The Dixie Group, Inc.

Thank you, Travis, and welcome, everyone, to our first quarter conference call. I have with me, Jon Faulkner, our Vice President and Chief Financial Officer.

Our Safe Harbor statement is included by reference both to our website and our press release.

In the first quarter, we continued to outperform the industry on the top line, but it was a difficult quarter, operationally. This was due to the weather related issues, which we all experienced and also due to our internal operations not performing up to expectations.

The January-February timeframe was especially impacted. Our order entry during this period was only up 6.8%, and sales up 8.7%.

Remembering that last year we grew sales approximately 30% with a strong finish in the fourth quarter. The weather-related issues and the slow startup of our Colormaster dye line caused numerous operational issues.

We simply did not perform as well as needed to contain cost during this volatile time. We have worked to identifying the specific issues and have taken actions to increase profitability through improved operational performance and tighter cost control.

Looking at the entire quarter, our sales exclusive of Atlas were up 10.9%, with the strength in the commercial as well as the residential markets. We believe that the industry sales were down slightly during this period.

Jon Faulkner will review our first quarter financial results. After his comments, I will speak to current conditions and our thoughts about the future.

Jon?

Thank you, Dan. Looking at the sales for the quarter, they were $85.3 million, up 13.1% on a fiscal period basis versus last year.

Total sales without Atlas were 10.9%, while the industry we estimate was down a few percentage points. Our commercial products were up 18% while commercial products without Atlas were up 9.6%, while we estimate the industry to be flat.

Our residential products were up 9.4%, while the industry was down in the mid-single digits. Sales were much stronger later in the quarter after a slow start due to poor weather in much of the country.

For the quarter, the gross profit as a percent of sales was weak at 21.1% as compared to 24.4% a year ago. We estimate the direct costs of weather increased our cost by approximately $1.1 million, as we had our 7 East Coast facilities impacted by unexpected closure several times in the first 6 weeks of the quarter.

In addition, the upgrade to our Colormaster dryer took longer than expected and we estimated impact of the cost by approximately $445,000.

SG&A for the first quarter of 2014 was 23.7%, as compared with 22.4% for the same quarter in 2013. The higher expense ratio was partially due to approximately $455,000 legal and other expenses related to the acquisition of Atlas Carpet Mills and a startup of our Desso Masland Hospitality joint venture.

Further, we had over $600,000 costs related to rebranding of our Robertex product line in other marketing initiatives. Operating income was a loss of $2.5 million for the quarter, compared to income of $1.7 million a year ago.

We completed the acquisition of Atlas Carpet Mills on March 19. We announced $1.5 million facility consolidation plan primarily to merge the Atlas dye house into our Susan Street facility.

We have listed the Atlas dye house under assets held for sale in the balance sheet. Dye house should be shut in May, and the entire process substantially complete by the end of the year.

In addition, the provisional fair value of the assets acquired was higher than the purchase price resulting in a onetime gain of $8.7 million.

In May, we began the consolidation plan for our East Coast distribution network. This project will impact cost approximately $2.4 million, over 1 year time frame with approximately $1.4 million in 2014 and the balance in the first half of 2015.

Overall project will increase warehouse capacity by over 30%, speed deliveries and reduce waste.

Our interest expense for the quarter, $1 million was slightly above the amount we had during the same time period last year. Our effective income tax rate for the quarter was 37%.

Our normal rate going forward at reasonable levels of profitability should be more in the 35% range.

Diluted income from continuing operations for the first quarter of 2014 was $0.24 per share as compared to $0.05 per share in the first quarter of 2013.

Looking at our balance sheet. Our receivables increased $6 million during the quarter, of which Atlas acquisition represented $4.3 million.

Inventories increased $13.6 million, with Atlas purchase representing $11.5 million.

Capital expenditures and leases were $4.3 million, as compared to depreciation and amortization of $3.0 million. We anticipate including the Atlas acquisition, capital expenditures for 2014 of approximately $18 million, depreciation and amortization approximately $12.5 million.

Our debt stood at $132.6 million to end of the period, up $24.6 million for the quarter. We ended the quarter with availability under our loan agreements of $20.6 million.

Our investor presentation including our non-GAAP information is on our website at www.thedixiegroup.com. Dan?

Thank you, Jon. The last several years, we have been building the infrastructure to accommodate growth.

As we entered this year, we upgraded our continuous dyeing operation, which will enable us to continue this growth pattern. Although this took longer than anticipated, it is now functioning at the expected levels.

We have a number of other initiatives, which will fuel growth and improve operations. We're continuing the assimilation of the Robertex wool line into our Masland Residential business.

During the quarter, we reached an agreement with Desso on a joint venture of our hospitality businesses, and a distribution agreement for their modular tile products in this country.

In March, we acquired Atlas Carpet Mills, which is a well-known brand in the upper end of the commercial carpet business. We have begun implementation, as Jon indicated, of a facility consolidation plan, which will integrate the Atlas dye plant into our existing Susan Street facility in Santa Ana, California.

Atlas is a leader in the industry and in piece-dyed commercial products.

Remaining piece of our growth in consolidation plan is the combining of our residential distribution facilities in the one distribution center in Adairsville, Georgia. This will take place over the next year and reduce redundant costs.

Order entry of carpet products for the second quarter to date are ahead of the same quarter of last year by over 15%, excluding Atlas.

Sales of carpet products are ahead of the prior year by over 13%, excluding Atlas, and over 25% including Atlas. Our current sales rate is more in line with our expectations and therefore, our cost structure.

Our emphasis continues to be on developing and marketing beautiful differentiated products. We still believe the upper end of the market will continue to outperform the market in general and the creative product helps us maintain a strong position with the design community.

The residential market, the new Stainmaster product, such as PetProtect and TruSoft resonate for the consumers. We also continue to experience increased demand for well styled wool products, particularly our piece-dyed wool collections.

On the commercial side, we, like the industry, are experiencing strong growth of modular tile products. And our new products have been exceptionally well received.

In summary, operationally, we did not perform up to expectations. The bad weather early in the quarter impacted operations.

The slow startup of our Colormaster upgrade increased our cost. We had onetime costs associated with the acquisition and joint venture.

We did not perform as well operationally, and therefore had excess costs. We have implemented stricter cost controls and plans to address each of the issues that arose in the first quarter.

We have moved yarn production in-house to run our facility full. We have moved more tufting production brought in-house to lower fixed overhead.

More products are added through our continuous dyeing range, and we have moved scan dye products to lower cost continuous yarn dyeing. We have also implemented tighter procedures to improve waste and material yields.

All of these actions along with improving volume are designed these results[ph].

At this time, we would like to open up the call for any questions.

Just two, just by my calculation, so it looks like it's $1.5 million left in expenses from -- to allocated for the facility consolidation for reminder of the year, is that correct?

The $1.5 million relative to the Atlas dye house consolidation, will be occurring both in '14 and '15. And I would estimate they would be roughly half and half.

And then, anything less than cost as far as rebranding from Robertex?

Well, we have continued to -- will do that rebranding throughout the rest of the year. And we have probably over $1 million left throughout the rest of the year to complete that project.

Okay. And then, just looking at your commercial side for the quarter -- for the first quarter, is that -- was it about 34%?

Is that the percentage from commercial, am I correct on that?

No. Commercial, in terms of sales growth?

No, not growth, in terms of percentage of sales?

No, no. Our commercial products were about 26%.

And I remember the commercial products only included 10 days worth of Atlas. So the Atlas on a pro forma basis, you're right, it is closer to that 34% rate -- percentage.

And then where are you seeing most activity in -- for a commercial? Is that office space, hospitals -- I mean, if you can kind of give me some color on that, that would be helpful.

Les, we are really seeing it across-the-board in the markets we serve, we certainly hospitality has grown for us. Retail planning is growing.

Our end user business is up. And obviously, it's going to fair amount of that would be in the corporate seg.

Travis, thank you very much. We appreciate everybody being with us this quarter.

Again, we're working hard to improve our operations in order to take advantage of the increased business level activity. Thank you very much.