The Dixie Group Reports Year-End 2008 Results

Business Wire, Feb 25, 2009

CHATTANOOGA, Tenn. -- The Dixie Group, Inc. (NASDAQ:DXYN) today reported financial results for the fourth quarter and fiscal year ended December 27, 2008. In the fourth quarter 2008, the Company recorded $29,916,000 of costs for goodwill and asset impairments and for consolidation and severance expenses, of which $27,599,000 were non-cash expenses. In the fourth quarter 2007, the Company merged its only remaining defined benefit pension plan into a multi-employer pension plan and ceased to be a plan sponsor. The Company incurred $1,518,000 of principally non-cash expenses relating to that merger.

Including the unusual items, the Company reported a loss from continuing operations of $31,761,000, or $2.59 per diluted share, in the fourth quarter of 2008, compared with income from continuing operations of $1,746,000, or $0.14 per diluted share, for the fourth quarter of 2007. Excluding the unusual items, the non-GAAP loss from continuing operations was $4,077,000, or $0.33 per diluted share, for the fourth quarter of 2008 compared with non-GAAP income from continuing operations of $2,769,000 or $0.21 per diluted share, for the fourth quarter of 2007. Sales for the fourth quarter of 2008 were $61,916,000, down 22% from $79,517,000 in the year-earlier quarter.

For the fiscal year ended December 27, 2008, the loss from continuing operations, including the unusual items, was $31,128,000, or $2.50 per diluted share, compared with income from continuing operations of $6,778,000, or $0.52 per diluted share, for the year ended December 29, 2007. Excluding the unusual items, the non-GAAP loss from continuing operations was $3,444,000, or $0.28 per diluted share, for fiscal 2008 compared with non-GAAP income from continuing operations of $7,801,000, or $0.60 per diluted share, for fiscal 2007. Sales for fiscal 2008 were $282,710,000, down 12% from sales of $320,795,000 in the prior year.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "We are disappointed that high-end residential and commercial carpet markets continued to deteriorate more rapidly than anticipated. Lower net sales adversely affected our results, and we have taken additional actions to reduce costs and improve liquidity.

"The consolidation of our Eton, Georgia, carpet tufting operation into our tufting, dyeing and finishing facility in Atmore, Alabama, is substantially complete. Most of the costs to complete this action are now behind us, and the benefits of this consolidation should begin to have a positive impact on our results in March of this year. We are assessing our alternatives for the Fabrica business and are considering the possible sale of the business or, more likely, consolidation into our East Coast facilities, beginning in the last half of this year. If implemented, a consolidation would further reduce costs and headcount and allow us to sell or lease our California real estate.

"We reduced total employment approximately 17% in 2008 and have taken additional steps to significantly reduce administrative expenses for 2009. Consolidation or sale of Fabrica's operations could reduce employment by at least 13%.

"Our cost reduction initiatives, higher selling prices and lower raw material costs should permit us to return to profitable operations in 2009. If necessary, and if industry conditions continue to deteriorate, we are prepared to take additional steps to aggressively reduce expenses and improve liquidity.

"We reduced capital expenditures to $10.0 million in 2008 and we plan to spend $7.0 million this year, which is roughly half of our depreciation and amortization expense. Inventories were reduced over $2.0 million in the fourth quarter of 2008, and our goal is to substantially improve our utilization of inventories in 2009. Depending on business activity levels, this reduction could be as much as $15.0 million. We expect $5.1 million of income tax refunds in the first half of 2009 from utilizing net operating loss carrybacks and from overpayments of estimated income taxes. The income tax refunds, lower levels of capital spending and inventory reductions should improve our liquidity in 2009. The possible sale of our California real estate would also permit us to significantly reduce debt. Our senior loan and security agreement does not have financial covenants, and we intend to position our balance sheet to endure the current economic downturn, positioning us to take advantage of improvements in economic conditions, as and when they occur.

"The outlook for business remains unclear. Sales in the first part of 2009 are considerably below the same period a year ago. The severe weakness in the housing industry, slowing commercial markets and difficult credit conditions likely will continue to have an impact on demand for residential and commercial carpet products throughout this year. While it is difficult to predict the length of the current economic downturn and its impact on the markets we serve, we believe our position in the upper-end of the market will permit us to benefit from improved conditions and grow our sales at a rate that will exceed the carpet industry's growth rate, as economic conditions improve," Frierson concluded.