The Dixie Group has reported financial results for the third quarter ended Sept. 27. For the quarter, the company had sales of $109,359,000 and a loss from continuing operations of $166,000, or $.01 per diluted share, compared with sales of $90,210,000 and income from continuing operations of $1,432,000, or $.11 per diluted share for the third quarter of 2013.

Income from continuing operations, excluding manufacturing integration, facility consolidation, equipment impairment and acquisition related expenses, after-tax, was $1,326,000 (non-GAAP adjusted income from continuing operations), or $.08 per diluted share for the period. The company had $2,579,000 in facility consolidation, equipment impairment and acquisition-related expenses during the period as it implements its previously announced plans to expand capacity, integrate acquisitions and streamline operations.

Commenting on the results, Daniel K. Frierson, chairman and CEO, said, “Our sales growth for the quarter exceeded that of the industry. Our sales for the quarter were up 21.2% on a year-over-year basis. Excluding Atlas Carpet Mills, acquired in March, our sales were up 7.8% as compared to the same quarter in 2013 while the market was flat. Dixie had a strong quarter for residential products. Our residential sales increase in the third quarter was 9.8% ahead of those of the same quarter last year, relative to the market declining in the low single digits on a comparable basis. For our commercial products, third quarter sales were 45.6% ahead of sales for the same period last year.Excluding Atlas, the increase was 1% for the third quarter as compared with a strong third quarter for the company in 2013 and a market increase in the mid-single digits.

“For the year to date, our commercial business, excluding Atlas, is up 10.7% relative to the commercial market having a year-over-year increase in the low-single digits. Sales for all of Dixie’s brands, other than Atlas Carpet Mills, were up for the third quarter on a year-over-year basis. We anticipate Atlas sales to pick up in 2015 as new products are released later this year. Late in the quarter, we purchased the assets of Burtco Enterprises, a maker of custom products for the hospitality market using computerized yarn placement technology. We will integrate Burtco into our Masland Contract and Desso Masland Hospitality operations over the next few quarters. Further, our new product introductions continue to show strong sales growth.

“The expense of our restructuring program to streamline operations and centralize distribution has been more front-end loaded than originally planned with expenses and asset write-downs in the third quarter of $1.7 million. The third quarter was a period of significant activity as we completed the movement of finished goods out of three of our four residential warehouses into our new Adairsville, Ga., distribution center. We will complete the movement of all finished goods into the Adairsville facility in the fourth quarter.

“We shut down both the Atmore, Ala., yarn and carpet dyeing operations during the quarter and transferred those products to a combination of internal operations and external suppliers. We will continue to de-commission our Atmore waste water treatment plant, anticipating it to be complete in early 2015. We are still installing additional equipment in our Susan Street facility in Santa Ana, Calif., including moving equipment from our Atmore facility that will improve quality and lower cost, to accommodate the dyeing needs of Atlas Carpet Mills.

“In 2015, we will be consolidating our commercial broadloom distribution function into our Atmore facility to lower costs and speed deliveries. We have increased the amount of our restructuring to cover the added costs of moving our Atmore dyeing equipment to our Susan Street facility to improve quality and the higher than anticipated de-commission expense of our Atmore wastewater treatment facility. However, we have lowered the amount of restructuring expense anticipated in 2015.

“Gross profit for the quarter, at 24.2% of net sales, was impacted by added costs related to the restructuring activities. Selling and administrative expenses were 21.9% of net sales for the third quarter of 2014 as compared with 22.4% for the same quarter of 2013. Operating income was $528,000 for the quarter. On a non-GAAP basis, operating income was $3.1 million for the quarter. Non-GAAP charges included business integration expenses of $555,000 relative to Avant and Robertex, $1.74 million in facility consolidation and equipment impairment charges, and acquisition related expenses, including the amortization of inventory written up to fair value, of $289,000 for the third quarter.

“The restructuring has impacted our operating income to a greater degree than originally anticipated. Additional expenses relative to dual staffing, training, waste control, additional quality inspection, administrative oversight and added costs relative to de-commissioning our Atmore wastewater treatment plant have increased our costs during the period. These incremental costs are hard to quantify, but we anticipate these expenses to be largely behind us by mid-2015.

“Current assets increased $3.9 million during the quarter, primarily due to higher levels of trade receivables and deposits on new machinery and equipment. As projects are completed in the fourth quarter and interim progress fundings are converted to permanent financing, current debt will decrease by approximately $3.5 million. Capital expenditures and capital leases for the quarter were $7 million, while capital assets purchased in the business combination of Burtco was $2.3 million. Depreciation and amortization was $3.3 million for the quarter.

“We completed the sale of the Atlas dye house in mid-October, receiving approximately $5.5 million net of expenses. We have entered into an agreement to purchase our Adairsville distribution center in the fourth quarter for $9.8 million while terminating the current $7.5 million operating lease. We plan to finance the purchase with a combination of a 10-year mortgage for $8.3 million and cash. For 2014, we anticipate operational capital expenditures of $20.9 million, purchase of the Adairsville warehouse of $9.8 million and conversion of operating leases to capital leases of $2 million. Our planned capital expenditures for 2015 are in the range of $14 million. Income taxes for the quarter were a credit of $101,000. We ended the quarter with $122.9 million in debt and availability of $35.3 million under our credit agreement.

“The third quarter was a difficult quarter operationally due primarily to the added strain of the ongoing restructuring as we expanded capacity and absorbed additional associates. Since the end of 2012, our current sales run-rate is up approximately 55% and our headcount up 43%. In addition, we have new operating procedures and an ongoing retraining effort as we restructure our internal manufacturing and distribution operations to provide for continued growth. As we work through the challenges, we do so knowing that the goal is a leaner, more profitable cost structure with the capacity in place to continue our growth over the next several years,” Frierson concluded.

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