1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
Commission File No. 1-11126
DYERSBURG CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1363247
(State or other jurisdiction of (I.R.S employer identification no.)
incorporation or organization)
15720 JOHN J. DELANEY DR., SUITE 445
CHARLOTTE, NORTH CAROLINA 28277
(Address of principal executive offices) (Zip Code)
(704) 341-2299
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.01/Share Over the Counter Bulletin Board
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12 (b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] No [ ]
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Title of each Number of shares outstanding as of July 31, 2000
- ----------------------------- -----------------------------------------------
Common Stock $0.01 par value 13,388,556
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INDEX TO FORM 10-Q
DYERSBURG CORPORATION
PART I--FINANCIAL INFORMATION PAGE
- ----------------------------- ----
ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at
July 1, 2000, and October 2, 1999............................................3
Condensed Consolidated Statements of Operations
for the Three Months Ended July 1, 2000,
and July 3, 1999; Nine Months Ended
July 1, 2000, and July 3, 1999..............................................4
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
July 1, 2000, and July 3, 1999..............................................5
Notes to Condensed Consolidated Financial
Statements..................................................................6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................13
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS..................................17
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.................................................17
SIGNATURES...............................................................................17
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DYERSBURG CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JULY 1, OCTOBER 2,
2000 1999
--------- ---------
ASSETS
Current assets:
Cash ...................................................... $ 145 $ 158
Accounts receivable, net of allowance for doubtful accounts
of $2,252 at July 1, 2000, and $2,826 at October 2, 1999 .. 60,512 50,509
Inventories ............................................... 40,816 36,735
Income taxes receivable ................................... 28 8,253
Deferred income taxes ..................................... 2,972 3,850
Prepaid expenses and other ................................ 1,704 2,864
--------- ---------
Total current assets ................................. 106,177 102,369
Property, plant and equipment, net ........................ 113,482 120,688
Goodwill, net ............................................. 87,307 90,954
Deferred debt costs ....................................... 4,445 5,018
Assets held for sale and other ............................ 3,502 3,905
--------- ---------
$ 314,913 $ 322,934
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................... $ 15,081 $ 14,697
Accrued expenses ......................................... 15,738 11,127
Current portion of long-term obligations ................. 68,098 3,400
--------- ---------
Total current liabilities ............................ 98,917 29,224
Long-term obligations .................................... 132,900 194,460
Deferred income taxes .................................... 2,972 7,779
Other liabilities ........................................ -- 1,571
Shareholders' equity:
Preferred stock, authorized 5,000,000 shares; none issued
Common stock, $.01 par value, authorized 40,000,000 shares;
issued and outstanding shares 13,388,556 at July 1, 2000, and
13,341,066 at October 2, 1999 ............................... 134 133
Additional paid-in capital .................................. 42,828 42,773
Retained earnings ........................................... 37,618 46,994
Accumulated other comprehensive loss ........................ (456) --
--------- ---------
Total shareholders' equity ........................... 80,124 89,900
--------- ---------
$ 314,913 $ 322,934
========= =========
See notes to condensed consolidated financial statements.
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DYERSBURG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales ..................... $ 87,852 $ 83,053 $ 234,925 $ 238,582
Costs and expenses:
Cost of sales .............. 79,921 70,864 208,274 205,502
Selling, general and
administrative ............. 8,063 9,086 23,376 26,499
Restructuring charge ....... 697 10,993 697 10,993
Interest and amortization of
debt costs ................. 5,174 5,248 14,899 15,350
------------ ------------ ------------ ------------
Total costs and expenses ...... 93,855 96,191 247,246 258,344
------------ ------------ ------------ ------------
Loss before income taxes ...... (6,003) (13,138) (12,321) (19,762)
Income tax benefit ............ (1,272) (4,597) (2,945) (6,917)
------------ ------------ ------------ ------------
Net loss ...................... $ (4,731) $ (8,541) $ (9,376) $ (12,845)
============ ============ ============ ============
Weighted average shares
outstanding:
Basic ..................... 13,388,556 13,347,221 13,375,100 13,343,954
Diluted ................... 13,388,556 13,347,221 13,375,100 13,343,954
============ ============ ============ ============
Earnings (loss) per share:
Basic ..................... $ (0.35) $ (0.64) $ (0.70) $ (0.96)
============ ============ ============ ============
Diluted ................... $ (0.35) $ (0.64) $ (0.70) $ (0.96)
============ ============ ============ ============
Dividends per share ........... $ 0.00 $ 0.00 $ 0.00 $ 0.02
============ ============ ============ ============
See notes to condensed consolidated financial statements.
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DYERSBURG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(IN THOUSANDS)
NINE MONTHS ENDED
---------------------
JULY 1, JULY 3,
2000 1999
-------- --------
OPERATING ACTIVITIES
Net loss ........................................... $ (9,376) $(12,845)
Adjustments to reconcile to net cash (used in)
provided by operating activities:
Depreciation and amortization ................. 14,808 15,303
Write-down of fixed assets .................... -- 6,970
Decrease (increase) in accounts receivable, net (10,002) 14,586
Decrease (increase) in inventory .............. (4,081) 1,768
(Decrease) increase in trade accounts payable . 383 (9,349)
Federal income taxes .......................... 8,225 (1,228)
Other-net ..................................... 1,959 308
-------- --------
Net cash provided by operating activities ..... 1,916 15,513
INVESTING ACTIVITIES
Capital expenditures ............................... (5,122) (6,514)
Other-net .......................................... 768 (4,414)
-------- --------
Net cash used in investing activities ....... (4,354) (10,928)
FINANCING ACTIVITIES
Net borrowing (repayment) of debt .................. 3,138 (4,433)
Dividends paid ..................................... -- (266)
Other .............................................. (713) 21
-------- --------
Net cash used in financing activities ....... $ 2,425 $ (4,678)
-------- --------
Net increase (decrease) in cash ............. (13) (93)
Cash at beginning of period .......................... 158 265
-------- --------
Cash at end of period ................................. $ 145 $ 172
======== ========
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION
July 1, 2000
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Dyersburg Corporation ("Company") and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Financial
information as of October 2, 1999, has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated have
been included. Due to seasonal patterns, the results for interim periods are not
necessarily indicative of results to be expected for the year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the fiscal year
ended October 2, 1999.
NOTE B--INVENTORIES
JULY 1, OCTOBER 2,
2000 1999
-------- ----------
(IN THOUSANDS)
Raw materials......................... $ 10,724 $ 11,611
Work in process....................... 16,163 12,436
Finished goods........................ 12,273 10,919
Supplies and other.................... 1,656 1,769
-------- --------
$ 40,816 $ 36,735
======== ========
NOTE C--LONG-TERM OBLIGATIONS
In August 1997, the Company issued $125,000,000 principal amount of
9.75% Senior Subordinated Notes due September 1, 2007 (the "Subordinated
Notes"). The Subordinated Notes are unsecured senior subordinated obligations
and are subordinated in right of payment to the prior payment in full of all
senior indebtedness. The Subordinated Notes are guaranteed by all of the
Company's subsidiaries (the "Guarantors"). Separate financial statements of the
Guarantors are not included herein because: (a) the Company is a holding company
with no assets or operations other than its investments in its subsidiaries; (b)
the Guarantors are wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the Subordinated Notes on a joint and several basis;
(c) the Guarantors comprise all of the direct and indirect subsidiaries of the
Company; and (d) management believes that such information is not material to
investors.
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Effective August 19, 1999, the Company entered into a Credit Agreement,
replacing its existing credit facility, consisting of a three-year $84,000,000
revolving line of credit (the "Revolver") and a three-year $26,000,000 term loan
(the "Term Loan"). Borrowings under the Credit Agreement bear interest at either
LIBOR plus a specified margin currently equal to 2.75% for the Revolver and
3.25% for the Term Loan, or, at the Company's option, bear interest at the
lender's base rate (the base rate was 9.5% at July 1, 2000) plus a margin equal
to 1.0%, for the Revolver and 1.5% for the Term Loan. The availability under the
Revolver is limited at all times, through maturity, to a receivables and
inventory borrowing base.
The Company is currently in default under the terms of its Credit
Agreement as a result of its failure to achieve the prescribed level of
consolidated EBITDA (earnings before interest, taxes, depreciation and
amortization) during the second and third fiscal quarters of 2000. On May 12,
2000, the Company entered into a Forbearance Agreement with its Lenders. Under
the Forbearance Agreement, the Lenders agreed that for a period ending on August
25, 2000 they will continue to make Revolving Loans and Letter of Credit
accommodations available to the Company under the Credit Agreement and will not
exercise any remedies available to the Lenders as a result of the Company's
default, including the right to accelerate collection of the Company's
obligations or to foreclose on the Company's assets. The Lenders obligations
under the Forbearance Agreement were conditioned on the Company achieving
consolidated EBITDA levels for the three-month period ending July 1, 2000, and
for the four-month period ending July 29, 2000 and maintaining Net Worth (as
defined in the Credit Agreement) of at least $110 million.
On May 12, 2000, the Company and its Lenders also entered into a First
Amendment to the Loan and Security Agreement. The amendment restricts certain
investments in affiliates and joint ventures and property transfers that were
previously permitted under the Credit Agreement.
In accordance with generally accepted accounting principles, as a
result of the default under the Credit Agreement, the amounts outstanding under
the Credit Agreement have been reflected in current liabilities on the balance
sheet.
The Company continues to access its Revolver. On August 10, 2000, the
Company and its Lenders entered into a First Amendment to the Forbearance
Agreement which extended the termination of the forbearance period from August
25, 2000 to October 25, 2000, eliminated the requirement that the Company
achieve certain consolidated EBITDA levels for the three-month period ending
July 1, 2000 and for the four-month period ending July 29, 2000 and increased
the reserve against borrowing availability under the Revolver from $5 million to
$7 million.
The Company has retained financial and legal advisors to assist in
developing strategic alternatives relating to a restructuring of its long term
indebtedness. In addition, at the Company's suggestion, holders of the
Subordinated Notes have formed an informal committee of the holders of such
Notes (the "Noteholders Committee"). The Noteholders Committee, the members of
which purport to hold approximately 60% of the outstanding Subordinated Notes,
have retained a legal advisor. The Company, the Lenders and the Noteholders
Committee are engaged in discussions concerning the restructuring of the
Company's long term indebtedness.
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Under the terms of the subordination provisions contained in the
Indenture governing the Subordinated Notes, upon the occurrence of a default in
respect of any Designated Senior Debt (as defined therein), the holders of such
Designated Senior Debt may deliver a written notice of such default to the
Trustee under the Indenture. After the delivery of such a notice to the Trustee,
no payments of any kind may be made by the Company to the holders of the
Subordinated Notes for a period of up to 179 days. The Company has been informed
that on August 11, 2000, the Lenders, as holders of Designated Senior Debt,
delivered such a notice to the Trustee. Unless such notice is rescinded by the
Lenders, the Company will be precluded from making the semi-annual interest
payment on the Subordinated Notes due on September 1, 2000.
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NOTE D--EARNINGS (LOSS) PER SHARE
The table below sets forth the computations of basic and diluted earnings per
share:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Numerator for basic and diluted
earnings per share--net loss ... $ (4,731) $ (8,541) $ (9,376) $ (12,845)
Denominator:
Denominator for basic earnings
(loss) per share--weighted
average shares ................. 13,388,556 13,347,221 13,375,100 13,343,954
Effect of dilutive securities:
Employee stock options ......... -- -- -- --
------------ ------------ ------------ ------------
Denominator for diluted earnings
(loss) per share--adjusted
weighted average shares ........ 13,388,556 13,347,221 13,375,100 13,343,954
============ ============ ============ ============
Basic earnings (loss) per
share .......................... $ (0.35) $ (0.64) $ (0.70) $ (0.96)
============ ============ ============ ============
Diluted earnings (loss) per
share .......................... $ (0.35) $ (0.64) $ (0.70) $ (0.96)
============ ============ ============ ============
NOTE E--PENSION
The Company elected to freeze benefits under its salaried and hourly
defined benefit pension plans as of December 31, 1999. This resulted in the
recognition of a curtailment gain on the salary plan of approximately
$1,700,000. Also, in connection with the curtailment of the hourly plan, the
Company recognized additional net minimum pension liability of $456,000 (net of
applicable taxes of $245,000). The additional net minimum pension liability has
been recorded as accumulated other comprehensive loss on the balance sheet at
July 1, 2000.
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NOTE F--COMPREHENSIVE LOSS
The following table provides a reconciliation of net loss reported in
the Company's consolidated condensed statements of operations to comprehensive
loss:
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
Net loss ................... $ (4,731) $ (8,541) $ (9,376) $(12,845)
Other comprehensive loss:
Additional minimum pension
liability ................ -- -- (701) --
Tax effect ................. -- -- 245 --
-------- -------- -------- --------
Net of tax ................ -- -- (456) --
Comprehensive loss ......... $ (4,731) $ (8,541) $ (9,832) $(12,845)
======== ======== ======== ========
NOTE G--RESTRUCTURING CHARGES
During the third quarter 1999, the Company implemented a reorganization
plan related to its textile business. The textile business had been running at
less than full capacity due to the domestic circular knit industry experiencing
excess supply and low-priced garment imports from Asia. The duration of these
market conditions remains uncertain. In response to these business conditions,
the Company decided to reduce its U.S. manufacturing capacity. The major
elements of the reorganization plan included the closing of the Company's
facility in Hamilton, North Carolina and the elimination of yarn spinning
operations at the Company's Trenton, Tennessee facilities which were completed
during the fourth quarter. Additionally, the plan resulted in the reduction of
approximately 500 hourly and salaried employees, with severance benefits being
paid over periods up to twelve months from the termination date. At October 2,
1999 substantially all employees had been terminated or notified of their
impending termination.
The cost of the reorganization was reflected as a restructuring charge,
before income taxes, of $10,993,000, recorded in the third quarter 1999,
increased by $585,000 during the fourth quarter 1999. The components of the
charge included $4,499,000 million for severance and related fringe benefits and
$7,079,000 for the write-down of impaired fixed assets. Assets that are no
longer in use have been sold or are held for sale at July 1, 2000 and were
written down to their estimated fair values less costs of sale based primarily
on independent appraisals.
The Company is actively marketing the assets held for sale through the
use of internal sources and outside agents. Assets held for sale were $2,531,000
at July 1, 2000. The timing of the disposal of these assets is not easily
determined, but management of the Company does not believe any significant sales
will likely occur within one year. As a result of the restructuring, the Company
has idle assets of approximately $1.0 million, which continue to be depreciated.
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NOTE G - RESTRUCTURING CHARGES (continued)
The following is a summary of activity in the restructuring reserves
for severance and related expenses (in thousands):
June 1999 restructuring charge $ 4,023
Payments (353)
-------
Balance at July 3, 1999 3,670
Payments (3,292)
Additional severance recorded 476
-------
Balance at October 2, 1999 854
Payments (457)
-------
Balance at January 1, 2000 397
Payments (129)
-------
Balance at April 1, 2000 268
Payments (24)
-------
Balance at July 1, 2000 $ 244
=======
There was $697,000 of restructuring charges in the third quarter of
2000. These charges were related to fees for the Company's financial and legal
advisors in addition to expenses paid for the legal advisors to the Company's
creditors. At July 1, 2000, there is $165,000 reflected in prepaid expenses that
relate to retainers for the Company's advisors.
NOTE H--REPORTING SEGMENT INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the
reporting by public companies of information about operating segments, products
and services, geographic areas and major customers. The method of determining
what information to report is based on the way management organizes the segments
within the Company for making operating decisions and assessing financial
performance.
The Company's chief operating decision-maker is considered to be the
Chief Executive Officer ("CEO"). The Company's CEO evaluates both consolidated
and disaggregated financial information in deciding how to allocate resources
and assess performance. The CEO uses certain disaggregated financial information
for the Company's primary knit fabric markets: textile and stretch fabrics.
Sales for textile and stretch fabrics for the quarters ended July 1, 2000 and
July 3, 1999 were $72.2 million and $8.9 million, and $73.0 million and $10.0
million respectively. Sales for textile and stretch fabrics for the nine months
ended July 1, 2000 and July 3, 1999 were $192.5 million and $24.9 million, and
$211.4 million and $27.0 million respectively. The Company has aggregated these
two markets into a single reportable textile segment as allowed under SFAS No.
131 because these product lines have similar long-term economic characteristics
such as average gross margin, and the product lines are similar in regards to
nature of production processes, type of customers, and method used to distribute
products. The Company's textile segment manufactures in U.S. plants and markets
fabric through its sales offices, principally sold to customers in the U.S.
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The Company also has an apparel segment. The apparel segment purchases
fabric, contracts for cutting, sewing and packaging from companies in the U.S.
and Mexico, and markets the finished apparel to customers in the U.S. The
apparel segment has a 50% equity investment in an apparel manufacturing joint
venture in the Dominican Republic, which is not material at July 1, 2000. The
Company accounts for the joint venture using the equity method, and accordingly
does not include net sales and other individual items of profit and loss in its
Consolidated Statements of Operations or the following table.
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS)
Net sales
Textile ................ $ 81,109 $ 83,030 $ 217,379 $ 238,464
Apparel ................ 6,743 23 17,546 118
--------- --------- --------- ---------
Consolidated net sales .......... $ 87,852 $ 83,053 $ 234,925 $ 238,582
Operating income (loss)
Textile ................ $ 1,766 $ 4,228 $ 9,555 $ 9,836
Apparel ................ (1,181) (415) (4,132) (1,168)
Restructuring charges ........... 697 10,993 697 10,993
Amortization of goodwill ........ 717 710 2,148 2,087
Interest and amortization of debt
costs ....................... 5,174 5,248 14,899 15,350
--------- --------- --------- ---------
Consolidated income (loss)
before taxes ................ $ (6,003) $ (13,138) $ (12,321) $ (19,762)
Depreciation
Textile ................ $ 3,743 $ 3,821 $ 11,518 $ 12,251
Apparel ................ 85 75 268 211
--------- --------- --------- ---------
$ 3,828 $ 3,896 $ 11,786 $ 12,462
Capital expenditures
Textile ................ $ 1,326 $ 1,086 $ 5,112 $ 5,862
Apparel ................ -- 91 10 652
--------- --------- --------- ---------
$ 1,326 $ 1,177 $ 5,122 $ 6,514
Assets at end of period
Textile ................ $ 206,342 $ 221,060 $ 206,342 $ 221,060
Apparel ................ 9,350 1,446 9,350 1,446
Assets not allocated to
segments ............. 99,221 115,449 99,221 115,449
--------- --------- --------- ---------
$ 314,913 $ 337,955 $ 314,913 $ 337,955
========= ========= ========= =========
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements within the
meaning of the federal securities laws, all of which are intended to be covered
by the safe harbors created thereby. These statements include all statements
regarding the Company's intent, belief and expectations (such as statements
concerning the Company's liquidity and future operating and financial strategies
and results) and any other statements with respect to matters other than
historical fact. Investors are cautioned that all forward-looking statements
involve known and unknown risks and uncertainties (some of which are beyond the
control of the Company) including, without limitation, the ability of the
Company to restructure its long-term indebtedness, the ability of the Company to
continue to access availability under the Credit Agreement, the ability of the
Company to comply with the terms of the Forbearance Agreement and the Credit
Agreement, in each case as amended, risks associated with the Company's use of
substantial financial leverage, access to trade credit and terms from suppliers,
the ability of the Company to improve its operating performance, restrictions
imposed by the terms of the Company's credit facility, the Company's ability and
success in achieving cost savings, the Company's ability to compete with other
suppliers and to maintain acceptable gross margins, potential adverse
developments with respect to the cost and availability of raw materials and
labor, risks associated with governmental regulation and trade policies, and
potential adverse developments regarding product demand or mix. Moreover,
although the Company believes that any assumptions underlying the
forward-looking statements contained herein are reasonable however, any of the
assumptions could prove to be inaccurate. Therefore, in light of these known and
unknown risks and uncertainties, there can be no assurances that the
forward-looking statements included in this report will prove to be accurate and
the inclusion of such information should not be regarded as a representation by
the Company or any other person that the forward-looking statements included in
this report will prove to the accurate. The Company undertakes no obligation to
update any forward-looking statements contained in this report.
RESULTS OF OPERATIONS
Net sales for the quarter ended July 1, 2000, increased 5.8% to $87.9
million versus $83.1 million for the same quarter of the prior year. The
increase in net sales for the quarter versus the same quarter of the prior year
was primarily a result of sales in the apparel group. The apparel segment's net
sales for the third quarter 2000 were $6.7 million compared to $23,000 in the
third quarter of 1999. Total textile net sales for the quarter decreased by 2%
compared to the same period of the prior year. Net sales for the nine months
ended July 1, 2000, decreased by 1.5% compared to the same period of the prior
year. Year-to-date textile net sales decreased 8.8% from the same period of the
prior year. This decrease in textile net sales was primarily a result of reduced
average prices of units shipped. Year-to-date apparel net sales were $17.5
million in fiscal 2000 versus $117,000 in fiscal 1999. Gross margins for the
quarter and year-to-date declined to 9.0% and 11.3% versus 14.7% and 13.9% for
the same period in fiscal 1999, respectfully. The gross margins were unfavorably
impacted primarily by negative margins realized among certain programs within
the apparel segment. The negative contribution by these programs was incurred
due to higher than anticipated requirements for fabric necessary to
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manufacture the garments produced during fiscal 2000. Additionally, gross
margins decreased as additional costs were incurred to increase textile
production for demand.
Selling, general and administrative expenses for the quarter were $8.1
million compared to $9.1 million for the same period of 1999, or an 11.3%
decrease. Year-to-date selling, general and administrative expenses were $23.4
million compared to $26.5 million for the same period of 1999, or an 11.8%
decrease. The year-to-date decrease was primarily due to a one-time credit of
approximately $1.6 million stemming from the consolidation of employee benefit
plans.
Interest expense in the third quarter of fiscal 2000 of $5.2 million
and year-to-date of $14.9 million was lower than that of the same periods of
fiscal 1999 due to reduced borrowing levels. The effective tax rate for the
third quarter of fiscal 2000 was 21.2% and year-to-date was 23.9%. The effective
tax rate differs significantly from the statutory rate of approximately 35% due
to non-deductible permanent differences, primarily certain goodwill, and
valuation allowances established for recoverability of income taxes.
Net loss for the quarter ended July 1, 2000 was $4.7 million, or $0.35
per share, versus net loss of $8.5 million, or $0.64 per share, for the same
period in fiscal 1999. For the nine months ended July 1, 2000, the net loss was
$9.4 million, or $0.70 per share, versus net loss of $12.8 million, or $0.96 per
share, for the same period in fiscal 1999. Losses per share are the same whether
calculated on a basic or diluted basis. The diluted weighted average number of
shares outstanding for the quarter and year-to-date was approximately 13,389,000
and 13,375,000, respectively.
During the third quarter 1999, the Company implemented a reorganization
plan related to its textile business. The textile business had been running at
less than full capacity due to the domestic circular knit industry experiencing
excess supply and low-priced garment imports from Asia. The duration of these
market conditions is uncertain. In response to these business conditions, the
Company decided to reduce its U.S. manufacturing capacity. The major elements of
the reorganization plan included the closing of the Company's facility in
Hamilton, North Carolina and the elimination of yarn spinning operations at the
Company's Trenton, Tennessee facilities which were completed during the fourth
quarter. Additionally, the plan resulted in the reduction of approximately 500
hourly and salaried employees, with severance benefits being paid over periods
up to twelve months from the termination date. At October 2, 1999 substantially
all employees had been terminated or notified of their impending termination.
The cost of the reorganization was reflected as a restructuring charge,
before income taxes, of $10,993,000, recorded in the third quarter 1999,
increased by $585,000 during the fourth quarter. The components of the charge
included $4,499,000 million for severance and related fringe benefits and
$7,079,000 for the write-down of impaired fixed assets. Assets that are no
longer in use have been sold or are held for sale at July 1, 2000 and were
written down to their estimated fair values less costs of sale based primarily
on independent appraisals.
The Company is actively marketing the assets held for sale through the
use of internal sources and outside agents. Assets held for sale were $2,531,000
at July 1, 2000. The timing of the disposal of these assets is not easily
determined, but management of the Company does not
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believe any significant sales will likely occur within one year. As a result of
the restructuring, the Company has idle assets of $1.0 million, which continue
to be depreciated.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently in default under the terms of its Credit
Agreement as a result of its failure to achieve the prescribed level of
consolidated EBITDA (earnings before interest, taxes, depreciation and
amortization) during the six-month period ended April 1, 2000 and the nine-month
period ended July 1, 2000. On May 12, 2000, the Company entered into a
Forbearance Agreement with its Lenders. Under the Forbearance Agreement, the
Lenders agreed that for a period ending on August 25, 2000 they will continue to
make Revolving Loans and Letter of Credit accommodations available to the
Company under the Credit Agreement and will not exercise any remedies available
to the Lenders as a result of the Company's default, including the right to
accelerate collection of the Company's obligations or to foreclose on the
Company's assets. The Lenders obligations under the Forbearance Agreement are
conditioned on the Company achieving a consolidated EBITDA of at least $5
million for the three-month period ending July 1, 2000, and at least $7 million
for the four-month period ending July 29, 2000 and maintaining Net Worth (as
defined in the Credit Agreement) of at least $110 million.
On May 12, 2000, the Company and its Lenders also entered into a First
Amendment to the Loan and Security Agreement. The amendment restricts certain
investments in affiliates and joint ventures and property transfers that were
previously permitted under the Credit Agreement.
The Company continues to access its Revolver. On August 10, 2000, the
Company and its Lenders entered into a First Amendment to the Forbearance
Agreement which extended the termination of the forbearance period from August
25, 2000 to October 25, 2000, eliminated the requirement that the Company
achieve certain consolidated EBITDA levels for the three-month period ending
July 1, 2000 and for the four-month period ending July 29, 2000 and increased
the reserve against borrowing availability under the Revolver from $5 million to
$7 million.
The Company has retained financial and legal advisors to assist in
developing strategic alternatives relating to a restructuring of its long term
indebtedness. In addition, at the Company's suggestion, holders of the
Subordinated Notes have formed an informal committee of the holders of such
Notes (the "Noteholders Committee"). The Noteholders Committee, the members of
which purport to hold approximately 60% of the outstanding Subordinated Notes,
have retained a legal advisor. The Company, the Lenders and the Noteholders
Committee are engaged in discussions concerning the restructuring of the
Company's long term indebtedness.
Under the terms of the subordination provisions contained in the
Indenture governing the Subordinated Notes, upon the occurrence of a default in
respect of any Designated Senior Debt (as defined therein), the holders of such
Designated Senior Debt may deliver a written notice of such default to the
Trustee under the Indenture. After the delivery of such a notice to the Trustee,
no payments of any kind may be made by the Company to the holders of the
Subordinated Notes for a period of up to 179 days. The Company has been informed
that on August 11, 2000, the Lenders, as holders of Designated Senior Debt,
delivered such a notice to the Trustee. Unless such notice is rescinded by the
Lenders, the Company will be precluded from making the semi-annual interest
payment on the Subordinated Notes due on September 1, 2000.
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In accordance with generally accepted accounting principles, as a
result of the default under the Credit Agreement, the amounts outstanding under
the Credit Agreement have been reflected in current liabilities on the balance
sheet.
Working capital and the current ratio decreased to $7.3 million and
1.1:1 at July 1, 2000, from $73.1 million and 3.5:1, respectively, at October 2,
1999. Changes in this ratio are the result of the classification of amounts
outstanding under the Company's Credit Agreement as to current liabilities. The
Company's debt-to-capital ratio was 71.5% at July 1, 2000, compared to 68.8% at
October 2, 1999.
Net receivables of $60.5 million at July 1, 2000, increased from the
level at October 2, 1999, due to higher sales levels. Inventories increased to
$40.8 million at the end of the third quarter from $36.7 million at the end of
the fourth quarter of fiscal 1999 for sales volume increases during the third
and fourth quarters.
Capital expenditures for the nine months ended July 1, 2000, were $5.1
million versus $6.5 million for the same period in the prior year. Cash outlays
for capital spending are anticipated to approximate $9 million in fiscal 2000.
Based on the borrowing base computation within the Credit Agreement,
the amount of additional borrowing available under the Credit Agreement at July
1, 2000, was approximately $5.9 million. Availability under the Credit Agreement
and trade credit and terms from suppliers are the Company's primary sources of
liquidity. The Company believes that cash flow from operations and the Credit
Agreement will be sufficient to meet normal operating needs until October 25,
2000. However, the ability of the Company to meet its operating needs is
dependent upon a combination of factors, including its ability to restructure
its long-term indebtedness and to continue to access liquidity from the Credit
Agreement and other factors described under "Cautionary Note Regarding Forward
Looking Information".
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PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of shareholders during the
three months ended July 1, 2000.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Exhibits:
10 - Material Contract
(a) First Amendment to Forbearance Agreement among Dyersburg
Corporation (and certain of its subsidiaries) and its Lenders
dated August 10, 2000.
27 Financial Data Schedule (for SEC use only)
b) The Company did not file any reports on Form 8-K during the
three months ended July 1, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 15, 2000 /s/ WILLIAM S. SHROPSHIRE, JR.
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William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
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