The Dixie Group Reports Third Quarter 2009 Results

October 27, 2009 7:30 AM EDT

CHATTANOOGA, Tenn.--(BUSINESS WIRE)-- The Dixie Group, Inc. (NASDAQ: DXYN) today reported financial results for the third quarter and nine months ended September 26, 2009. For the third quarter of 2009, the Company reported a loss from continuing operations of $2,017,000, or $0.16 per diluted share, compared with a loss from continuing operations of $732,000, or $0.06 per diluted share, for the third quarter of 2008. Sales for the third quarter of 2009 were $50,487,000, down 31% from $72,917,000 in the year-earlier quarter.

For the nine months ended September 26, 2009, the loss from continuing operations was $38,442,000, or $3.13 per diluted share, compared with income from continuing operations of $633,000, or $0.05 per diluted share for the nine-month period in 2008. Sales for the year-to-date period in 2009 were $150,698,000, down 32% from $220,794,000 reported in the prior-year period.

Results for the third quarter of 2009 were affected by $563,000 of pre-tax costs for facility consolidations and severance expenses related to the implementation of the Company's cost-reduction plans. Lower inventories in 2009 resulted in liquidations of LIFO inventory carried at lower costs established in prior years, increasing pre-tax income by $116,000 for the third quarter and $1,136,000 for the nine-month period of 2009. Results for the year to date in 2009 were also affected by the write-off of the Company's remaining goodwill, together with facility consolidation and severance expenses. For the first nine months of 2009, these expenses aggregated $33,701,000, of which $31,406,000 were non-cash.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "The third quarter performance was similar to the second - with carpet sales down in the 30% range. We experienced improvement in the residential market during the quarter but continued weakness in the commercial sector. As we have stated previously, our objective is to reduce costs and return to profitability at the current business activity level.

"The actions taken beginning in 2008 to reduce costs have resulted in 28% fewer associates and should produce cost reductions of approximately $23 million to $25 million by 2010. We continue to review our cost position to insure our return to profitability.

"Our initial action under the cost reduction plan consisted primarily of consolidating our East Coast and West Coast tufting facilities along with other cost-cutting efforts. This program will be complete by year-end 2009.

"The second phase of our cost reduction initiative, as described in our second quarter earnings release, realigned our three residential units into one business unit with three distinct brands. This action is progressing well, and we expect to begin seeing savings from this realignment in the fourth quarter - with the full effect to be felt early next year.

"Our plans to reduce inventory and limit capital expenditures have continued. Inventories were down 7% in the third quarter compared with second quarter, and were down 21% compared with inventory levels at the beginning of the year. Capital expenditures for the year to date were $2.2 million, or 21% of depreciation and amortization. Earlier capital expenditure plans included approximately $3.2 million of equipment with new manufacturing technology, which we subsequently obtained under an operating lease. Total debt was reduced $2.7 million during the third quarter and $16.6 million year to date, due to lower working capital and capital expenditures.

"As past experience has shown us, we generally see the residential business return ahead of the commercial business. Since we normally see a pickup of sales in our residential business in the fourth quarter of the year, we are hopeful that we will experience similar results this year. We cannot predict how long the current economic downturn will last nor its impact on the markets we serve, but we continue to make those changes that will allow us to weather the current economic storm and that will benefit our business when market conditions improve," Frierson concluded.

The Company's income from discontinued operations was $23,000, or $0.00 per diluted share, for the third quarter of 2009, compared with a loss from discontinued operations of $101,000, or $0.01 per diluted share, for the third quarter of 2008. Including discontinued operations, the Company reported a net loss of $1,994,000, or $0.16 per diluted share, for the third quarter of 2009 compared with a net loss of $833,000, or $0.07 per diluted share, for the year-earlier period. For the year-to-date period in 2009, the Company's loss from discontinued operations was $176,000, or $0.01 per diluted share, compared with a loss of $167,000, or $0.01 per diluted share, in the prior-year period. Including discontinued operations and the aforementioned unusual costs, the Company reported a net loss of $38,618,000, or $3.14 per diluted share, for the first nine months of fiscal 2009 compared with net income of $466,000, or $0.04 per diluted share, for the year-earlier period.

A listen-only Internet simulcast and replay of Dixie's conference call may be accessed with appropriate software at the Company's web site or at www.earnings.com. The simulcast will begin at approximately 11:00 a.m. Eastern Time on October 27, 2009. A replay will be available approximately two hours later and will continue for approximately 30 days. If Internet access is unavailable, a listen-only telephonic conference will be available by dialing (913) 981-5567 at least ten minutes before the appointed time. A seven-day telephonic replay will be available two hours after the call ends by dialing (719) 457-0820 and entering 2741173 when prompted for the access code.

The Dixie Group (www.thedixiegroup.com) is a leading marketer and manufacturer of carpet and rugs to higher-end residential and commercial customers through the Fabrica International, Masland Carpets, Dixie Home and Whitespace brands.

Statements in this news release, which relate to the future, are subject to risk factors and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Such factors include the levels of demand for the products produced by the Company. Other factors that could affect the Company's results include, but are not limited to, raw material and transportation costs related to petroleum prices, the cost and availability of capital, and general economic and competitive conditions related to the Company's business. Issues related to the availability and price of energy may adversely affect the Company's operations. Additional information regarding these and other risk factors and uncertainties may be found in the Company's filings with the Securities and Exchange Commission.

THE DIXIE GROUP, INC.

Consolidated Condensed Statements of Operations

(unaudited; in thousands, except earnings per share)

                                Three Months Ended      Nine Months Ended

                                Sept. 26,   Sept. 27,   Sept. 26,    Sept. 27,
                                            2008        2009         2008
                                2009

NET SALES                       $ 50,487    $ 72,917    $ 150,698    $ 220,794

Cost of sales                     36,911      54,029      113,166      158,796

GROSS PROFIT                      13,576      18,888      37,532       61,998

Selling and administrative        14,857      18,733      45,338       56,754
expenses

Other operating income            (212   )    (56    )    (560    )    (292    )

Other operating expense           79          178         384          546

Facility consolidation and
severance                         563         ---         2,295        ---
expenses

Impairment of goodwill            ---         ---         31,406       ---

OPERATING INCOME (LOSS)           (1,711 )    33          (41,331 )    4,990

Interest expense                  1,347       1,483       4,243        4,414

Other income                      (20    )    (165   )    (339    )    (348    )

Other expense                     146         5           167          31

Income (loss) from continuing     (3,184 )    (1,290 )    (45,402 )    893
operations before income taxes

Income tax provision (benefit)    (1,167 )    (558   )    (6,960  )    260

Income (loss) from continuing     (2,017 )    (732   )    (38,442 )    633
operations

Income (loss) from
discontinued operations, net      23          (101   )    (176    )    (167    )
of tax

NET INCOME (LOSS)               $ (1,994 )  $ (833   )  $ (38,618 )  $ 466

BASIC EARNINGS (LOSS) PER
SHARE:

Continuing operations           $ (0.16  )  $ (0.06  )  $ (3.13   )  $ 0.05

Discontinued operations           0.00        (0.01  )    (0.01   )    (0.01   )

Net income (loss)               $ (0.16  )  $ (0.07  )  $ (3.14   )  $ 0.04

DILUTED EARNINGS (LOSS) PER
SHARE:

Continuing operations           $ (0.16  )  $ (0.06  )  $ (3.13   )  $ 0.05

Discontinued operations           0.00        (0.01  )    (0.01   )    (0.01   )

Net income (loss)               $ (0.16  )  $ (0.07  )  $ (3.14   )  $ 0.04

Weighted-average shares
outstanding:

Basic                             12,325      12,345      12,283       12,515

Diluted                           12,325      12,345      12,283       12,625

THE DIXIE GROUP, INC.

Consolidated Condensed Balance Sheets

(in thousands)

                                            Sept. 26,    Dec. 27,
                                            2009         2008

ASSETS                                      (Unaudited)

Current Assets

Cash and cash equivalents                   $ 102        $ 113

Receivables, net                              25,102       32,976

Inventories                                   59,153       75,167

Other                                         5,063        5,893

Total Current Assets                          89,420       114,149

Net Property, Plant and Equipment             84,187       94,060

Goodwill                                      ---          33,406

Other Assets                                  12,672       11,048

TOTAL ASSETS                                $ 186,279    $ 252,663

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued expenses       $ 23,415     $ 27,691

Current portion of long-term debt             8,959        8,832

Total Current Liabilities                     32,374       36,523

Long-Term Debt

Senior indebtedness                           55,303       68,549

Capital lease obligations                     791          1,806

Convertible subordinated debentures           12,162       14,662

Deferred Income Taxes                         3,450        10,713

Other Liabilities                             11,660       12,822

Stockholders' Equity                          70,539       107,588

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 186,279    $ 252,663

    Source: The Dixie Group, Inc.

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