nine months ending September ~~28, 2019~~26, 2020 was ~~0.2%~~0.00% compared with ~~a benefit~~an effective tax rate of ~~1.4%~~0.20% for the ~~three~~nine months ending September ~~29, 2018.~~28, 2019. The Company maintains a full valuation allowance against the deferred tax assets resulting in only refundable credits and a small amount of state taxes being recognized in the tax expense for the first nine months of ~~2019.~~2020. The Company is in a net deferred tax liability position of ~~$642 and $568~~$91 at September ~~28, 2019~~26, 2020 and December ~~29, 2018,~~28, 2019, respectively, which is included in other long-term liabilities in the Company's Consolidated Condensed Balance Sheets.

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The Company accounts for uncertainty in income tax positions ~~in accordance with accounting guidelines related~~according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were ~~$476~~$484 and ~~$441~~$480 at September ~~28, 2019~~26, 2020 and December ~~29, 2018,~~28, 2019, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no0 significant interest or penalties accrued as of September ~~28, 2019~~26, 2020 and December ~~29, 2018.~~28, 2019.

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Net Income (Loss)

Continuing operations reflected income of $906 thousand, or $0.06 per diluted share, in the third quarter of 2020 compared with a loss of $2.6 million, or $0.16 per diluted share, in the ~~third quarter of 2019 compared with~~same period in 2019. Discontinued operations reflected a loss of ~~$2.9 million,~~$46 thousand, or ~~$0.19~~$0.00 per diluted share, in the ~~same period in 2018. Discontinued operations reflected~~third quarter of 2020 compared with an income of $23 thousand, or $0.00 per diluted share, in the ~~third quarter~~same period in 2019. Including discontinued operations, the Company had a net income of ~~2019 compared with a loss of $40~~$860 thousand, or ~~$0.00~~$0.06 per diluted share, in the ~~same period in 2018. Including discontinued operations, we had~~third quarter of 2020 compared with a net loss of $2.6 million, or $0.16 per diluted share, in the third quarter of ~~2019 compared with a net loss of $3.0 million, or $0.19 per diluted share, in the third quarter of 2018.~~2019.

For the nine months ended September ~~28, 2019,~~26, 2020, we had a loss from continuing operations of ~~$10.4~~$8.7 million or ~~$0.66 per diluted share. For the same period in 2018 we had a loss of $7.8 million or $0.49 per diluted share. Discontinued operations resulted in a loss of $43 thousand or $0.00~~$0.57 per diluted share ~~for the nine months ended September 28, 2019~~ compared ~~to an income of $94 thousand or $0.01 per diluted share in the first nine months of 2018. Including discontinued operations, we had~~with a ~~net~~ loss of $10.4 million or $0.66 per diluted share in the nine month period ended September 28, ~~2019~~2019. The loss from discontinued operations was $203 thousand or .01 per diluted share for the nine month period ended September 26, 2020 compared ~~with~~to a ~~net~~ loss of ~~$7.7 million~~$43 thousand or ~~$0.48~~$0.00 per diluted share in the nine ~~months~~month period ended September ~~29, 2018.~~28, 2019. The net loss including discontinued operations for the nine month period ended September 26, 2020 was $8.9 million or $0.58 per diluted share compared with a loss of $10.4 million or $0.66 per diluted share in the nine month period ended September 28, 2019.

LIQUIDITY AND CAPITAL RESOURCES

During the nine months ended September ~~28, 2019,~~26, 2020, cash provided by operations was ~~$8.0~~$15.9 million. Accounts receivable increased $1.6 million from the seasonally low 2019 fiscal year end accounts receivable balance. The increase in accounts receivable at September 2020 quarter end reflects the increased sales volume after the initial impact of the COVID-19 pandemic. Planning and production strategies resulted in a decrease in Inventories of $8.6 million. Accounts payable and accrued expenses increased ~~$7.5~~$7.1 million ~~and inventories decreased $6.7 million. This was offset~~primarily driven by ~~an increase~~accruals for raw material purchases in ~~accounts receivable of $2.6 million and an increase in other current assets of $2.7 million. Accounts payable and accrued expenses increased as~~order to replenish inventory to meet the result of the timing of accruals at month end, particularly on payroll. Inventory reductions are the result of positive initiatives in inventory planning. Accounts receivable increased primarily due to seasonal lows at the prior year end. Other current assets were impacted by the timing of payment of prepaid expenses.growing demand.

Purchases of capital assets for the nine months ended September ~~28, 2019~~26, 2020 resulted in a ~~$3.1~~$1.4 million cash out flow to the business. Depreciation and amortization for the nine months ended September ~~28, 2019~~26, 2020 were ~~$8.8~~$8.4 million. We expect capital expenditures to be approximately $4$3.5 million in ~~2019~~2020 while depreciation and amortization is expected to be approximately ~~$11.6~~$10.6 million. Planned capital expenditures in ~~2019~~2020 are primarily for new equipment.

During the nine months ended September ~~28, 2019,~~26, 2020, cash used in financing activities was ~~$4.9~~$15.3 million. We had net ~~borrowings~~payments on ~~finance leases of $11.5 million. We had net reductions to~~ our revolving credit facility of $13.2 million and payments on notes payable and financing leases of ~~$16.4~~$4.8 million. Borrowings under finance leases were $2.2 million related to manufacturing equipment.

At the onset of the COVID-19 Pandemic, management closely evaluated our liquidity needs. We modified our senior credit facility to provide additional flexibility with regard to loan availability during this uncertain period (Amendment 14 to our senior secured credit agreement). This amendment to our senior credit facility increased our borrowing costs slightly and reduced the size of the lending facility to better fit our reduced borrowing base as we continue to reduce our inventories to improve liquidity. To remain in compliance with the loan as amended, we were required to secure an additional fixed asset loan from an unrelated lender. The ~~cash provided~~date by which such additional financing was ~~used~~required to ~~fund~~be obtained was extended by agreement with our senior lender to October 31, 2020. As of September 26, 2020 availability under the ~~operations during~~facility with Wells Fargo Capital Finance was $25.3 million.

After the ~~quarter.~~end of the quarter, the Company replaced its senior credit facility with Wells Fargo Capital Finance with a $75 million, senior secured Revolving Credit Facility with Fifth Third Bank National Association. As of October 30, 2020, availability under the new senior secured facility was $45 million. Additionally, the Company entered into two fixed asset loans in the combined principal amount of $25 million.

We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating ~~conditions~~conditions. We cannot predict, and ~~current sales levels. As~~are unable to know, the long-term impact of the ~~nine months ended September 28, 2019,~~COVID-19 pandemic and the ~~unused borrowing~~related economic consequences or how these events may affect our future liquidity. As noted above and in Footnote 23, availability under ~~our revolving credit facility~~the new Senior Secured Revolving Credit Facility on October 30, 2020 was ~~$24.6~~$45.0 million. Our revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that borrowing availability is less than $16.5 million. Based upon the results for the period ended September 28, 2019, our fixed charge coverage ratio at quarter end was .14, which was less than 1.1 to 1.0, accordingly the unused availability accessible by us was $8.1 million (the amount above $16.5 million) at September 28, 2019. We continually monitor our sources of funding and may seek additional sources of funding to supplement our current liquidity requirements as necessary. We are continuing to improve utilization of our inventories, thus freeing up working capital.

Significant additional cash expenditures above our normal liquidity requirements, or significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources. There can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us.

~~See footnote 24 with regard to subsequent events that had an effect on the company's liquidity.~~

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Contractual Obligations

The following table summarizes our future minimum payments under contractual obligations as of September ~~28, 2019.~~26, 2020.


	Future Undiscounted Payments Due by Period
	(dollars in millions)
	2020		2021		2022		2023		2024		Thereafter		Total
Debt	$	0.4	$	48.5	$	1.3	$	0.7	$	4.6	$	—	$	55.5
Interest - debt (1)	—		0.1		0.1		—		—		—		0.2
Finance leases	1.0		3.6		1.6		2.4		0.3		10.0		18.9
Interest - finance leases	0.4		1.6		1.3		1.0		0.7		6.1		11.1
Operating leases	0.8		3.2		2.9		2.2		2.0		12.3		23.4
Interest - operating leases	0.4		1.5		1.3		1.0		0.9		2.3		7.4
Purchase commitments	0.5		—		—		—		—		—		0.5
Totals	3.5		58.5		8.5		7.3		8.5		30.7		$	117

(1) Interest rates used for variable rate debt were those in effect at September 26, 2020

Future Undiscounted Payments Due by Period
(dollars in millions)
2019 2020 2021 2022 2023 Thereafter Total
Debt $ 0.7
$ 2.6
$ 95.2
$ 0.7
$ 0.4
$ 4.6
$ 104.2
Interest - debt (1) 1.0
4.1
3.1
0.3
0.3
0.3
9.1
Finance leases 1.0
4.0
3.4
1.2
0.5
10.3
20.4
Interest - finance leases 0.3 1.2 1.0 0.8 0.7 6.7 10.7
Operating leases 0.6
2.4
2.0
1.6
0.9
3.4
10.9
Purchase commitments 1.4
—
—
—
—
—
1.4
Totals 5.0
14.3
104.7
4.6
2.8
25.3
$ 156.7

(1) Interest rates used for variable rate debt were those in effect at September 28, 2019

Changes to Critical Accounting Policies

Our critical accounting policies were outlined in Management's Discussion and Analysis of Results of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission. During the first quarter ended March 30, 2019, we adopted the provisions of ASC 842, “Leases”. See Note 2, Recent Accounting Pronouncements and Note 11, Leases, in the notes to the Consolidated Condensed Financial Statements, related to the impact of the adoption on our financial statements and accounting policies.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 2 to the Consolidated Condensed Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk (Dollars in thousands)

Our earnings, cash flows and financial position are exposed to market risks relating to interest rates, among other factors. It is our policy to minimize our exposure to adverse changes in interest rates and manage interest rate risks inherent in funding our Company with debt. We address this financial exposure through a risk management program that includes maintaining a mix of fixed and floating rate debt and the use of interest rate swap agreements (See Note 1312 to the Consolidated Condensed Financial Statements).

~~At September 28, 2019, $43,787, or approximately 35% of our total debt, was subject~~Although the Company could have an exposure to ~~floating~~ interest ~~rates. A one-hundred basis point fluctuation in the variable interest rates applicable~~rate risk related to ~~this~~its floating rate debt, ~~would have an annual after-tax impact~~there was no floating rate debt outstanding as of ~~approximately $324 thousand.~~September 26, 2020.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13(a)-15(e) and 15(d)-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September ~~28, 2019,~~26, 2020, the date of the financial statements included in this Form 10-Q (the “Evaluation Date”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

No changes in our internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is

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subject to lapses in judgment and breakdowns resulting from human failures, as well as diverse interpretation of U. S. generally accepted accounting principles by accounting professionals. It is also possible that internal control over financial reporting can be

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circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. These inherent limitations are known features of the financial reporting process; therefore, while it is possible to design into the process safeguards to reduce such risk, it is not possible to eliminate all risk.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We have been sued, together with ~~the~~ 3M Company and approximately 30 other named defendants and unnamed "fictitious defendants" including various carpet manufacturers and suppliers, in four lawsuits whereby the plaintiffs seek monetary damages and injunctive relief related to the manufacture, supply, and/or use of certain chemical products in the manufacture, finishing, and treatment of carpet products in the Dalton, Georgia area. These chemical products allegedly include without limitation perflourinated compounds ("PFC") such as perflourinated acid ("PFOA") and perfluorooctane sulfonate ("PFOS"). In each lawsuit, the plaintiff(s) alleges that, as a consequence of these actions, these chemical compounds have discharged or leached into the water systems around Dalton and then flow into the waters in or near the water bodies from which the plaintiff(s) draw for drinking water.

Two of these lawsuits were filed in Alabama. The first lawsuit in Alabama was filed on September 22, 2016 by The Water Works and Sewer Board of the City of Gadsden (Alabama) ~~Water Works~~ in the ~~circuit court~~Circuit Court of Etowah County, Alabama ~~[The~~(styled The Water Works and Sewer Board of the City of Gadsden v. 3M Company, et ~~al, civil action~~al., Civil Action No. ~~31-CV-2016-900676.00]~~31-CV-2016-900676.00). The second lawsuit in Alabama was filed on May 15, 2017 by The Water Works and bySewer Board of the Town of Centre (Alabama) ~~Water Works~~ in the ~~circuit court~~Circuit Court of Cherokee County, Alabama ~~[The~~(styled The Water Works and Sewer Board of the Town of Centre v. 3M Company, et ~~al, civil action~~al., Civil Action No. ~~13-CV-2017-900049.00]~~13-CV- 2017-900049.00). ~~Both cases seek monetary~~In each of these Alabama lawsuits, the plaintiff seeks damages ~~and injunctive relief related~~that include but are not limited to the ~~use~~expenses associated with the future installation and operation of ~~certain chemical compounds in~~a filtration system capable of removing from the ~~manufacture and finishing of carpet products “in and around Dalton Georgia.” On motion~~water the chemicals that are allegedly present as a result of the defendants, the cases were removed to the U.S. District Court for the Northern District of Alabama (Middle Division) Case No. 4:16-CV-01755-SGC and Case No. 4:17-CV-01026-KOB. Subsequently, the Gadsden Water Works filed a motion to have the case remanded back to the state court and such motion has been granted. Currently, we have joined several other co-defendants in filing a Petition for Writ of Mandamus with the Alabama Supreme Court asking for an Order directing the trial court to grant our and other codefendants’ motions to dismiss the Alabama-filed actions for lack of personal jurisdiction. The Petitions have been consolidated by the Alabama Supreme Court with the Town of Centre (Alabama) matter (described above). The Petitions are still pending and there is no statutory deadline for the court to issue a decision. The lawsuits allege that perflourinated compounds (“PFC”), perflourinated acid (“PFOA”) and perfluorooctane sulfonate (“PFOS”) manufactured by 3M were used in certain finishingmanufacturing and treatment ~~processes by~~process described above. Each plaintiff requests a jury trial, does not specify an amount of damages other than an assertion that its damages exceed $10,000, and requests injunctive relief. We have answered the ~~defendants and, as a consequence~~complaint in each of such use, were subsequently either discharged into or leached into the water systems around Dalton, Georgia. The Complaints seek damages that exceed $10, but are otherwise unspecified in amount in addition to injunctive relief and punitive damages. Wethese lawsuits, intend to defend ~~the~~those matters vigorously, and are unable to estimate ~~the~~our potential exposure to loss, if any, for these lawsuits at this time.

OnThe other two lawsuits were filed in Georgia. The first lawsuit in Georgia was filed on November ~~16, 2018~~19, 2019 by the City of Rome (Georgia) in the Superior Court of ~~the State~~Floyd County, Georgia (styled The City of ~~California granted preliminary approval of a class action settlement in the matter of Carlos Garcia~~Rome, Georgia v. Fabrica International, Inc. et al Orange County Superior Court Case No. 30-2017-00949461-CU-OE-CXC. The court further approved the procedures for Settlement Class Members to opt-out of or object to the Settlement. The terms of the settlement provide that Fabrica, a wholly owned subsidiary of ours, has agreed to pay $1,514,000 (the “Gross Settlement Amount”) to fully resolve all claims in the Lawsuit, including payments to Settlement Class Members, Class Counsel’s attorneys’ fees and expenses, settlement administration costs, and the Class Representative’s Service Award. The amount of the proposed settlement was recorded during the quarter ended June 30, 2018. The deadline for class members to opt-out was February 1, 2019. The deadline for the plaintiff to file a motion for final approval of the class action settlement was March 29, 2019. The final fairness hearing took place on April 12, 2019 with final approval being granted. See note 24 for subsequent event related to this matter.

We are one of multiple parties to three lawsuits filed in Madison County Illinois, 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, styled Charles Anderson, Pltf., vs. 3M Company, et ~~al,~~ al., No. ~~17-L-525~~19CV02405JFL003). The plaintiff in that case also seeks damages that include without limitation the expenses associated with the future installation and ~~styled Danny Atkins and Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2. All three lawsuits entail~~operation of a ~~claim for damages to be determined in excess~~filtration system capable of ~~$50,000 filed on behalf of either a former employee or~~removing from the ~~estate of an individual which alleges~~water the chemicals that ~~the deceased contracted mesothelioma~~are allegedly present as a result of ~~exposure~~the manufacturing and treatment process described above. The plaintiff requests a jury trial and also seeks injunctive relief. While the amount of damages is unspecified, the plaintiff asserts it has spent "tens of millions" to ~~asbestos while employed by us. Discovery~~remove the chemicals from the county's water supply and will incur additional costs related to removing such chemicals in ~~each matter is ongoing, and a tentative trial date has been set for one of~~ the ~~cases.~~future. We have ~~denied liability, are defending~~answered the ~~matters~~complaint, intend to defend the matter vigorously, and are unable to estimate our potential exposure to loss, if any, at this time. ~~In August~~

The second lawsuit in Georgia was originally filed on November 26, 2019 and is presented as a class action lawsuit by and on behalf of ~~2017,~~a class of persons who obtain drinking water from the ~~lawsuit styled Sandra D. Watts, Individually~~City of Rome, Georgia and ~~as Special Administrator~~the Floyd County Water Department (and similarly situated persons) (generally, for these purposes, residents of ~~the Estate of Dianne Averett, Deceased vs. 4520 Corp., Inc. f/k/a Benjamin F. Shaw~~Floyd County) (styled Jarrod Johnson v. 3M Company, et alal., Civil Action No. ~~12-L-2032~~19-CV-02448-JFL-003) (the "Class Action Lawsuit"). On January 10, 2020, the Class Action Lawsuit was ~~placed in~~removed to the ~~category~~United States District Court for the Northern District of "special closed with settlements and bankruptcy claims pending" to all remaining defendants. In March 2018, the lawsuit styled Charles Anderson, Individually and as Special Administrator of the Estate of Charles Anderson, Deceased vs.Georgia, Rome Division (styled Jarrod Johnson v. 3M Company, et al Civil Action No. ~~17-L-525 was dismissed~~4:20-CV-0008-AT). The plaintiffs in this case allege their damages include without ~~prejudice. In October 2018,~~limitation the ~~lawsuit styled Danny Atkins~~surcharges incurred for the costs of partially filtering the chemicals from their drinking water. The Complaint requests a jury trial and ~~Pamela Atkins, Pltfs., vs. Aurora Pump Company, et al. No. 18-L-2 was dismissed without prejudice.~~

asserts damages unspecified in amount, in addition to requests for injunctive relief. We have ~~been sued in~~filed a response to the matter styled: The Canyons Grand Summit Resort Hotel Owners Association, Inc. v. The Dixie Group Inc. d/b/a Masland Contract Carpet, Case No. 190500139, in the Third District Court, State of Utah, Summit County, Silver Summit Department, which was filed on March 29, 2019. This claim seeks monetary damages of $500,000 over carpet sold for installation in a condominium complex. The Company intendsComplaint, intend to defend the matter vigorously, and isare unable to estimate ~~the~~our potential exposure, ~~to loss,~~ if any, at this time.

See Note 21 under the Notes to Consolidated Condensed Financial Statements for discussion of a series of workers compensation claims filed related to the closure of manufacturing facilities in California.

Item 1A. Risk Factors

In addition to the other information provided in this Report, the following risk factors should be considered when evaluating the results of our operations, future prospects and an investment in shares of our Common Stock. Any of these factors could cause our actual financial results to differ materially from our historical results, and could give rise to events that might have a material adverse effect on our business, financial condition and results of operations.

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Our financial condition and results or operations may be adversely impacted by the COVID-19 pandemic and the related downturn in economic conditions.

The COVID-19 outbreak has been declared a pandemic, and the virus continues to spread in areas where we operate and sell our products and services. The COVID-19 outbreak could have a material adverse effect on our ability to operate, our results of operations, financial condition, liquidity, our near term and long term ability to stay in compliance with debt covenants under our Senior Credit Facility, our ability to refinance our existing indebtedness, and our ability to gain new financing. Public health organizations have recommended, and many governments have implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Such preventive measures may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services. These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing. Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

The floorcovering industry is sensitive to changes in general economic conditions and a decline in residential or commercial construction activity or corporate remodeling and refurbishment could have a material adverse effect on our business.

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

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

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

A significant amount of our sales are generated through a certain mass merchant retailer. ~~A significant reduction~~We have seen a change in strategy by this customer to emphasize products at a lower price point than we currently offer which has adversely affected our sales to this customer. Further reductions of sales through this channel could adversely affect our business. Such a shift could also occur if this retailer decided to reduce the amount of emphasis on soft surface flooring or determine that our concentration of better goods was not advantageous to their marketing program. ~~We have seen a change in strategy by this customer to emphasize products at a lower price point than we currently offer.~~

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

We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability, or the value of our assets securing our loans could have a material adverse effect on our ability to generate sufficient funds to satisfy the terms of our senior loan agreements and other debt obligations. Additionally, the inability to access debt or equity markets at competitive rates in sufficient amounts to satisfy our obligations could adversely impact our business. Further, our trade relations depend on our economic viability and insufficient capital could harm our ability to attract and retain customers and or supplier relationships.

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

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

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If our stock price ~~were to fall~~remains below $1.00 for an extended time, our common stock may be subject to delisting from The NASDAQ Stock Market.

NASDAQ Marketplace Rule 5550(a)(2) requires that, for continued listing on the exchange, we must maintain a minimum bid price of $1 per share. Should the price of our stock close below $1 per share for 30 consecutive business days we will have 180 days to bring the price per share up above $1. ~~As of September 11, 2019~~We received notice from NASDAQ on April 28, 2020 that our stock ~~has~~had closed ~~above~~below $1 per share for 30 consecutive business ~~days and therefore we are now in~~days. In response to the coronavirus pandemic, NASDAQ delayed beginning the applicable 180 day period within which to regain compliance ~~with NASDAQ rules. However, if~~to June 30, 2020. If we are not able to regain compliance before December 28, 2020, we may be eligible for an additional 180 days provided we meet other listing requirements. To the extent that we are unable to stay in compliance with the relevant NASDAQ bid price listing rule, there is a risk that our common stock may be delisted from NASDAQ, which would adversely impact liquidity of our common stock and potentially result in even lower bid process for our common stock.

Our stock price has been and could remain volatile, which could further adversely affect the market price of our stock, our ability to raise additional capital and/or cause us to be subject to securities class action litigation.

The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress in restructuring our business, our quarterly operating results, our perceived prospects, lack of securities analysts’ recommendations or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic relationships, significant sales of our common stock by existing stockholders, and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. Such market price volatility could adversely affect our ability to raise additional capital. In addition, we may be subject to securities class

~~Table of Contents~~33

action litigation as a result of volatility in the price of our common stock, which could result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business, prospects, results of operations and financial condition

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

The floorcovering industry is highly competitive. We face competition from a number of domestic manufacturers and independent distributors of floorcovering products and, in certain product areas, foreign manufacturers. Significant consolidation within the floorcovering industry has caused a number of our existing and potential competitors to grow significantly larger and have greater access to resources and capital than we do. Maintaining our competitive position may require us to make substantial additional investments in our product development efforts, manufacturing facilities, distribution network and sales and marketing activities. These additional investments may be limited by our access to capital, as well as restrictions set forth in our credit facilities. Competitive pressures and the accelerated growth of hard surface alternatives, have resulted in decreased demand for our soft floorcovering products and in the loss of market share to hard surface products. As a result, competition from providers of other soft surfaces has intensified and may result in decreased demand for our products. In addition, we face, and will continue to face, competitive pressures on our sales price and cost of our products. As a result of any of these factors, there could be a material adverse effect on our sales and profitability.

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

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. In addition, long lead times for certain products may make it hard for us to quickly respond to changes in consumer demands. Recently we have seen the supply of white dyeable yarns for the commercial business decline and that has forced us to transition to new products faster than was originally intended. If we fail to successfully replace those products with equally desirable products to the marketplace, we will lose sales volume. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of flooring products or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels, which could have a material adverse effect on our financial condition.

Raw material prices may vary and the inability to either offset or pass on such cost increases or avoid passing on decreases larger than the cost decrease to our customers could have a material adverse effect on our business, results of operations and financial condition.

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

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

Nylon yarn is the principal raw material used in our floorcovering products. A significant portion of such yarn is purchased from one supplier. Our yarn supplier is one of the leading fiber suppliers within the industry and is the exclusive supplier of certain innovative branded fiber technology upon which we rely. We believe our offerings of this innovative fiber technology contribute materially to the competitiveness of our products. While we believe there are other sources of nylon yarns, an unanticipated termination or interruption of our current supply of branded nylon yarn could have a material adverse effect on our ability to supply our product to our customers and have a material adverse impact on our competitiveness if we are unable to replace our nylon supplier with another supplier that can offer similar innovative and branded fiber products. Recently, we have had a disruption in our supply of white dyeable yarns for the commercial market place which has resulted in usour taking additional charges for the write down of certain inventories. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material adverse effect on our business. We continually evaluate our sources of yarn for competitive costs, performance characteristics, brand value, and diversity of supply.

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

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

The long-term performance of our business relies on our ability to attract, develop and retain qualified personnel.

To be successful, we must attract, develop and retain qualified and talented personnel in management, sales, marketing, product design and operations. We compete with other floorcovering companies for these employees and invest resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect our business, financial condition and results of operations.

We are subject to various governmental actions that may interrupt our supply of materials.

We import most of our luxury vinyl flooring ("LVF"), some of our wood offering, some of our rugs and broadloom offerings. Though currently a small part of our business, the growth in LVF products is an important product offering to provide our customers a complete selection of flooring alternatives. Recently there have been trade proposals that threatened these product categories with added tariffs which would make our offerings less competitive compared to those manufactured in other countries or produced domestically. These proposals, if enacted, or if expanded, or imposed for a significant period of time, would materially interfere with our ability to successfully enter into these product categories and could have a material adverse effect upon the company's cost of goods and results of operations.

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

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

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

We are subject to various environmental, safety and health regulations that may subject us to costs, liabilities and other obligations, which could have a material adverse effect on our business, results of operations and financial condition.

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

~~Table of Contents~~35

example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our business.

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

•Discharge to air and water;

•Handling and disposal of solid and hazardous substances and waste, and

•Remediation of contamination from releases of hazardous substances in our facilities and off-site disposal locations.

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

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

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

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

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Common Stock

The following table provides information regarding our repurchases of our Common Stock Shares during the three months ended September ~~28, 2019:~~26, 2020:


Fiscal Month Ending	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or approximate dollar value) of Shares That May Yet Be Purchased Under Plans or Programs
August 1, 2020	—	$	—	—
August 29, 2020	—	—		—
September 26, 2020	—	—		—
Three Months Ended September 26, 2020	—	$	—	—	$	4,878,000

The company has discontinued its stock repurchase program as announced and implemented in the fourth quarter of 2019.



Class						Outstanding as of October ~~31, 2019~~30, 2020
Common Stock, $3 Par Value						~~15,525,141~~14,933,373 shares
Class B Common Stock, $3 Par Value						~~836,669~~880,313 shares
Class C Common Stock, $3 Par Value						0 shares


	September 26, 2020		December 28, 2019
ASSETS	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	19	$	769
Receivables, net	38,718		37,138
Inventories, net	86,942		95,509
Prepaids and other current assets	5,007		6,179
TOTAL CURRENT ASSETS	130,686		139,595

PROPERTY, PLANT AND EQUIPMENT, NET	60,151		65,442
OPERATING LEASE RIGHT-OF-USE ASSETS	22,861		24,835

OTHER ASSETS	17,631		17,787
TOTAL ASSETS	$	231,329	$	247,659

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	22,093	$	16,084
Accrued expenses	27,383		25,418
Current portion of long-term debt	5,724		6,684
Current portion of operating lease liabilities	3,287		3,172
TOTAL CURRENT LIABILITIES	58,487		51,358

LONG-TERM DEBT	68,263		81,667
OPERATING LEASE LIABILITIES	20,191		22,123
OTHER LONG-TERM LIABILITIES	20,262		19,300
TOTAL LIABILITIES	167,203		174,448

COMMITMENTS AND CONTINGENCIES (See Note 18)

STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and outstanding - 14,933,373 shares for 2020 and 15,025,087 shares for 2019	44,800		45,075
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 880,313 shares for 2020 and 836,669 shares for 2019	2,641		2,510
Additional paid-in capital	157,730		157,547
Accumulated deficit	(140,002)		(131,113)
Accumulated other comprehensive loss	(1,043)		(808)
TOTAL STOCKHOLDERS' EQUITY	64,126		73,211
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	231,329	$	247,659



	September 28, 2019			December 29, 2018
ASSETS	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	19		$	18
Receivables, net	44,980			42,542
Inventories, net	98,507			105,195
Prepaids and other current assets	7,174			5,204
TOTAL CURRENT ASSETS	150,680			152,959

PROPERTY, PLANT AND EQUIPMENT, NET	78,594			84,111
OPERATING LEASE RIGHT-OF-USE ASSETS	7,795			—
OTHER ASSETS	17,140			15,708
TOTAL ASSETS	$	254,209		$	252,778

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	21,192		$	17,779
Accrued expenses	33,724			30,852
Current portion of long-term debt	7,100			7,794
Current portion of operating lease liabilities	1,821			—
TOTAL CURRENT LIABILITIES	63,837			56,425

LONG-TERM DEBT	117,049			120,251
OPERATING LEASE LIABILITIES	6,390			—
OTHER LONG-TERM LIABILITIES	19,039			17,118
TOTAL LIABILITIES	206,315			193,794

COMMITMENTS AND CONTINGENCIES (See Note 19)

STOCKHOLDERS' EQUITY
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and outstanding - 15,525,141 shares for 2019 and 15,522,588 shares for 2018	46,575			46,568
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 836,669 shares for 2019 and 839,304 shares for 2018	2,510			2,518
Additional paid-in capital	156,766			156,390
Accumulated deficit	(156,826		)	(146,384		)
Accumulated other comprehensive income (loss)	(1,131		)	(108		)
TOTAL STOCKHOLDERS' EQUITY	47,894			58,984
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	254,209		$	252,778


	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019

NET SALES	$	85,920	$	95,447	$	227,321	$	284,448
Cost of sales	63,679		74,373		173,843		220,962
GROSS PROFIT	22,241		21,074		53,478		63,486

Selling and administrative expenses	19,335		21,036		56,254		63,810
Other operating (income) expense, net	(172)		37		(163)		145
Facility consolidation and severance expenses, net	515		1,043		1,785		4,859
Impairment of assets	0		0		0		3
OPERATING INCOME (LOSS)	2,563		(1,042)		(4,398)		(5,331)

Interest expense	1,561		1,648		4,204		5,085
Other expense (income), net	92		(4)		85		(42)


INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES	910		(2,686)		(8,687)		(10,374)
Income tax provision (benefit)	4		(109)		0		25
INCOME (LOSS) FROM CONTINUING OPERATIONS	906		(2,577)		(8,687)		(10,399)
Income (loss) from discontinued operations, net of tax	(46)		23		(203)		(43)

NET INCOME (LOSS)	$	860	$	(2,554)	$	(8,890)	$	(10,442)

BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations	$	0.06	$	(0.16)	$	(0.57)	$	(0.66)
Discontinued operations	(0.00)		(0.00)		(0.01)		0.00

Net income (loss)	$	0.06	$	(0.16)	$	(0.58)	$	(0.66)

BASIC SHARES OUTSTANDING	15,334		15,899		15,340		15,864

DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations	$	0.06	$	(0.16)	$	(0.57)	$	(0.66)
Discontinued operations	(0.00)		(0.00)		(0.01)		0.00

Net income (loss)	$	0.06	$	(0.16)	$	(0.58)	$	(0.66)

DILUTED SHARES OUTSTANDING	15,454		15,899		15,340		15,864

DIVIDENDS PER SHARE:
Common Stock	$	0	$	0	$	0	$	0
Class B Common Stock	0		0		0		0



	Three Months Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
NET SALES	$	95,447		$	101,562		$	284,448		$	306,858
Cost of sales	74,373			79,675			220,962			238,247
GROSS PROFIT	21,074			21,887			63,486			68,611

Selling and administrative expenses	21,036			23,033			63,810			69,954
Other operating expense (income), net	37			(845		)	145			421
Facility consolidation and severance expenses, net	1,043			529			4,859			936
Impairment of assets	—			349			3			349
OPERATING LOSS	(1,042		)	(1,179		)	(5,331		)	(3,049		)

Interest expense	1,648			1,664			5,085			4,840
Other income, net	(4		)	(3		)	(42		)	—
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES	(2,686		)	(2,840		)	(10,374		)	(7,889		)
Income tax (benefit) provision	(109		)	82			25			(110		)
LOSS FROM CONTINUING OPERATIONS	(2,577		)	(2,922		)	(10,399		)	(7,779		)
Income (loss) from discontinued operations, net of tax	23			(40		)	(43		)	94
NET LOSS	$	(2,554	)	$	(2,962	)	$	(10,442	)	$	(7,685	)

BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations	$	(0.16	)	$	(0.19	)	$	(0.66	)	$	(0.49	)
Discontinued operations	0.00			(0.00		)	(0.00		)	0.01
Net loss	$	(0.16	)	$	(0.19	)	$	(0.66	)	$	(0.48	)

BASIC SHARES OUTSTANDING	15,899			15,786			15,864			15,754

DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations	$	(0.16	)	$	(0.19	)	$	(0.66	)	$	(0.49	)
Discontinued operations	0.00			(0.00		)	(0.00		)	0.01
Net loss	$	(0.16	)	$	(0.19	)	$	(0.66	)	$	(0.48	)

DILUTED SHARES OUTSTANDING	15,899			15,786			15,864			15,754

DIVIDENDS PER SHARE:
Common Stock	$	—		$	—		$	—		$	—
Class B Common Stock	—			—			—			—


~~(1)~~	(1) Amounts for cash flow hedges reclassified from accumulated other comprehensive income (loss) to net 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.



	September 28, 2019			December 29, 2018
Customers, trade	$	42,844		$	40,121
Other receivables	2,418			2,595
Gross receivables	45,262			42,716
Less: allowance for doubtful accounts	(282		)	(174		)
Receivables, net	$	44,980		$	42,542


	September 26, 2020		December 28, 2019
Land and improvements	$	3,422	$	3,422
Buildings and improvements	51,479		51,432
Machinery and equipment	181,858		179,993
Assets under construction	1,466		1,459
	238,225		236,306
Accumulated depreciation	(178,074)		(170,864)
Property, plant and equipment, net	$	60,151	$	65,442


	September 26, 2020		December 28, 2019
Compensation and benefits	$	9,729	$	8,804
Provision for customer rebates, claims and allowances	8,053		7,682
Advanced customer deposits	3,285		4,685
Outstanding checks in excess of cash	771		0
Other	5,545		4,247
Accrued expenses	$	27,383	$	25,418


	September 26, 2020		December 28, 2019
Revolving credit facility	$	46,465	$	59,693
Notes payable - buildings	6,005		6,213
Notes payable - equipment and other	3,018		3,533
Finance lease - buildings	11,180		11,296
Finance lease obligations	7,746		8,187
Deferred financing costs, net	(427)		(571)
Total long-term debt	73,987		88,351
Less: current portion of long-term debt	5,724		6,684
Long-term debt	$	68,263	$	81,667


	Balance Sheet Location	September 26, 2020		December 28, 2019
Operating Leases:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	22,861	$	24,835

Current portion of operating lease liabilities	Current portion of operating lease liabilities	3,287		3,172
Noncurrent portion of operating lease liabilities	Operating lease liabilities	20,191		22,123
Total operating lease liabilities		$	23,478	$	25,295

Finance Leases:
Finance lease right-of-use assets (1)	Property, plant, and equipment, net	$	15,123	$	15,152

Current portion of finance lease liabilities (1)	Current portion of long-term debt	3,842		4,011
Noncurrent portion of finance lease liabilities (1)	Long-term debt	15,084		15,472
		$	18,926	$	19,483


	September 26, 2020		September 28, 2019
Weighted average remaining lease term (in years):
Operating leases	7.89		6.20
Finance leases (1)	11.71		11.80

Weighted average discount rate:
Operating leases	6.93	%	8.51	%
Finance leases (1)	9.08	%	6.69	%

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	3,706		2,534
Operating cash flows from finance leases (1)	1,067		1,039
Financing cash flows from finance leases (1)	2,767		3,122



	~~September 28, 2019~~
~~Weighted average remaining lease term (in years):~~
~~Operating leases~~	~~6.20~~
~~Finance leases~~	~~11.80~~

~~Weighted average discount rate:~~
~~Operating leases~~	~~8.51~~	%
~~Finance leases~~	~~6.69~~	%

~~Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 28, 2019:~~
~~Operating cash flows from operating leases~~	~~2,534~~
~~Operating cash flows from finance leases~~	~~1,039~~
~~Financing cash flows from finance leases~~	~~3,122~~


Fiscal Year	Operating Leases	Finance Leases
2020	1,246	1,405
2021	4,701	5,240
2022	4,188	2,887
2023	3,247	3,409
2024	2,940	1,045
Thereafter	14,529	16,039
Total future minimum lease payments (undiscounted)	30,851	30,025
Less: Present value discount	7,373	11,099
Total lease liability	23,478	18,926


	September 26, 2020		December 28, 2019		Fair Value Hierarchy Level



Liabilities:
Interest rate swaps (1)	$	2,020	$	1,653	Level 2


	September 26, 2020				December 28, 2019
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	19	$	19	$	769	$	769


Financial liabilities:
Long-term debt, including current portion	55,061		56,685		68,868		72,115
Finance leases, including current portion	18,926		20,054		19,483		20,361
Operating leases, including current portion	23,478		23,478		25,295		25,295
Interest rate swaps	2,020		2,020		1,653		1,653


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	(1)	September 1, 2015 through September 1, 2021	3.304%	1 Month LIBOR
Interest rate swap	$	5,900	(2)	November 7, 2014 through November 7, 2024	4.500%	1 Month LIBOR


	Location on Consolidated Balance Sheets	Fair Value
		September 26, 2020		December 28, 2019






Liability Derivatives:
Derivatives designated as hedging instruments:
Interest rate swaps, current portion	Accrued expenses	$	1,581	$	841
Interest rate swaps, long-term portion	Other long-term liabilities	344		812

Derivatives not designated as hedging instruments:
Interest rate swaps, current portion	Accrued expenses	95		0

Total Liability Derivatives		$	2,020	$	1,653


	Amount of Gain or (Loss) Recognized in AOCIL on the effective portion of the Derivative
	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	(25)	$	(159)	$	(1,300)	$	(1,264)

	Amount of Gain (Loss) Reclassified from AOCIL on the effective portion into Earnings (1)(2)
	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	(420)	$	(125)	$	(993)	$	(263)
	Amount of Gain or (Loss) Recognized on the Dedesignated Portion in Income on Derivative (3)
	Three Months Ended				Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Derivatives designated as hedging instruments:
Cash flow hedges - interest rate swaps	$	(95)	$	0	$	(95)	$	0


~~(1)~~	~~The amount of gain (loss) reclassified from AOCIL is included in interest expense on the Company's consolidated condensed financial statements.~~


~~(2)~~	~~The amount of loss expected to be reclassified from AOCIL into earnings during the next 12 months subsequent to September 28, 2019 is $799.~~


~~(1)~~	~~Includes Common and Class B Common shares, excluding 461 thousand unvested participating securities.~~


	Interest Rate Swaps		Post-Retirement Liabilities		Total
Balance at December 28, 2019	$	(1,048)	$	240	$	(808)
Unrealized loss on interest rate swaps	(1,300)		—		(1,300)
Reclassification of loss into earnings from interest rate swaps, net of tax of $0	993		—		993
Reclassification of unrealized loss into earnings from dedesignated interest rate swaps, net of tax of $0	95		—		95

Reclassification of net actuarial gain into earnings from postretirement benefit plans	—		(20)		(20)
Reclassification of prior service credits into earnings from postretirement benefit plans	—		(3)		(3)
Balance at September 26, 2020	$	(1,260)	$	217	$	(1,043)



									As of September 28, 2019
	Accrued Balance at December 29, 2018		2019 Expenses To Date (1)		2019 Cash Payments		Accrued Balance at September 28, 2019		Total Costs Incurred To Date		Total Expected Costs
Corporate Office Consolidation Plan	$	98	$	11	$	63	$	46	$	827	$	831
Profit Improvement Plan	846		4,848		5,327		367		8,642		9,038
Total All Plans	$	944	$	4,859	$	5,390	$	413	$	9,469	$	9,869

Asset Impairments	$	—	$	3	$	—	$	—	$	3,323	$	3,323

	Accrued Balance at December 30, 2017		2018 Expenses To Date (1)		2018 Cash Payments		Accrued Balance at September 29, 2018
Corporate Office Consolidation Plan	$	171	$	6	$	61	$	116
Profit Improvement Plan	334		930		918		346
Totals	$	505	$	936	$	979	$	462

Asset Impairments	$	—	$	349	$	—	$	—


									As of September 26, 2020
	Accrued Balance at December 28, 2019		2020 Expenses To Date (1)		2020 Cash Payments		Accrued Balance at September 26, 2020		Total Costs Incurred To Date		Total Expected Costs
Corporate Office Consolidation Plan	$	38	$	5	$	43	$	0	$	834	$	834
Profit Improvement Plan	305		391		589		107		9,191		9,191
COVID-19 Continuity Plan	$	0	$	1,389	$	1,231	$	158	$	1,389	$	1,389	(2)
Total All Plans	$	343	$	1,785	$	1,863	$	265	$	11,414	$	11,414

Asset Impairments	$	0	$	0	$	0	$	0	$	3,323	$	3,323

	Accrued Balance at December 29, 2018		2019 Expenses To Date (1)		2019 Cash Payments		Accrued Balance at September 28, 2019
Corporate Office Consolidation Plan	$	98	$	11	$	63	$	46
Profit Improvement Plan	846		4,848		5,327		367
Totals	$	944	$	4,859	$	5,390	$	413

Asset Impairments	$	0	$	3	$	0	$	0


~~31.2~~	~~CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~


~~32.1~~	~~CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~


~~32.2~~	~~CFO Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~


~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~


~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~


~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~


~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~



						THE DIXIE GROUP, INC.
						(Registrant)

Date: November 6, ~~2019~~2020						By: /s/ ~~JON A. FAULKNER~~Allen L. Danzey
						~~Jon A. Faulkner~~ Allen L. Danzey Vice President and Chief Financial Officer