The Dixie Group Reports Year End 2010 Results

The Dixie Group, Inc. (NASDAQ:DXYN) today reported financial results for the fourth quarter and fiscal year ended December 25, 2010. In the fourth quarter of 2010, the Company had sales of $65,134,000 and income from continuing operations of $638,000, or $0.05 per diluted share, compared with a loss from continuing operations of $3,417,000, or $0.27 per diluted share for the fourth quarter of 2009. Excluding items related to facility consolidations and impairment of assets, as detailed on the enclosed schedule, non-GAAP income from continuing operations was $1,215,000, or $0.09 per diluted share, for the fourth quarter of 2010, compared with a non-GAAP loss from continuing operations of $1,338,000, or $0.11 per diluted share for the fourth quarter of 2009. Sales for the fourth quarter of 2010 were up 23% from $52,782,000 in the year-earlier quarter.

For the fiscal year ended December 25, 2010, the loss from continuing operations was $4,373,000, or $0.35 per diluted share, compared with a loss from continuing operations of $41,859,000, or $3.39 per diluted share, for the year ended December 26, 2009. Excluding the items related to facility consolidations and impairment of assets and goodwill, as detailed on the enclosed schedule, the non-GAAP loss from continuing operations was $3,365,000 or $0.27 per diluted share, for fiscal 2010 compared with non-GAAP loss from continuing operations of $9,804,000, or $0.80 per diluted share, for fiscal 2009. Sales for fiscal 2010 were $231,322,000, up 14% from sales of $203,480,000 in the prior year.

Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "The fourth quarter performance was comparatively better than the third quarter and continued the recovery in the upper end of the market that began in 2010. Total carpet sales were up about 23% from the prior-year period giving us positive income from continuing operations for the period. Even though the residential market was down for the quarter; our residential sales grew by nearly 22%. In the commercial sector the Company performed well with sales up 22% compared with commercial market sales up nearly 9%. We believe our results show that we are well on our way to achieving profitability at current business activity levels.

"Industry sales were up only a little under 1% for the year, while our sales were up nearly 14%. We believe that the continued investment in new products and market activities allowed us to gain market share during this difficult period. We are pleased with our progress to date and we see continued opportunities in 2011 for further growth in the upper end of the market.

"Starting in 2008 and continuing through 2010, we have taken a number of actions to lower our costs, increase cash flow and position us to be profitable at a lower overall sales volume. We cut fixed and variable costs, significantly reduced inventories and capital expenditures, combined manufacturing operations, realigned our three residential businesses, and reduced our number of associates.

"During the year, we saw various swings in sales activity, which have required us to become more efficient in handling volume fluctuations in the facilities. We focused in 2010 on improving our operating capabilities in these areas. The results of these efforts should show up in 2011 with improved operational responsiveness, tighter cost controls and improved inventory and asset leverage.

"Our plans to improve inventory turns and limit capital expenditures have continued. Inventory turns improved 9% compared with 2009. Capital expenditures for the year were $1,771,000, or 15% of depreciation and amortization. Total debt was reduced $2.6 million during the year to $65.2 million, primarily due to lower capital expenditures.

"Raw material prices have continued to escalate; therefore, carpet price increases have been announced for both residential and commercial products, which will be effective in the first quarter.

"We have continued to emphasize new product introductions that we believe better position us for growth as the market improves. During the year, we experienced solid growth in our new wool collections at the upper end and strong growth from our value oriented Stainmaster products as well as our Durasilk polyester products in the residential market. We have been able to take advantage of new technologies, such as the ColorTron hollow needle tufting technology that provides a woven look with tufting flexibility. This and other new technologies enable us to offer differentiated products that separate us from the competition.

"We have seen the commercial business recover over the past two quarters, led by the shift to modular carpet tile. We see continued growth in the upper end of the residential business return ahead of the general market as evidenced by our results in the fourth quarter. We are cautiously optimistic that 2011 will be a year of steady growth as we recover from the unprecedented downturn of the last few years,” Frierson concluded.

The Company’s loss from discontinued operations was $122,000, or $0.01 per diluted share, for the fourth quarter of 2010, compared with a loss from discontinued operations of $206,000, or $0.02 per diluted share, for the prior year. Including discontinued operations, the Company reported a net income of $516,000, or $0.04 per diluted share, for the fourth quarter of 2010 compared with a net loss of $3,623,000, or $0.29 per diluted share, for the year-earlier period. For the year of 2010, the loss from discontinued operations was $281,000 or $0.02 per diluted share compared to a loss of $382,000 or $0.03 per diluted share for 2009. Including discontinued operations, the Company reported a net loss of $4,654,000, or $0.37 per diluted share, for the fiscal 2010 compared with net loss of $42,241,000, or $3.42 per diluted share, for the year-earlier period.

Restatement of Financial Results -- The Dixie Group, Inc. and its subsidiaries' (the "Company") Consolidated Financial Statements for the fiscal years ended December 26, 2009, and December 27, 2008, have been restated to correct errors related to reserves for environmental liabilities and Canadian import duties, the effects of which are not believed to be material. The restatement to correct these accounting errors will be reflected in the Report on Form 10-K for the fiscal year ending December 25, 2010, to be filed on or before March 25, 2010. The Company has established a reserve for environmental liabilities related to discontinued operations and has established a liability for Canadian import duties under a Voluntary Disclosure Agreement ("VDA”) entered into with Canadian officials. The magnitude of the restatements were a decrease of $0.01 per share in each of the last two years or an added loss of $143,000 in 2009 and $78,000 in 2008. Retained earnings were reduced by a combined effect of $1,158,000 as of December 26, 2009, offset by changes in other long term liabilities, deferred income taxes, accrued expenses and other current assets.

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 March 9, 2010. 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) 312-0704 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 2405076 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, Masland Contract 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 Company believes a review of both GAAP and the above non-GAAP measures is useful for itself and investors in order to evaluate the Company’s performance and for future planning and forecasting.