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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
Commission File No. 1-11126
DYERSBURG CORPORATION
Debtor-In-Possession as of September 25, 2000
(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 DRIVE, SUITE 445 28277
CHARLOTTE, NC (Zip Code)
(Address of Principal Executive Offices)
(704) 341-2299
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
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Common Stock, Par Value $.01/Share
and associated stock purchase rights
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of December 8, 2000, 13,388,556 shares of common stock were outstanding. The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $43,405 based on the closing price of such stock on
the OTC-Bulletin Board on December 8, 2000, assuming, for purposes of this
report, that all executive officers and directors of the registrant are
affiliates.
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DYERSBURG CORPORATION
FORM 10-K REPORT
TABLE OF CONTENTS
PART I...............................................................................1
1. BUSINESS....................................................................1
2. PROPERTIES..................................................................6
3. LEGAL PROCEEDINGS...........................................................7
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................7
PART II..............................................................................7
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......7
6. SELECTED FINANCIAL DATA.....................................................9
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..............................................................10
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..................15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................17
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................................39
PART III............................................................................39
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........................39
11. EXECUTIVE COMPENSATION.....................................................42
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............46
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................47
PART IV.............................................................................48
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............48
SIGNATURES..........................................................................49
INDEX TO EXHIBITS...................................................................50
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PART I
ITEM 1. BUSINESS
Except where the context indicates otherwise, the "Company" means
Dyersburg Corporation and its subsidiaries, and the "Registrant" means Dyersburg
Corporation without reference to its subsidiaries.
PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On September 25, 2000, the Company and all 13 of its subsidiaries
(collectively, the "Debtors") filed voluntary petitions for reorganization under
Chapter 11 ("Chapter 11") of title 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") (the "Chapter 11 Cases") and orders for relief
were entered by the Bankruptcy Court. The Chapter 11 Cases have been
consolidated for the purpose of joint administration under Case No. 00-3746. The
Debtors are currently operating their businesses as debtors-in-possession
pursuant to the Bankruptcy Code.
Although the Debtors expect to emerge from bankruptcy in the second
quarter of fiscal 2001, there can be no assurance that the reorganization plan
proposed by the Debtors (the "Plan") will be confirmed by the Bankruptcy Court,
or that the Plan will be consummated on a timely basis or at all. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Cautionary Note Regarding Forward Looking Information. As provided
by the Bankruptcy Code, a plan of reorganization must be confirmed by the
Bankruptcy Court. The Bankruptcy Court may confirm a plan notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders if certain requirements of the Bankruptcy Code are met. The Plan
proposed by the Company involves a debt conversion of the Company's pre-petition
9 3/4% Subordinated Notes due 2007 (the "Subordinated Notes") into newly issued
common equity of the reorganized Company and a $15.0 million Senior Subordinated
Payment-in-Kind Note with an interest rate of 13% per annum and a term of seven
years (the "PIK Note"). Under the Plan, the existing common stock of the Company
would be cancelled and the holders of our currently outstanding common stock
would receive two series of warrants to acquire up to 15% of the new common
stock on a fully-diluted basis. The exercise price of the Series A Warrants will
be $10.39 per share and will be exercisable for 5% of the new common stock. The
exercise price of the Series B Warrants (together with the Series A Warrants,
the "Warrants") will be $12.38 per share and will be exercisable for 10% of the
new common stock. The Warrants expire five years after the date of issuance.
Accordingly, the Company believes the outstanding common stock is highly
speculative, and it may have no value.
At the first hearing held on September 26, 2000 before Judge Mary F.
Walrath, the Bankruptcy Court entered first day orders granting authority to the
Debtors, among other things, to pay pre-petition and post-petition employee
wages, salaries, benefits and other employee obligations, to pay vendors and
other providers in the ordinary course for goods and services received after
September 25, 2000, and to pay pre-petition unsecured trade claims to vendors.
Substantially all pre-petition trade claims have been paid in full.
The Company obtained debtor-in-possession financing (the "DIP
Facility") from the same lenders that financed the Company's Credit Agreement,
dated as of August 17, 1999. The Bankruptcy Court approved the DIP Facility on
an interim basis on September 26, 2000 and on a final basis on October 13, 2000.
The DIP Facility provides for a term loan facility in an aggregate principal
amount of $23.0 million, and a revolving loan facility in the aggregate
principal amount of $74.0 million under a borrowing base formula. Term loans
bear interest at the LIBOR rate plus 3.50% for LIBOR rate loans and at the base
rate plus 1.50% for base rate loans. Revolving loans bear interest at the LIBOR
rate plus 3.00% for LIBOR rate loans and at the base rate plus 1.00% for base
rate loans. The DIP Facility expires on the earlier of (a) the substantial
confirmation of the Company's restructuring or (b) 180 days from the entry by
the Bankruptcy Court of the interim order approving the DIP Facility. The
Company's obligations under the DIP Facility are secured by liens on
substantially all of the Company's and its subsidiaries' assets and a pledge of
the shares of all of the Company's subsidiaries.
The Company has filed various motions in the Chapter 11 Cases whereby
it was granted authority or approval with respect to various items required by
the Bankruptcy Code and/or necessary for the Company's reorganizational efforts.
The Company has obtained orders providing for, among other things, (i)
implementation of employee retention and incentive programs, (ii) the ability to
pay vendors and other providers in the ordinary course for goods and services
provided to the Company, and (iii) the extension of time to assume or reject
leases or
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executory contracts. Under the Plan, the Company will reject the Shareholders'
Agreement dated April 8, 1997, between the Company and PT Texmaco Jaya, and the
Agreement dated April 8, 1997, among Polysindo Hong Kong Limited and the Company
(the "Texmaco Agreements") pursuant to Section 365(a) of the Bankruptcy Code.
See Certain Relationships and Related Transactions. The Company also intends to
reject its 1992 Stock Incentive Plan and its Non-Qualified Stock Option Plan for
Employees of Acquired Companies.
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations, Note 1 of Notes to Consolidated Financial
Statements, and the Report of Independent Auditors included herein which
includes an explanatory paragraph concerning a substantial doubt as to the
Company's ability to continue as a going concern.
GENERAL
The Company is a manufacturer of knit fleece, jersey and stretch
fabrics sold principally to domestic apparel producers ("Textile" products). The
Company's fleece fabrics are used to produce (i) outerwear apparel suitable for
outdoor recreational activities, as well as casual sportswear; (ii) children's
and women's sportswear, including sweatshirts and sweatpants; (iii) infant
blanket sleepers and (iv) blankets and throws. The Company's jersey fabrics are
used to produce a broad range of women's and children's lightweight apparel,
including tops and shorts. The Company's stretch fabrics are used to produce a
variety of activewear, including dancewear, swimwear, biking and running
garments, recreational and casual sportswear and intimate apparel. The Company's
manufacturing operations are vertically integrated, beginning with the
conversion of fiber into yarn and knitting, dyeing and finishing the fabric in a
wide range of styles and colors. The Company's fabrics are used in apparel
marketed by leading brands such as Calvin Klein, Columbia, Health-Tex, Danskin,
Patagonia, Polo, Tommy Hilfiger and William Carter; and sold to catalog
merchants and specialty stores such as L.L. Bean and Eddie Bauer, department
stores and national chains.
The Company also has an apparel manufacturing business. The apparel
business purchases fabric primarily from its Textile business, 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 business also has a
joint venture in the Dominican Republic. The Company manufactures apparel
products for leading brands such as Nike, SanMar and Timberland.
The Company is a Tennessee corporation that was formed in 1929 and,
through the early 1990s, marketed its fabrics to apparel manufacturers that
supplied children's and women's apparel. In 1992, the Company began implementing
a strategy of broadening its line to include knit fabrics, including outerwear
fleece and stretch fabrics, and targeting manufacturers of brand name apparel,
catalog merchants, specialty stores, department stores and national chains. To
support this shift in strategy, over the past several years the Company has
upgraded its manufacturing operations and has increased its investment in
marketing, research and development and customer service capabilities.
On August 27, 1997, the Company acquired AIH Inc. ("Alamac"), then a
subsidiary of WestPoint Stevens Inc. ("WestPoint Stevens") (the "Acquisition").
Formed in 1946, Alamac is a manufacturer of interlock, jersey, pique and other
knit fabrics sold primarily to domestic apparel producers. Similar to the
Company's other manufacturing operations, Alamac's manufacturing operations are
vertically integrated.
PRODUCTS
The Company's products are divided into six principal categories:
fleece, interlock, jersey, pique, rib and stretch.
Fleece. The principal uses of the Company's fleece fabrics are in
manufacturing outerwear, children's and women's activewear and infant blanket
sleepers. The Company's fleece fabrics are made of acrylic, polyester, cotton or
blends of these fibers. The fabric is dyed and undergoes a series of finishing
and abrading processes by which a surface is brushed or "napped" to give the
fabric the "hand" or feel associated with fleece.
Outerwear Fleece. In 1992, the Company introduced a new line of
outerwear fleece designed for use in recreational and casual sportswear apparel
products. In 1993, this product line was complemented by the
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introduction of Dyersburg E.C.O.(TM), outerwear fleece made of yarn using fibers
from recycled plastics. The Company's variety of outerwear fleece fabrics has
grown significantly, with new fabric weights, blends, fiber configurations and
finishes that promote functionality. The Company's outerwear fleece products are
engineered for water repellency, wickability, moisture vapor transport and
warmth. The Company's branded outerwear fleece products have grown to include
Kinderfleece targeted to children's outerwear, Citifleece targeted to adult
outerwear, Dyersburg E.C.O. Lite, a lighter weight E.C.O. product, and
Triplex(TM), a new triple microdenier/Lycra(R) product line. Garments
manufactured from these products are primarily sold to catalog merchants and
specialty retailers.
Other Fleece Products. Fleece fabrics sold to the children's activewear
market, principally sweatshirts and sweatpants, are made of 100% acrylic fibers
or polyester/cotton blends. Acrylic's low cost, ability to be dyed brighter
colors and low shrinkage are of particular importance to the children's
activewear market. Fleece fabrics sold to manufacturers of women's activewear
are primarily made either of 50% polyester/50% cotton blends or polyester/cotton
blends with a higher cotton content. In recent years, there has been increased
use in activewear apparel of polyester/cotton blends, which management believes
is attributable to increased consumer demand for natural fibers, as well as the
greater receptivity of these fabrics to printing compared to 100% acrylic
fabrics. Polyester/cotton blends are also typically softer and less likely to
"pill" than 100% synthetics, while still offering less fabric shrinkage than
100% cotton products.
The Company's remaining major fleece fabric product categories are
fabrics used to manufacture infant blanket sleepers and for home furnishings.
The demand for infant blanket sleepers is primarily attributable to its fire
retardant characteristics. The Company's Maison Fleece(TM) brand blankets and
throws are made from the Company's outerwear fleece fabrics for sale to the
growing home furnishings market.
Interlock. Interlock is made from 100% cotton ring spun and
cotton/polyester blends. Interlock is used primarily in men's, women's and
children's turtlenecks and women's sportswear. Interlock is considered one of
the leading base fabrications for domestic knit fabric production.
Jersey. The Company markets a line of jersey fabrics for use in a broad
range of women's and children's lightweight apparel, principally tops, T-shirts
and shorts. Jersey is a flat-knit fabric, which is typically made from a
polyester/cotton blend or from 100% cotton fibers and, unlike fleece, is not
surface-finished. Jersey fabrics are also generally lighter in weight than
fleece. The Company produces jersey fabric in tubular and open width form.
Pique. Pique is a textured knit and is the predominant fabric used in
men's golf shirts. Fabric for knit collars and cuffs manufactured by the Company
is the other significant ingredient necessary to participate in the golfwear
category.
Rib. Rib is a stretch fabric, used primarily in tops. The stretch
results from the fabric construction, rather than the use of spandex. Rib
continues to be an important fashion fabric for branded and mass merchant
womenswear.
Stretch. Stretch fabrics consist of custom formulations of cotton,
spandex, nylon and other synthetic yarns designed for comfort, performance and
styling. To produce a variety of shades and patterns, stretch fabrics may be
knit from dyed yarns, dyed as cloth, sold to independent printers for printing
or garment-dyed by the customer. These fabrics are used in a variety of fashion
and activewear products, including dancewear, swimwear, biking and running
garments, recreational and casual sportswear and intimate apparel. The majority
of these fabrics are used by leading manufacturers to produce higher-priced
branded sportswear products.
MANUFACTURING/SEASONALITY
To support the Company's strategy of broadening its line of fabrics and
to seek manufacturing efficiencies and reduce manufacturing costs, the Company
invested significantly in its manufacturing operations. During 1996, the Company
updated its yarn manufacturing facilities resulting in a reduction in the
production of off-quality yarns and a decrease in the labor component of its
manufacturing costs. The Company's dyeing and finishing operations have also
been significantly expanded and redesigned to accommodate sales of outerwear
fleeces and performance cottons. As a result of its plant modernization program,
the Company has improved its ability to produce high quality, competitively
priced fabrics and to be versatile and flexible with respect to the weight,
gauge and
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composition of its fabrics. The Company's yarn spinning, knitting, dyeing and
finishing equipment can be used with a variety of fibers and blends to meet
shifts in consumer demand.
Knitted fabrics are made almost entirely from yarns containing acrylic,
cotton or polyester fibers or blends of these materials. These fibers are
blended, if required, carded to disentangle locks and straighten individual
fibers and drawn to produce continuous untwisted strands called "slivers." The
slivers are spun, drawn and twisted to produce yarn. The Company produces the
majority of its yarns, but also purchases yarn from a number of vendors. The
Company maintains several sources for branded and non-branded spandex and
synthetic blend yarns. The yarn is subsequently knit into fabric known as
"greige" or undyed fabric. After knitting is completed, the greige fabric is
dyed in computer-controlled, pressurized dyeing machines. Fabric dyeing is the
most time-consuming operation in fleece fabric manufacturing, with dyeing cycles
ranging from four to twelve hours, depending on the fabric and color dyed.
Efficiency and quality controls implemented as part of a plant modernization
program and new equipment have increased the Company's ability to match colors
and reduce energy costs and are expected to reduce the time consumed in the
dyeing process, as well as the overall production time for the Company's
fabrics. The Company is able to dye certain of its yarns, as well as fabric,
which allows it to produce fabrics in an unlimited variety of stripes and
patterns.
The Company finishes fleece fabric surfaces by napping or utilizing
other processes. Fabrics are napped by being fed through machines that fluff one
side of the fabric with rotating wire brushes, and then finished to produce the
distinctive pile and feel of fleece through Company-developed processes that
polish, raise and shear the fibers. Jersey fabric is a smooth, flat-knit fabric
that is dyed but is not surface-finished. The Company also produces pile
finished fleece fabrics, where a special knit construction produces an unusually
long nap. This deep "pile" can be "tumbled" in rotary dryers to create a pilled
or "sherpa" look; embossed, where patterns are cut into the pile; or sheared,
where the fibers are uniformly cut to form a very dense, compact fabric with a
smooth surface. In addition, with a special knit construction, fabrics produced
with any of these finishing techniques can be napped on both sides. The Company
also offers fabrics, both fleece and jersey, that are mechanically compacted to
reduce the wash shrinkage of garments.
The Company has two manufacturing facilities in Dyersburg, Tennessee,
one facility in Cleveland, Tennessee and one facility in each of Lumberton,
Elizabethtown and Clinton, North Carolina. The original Dyersburg facility spins
100% synthetic (acrylic or polyester), 60% cotton/40% polyester and 50%
polyester/50% cotton yarns. These yarns are used along with yarns produced at
the Clinton facility and yarns purchased from outside sources to knit fleece and
jersey fabrics at the Dyersburg knitting facility prior to dyeing and finishing.
The Company's facility in Cleveland, Tennessee uses the Company's yarn as well
as purchased yarn from outside sources to knit, dye and finish stretch and
lining fabrics.
The Clinton and Dyersburg facilities produce approximately 60% of the
Company's cotton and polyester yarn needs with the remaining requirements
obtained from outside vendors. All yarn dyeing requirements of the Company are
produced at the Elizabethtown facility.
The Company's sales have historically had a pronounced seasonal pattern
with the majority of its sales occurring during its third quarter. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
SALES AND MARKETING
The Company maintains sales offices in New York, Charlotte, Seattle,
Atlanta and Los Angeles. The Company employs sales representatives and utilizes
a network of independent sales agents coordinated through its marketing
organization in New York. In addition to calling on the Company's customers, the
Company's sales representatives attempt to create additional demand for the
Company's products by marketing directly to brand name clothing designers and
retailers.
The Company also maintains a resource center at its Elizabethtown
facility, where customers have access to a designer, six fully electronic
knitting machines and color and fabric libraries to facilitate the design and
development of apparel lines.
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One of the Company's customers, Garan Incorporated, accounted for more
than 10% of the Company's net sales for the year ended September 30, 2000. No
other customer accounted for more than 10% of sales in fiscal 2000.
INVENTORY MANAGEMENT
The Company's customers typically negotiate their purchases from the
Company through informal purchase orders that specify their anticipated fabric
needs over periods as long as five months. The orders are revocable and serve
primarily to outline the customers' intentions over a specified term and permit
the Company to "block out" its production schedule. Although orders are subject
to cancellation by customers at any time before the Company receives color
specifications from the customers, fabric produced for canceled orders can
ordinarily be used to fill other orders. Because these informal purchase orders
are cancelable, the Company has no appreciable long-term backlog.
In order to facilitate its ability to respond quickly to customer
demands and due to the seasonal nature of the Company's business, the Company
puts substantial efforts into the management of its inventory. Based in part
upon the volume of informal customer purchase orders, the Company builds an
inventory of uncolored and basic color fabrics (such as blacks, whites and gray
heathers) during the Company's off-peak season. As customers determine their
precise needs, they provide the Company with firm orders for fabrics with
specific dyeing and finishing requirements. The Company's build-up of inventory,
together with its modern dyeing and distribution facilities, permits the Company
to quickly color, finish and ship fabric during the peak demand season. In
addition, the Company's ability to manage its inventory and to efficiently dye
and distribute its fabrics also enables the Company to produce and ship fabrics
not contained in inventory.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are coordinated
through the Company's marketing department and are directed toward maintaining
and improving the quality of the Company's products and the development of new
value-added products such as Dyersburg E.C.O., Synsation(TM), Kinderfleece(TM),
Citifleece(TM) and Maison Fleece to meet the changing needs of the knit fabric
market. Emphasis is placed on physical characteristics that provide competitive
differentiations between fabrics including "hand" or feel, warmth, fade
resistance and shrinkage reduction. The Company's research and development
activities are also focused on providing innovative stretch fabrics that will
meet the evolving needs of its customers, while developing new products to gain
entry in other markets. The Company was instrumental in developing products from
DuPont Lycra(R) spandex and DuPont Supplex(R) nylon to provide customers with
new types of performance fabrics that exhibit unique properties.
The costs of the Company's research and development activities are not
considered by management to be material to the results of operations or the
financial condition of the Company.
RAW MATERIALS
The Company uses three primary fibers as raw material for producing
yarn: acrylic, polyester and cotton. Cotton makes up approximately 60%, acrylic
approximately 5%, and polyester approximately 35% of the raw material fiber used
in production. Cotton is an agricultural commodity, while acrylic and polyester
are petroleum based. These items are subject to market price fluctuations, but
supplies are not dependent on any single vendor, and management believes that
sources for materials will be adequate to meet requirements. The Company
purchases yarns from a number of vendors and maintains several sources for
branded and non-branded spandex and synthetic blend yarns.
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COMPETITION
The textile industry is extremely competitive and includes numerous
companies, no one of which is dominant in the industry. The Company and its
competitors market their products nationwide, as domestic shipping costs are not
a significant competitive factor. The Company's primary competition comes from
suppliers of knit fabric. The Company also competes with vertically integrated
apparel manufacturers that produce the fabric used in their apparel products and
with foreign manufacturers. The primary competitive factors in the textile
industry are product styling and differentiation, quality, customer service and
price. The importance of these factors is determined by the need of particular
customers and the characteristics of particular products.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances and wastes used in or resulting from its
operations and potential remediation obligations thereunder, particularly the
Federal Water Pollution Control Act, the Clean Air Act, the Resource
Conservation and Recovery Act (including amendments relating to underground
tanks) and the Comprehensive Environmental Response, Compensation and Liability
Act, commonly referred to as "Superfund" or "CERCLA." The Company has obtained,
and believes it is in compliance in all material respects with, all material
permits required to be issued by federal, state or local law in connection with
the operation of the Company's business as described herein.
The operations of the Company also are governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards and regulate
the use of hazardous chemicals in the workplace. Alamac uses resins containing
formaldehyde in processing some of its products. Although the Company does not
use asbestos in the manufacture of its products, some of its facilities contain
some structural asbestos that management believes is all properly contained.
Many of the manufacturing facilities owned by the Company have been in
operation for several decades. Historical waste disposal and hazardous substance
releases and storage practices may have resulted in on-site and off-site
remediation liability for which the Company would be responsible. In addition,
certain wastewater treatment facilities and air emission sources may have to be
upgraded to meet more stringent environmental requirements in the future.
Although the Company cannot with certainty assess at this time the impact of
future emission standards or enforcement practices under the foregoing
environmental laws and regulations and, in particular, under the 1990 Clean Air
Act, upon its operations or capital expenditure requirements, the Company
believes that it is currently in compliance in all material respects with
applicable environmental and health and safety laws and regulations. The Company
is aware of certain environmental contamination at the Alamac facilities. The
Company estimates that the remaining cost to remediate such contamination is
approximately $650,000.
EMPLOYEES
At September 30, 2000, the Company employed approximately 2,200 people
in hourly, salaried, supervisory, management and administrative positions. No
labor union represents any of the Company's employees, and the Company believes
its relationship with its employees to be good.
ITEM 2. PROPERTIES
The Company's business is conducted primarily through facilities
located in Dyersburg and Cleveland, Tennessee and Clinton, Elizabethtown and
Lumberton, North Carolina. Each of these facilities and the property on which
they are located are owned by the Company. The Company leases selling offices in
New York, New York; Charlotte, North Carolina; Seattle, Washington; Atlanta,
Georgia and Los Angeles, California. The New York office contains approximately
13,000 square feet. The remaining offices have substantially less square
footage.
The primary Dyersburg facility was built in 1929 with 275,000 square
feet of floor space. After several expansions, it now contains approximately
888,000 square feet of plant space situated on 30 acres of land. The knitting
facility (completed in December 1993) encompasses approximately 155,000 square
feet situated on approximately 30 acres in the Dyersburg Industrial Park. The
floor space is distributed as follows: 684,000 square
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feet for manufacturing, 273,000 square feet for warehousing and distribution,
28,000 square feet for offices and 60,000 square feet for maintenance shops and
boiler space. A warehouse facility containing approximately 213,000 square feet
was completed in September 1997.
The Cleveland facility was built in 1986 with approximately 70,000
square feet of floor space followed by a 38,000 square foot expansion in 1991. A
45,000 square foot addition (primarily warehouse, distribution and laboratory
facilities) was completed in December 1994. A 19,200 square foot expansion was
completed in December 1997.
The Clinton facility was built in 1965 and contains approximately
367,000 square feet situated on approximately 48 acres of land. The
Elizabethtown facility was built in 1971 and contains approximately 193,000
square feet situated on approximately 148 acres of land. The Lumberton facility
was built in 1962 and contains approximately 414,000 square feet situated on
approximately 198 acres of land.
ITEM 3. LEGAL PROCEEDINGS
On September 25, 2000, the Company and 13 of its subsidiaries filed
voluntary petitions with the Bankruptcy Court for reorganization under Chapter
11 of the Bankruptcy Code. The Debtors are currently operating their businesses
as debtors-in-possession. The Chapter 11 Cases have been consolidated for the
purpose of joint administration under Case No. 00-3746.
Additional information regarding the Chapter 11 Cases is set forth in
Business - Proceedings Under Chapter 11 of the Bankruptcy Code, Management's
Discussion and Analysis of Financial Condition and Results of Operations, Note 1
of Notes to Consolidated Financial Statements and the Report of Independent
Auditors included herein which includes an explanatory paragraph concerning a
substantial doubt as to the Company's ability to continue as a going concern.
The Company is a party to various lawsuits arising out of the conduct
of its business, none of which is expected by the Company to have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of fiscal 2000 ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
During 1999 and through April 1, 2000, the Company's common stock
traded on the New York Stock Exchange (the "NYSE") under the symbol "DBG." On
September 23, 1999, the NYSE notified the Company that it was reviewing the
listing status of the Company's listed securities, including the common stock.
On April 6, 2000, the NYSE announced that trading in the common stock was
suspended effective on that date, and it was later delisted. Subsequent to April
1l, 2000, the common stock has been traded on the OTC Bulletin Board under the
symbol "DBGC." The high and low sales prices for the common stock as reported by
the NYSE until April 6, 2000 and the high and low bid prices on the OTC Bulletin
Board after April 11, 2000 were as follows:
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Quarters High Low
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Fiscal 2000 First $1 1/16 $ 7/32
Second 1 1/4 3/8
Third 6/25 1/6
Fourth 1/5 1/91
Fiscal 1999 First $4 3/8 $2 3/4
Second 3 13/16 1 9/16
Third 1 13/16 1 1/4
Fourth 1 1/4 9/32
The OTC market quotations reflect inter-dealer quotations, without mark-up,
mark-down or commission and may not necessarily represent actual transactions.
HOLDERS
As of December 8, 2000, the closing bid price reported on the OTC
Bulletin Board was $0.012, and the Company had approximately 2,800 shareholders
based on the number of record holders of the Company's Common Stock and an
estimate of the number of individual participants represented by security
position listings.
DIVIDENDS
During the first two quarters of fiscal 1999 the Company declared and
paid regular quarterly cash dividends of $ .01 per share of common stock. At its
regularly scheduled meeting on May 11, 1999, the board of directors voted to
discontinue the payment of cash dividends. The DIP Facility contains certain
restrictive covenants, including a prohibition on the payment of cash dividends.
On September 25, 2000, the Company and its subsidiaries filed voluntary
petition for reorganization under Chapter 11. The Plan proposed by the Company
involves a debt conversion of the Subordinated Notes into newly issued common
equity of the reorganized Company and the issuance of a PIK Note. Under the
Plan, the currently outstanding common stock would be cancelled and the holders
of the currently outstanding common stock would receive the Warrants to acquire
up to fifteen (15%) percent of the new common stock. The Company believes the
outstanding common stock is highly speculative, and may have no value. See
Management's Discussion and Analysis of Financial Condition and Operating
Results - Overview.
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ITEM 6. SELECTED FINANCIAL DATA
2000 1999 1998 1997(a) 1996
- -------------------------------------------------------------------------------------------------------------------
(in thousands, except ratios, percentages and per share data)
SUMMARY OF OPERATIONS:
Net Sales $ 306,351 $ 311,460 $417,525 $ 250,193 $195,866
Income (loss) before income taxes and
extraordinary loss (24,519) (24,980)(b) 12,346 21,900 14,254
Income tax (benefit) expense (4,271) (7,958) 5,313 8,634 5,854
Income (loss) before extraordinary loss (20,248) (17,022) 7,033 13,266 8,400
Extraordinary loss -- (1,203)(c) -- (905)(d) --
Net income (loss) (20,248) (18,225) 7,033 12,361 8,400
PER SHARE OF COMMON STOCK:
Earnings Per Share (diluted)
Income (loss) before extraordinary loss $ (1.51) $ (1.28) $ 0.53 $ 1.01 $ 0.61
Extraordinary loss -- (0.09) -- (0.07) --
Net income (loss) (1.51) (1.37) 0.53 0.94 0.61
Cash dividends -- 0.02 0.04 0.04 0.04
Stock range:
High 1.25 4.38 14.00 13.44 6.25
Low 0.01 0.28 3.50 5.38 3.88
Book value 5.16 6.74 8.13 7.61 6.75
Weighted average common
Shares outstanding (diluted) 13,378 13,345 13,336 13,210 13,681
CAPITAL EXPENDITURES AND DEPRECIATION:
Capital expenditures $ 6,573 $ 10,158 $ 17,564 $ 14,041 $ 11,778
Depreciation 15,782 15,821 15,721 11,742 9,573
STATISTICAL DATA:
Income (loss) before extraordinary item
to average shareholders' equity (25.49)% (17.17)% 6.72% 14.05% 9.76%
Inventory turnover (e) 6.60 6.09 5.81 5.69(f) 5.20
Accounts receivable turnover (g) 5.68 5.59 5.79 5.75(f) 5.63
Interest coverage (h) -- -- 1.55 3.93 3.31
Current ratio 1.09 3.49 3.01 2.69 4.37
SELECTED BALANCE SHEET DATA:
Working capital $ 9,314 $ 72,736 $ 84,577 $ 80,514 $ 52,083
Total assets 288,521 322,934 363,134 366,814 195,007
Long-term obligations, excluding
current portion 7,900 194,460 198,900 203,450 80,950
Shareholders' equity 68,976 89,900 108,371 101,104 88,742
(a) Fifty-three weeks. Includes operations of Alamac effective August 27,
1997.
(b) Includes a pre-tax restructuring charge of $11.6 million.
(c) Write-off of deferred financing costs related to refinancing of Credit
Facility.
(d) Early extinguishment of debt negotiated with Alamac purchase.
(e) Cost of sales divided by average inventory.
(f) Excludes impact of Alamac.
(g) Net sales divided by average net accounts receivable.
(h) Net income before interest, taxes and extraordinary item divided by the
sum of annual interest and amortization of debt costs.
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ITEM 7. 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 future operating and financial strategies and results)
and any other statements that are not limited solely to historical fact.
Investors are cautioned that all forward-looking statements involve known and
unknown risks and uncertainties including, without limitation, risks associated
with the Company's approval of plans and activities by the Bankruptcy Court,
including the proposed Plan; the ability of the Company to continue as a going
concern; the ability of the Company to operate pursuant to the terms of its DIP
Facility and to fund future growth; the Company's ability to sell properties
which are currently subject to letters of intent; the Company's ability to
comply with restrictive financial and operating conditions imposed by the terms
of the Company's DIP Facility; the Company's ability to obtain a new credit
facility after it emerges from bankruptcy; the availability of trade credit and
terms from vendors; the ability of the Company to operate successfully under a
Chapter 11 proceeding and achieve planned sales and margin; potential adverse
developments with respect to the Company's liquidity or results of operations;
the ability of the Company to attract, retain and compensate key executives and
associates; competitive pressures which may affect the nature and viability of
the Company's business strategy; trends in the economy as a whole which may
affect consumer confidence and consumer demand for the Company's products; the
seasonal nature of the Company's business and the ability of the Company to
predict consumer demand as a whole, as well as demand for specific goods; the
ability of the Company to attract and retain customers; potential adverse
publicity; the Company's ability and success in achieving cost savings;
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, 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 be accurate. The Company undertakes no obligation to
update any forward-looking statements contained in this report.
OVERVIEW
Proceedings Under Chapter 11 of the Bankruptcy Code
On September 25, 2000, the Company and 13 of its subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of title 11 of the
Bankruptcy Code in the Bankruptcy Court and orders for relief were entered by
the Bankruptcy Court. The Chapter 11 Cases have been consolidated for the
purpose of joint administration under Case No. 00-3746. The Debtors are
currently operating their businesses as debtors-in-possession pursuant to the
Bankruptcy Code.
Although the Debtors expect to emerge from bankruptcy in the second
quarter of fiscal 2001, there can be no assurance that the Plan proposed by the
Debtors will be confirmed by the Bankruptcy Court, or that the Plan will be
consummated. See - Cautionary Note Regarding Forward-Looking Information. As
provided by the Bankruptcy Code, a plan of reorganization must be confirmed by
the Bankruptcy Court. The Bankruptcy Court may confirm a plan notwithstanding
the non-acceptance of the plan by an impaired class of creditors or equity
security holders if certain requirements of the Bankruptcy Code are met. The
Plan proposed by the Company involves a debt conversion of the Company's
pre-petition Subordinated Notes into newly issued common equity of the
reorganized Company and the PIK Note. Under such circumstances the existing
common stock of the Company would be cancelled and the holders of our currently
outstanding common stock would receive the Warrants to acquire up to fifteen
(15%) percent of the new common stock on a fully-diluted basis. Accordingly, the
Company believes the outstanding common stock is highly speculative, and may
have no value.
At the first hearing held on September 26, 2000 before Judge Mary F.
Walrath, the Bankruptcy Court entered first day orders granting authority to the
Debtors, among other things, to pay pre-petition and post-petition
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employee wages, salaries, benefits and other employee obligations, to pay
vendors and other providers in the ordinary course for goods and services
received after September 25, 2000, and to pay pre-petition unsecured trade
claims to vendors. Substantially all pre-petition trade claims have been paid in
full.
The Company obtained the DIP Facility from the same lenders that
financed the Company's Credit Agreement, dated as of August 17, 1999. The
Bankruptcy Court approved the DIP Facility on an interim basis on September 25,
2000 and on a final basis on October 13, 2000. The DIP Facility provides for a
term loan facility in an aggregate principal amount of $23.0 million, and a
revolving loan facility in the aggregate principal amount of $74.0 million under
a borrowing base formula. Term loans bear interest at the LIBOR rate plus 3.50%
for LIBOR rate loans and at the base rate plus 1.50% for base rate loans.
Revolving loans bear interest at the LIBOR rate plus 3.00% for LIBOR rate loans
and at the base rate plus 1.00% for base rate loans. The DIP Facility expires on
the earlier of (a) the substantial confirmation of the Company's restructuring
or (b) 180 days from the entry by the Bankruptcy Court of the interim order
approving the DIP Facility. The Company's obligations under the DIP Facility are
secured by liens on substantially all of the Company's and its subsidiaries
assets and a pledge of the shares of all of the Company's subsidiaries.
The Company has filed various motions in the Chapter 11 Cases whereby
it was granted authority or approval with respect to various items required by
the Bankruptcy Code and/or necessary for the Company's reorganizational efforts.
The Company has obtained orders providing for, among other things, (i)
implementation of employee retention and incentive programs, (ii) the ability to
pay vendors and other providers in the ordinary course for goods and services
provided to the Company, and (iii) the extension of time to assume or reject
leases or executory contracts. Under the Plan, the Company will reject the
Texmaco Agreements pursuant to Section 365(a) of the Bankruptcy Code. The
Company also intends to reject its 1992 Stock Incentive Plan and its
Non-Qualified Stock Option Plan for Employees of Acquired Companies.
Reference is made to Business - Proceedings Under Chapter 11 of the
Bankruptcy Code, Note 1 of Notes to Consolidated Financial Statements, and the
Report of Independent Auditors included herein which includes an explanatory
paragraph concerning a substantial doubt as to the Company's ability to continue
as a going concern.
RESULTS OF OPERATIONS
The Company's fiscal year ends on the Saturday closest to September 30,
which resulted in a fifty-two week fiscal year in 1998, 1999 and 2000.
Beginning in fiscal 1998, the domestic circular knit industry has
experienced accelerating consolidation and a supply/demand imbalance that
adversely affected the Company's results of operations. The Company experienced
weakness in sales and margins in both fleece and jersey fabrics. Competition
from imports increased as global sourcing patterns continued to shift between
the Far East and the West. Unstable, often faltering economies in the Far East
forced many textile and apparel manufacturers in the region to offer products to
U.S. markets at reduced prices. These low prices were made even more attractive
to U.S. retailers by significant and prolonged currency devaluations in several
countries. The duration of these market conditions, evidenced by additional, if
not an excessive, supply of low-priced imports is uncertain. Due to the
continued softness in the knit market, management has undertaken initiatives to
increase or stabilize revenues and reduce costs. Increased emphasis on research
and development directed at better uses of developing technology in concert with
market intelligence of retail customers is intended to intensify the Company's
focus on developing additional value added and differentiated products and
improving the speed to market of such products. The Company believes garment
packaging, whereby the Company converts fabric into a finished garment, has
provided new opportunities for fabric sales.
During fiscal 2000, the Company consolidated all retirement plans into
one successor plan. As a result of this change, all benefits accrued in the
Company's pension plans were frozen as of January 1, 2000. Ongoing expenses for
retirement benefits were not materially impacted in fiscal 2000 as a result of
this change. However, a one-time curtailment gain of $1.7 million was recorded
in the first fiscal quarter of 2000.
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FISCAL 2000 COMPARED TO FISCAL 1999
Net Sales. Net sales for fiscal 2000 totaled $306.4 million, down 2%
from $311.5 million for fiscal year 1999. Sales of textile products decreased
from $310.6 million for fiscal 1999 to $284.6 million for fiscal 2000. The
decrease was due to a lower volume of sales, primarily in jersey products. The
decline in textile sales was partially offset by apparel sales, which increased
from less than $1 million in fiscal 1999 to over $21.8 million in fiscal 2000.
Apparel sales primarily included fleece jackets and vests and men's pique collar
and placket shirts.
Gross Profit. Gross profit for fiscal 2000 totaled $32.8 million, down
19% from $40.5 million for fiscal year 1999. Due to lower production levels,
overhead costs per yard sharply increased, driving margins lower.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales for fiscal 2000 were 10.2%
compared to 10.8% for fiscal 1999. These expenses decreased from $33.6 million
in fiscal 1999 to $31.3 million in fiscal 2000. The dollar decrease was
primarily due to reductions in administrative costs due to lower sales volume,
cost savings initiatives as a result of the 1999 restructuring and reductions in
certain compensation expenses that are based on performance.
Restructuring Charges. The Company recorded $397,000 in restructuring
charges during the fourth quarter of fiscal 2000. Approximately $216,000 of
these charges represents severance-related expenses allocated to terminated
employees and $181,000 relates to an impairment write-off of certain leasehold
improvements. During the first, second, third and fourth quarters of fiscal
2000, approximately $457,000, $129,000, $24,000 and $45,000, respectively, was
paid for severance and fringe benefits related to restructuring; resulting in a
balance in accrued restructuring charges of $397,000, $268,000, $244,000 and
$415,000, respectively at each fiscal quarter end. The remaining balance is
expected to be paid in 2001. Benefits derived in fiscal 2000 from the 1999
restructuring plan approximated $10.0 million.
Reorganization Expenses. There were $4.8 million of reorganization
costs in fiscal 2000. These costs relate to fees for the Company's financial and
legal advisors amounting to $2.1 million and the write-off of deferred debt
costs associated with the Senior Notes of $2.7 million. Additionally, $320,000
is reflected in prepaid expenses for retainer fees for the Company's advisors.
Interest and Amortization of Debt Costs. Interest and amortization of
debt costs for fiscal 2000 was $20.8 million, compared to $20.3 million in
fiscal 1999. In August 1999, the Company refinanced its bank credit facility
with a new Credit Agreement. The Company obtained the DIP Facility in September
2000.
Federal and State Income Taxes. Due to a net loss before income taxes
of $24.5 million, the Company recorded a federal and state tax benefit of $4.3
million for fiscal 2000. The effective tax rate of 17.6% was lower than the
federal statutory rate primarily due to the non-deductibility of certain
goodwill amortization and the recording of a valuation allowance.
Net Income (Loss). The loss for fiscal 2000 was $20.2 million, or
($1.51) per share on both a basic and diluted basis. The net loss for fiscal
1999 was $18.2 million, or ($1.37) per share for basic and diluted earnings per
share. During the fourth quarter of fiscal 1999, the Company recorded an
extraordinary charge, net of taxes, of approximately $1.2 million or $0.09 per
share, related to the early extinguishment of debt in connection with the
refinancing relating to the Credit Agreement.
FISCAL 1999 COMPARED TO FISCAL 1998
Net Sales. Net sales for fiscal 1999 totaled $311.5 million, down 25%
from $417.5 million for fiscal 1998. The decrease was driven by lower volume of
sales principally in fleece and active-wear fabrics. Sales in these categories
were adversely impacted by low-priced imports.
Gross Profit. Gross profit for fiscal 1999 totaled $40.5 million, down
45% from $73.6 million for fiscal 1998. Due to lower production levels, overhead
costs per yard sharply increased, driving margins lower. However, margins were
favorably impacted by a change in the accounting estimate for useful lives of
certain property and equipment at the Company's Dyersburg, Tennessee facilities.
The effect of the change was a decrease in
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depreciation expense in fiscal 1999 of approximately $1.4 million, which reduced
the after-tax net loss by approximately $854,000, or $0.06 per share.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales for fiscal 1999 were 10.8%
compared to 9.0% for fiscal 1998. These expenses decreased from $37.5 million in
fiscal 1998 to $33.6 million in fiscal 1999. The dollar decrease was primarily
due to reductions in administrative costs due to lower sales volume and
reductions in certain compensation expenses that are based on performance. The
Company believes cost savings initiatives completed in the third and fourth
quarters of fiscal 1999 should reduce selling, general and administrative
expenses by over $3.0 million annually, which is expected to favorably impact
the ratio of selling, general and administrative expenses as a percent of sales
beginning in the first quarter of fiscal 2000.
Restructuring Charges. During fiscal 1999, the Company announced the
consolidation of certain manufacturing facilities. The consolidation was
accomplished through a reduction of the weekend operations at the Company's
Dyersburg, Tennessee facilities, closing of the Company's facility in Hamilton,
North Carolina and the elimination of yarn spinning operations at the Company's
Trenton, Tennessee facility. Restructuring charges of $11.6 million were charged
to operations during fiscal 1999 as a result of eliminating the Hamilton and
Trenton operations. These restructuring charges represent a write-down to net
realizable value of $7.1 million for property, plant and equipment which are
either held for sale or abandoned as a result of the consolidation. The Company
is actively marketing such assets held for sale through the use of internal
sources and outside agents.
The Company recorded in fiscal 1999 severance related expenses
associated with terminated employees of $4.5 million. Over 500 hourly and
salaried employees were notified of their terminations. During fiscal 1999,
approximately $3.6 million was paid for severance and fringe benefits related to
these fiscal 1999 restructuring charges, resulting in a balance of accrued
restructuring charges of $854,000 at October 2, 1999. Substantially all of the
remaining balance in these restructuring charges will be paid in fiscal 2000.
The Company believes cost savings associated with the closing of certain
facilities and the resulting consolidation of manufacturing should exceed $9.0
million annually. The Company believes approximately $1.0 million of such amount
will represent an annual reduction in depreciation expense.
The Company also recorded a charge of $1.3 million for restructuring
charges in the third quarter of fiscal 1998. These restructuring charges
represented severance-related expenses associated with terminated employees.
During fiscal 1998, $727,000 was paid for severance and related fringe benefits,
resulting in a balance in accrued restructuring charges of $575,000 at fiscal
year end. During the first, second, third and fourth quarters of fiscal 1999,
approximately $77,000, $326,000, $47,000 and $93,000, respectively, was paid for
severance and fringe benefits related to these fiscal 1998 restructuring
charges; resulting in a balance in accrued restructuring charges of $498,000,
$172,000, $125,000 and $32,000, respectively at each fiscal quarter end. All of
the employees identified by the restructuring plan have been terminated.
Interest and Amortization of Debt Costs. Interest and amortization of
debt costs for fiscal 1999 was $20.3 million, compared to $22.5 million in
fiscal 1998. In August 1999, the Company refinanced its bank credit facility
with a new Credit Agreement. Terms of the new Credit Agreement are not
anticipated to materially adversely impact interest cost in fiscal 2000.
Federal and State Income Taxes. Due to a net loss before income taxes
of $25.0 million, the Company recorded a federal and state tax benefit of $8.0
million for fiscal 1999. The effective tax rate of 31.9% was lower than the
federal statutory rate primarily due to the non-deductibility of certain
goodwill amortization.
Net Income (Loss). The loss for fiscal 1999, before an extraordinary
item was $17.0 million, or ($1.28) per share on both a basic and diluted basis.
Net income for fiscal 1998 was $7.0 million, or $0.53 per share for basic and
diluted earnings per share. During the fourth quarter of fiscal 1999, the
Company recorded an extraordinary charge, net of taxes, of $1.2 million, or
$0.09 per share, related to the early extinguishment of debt in connection with
the refinancing relating to the new bank Credit Agreement.
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LIQUIDITY AND CAPITAL RESOURCES
On September 25, 2000, the Debtors filed the Chapter 11 Cases which
will affect the Company's liquidity and capital resources in fiscal 2001. See
Business - Proceedings Under Chapter 11 of the Bankruptcy Code.
The Company entered into a loan and security agreement effective August
17, 1999, with Congress Financial Corporation (Southern) and BankBoston, N.A.
for a revolving credit, term loan and letter of credit facility in an aggregate
principal amount of up to $110.0 million (the "Credit Agreement"), to replace
the Company's previous credit facility and to support the Company's working
capital and general corporate needs.
The Company obtained the DIP Facility from the same lenders to replace
the Credit Agreement. The Bankruptcy Court approved the DIP Facility on an
interim basis on September 25, 2000 and on a final basis on October 13, 2000.
The DIP Facility provides for a term loan facility in an aggregate principal
amount of $23.0 million, and a revolving loan facility in the aggregate
principal amount of $74.0 million under a borrowing base formula. Term loans
bear interest at the LIBOR rate plus 3.50% for LIBOR rate loans and at the base
rate plus 1.50% for base rate loans. Revolving loans bear interest at the LIBOR
rate plus 3.00% for LIBOR rate loans and at the base rate plus 1.00% for base
rate loans. The DIP Facility expires on the earlier of (a) the substantial
confirmation of the Company's restructuring or (b) 180 days from the entry by
the Bankruptcy Court of the interim order approving the DIP Facility. The
Company's obligations under the DIP Facility are secured by liens on
substantially all of its and its subsidiaries assets and a pledge of the shares
of all of the Company's subsidiaries.
The Company currently receives trade credit or terms from substantially
all of its vendors and suppliers. There can be no assurance that the Company
will continue to receive trade credit or terms from its vendors. See -
Cautionary Note Regarding Forward-Looking Information.
The Company's primary capital requirements are for working capital,
debt service and capital expenditures. Management believes that cash generated
from operations, borrowings available under the DIP Facility and trade credit
will be sufficient to meet the Company's working capital and capital expenditure
needs while the Company is in bankruptcy.
The Company is in the process of seeking a new credit facility to
replace the DIP Facility once the Company emerges from bankruptcy. The Company
intends to use the anticipated facility to repay outstanding borrowings under
the Credit Agreement and the DIP Facility, as well as for working capital
requirements. The Company believes its obligations under any new credit facility
will be fully secured by liens on substantially all of the assets of the Company
and its subsidiaries and a pledge of the shares of all of the Company's
subsidiaries. There can be no assurance that the Company will be able to enter
into a new credit facility on favorable terms, or at all. See - Cautionary Note
Regarding Forward-Looking Information.
One of the Company's subsidiaries, Alamac Knit Fabrics, Inc., has
entered into two letters of intent to sell three of its properties. The Company
can offer no assurance that these anticipated sale transactions will be
consummated on a timely basis, on terms favorable to the Company or at all. See
- - Cautionary Note Regarding Forward-Looking Information.
Management believes that cash generated from operations, borrowings
available under a new credit facility, if obtained, trade credit and proceeds
from the potential sale of some of its properties, will be sufficient to meet
the Company's working capital needs from the time it emerges from bankruptcy
through the end of fiscal 2001. Any adverse developments with respect to any of
the foregoing could materially adversely affect the Company's liquidity. In such
an event, the Company would seek alternative sources of liquidity, but there can
be no assurance that any such sources would be available to the Company.
Accordingly, there can be no assurance that the Company will generate sufficient
liquidity after it emerges from bankruptcy. See -- Cautionary Note Regarding
Forward-Looking Information.
Net cash provided by operating activities for fiscal 2000, 1999, and
1998 was $16.1 million, $20.5 million, $25.6 million, respectively. These cash
flows have been supplemented primarily by borrowings under the Company's credit
facilities. The average balances outstanding and the average interest rates paid
for fiscal 2000, 1999 and 1998 were approximately $58.8 million, $67.1 million,
and $94.5 million, respectively, and 9.8%, 8.7%, and 8.4%, respectively.
Availability under the revolving loan facility is limited at all times, through
maturity, to a
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receivables and inventory borrowing base. Based on the borrowing base
computation within the DIP Facility, the amount of additional borrowing
available at September 30, 2000 was $10.6 million before any minimum excess
reserve requirements. Further reference is made to Note 6 of Notes to
Consolidated Financial Statements.
Working capital at September 30, 2000, was $6.8 million versus $73.1
million at October 2, 1999. The Company's current ratio was 1.1:1 and its
debt-to-capital ratio was 73.9% at September 30, 2000, compared to 3.5:1 and
68.8% respectively, at October 2, 1999. Changes in working capital and the
current ratio are the result of the classification of amounts outstanding under
the Company's Credit Agreement from long-term debt to current liabilities since
the DIP Facility expires no later than 180 days from September 25, 2000.
Net accounts receivable were $48.9 million as of September 30, 2000,
compared to $50.5 million at October 2, 1999, due to lower sales volume.
Inventories decreased from $36.7 million at October 2, 1999, to $33.5 million as
of September 30, 2000, due to reduced production related to the lower level of
sales activity in the current period.
Capital expenditures during fiscal 2000, 1999 and 1998 were $6.6
million, $10.2 million and $17.6 million, respectively. Cash outlays for capital
spending are anticipated to approximate $5 to $6 million in fiscal 2001.
SEASONALITY
The following table sets forth the net sales and percentage of net
sales for the Company by fiscal quarter for the last three fiscal years.
2000 1999 1998
--------------------- ---------------------- ----------------------
(in thousands)
$ 68,349 22.3% $ 75,391 24.2% $ 91,931 22.0%
Second Quarter 78,724 25.7% 80,138 25.7% 109,958 26.3%
Third Quarter 87,852 28.7% 83,053 26.7% 113,533 27.2%
Fourth Quarter 71,426 23.3% 72,878 23.4% 102,103 24.5%
- --------------------------------------------------------------------------------------------------------
$306,351 100.0% $311,460 100.0% $417,525 100.0%
- --------------------------------------------------------------------------------------------------------
Due to this seasonal pattern of the Company's sales, inventories are
typically lowest at the end of the fiscal year and gradually increase over the
following six months in anticipation of the peak selling period. Receivables
tend to decline during the first fiscal quarter and are at their lowest point
during December through February. The net result is increased working capital
requirements from February through late in the third quarter.
INFLATION
Similar to other textile and apparel manufacturers, the Company is
dependent on the prices and supplies of certain principal raw materials
including cotton, acrylic and polyester fibers. During fiscal 2000 prices for
polyester and cotton increased. During fiscal 1999 and 1998 prices for both
cotton and polyester declined. The long-term impact of subsequent raw material
price fluctuations on the Company's performance is, however, uncertain. The
Company intends to support margins through continued efforts to improve its
product mix and improve product pricing as market conditions permit.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
RISK MANAGEMENT
The Company is exposed to market risk from changes in interest rates
and commodity prices. To reduce such risks, the Company selectively uses
financial instruments. All such hedging transactions are authorized and executed
pursuant to clearly defined procedures, which strictly prohibit the use of
financial instruments for trading purposes. A discussion of the Company's risk
management accounting policies is included in the Notes to Consolidated
Financial Statements.
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Interest Rates
At September 30, 2000, the fair value of the Company's total debt,
excluding the Subordinated Notes, was estimated to approximate its carrying
value using yields obtained through independent pricing sources for the same or
similar types of borrowing arrangements and taking into consideration the
underlying terms of the debt. Market risk is estimated as the potential change
in fair value resulting from a hypothetical change in interest rates. Using a
yield to maturity analysis and assuming an increase in interest rates of 10%
from September 30, 2000, the potential decrease in fair value of total debt
would be minimal. The Company had no market risk hedges in place at September
30, 2000.
The Company had $63.2 million of variable rate debt outstanding at
September 30, 2000. At this borrowing level, a hypothetical 10% adverse change
in interest rates would have approximately a $415,000 unfavorable impact on the
Company's net income and cash flows.
Commodities
The availability and price of cotton, which represents approximately
60% of raw material fibers the Company uses are subject to wide fluctuations due
to unpredictable factors such as weather, plantings, government farm programs
and policies, and changes in global production. To reduce price risk caused by
market fluctuations the Company from time to time will enter into long-term
purchase contracts. At September 30, 2000, the Company had commitments to
purchase approximately $14.0 million of cotton through July 2001 representing
approximately 100% of estimated fiscal 2001 requirements. The hypothetical
incremental loss in earning's for the cotton commodity positions at September
30, 2000 is estimated to be approximately $1.4 million, assuming a decrease of
10% in cotton prices.
On September 25, 2000, the Debtors filed the Chapter 11 Cases. As a
result of the filing of the Chapter 11 Cases, principal or interest payments may
not be made on any pre-petition debt until a plan of reorganization defining the
repayment terms has been approved by the Bankruptcy Court. However, the
Bankruptcy Court entered an order allowing the Company to pay all pre-petition
trade debt, which amounts have been substantially paid in full.
The above risk management discussion and the estimated amounts
generated from the sensitivity analyses are forward-looking statements of market
risk assuming certain adverse market conditions occur. Actual results in the
future may differ materially from those projected due to actual developments in
the market.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements set forth below are included beginning on page 18.
Page
Report of Independent Auditors ............................................................................ 18
Consolidated Balance Sheets as of September 30, 2000 and October 2, 1999 .................................. 19
Consolidated Statements of Operations for the years ended September 30, 2000, October 2, 1999, and
October 3, 1998 ............................................................................. 20
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2000, October 2,
1999 and October 3, 1998 .................................................................... 21
Consolidated Statements of Cash Flows for the years ended September 30, 2000, October 2, 1999 and
October 3, 1998 ............................................................................. 22
Notes to Consolidated Financial Statements ................................................................ 23
Schedules:
Schedule II - Valuation and Qualifying Accounts ........................................................ 38
All other financial statement schedules are omitted as the information is not
required or because the required information is presented in the financial
statements or the notes thereto.
17
20
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dyersburg Corporation
We have audited the accompanying consolidated balance sheets of
Dyersburg Corporation as of September 30, 2000 and October 2, 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 2000. Our
audits also included the financial statement schedule listed in the Index for
Item 8. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dyersburg Corporation at September 30, 2000 and October 2, 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 2000, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, on September 25, 2000, the Company filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11"). The Company is currently operating its business under the
jurisdiction of Chapter 11 and the United States Bankruptcy Court in Wilmington,
Delaware (the "Bankruptcy Court"), and continuation of the Company as a going
concern is contingent upon, among other things, the ability to formulate a plan
of reorganization which will be approved by the requisite parties under the
United States Bankruptcy Code and be confirmed by the Bankruptcy Court, the
ability to comply with its debtor-in-possession financing facility, obtain
adequate financing sources, and the Company's ability to return to profitability
and generate sufficient cash flows from operations to meet its future
obligations. In addition, the Company has experienced operating losses in 2000
and 1999. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The accompanying financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that may result
from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Charlotte, North Carolina
November 4, 2000
18
21
Dyersburg Corporation
(Debtor-In-Possession)
Consolidated Balance Sheets
SEPTEMBER 30, October 2,
2000 1999
--------------------------
(in thousands, except share data)
ASSETS
Current assets:
Cash ....................................................................... $ 167 $ 158
Accounts receivable, net of allowance for doubtful
accounts of $2,700 in 2000 and $2,826 in 1999 ........................... 48,891 50,509
Inventories ................................................................ 33,483 36,735
Income taxes receivable .................................................... 1,354 8,253
Deferred income taxes ...................................................... -- 3,850
Prepaid expenses and other ................................................. 2,535 2,864
--------- --------
Total current assets ........................................................... 86,430 102,369
Property, plant and equipment, net ............................................. 110,531 120,688
Goodwill, net .................................................................. 86,624 90,954
Deferred debt costs, net ....................................................... 1,480 5,018
Assets held for sale and other ................................................. 3,456 3,905
--------- --------
$ 288,521 $322,934
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities:
Trade accounts payable ..................................................... $ 13,606 $ 14,697
Accrued expenses and other ................................................. 10,691 11,127
Current portion of long-term obligations ................................... 55,286 3,400
--------- --------
Total current liabilities ...................................................... 79,583 29,224
Long-term obligations .......................................................... 7,900 194,460
Deferred income taxes .......................................................... -- 7,779
Other liabilities .............................................................. -- 1,571
Liabilities subject to compromise
Senior subordinated notes ................................................... 125,000 --
Accrued interest ............................................................ 7,062 --
Commitments and contingencies .................................................. -- --
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized; none issued Series A Preferred
stock, authorized 200,000 shares; none issued
Common stock, $.01 par value,
Authorized 40,000,000 shares;
Issued and outstanding shares--
13,388,556 in 2000 and 13,341,066 in 1999 ............................... 134 133
Additional paid-in capital ................................................. 42,828 42,773
Retained earnings .......................................................... 26,746 46,994
Accumulated other comprehensive loss ....................................... (732) --
--------- --------
Total shareholders' equity ..................................................... 68,976 89,900
--------- --------
$ 288,521 $322,934
========= ========
See accompanying notes.
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22
Dyersburg Corporation
(Debtor-In-Possession)
Consolidated Statements of Operations
YEAR ENDED
----------------------------------------
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
----------------------------------------
(in thousands, except per share data)
Net sales ................................... $ 306,351 $ 311,460 $417,525
Cost of sales ............................... 273,619 270,959 343,901
Selling, general and administrative expenses 31,310 33,608 37,488
Restructuring charges ....................... 397 11,578 1,300
Interest and amortization of debt costs ..... 20,750 20,295 22,490
--------- --------- --------
326,076 336,440 405,179
--------- --------- --------
Income (loss) before reorganization items and
income taxes (benefit) ................... (19,725) (24,980) 12,346
Reorganization items:
Legal and professional fees .............. 2,085 -- --
Write-off of senior subordinated
notes deferred debt costs .............. 2,709 -- --
--------- --------- --------
4,794 -- --
--------- --------- --------
Income (loss) before income taxes and
extraordinary loss ....................... (24,519) (24,980) 12,346
Federal and state income taxes (benefit) .... (4,271) (7,958) 5,313
--------- --------- --------
Income (loss) before extraordinary loss ..... (20,248) (17,022) 7,033
Extraordinary loss, net of tax benefit ...... -- (1,203) --
--------- --------- --------
Net income (loss) ........................... $ (20,248) $ (18,225) $ 7,033
========= ========= ========
Weighted average shares outstanding:
Basic .................................... 13,378 13,345 13,326
Diluted .................................. 13,378 13,345 13,336
========= ========= ========
Basic and diluted earnings per share:
Income (loss) before extraordinary loss .. $ (1.51) $ (1.28) $ 0.53
Extraordinary loss ....................... -- (0.09) --
--------- --------- --------
Net Income (loss) ........................ $ (1.51) $ (1.37) $ 0.53
========= ========= ========
See accompanying notes.
20
23
Dyersburg Corporation
(Debtor-In-Possession)
Consolidated Statements of Shareholders' Equity
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS LOSS TOTAL
----- ------- -------- ---- -----
(in thousands, except share data)
Balance at October 4, 1997 ................. $133 $41,985 $ 58,986 $ -- $ 101,104
Net income ............................. -- -- 7,033 -- 7,033
Cash dividends paid ($.04 per share) ... -- -- (533) -- (533)
Stock issued of 1,383 shares
and exercise of 55,651 stock options,
including tax benefit ............... -- 767 -- -- 767
---- ------- -------- ----- ---------
Balance at October 3, 1998 ................. 133 42,752 65,486 -- 108,371
Net loss ............................... -- -- (18,225) -- (18,225)
Cash dividends paid ($.02 per share) ... -- -- (267) -- (267)
Stock issued of 4,000 shares ......... -- 21 -- -- 21
---- ------- -------- ----- ---------
Balance at October 2, 1999 ................. 133 42,773 46,994 -- 89,900
Comprehensive loss
Net loss ............................ -- -- (20,248) -- (20,248)
Minimum pension liability adjustment -- -- -- (732) (732)
---- ------- -------- ----- ---------
Total comprehensive loss ............... -- -- (20,248) (732) (20,980)
Stock issued of 47,490 shares .......... 1 55 -- -- 56
---- ------- -------- ----- ---------
Balance at September 30, 2000 .............. $134 $42,828 $ 26,746 $(732) $ 68,976
==== ======= ======== ===== =========
See accompanying notes.
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24
Dyersburg Corporation
(Debtor-In-Possession)
Consolidated Statements of Cash Flows
YEAR ENDED
----------------------------------------
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
-------- -------- --------
(in thousands)
OPERATING ACTIVITIES
Net income (loss) ................................ $(20,248) $(18,225) $ 7,033
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-down of fixed assets .................... -- 7,079 --
Extraordinary loss, net of tax benefit ........ -- 1,203 --
Depreciation .................................. 15,782 15,821 15,721
Amortization and write-off of deferred
financing costs ............................. 8,892 3,824 3,971
Deferred income taxes and other ............... (4,612) (2,334) 1,845
Gain on pension curtailment ................... (1,700) -- --
Changes in operating assets and liabilities:
Accounts receivable ....................... 1,618 20,850 (3,069)
Inventories ............................... 3,252 8,412 7,075
Trade accounts payable and other current
liabilities ............................. 5,535 (8,716) (8,108)
Income taxes receivable ................... 6,899 (5,060) (576)
Other ..................................... 635 (2,350) 1,700
-------- -------- --------
Net cash provided by operating activities ........ 16,053 20,504 25,592
INVESTING ACTIVITIES
Purchases of property, plant and equipment ....... (6,573) (10,158) (17,564)
Purchase of Alamac Sub Holdings, Inc. ............ -- -- (4,272)
Other ............................................ 1,172 518 88
-------- -------- --------
Net cash used in investing activities ............ (5,401) (9,640) (21,748)
FINANCING ACTIVITIES
Net (payments) borrowings on long-term obligations (9,674) (8,540) (4,550)
Deferred financing costs (post-petition in 2000) . (1,025) (1,959) --
Dividends paid ................................... -- (267) (533)
Exercise of stock options, net of tax benefit .... -- -- 767
Other ............................................ 56 205 211
-------- -------- --------
Net cash used in financing activities ............ (10,643) (10,971) (4,527)
-------- -------- --------
Net increase (decrease) in cash .................. 9 (107) (683)
Cash at beginning of year ........................ 158 265 948
-------- -------- --------
Cash at end of year .............................. $ 167 $ 158 $ 265
======== ======== ========
See accompanying notes.
22
25
Notes To Consolidated Financial Statements
1. NATURE OF OPERATIONS AND BUSINESS CONDITION
OPERATIONS
Dyersburg Corporation and its wholly-owned subsidiaries (the "Company")
is a textile manufacturer of knit fabrics with customers concentrated in the
domestic apparel industry. The Company does not require collateral for accounts
receivable. One customer, Garan Incorporated, accounted for more than 10%
(approximately $34.4 million) of the Company's net sales for the year ended
September 30, 2000. Garan Incorporated, also accounted for more than 10%
(approximately $46.4 million) of the Company's net sales for the year ended
October 3, 1998. No customer accounted for 10% or more of sales in fiscal 1999.
PETITION FOR RELIEF UNDER CHAPTER 11
On September 25, 2000, the Company and 13 of its subsidiaries
(collectively, the "Debtors") filed voluntary petitions with the Bankruptcy
Court for reorganization under Chapter 11 ("Chapter 11 Cases") and orders for
relief were entered by the Bankruptcy Court. The Chapter 11 Cases have been
consolidated for the purpose of joint administration under Case No. 00-3746. The
Debtors are currently operating their businesses as debtors-in-possession
pursuant to the Bankruptcy Code.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness
are stayed and other contractual obligations against the Debtors may not be
enforced. In addition, under the Bankruptcy Code, the Debtors may assume or
reject executory contracts, including lease obligations. Parties affected by
these rejections may file claims with the Bankruptcy Court in accordance with
the reorganization process. Substantially all pre-petition liabilities are
subject to settlement under a plan of reorganization to be voted upon by
creditors and equity holders to be approved by the Bankruptcy Court. However,
the Bankruptcy Court entered an order allowing the Company to pay all
pre-petition trade debt, which amounts have substantially been paid in full.
Although the Debtors have filed a reorganization plan that provides for
emergence from bankruptcy in the second fiscal quarter of 2001, there can be no
assurance that the reorganization plan or plans proposed by the Debtors will be
confirmed by the Bankruptcy Court, or that any such plan(s) will be consummated.
A plan of reorganization must be confirmed by the Bankruptcy Court,
upon certain findings being made by the Bankruptcy Court. The Bankruptcy Court
may confirm a plan notwithstanding the non-acceptance of the plan by an impaired
class of creditors or equity security holders if certain requirements of the
Bankruptcy Code are met. The Plan proposed by the Company involves a debt
conversion of the Company's pre-petition 9 3/4% Subordinated Notes due 2007 (the
"Subordinated Notes") into newly issued common equity of the reorganized Company
and a $15.0 million Senior Subordinated Payment-in-Kind Note with an interest
rate of 13% per annum and a term of seven years (the "PIK Note"). Under the
Plan, the existing common stock of the Company would be cancelled and the
holders of our currently outstanding common stock would receive two series of
warrants to acquire up to 15% of the new common stock on a fully-diluted basis.
The exercise price of the Series A Warrants will be $10.39 per share and will be
exercisable for 5% of the new common stock. The exercise price of the Series B
Warrants (together with the Series A Warrants, the "Warrants") will be $12.38
per share and will be exercisable for 10% of the new common stock. The Warrants
expire five years after the date of issuance. Accordingly, the Company believes
the outstanding common stock is highly speculative, and it may have no value.
Prior to the bankruptcy filing, the Company did not make the $6,093,750
interest payment due September 1, 2000 under the terms of the Company's 9.75%
Senior Subordinated Notes due September 1, 2000. The Company is in possession of
its properties and assets, and continues to manage its business as
debtor-in-possession subject to the supervision of the Bankruptcy Court. The
Company has a $97.0 million debtor-in-possession credit facility in place (the
"DIP Facility").
The Company has filed various motions in the Chapter 11 Cases whereby
it was granted authority or approval with respect to various items required by
the Bankruptcy Code and/or necessary for the Company's reorganizational efforts.
The Company has obtained orders providing for, among other things, (i)
implementation of employee retention and incentive programs, (ii) the ability to
pay vendors and other providers in the ordinary
23
26
course for goods and services provided to the Company, and (iii) the extension
of time to assume or reject leases or executory contracts. Under the Plan, the
Company will reject the Shareholders' Agreement dated April 8, 1997, between the
Company and PT Texmaco Jaya, and the Agreement dated April 8, 1997, among
Polysindo Hong Kong Limited and the Company (the "Texmaco Agreements") pursuant
to Section 365(a) of the Bankruptcy Code. See Certain Relationships and Related
Transactions. The Company also intends to reject its 1992 Stock Incentive Plan
and its Non-Qualified Stock Option Plan for Employees of Acquired Companies.
2. ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION AND GOING CONCERN MATTERS
The Company's financial statements have been prepared on a going
concern basis of accounting in accordance with AICPA Statement of Position
("SOP") 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code." SOP 90-7 does not change the application of generally accepted
accounting principles in the preparation of financial statements. However, it
does require that financial statements for periods including and subsequent to
filing the Chapter 11 petitions distinguish transactions and events that are
directly associated with the reorganization from the ongoing operations of the
business.
The Company's recent losses and the Chapter 11 Cases raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The ability of the Company to continue as
a going concern and appropriateness of using the going concern basis is
dependent upon, among other things, (i) the Company's ability to comply with its
financing agreements, (ii) confirmation of a plan of reorganization under the
Bankruptcy Code, (iii) the Company's ability to achieve profitable operations
after such confirmation, and (iv) the Company's ability to generate sufficient
cash from operations to meet its obligations.
As described in Note 1, the Company has submitted a plan for
reorganization to the Bankruptcy Court. Management believes that the plan of
reorganization, subject to approval of the Bankruptcy Court, along with cash
provided by its credit facility and operations, will provide sufficient
liquidity to allow the Company to continue as a going concern; however, there
can be no assurance that the sources of liquidity will be available or
sufficient to meet the Company's needs. The proposed plan of reorganization
could materially change the amounts currently recorded in the consolidated
financial statements. The consolidated financial statements do not give effect
to any adjustment to the carrying value of assets or amounts and classifications
of liabilities that might be necessary as a result of the Chapter 11 Cases.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Dyersburg Corporation and its wholly owned subsidiaries. Investments in
affiliates in which the Company owns 20 to 50 percent of the voting stock are
accounted for using the equity method. All significant intercompany balances and
transactions have been eliminated. Amounts from prior periods may have been
reclassified to conform with the fiscal 2000 presentation.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates and assumptions.
CASH AND CASH EQUIVALENTS
The Company considers cash equivalents to be temporary cash investments
with a maturity of three months or less when purchased.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
24
27
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is
computed on the straight-line basis over the estimated useful lives of the
assets: buildings - 25 to 40 years; machinery and equipment - 5 to 15 years.
During the first quarter of fiscal 1999, the Company changed its estimates for
the useful lives of certain property, plant and equipment at its Dyersburg,
Tennessee facilities. This change was implemented to reflect time periods more
consistent with actual historical experience and anticipated utilization of the
assets. The effect of the change was a decrease in depreciation expense for each
quarter of fiscal 1999 of approximately $350,000. This change decreased
depreciation expense for the full fiscal year by approximately $1.4 million. For
the year ended October 2, 1999, the effect of the change was to reduce the after
tax net loss by approximately $854,000, or $0.06 per share.
INTANGIBLE ASSETS
Goodwill, which consists of costs in excess of net assets acquired, is
amortized by the straight-line method over forty years. Deferred debt costs are
amortized by the interest method over the life of the related debt. Goodwill is
net of accumulated amortization of $25,663,000 and $22,329,000 and deferred debt
costs and other is net of accumulated amortization of $368,000 and $1,035,000 at
September 30, 2000 and October 2, 1999, respectively.
IMPAIRMENT OF LONG LIVED ASSETS
Long-lived assets, including goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the estimated undiscounted cash flows,
excluding interest, is less than the carrying amount of the asset, a loss is
recognized for the difference between fair value and the carrying amount of the
asset. Long-lived assets to be disposed of are carried at the lower of cost or
fair value less cost to sell when the Company is committed to a plan of disposal
and the asset is no longer in use. The estimated useful lives of long-lived
assets, including goodwill, are evaluated continually to determine whether later
events and circumstances warrant revised estimates.
INCOME TAXES
The Company provides income taxes under the liability method.
Accordingly, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax purposes.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to or greater than the market value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees
and, accordingly, has recognized no compensation expense for stock option
grants.
REORGANIZATION COSTS
Reorganization costs include legal and professional fees incurred. In
addition, deferred costs associated with debt subject to compromise were written
off upon filing for bankruptcy.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed using the weighted average
number of common shares outstanding during each period. Diluted earnings per
common share is computed using the weighted average number of common shares
outstanding during each period, including common stock equivalents, consisting
of stock options calculated using the treasury stock method, when dilutive.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after June 15, 2000. The Company expects to adopt
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28
the new Statement effective October 1, 2000. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The adoption of Statement No. 133 will have
no effect on earnings and the financial position of the Company as the Company
had no derivative instruments at October 1, 2000.
REVENUE RECOGNITION
Revenue is recognized when products are shipped and all terms of the
sale are final.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is reported in accordance with SFAS No.
130, Reporting Comprehensive Income. Other comprehensive income (loss) includes
minimum pension liability adjustments.
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, October 2,
2000 1999
----------------------------
(in thousands)
Raw materials $ 10,076 $ 11,611
Work in process 9,769 12,436
Finished goods 11,971 10,919
Supplies and other 1,667 1,769
-------- --------
$ 33,483 $ 36,735
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
SEPTEMBER 30, October 2,
2000 1999
----------------------------
(in thousands)
Land $ 2,054 $ 2,054
Buildings 55,822 55,623
Machinery and equipment 155,630 150,665
-------- --------
213,506 208,342
Less: accumulated depreciation 102,975 87,654
-------- --------
$110,531 $120,688
======== ========
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29
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
SEPTEMBER 30, October 2,
2000 1999
----------------------------
(in thousands)
Accrued interest Subordinated Debt $ -- $ 1,172
Accrued group insurance 1,963 1,215
Accrued vacation pay 1,070 986
Workers' compensation 1,200 1,250
Other 6,458 8,254
-------- --------
$ 10,691 $ 11,127
======== ========
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
SEPTEMBER 30, October 2,
2000 1999
----------------------------
(in thousands)
Senior subordinated notes $125,000 $125,000
Credit agreements 55,286 64,960
Industrial revenue bonds 7,900 7,900
-------- --------
188,186 197,860
Less current portion -- 3,400
Less liability subject to compromise 125,000 --
Less liability not subject to compromise
classified as current 55,286 --
-------- --------
Total long-term obligations $ 7,900 $194,460
======== ========
In August 1997, the Company issued $125,000,000 principal amount of
9.75% Senior Subordinated Notes due September 1, 2007 (the "Subordinated
Notes"). These Subordinated Notes are unsecured senior subordinated obligations
and are subordinated in right of payment to the prior payment in full of all
senior indebtedness, including the indebtedness under the Credit Agreement and
the Industrial Revenue Bonds.
The Company is a holding company with no assets other than its
investment in its subsidiaries. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and have fully and unconditionally guaranteed the
Subordinated Notes due September 1, 2007 on a joint and several basis. The
guarantor subsidiaries comprise all of the direct and indirect subsidiaries of
the Company. As of September 30, 2000 and October 2, 1999, there is no
restriction on the payment of dividends from subsidiaries to the parent company
under the terms of the Subordinated Notes. The Company has not presented
separate financial statements and other disclosures concerning each guarantor
subsidiary because management has determined that such information is not
material to investors.
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 3.0% 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 September 30, 2000) plus a margin currently
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30
equal to 0.75%, for the Revolver and 1.25% for the Term Loan. The availability
under the Revolver was limited at all times, through maturity, to a receivables
and inventory borrowing base. The Term Loan provided for scheduled monthly
amortization of $425,000 beginning February 1, 2000. Borrowings under the Credit
Agreement were secured by substantially all assets of the Company. The Company
was required to maintain compliance with certain financial covenants under the
Credit Agreement, including covenants relating to minimum net worth, minimum
cash flow and interest ratio coverage and minimum excess availability. The
credit facility also prohibited the payment of dividends and the repurchase of
the Company's stock. In 1999, the extinguishment of debt related to the
refinancing of the bank credit facility resulted in an extraordinary loss due to
a write-off of deferred financing costs, net of taxes of $1,203,000, or $0.09
per share.
Upon filing for reorganization under bankruptcy, the Company replaced
its Credit Agreement with the DIP Facility. The DIP Facility was obtained from
the same lenders that financed the Company's Credit Agreement, dated as of
August 17, 1999. The Bankruptcy Court approved the DIP Facility on an interim
basis on September 25, 2000 and on a final basis on October 13, 2000. The DIP
Facility provides for a term loan facility in an aggregate principal amount of
$23.0 million, and a revolving loan facility in the aggregate principal amount
of $74.0 million under a borrowing base formula. Term loans bear interest at the
LIBOR rate plus 3.50% for LIBOR rate loans and at the base rate plus 1.50% for
base rate loans. Revolving loans bear interest at the LIBOR rate plus 3.00% for
LIBOR rate loans and at the base rate plus 1.00% for base rate loans. The DIP
Facility expires on the earlier of (a) the substantial confirmation of the
Company's restructuring or (b) 180 days from the entry by the Bankruptcy Court
of the interim order approving the DIP Facility. The Company's obligations under
the DIP Facility are secured by liens on substantially all of its and its
subsidiaries assets and a pledge of the shares of all of the Company's
subsidiaries. The amount available for borrowing at September 30, 2000 was $10.6
million before any minimum excess reserve requirements. Up to $16.0 million of
amounts available under the Revolver may be used for the issuance of letters of
credit.
The Industrial Revenue Bonds bear interest at adjustable rates which
were 5.70% at September 30, 2000 and 3.90% at October 2, 1999 and mature
November 1, 2002. The bonds are secured by a letter of credit issued under the
DIP Facility.
The schedule of debt maturities is presented below (in thousands):
YEAR AMOUNT
---- ------
2001 $ 55,286
2002 ---
2003 7,900
2004 ---
Thereafter ---
--------
Total $ 63,186
========
Total interest paid was $13,913,000 in fiscal 2000, $19,196,000 in fiscal 1999,
and $22,794,000 in fiscal 1998.
The Company has letters of credit outstanding of $9,778,000 at
September 30, 2000. During the third and fourth quarter of fiscal 1999, the
Company terminated all of its outstanding interest rate hedge agreements. The
cost to unwind these agreements was insignificant. There were no swap
arrangements or interest rate collars in effect at September 30, 2000 or October
2, 1999. Presently, the Company has $125 million of its debt at a fixed rate,
with the remaining balance of the DIP Facility bearing interest at a floating
rate of interest.
The fair value of long-term obligations is estimated using yields
obtained through independent pricing sources for the same or similar types of
borrowing arrangements. The fair value of the Subordinated Notes is
undeterminable at September 30, 2000. The fair value of long-term obligations,
at October 2, 1999 was estimated at $87.1 million, or approximately $110.7
million less than the carrying value at that date. For all other financial
instruments, the carrying amounts approximate fair value due to their short
maturities.
28
31
7. SHAREHOLDERS' EQUITY
In June 1999 the Board of Directors adopted a Shareholder Rights Plan.
Under the plan, shareholders of common stock received as a dividend one
preferred stock purchase right for each share of common stock held (the "Right"
or "Rights"). Each Right, when exercisable, will entitle the registered holder
to purchase one one-hundredth of a share of new Series A Junior Preferred Stock
at an exercise price of $12 per Right, subject to certain adjustments. The
Rights are not represented by separate certificates and are only exercisable
upon a person's or group's acquisition of, or commencement of a tender or
exchange offer for, 15% or more of the Company's Common Stock ("Acquiring
Party"). The Rights are also exercisable in the event of certain mergers or
asset sales involving more than 50% of the Company's assets or earning power.
Upon becoming exercisable, each Right will allow the holder (other than the
Acquiring Party) to buy either securities of the Company or securities of the
Acquiring Party having a value twice the exercise price of the Rights. The
Rights expire on June 3, 2009 and are redeemable by the Board of Directors at
$.001 per Right. The Rights are exchangeable by the Board of Directors at an
exchange ratio of one share of Common Stock per Right at any time after the
Rights become exercisable.
The Company's Stock Option Plans (the "Option Plans") provide for the
granting of stock options to management, key employees and outside directors.
Options are subject to terms and conditions determined by the Compensation
Committee of the Board of Directors, and generally are exercisable in increments
of 20% per year beginning one year from date of grant and expire 10 years from
date of grant.
Option Plan activity is summarized in the table below.
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------------------------------
(in thousands, except exercise price)
Balance at October 4, 1997 267 $ 5.34
Options granted 195 10.67
Options exercised (55) 4.73
Options canceled (4) 9.20
------ ------
Balance at October 3, 1998 403 7.97
Options granted 346 3.47
Options canceled (72) 5.82
------ ------
Balance at October 2, 1999 677 5.90
Options granted 294 1.47
Options canceled (40) 4.79
------ ------
Balance at September 30, 2000 931 $ 4.55
====== ======
The weighted average grant date fair value of options was $0.23, $2.40, and
$5.58 for 2000, 1999, and 1998, respectively. Options outstanding at September
30, 2000 are summarized in the table below:
OUTSTANDING EXERCISABLE
------------------------------------ --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE
- ------------------------------------------------------------------------------------------
(in thousands, except exercise price and contractual life)
$0.25 - 6.00 748 $3.02 7.41 362 $3.51
$6.01 - 11.25 183 10.78 4.83 113 10.58
--- ---
Total 931 475
=== ===
There were 475,000 and 296,000 options exercisable and 1,251,000 and
505,000 reserved for future grants at September 30, 2000 and October 2, 1999,
respectively.
29
32
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for grants in 2000, 1999 and 1998: expected price volatility of .39
to .59; risk-free interest rates ranging from 5.25 to 5.78 percent; expected
dividend yield of .5 to 1.0 percent; and expected life of the options of 9.0
years.
For purpose of the following pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
------------------------------------------------
(in thousands, except per share data)
Net income (loss):
As reported $ (20,248) $(18,225) $ 7,033
Pro forma (20,472) (18,444) 6,861
Net income (loss) per share - diluted:
As reported $ (1.51) $ (1.37) $ 0.53
Pro forma (1.53) (1.38) 0.51
The table below sets forth the computations of basic and diluted earnings per
share:
Year Ended
--------------------------------------
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
-------- -------- ------
(in thousands, except per share data)
Numerator for basic and diluted earnings per share:
Income (loss) before extraordinary loss ........ $(20,248) $(17,022) $7,033
Extraordinary loss ............................. -- 1,203 --
Net income (loss) ................................. (20,248) (18,225) 7,033
======== ======== ======
Denominator for basic earnings per share--weighted
average shares outstanding ........................ 13,378 13,345 13,326
Effect of dilutive securities:
Employee stock options ......................... -- -- 10
======== ======== ======
Denominator for diluted earnings
Per share - adjusted weighted
average shares outstanding ........................ 13,378 13,345 13,336
======== ======== ======
Basic and diluted earnings per share:
Income (loss) before extraordinary loss ........ $ (1.51) $ (1.28) .53
Extraordinary loss ............................. -- (0.09) --
Net income (loss) .............................. $ (1.51) $ 1.37 $ .53
======== ======== ======
30
33
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and
assets are as follows:
SEPTEMBER 30, October 2,
2000 1999
----------------------------
(in thousands)
Deferred tax liabilities:
Depreciation $ 9,825 $ 8,997
Other 1,858 2,635
------- -------
Total deferred tax liabilities 11,683 11,632
Deferred tax assets:
Non-deductible reserves 3,252 3,272
Net operating loss and credit carryforwards 11,038 3,204
Pension -- 550
Other 883 677
------- -------
Total deferred tax assets 15,173 7,703
Less valuation allowance 3,490 --
------- -------
11,683 7,703
------- -------
Net deferred tax liabilities $ -- $ 3,929
======= =======
A valuation allowance of $3,490,000 has been established in 2000 due to
the uncertainty of sufficient taxable income in the future to utilize the
deductible temporary differences and carryforwards.
Significant components of the provision (benefit) for income taxes are
as follows:
YEAR ENDED
-------------------------------------
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
-------------------------------------
(in thousands)
Current:
Federal $(7,621) $(6,625) $2,199
State (231) (406) 258
------- ------- ------
(7,852) (7,031) 2,457
Deferred, primarily federal 3,581 (927) 2,856
------- ------- ------
$(4,271) $(7,958) $5,313
======= ======= ======
The provision (benefit) for income taxes differed from the amount
computed by applying the statutory federal income tax rate of 35% to income
(loss) before income taxes due to the following:
YEAR ENDED
-------------------------------------
SEPTEMBER 30, October 2, October 3,
2000 1999 1998
-------------------------------------
(in thousands)
Computed federal tax expense (benefit) at
statutory rate $(8,582) $(8,743) $4,321
State taxes, net of federal income tax
benefit (150) (264) 167
Valuation allowance 3,490 -- --
Effect of nondeductibility of amortization
of goodwill 705 715 751
Other 266 334 74
------- ------- ------
$(4,271) $(7,958) $5,313
======= ======= ======
31
34
At September 30, 2000 and October 2, 1999, the Company had available
federal net operating loss carryforwards of $28.4 million and $822,000
respectively, which may be used to offset future taxable income. These
carryforwards expire in fiscal 2019. In addition, the Company had available tax
credit carryforwards of $585,000 and $2.6 million, respectively, which may be
used to reduce future federal regular income taxes over an indefinite period.
Income tax payments were $0, $645,000, and $6.6 million, for fiscal
years 2000, 1999, and 1998, respectively. A tax benefit was realized for the
exercise of stock options in the amount of $504,000, and such amount was
recognized as additional paid in capital for the year ended October 3, 1998. The
extraordinary item for the fiscal year 1999 is shown net of tax benefits of
$647,000.
9. EMPLOYEE BENEFIT PLANS
The Company has adopted effective February 1, 2000, a defined
contribution plan that covers substantially all employees. Contributions to the
plan consist of a matching contribution equal to 75% of up to 2% annual
compensation deferred by employees eligible for matching; a non-elective
contribution of 1% of annual compensation of each active participant; and an
amount equal to 5% of the Company earnings before tax. Prior to February 1, 2000
the Company had two separate defined contribution plans that collectively
covered substantially all employees, excluding Alamac employees. Contributions
to one plan equaled 7.5% of adjusted income, as defined, plus additional amounts
authorized by the Board of Directors. Contributions to the other plan were made
at the discretion of the Board of Directors. The contributions shall not exceed
the maximum amount deductible for federal income tax purposes. Expenses under
the plans were $1,087,000, $213,000, and $2,544,000 for fiscal years 2000, 1999,
and 1998, respectively.
The Company provided salaried and hourly defined benefit pension plans
to substantially all full-time active employees of Alamac whose employment
transferred to the Company upon acquisition. The terms of the plans were
substantially identical, with respect to the classes of employees covered under
the plan and eligibility, to the terms provided by the seller prior to the
purchase of Alamac. Benefits under the existing plans were based on years of
service and compensation and become vested after five years of service.
Substantially all benefits were vested at the valuation date.
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 freezing of the hourly plan, the
Company recognized an additional minimum pension liability of $732,000. The
additional minimum pension liability has been recorded in shareholders' equity
as accumulated other comprehensive loss.
The following summarizes information including the plans' funded
status:
YEAR ENDED
------------------------------
SEPTEMBER 30, October 2,
2000 1999
---- ----
(in thousands)
CHANGE IN PENSION OBLIGATION
Pension obligation at beginning of year $ 17,028 $ 18,693
Service cost 180 1,175
Interest cost 1,205 1,428
Actuarial (gain) loss 359 (3,494)
Benefits paid (1,931) (667)
Effect of curtailment (2,155) (107)
-------- --------
Pension obligation at end of year $ 14,686 $ 17,028
======== ========
32
35
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $15,811 $13,792
Actual return on plan assets (7) 638
Company contributions 1,060 2,048
Benefits paid (1,931) (667)
------- -------
Fair value of plan assets at end of year $ 4,933 $15,811
======= =======
Under-funded status of the plan $ (36) $(1,217)
Unrecognized net actuarial (gain) loss 1,111 (227)
------- -------
Accrued pension cost at end of year $ 975 $(1,444)
======= =======
The following table provides the amounts recognized in the Consolidated
Balance sheets:
YEAR ENDED
-------------------------
SEPTEMBER 30, October 2,
2000 1999
------- -------
Prepaid benefit cost $ 1,288 $ --
Accrued benefit liability (313) (1,444)
------- -------
Net amount recognized $ 975 $(1,444)
======= =======
YEAR ENDED
-------------------------
SEPTEMBER 30, October 2,
2000 1999
------- -------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 7.75% 7.75%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase (salaried only) -- 4.00%
COMPONENTS OF NET PERIODIC PENSION COST
Service cost $ 179 $ 1,175
Interest cost 1,205 1,428
Actual return on plan assets (1,432) (1,374)
Net amortization and deferral 6 112
------- -------
Net pension cost (42) 1,341
------- -------
Curtailment gain (1,700) (122)
------- -------
$(1,742) $ 1,219
======= =======
Plan assets are invested primarily in United States Government
securities, corporate debt securities and equity securities. The salaried plan
and hourly plan projected benefit obligation was $8,416 and $6,270,
respectively, at September 30, 2000. The plan assets of the salaried and hourly
plans were $9,955 and $4,978, respectively, at September 30, 2000.
33
36
10. COMMITMENTS
The Company leases certain equipment and office space under
non-cancelable operating leases. Most of these leases include renewal options
and some include purchase options. Rent expense was $7,194,000 in fiscal 2000,
$7,829,000 in fiscal 1999, and $7,690,000 in fiscal 1998.
Future minimum payments under these leases are as follows:
FISCAL YEAR AMOUNT
-------------
(in thousands)
2001 $ 5,155
2002 3,849
2003 3,625
2004 2,496
2005 1,589
Thereafter 1,968
--------
Total aggregate future minimum lease payments $ 18,682
========
The Company routinely enters into forward purchase commitments to
secure the purchase price and availability of cotton, a significant raw material
utilized in its manufacturing process. At September 30, 2000, the Company has
outstanding commitments to purchase approximately $14.0 million in cotton
through July, 2001.
11. CONTINGENCIES
The Company is involved in various legal actions and claims arising in
the ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect to the
Company's financial position or results of operations.
12. RESTRUCTURING ACTIVITIES AND REORGANIZATION COSTS
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 of fiscal 1999. 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 of 1999,
increased by $585,000 during the fourth quarter. The components of the charge
included $4,499,000 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 October 2, 1999 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 $2,201,200
at September 30, 2000. The effect of suspending depreciation on these assets is
not material in the current year. The timing of the disposal of these assets is
not easily determined, but management of the Company does believe that sales
will likely occur within one year. The Company has entered into letters of
intent to sell three of its properties. As a result of the restructuring, the
Company has idle assets of $1.9 million which continue to be depreciated.
34
37
The following is a summary of activity in the 1999 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
Payments (45)
September 2000 severance recorded 216
-------
Balance at September 30, 2000 $ 415
=======
The Company recorded a charge of $397,000 for restructuring charges in
the fourth quarter of fiscal 2000 of which $216,000 was for severance-related
expenses allocated to terminated employees. The remaining $181,000 of
restructuring charges relates to an impairment write-off of certain leasehold
improvements.
There were $4,794,000 of reorganization costs in fiscal 2000. These
charges relate to fees for the Company's financial and legal advisors amounting
to $2,085,000 and write-off of deferred debt costs associated with the Senior
Notes of $2,709,000. Additionally, $320,000 is reflected in prepaid expenses for
retainer fees for the Company's advisors.
Other costs related to restructuring, primarily relocation of
equipment, of approximately $950,000 before tax, were charged to operations as
incurred during fiscal 1999.
The Company also recorded a charge of $1.3 million for restructuring
charges in the third quarter of fiscal 1998. This restructuring charge
represented severance-related expenses associated with terminated employees.
During fiscal 1998, $727,000 was paid for severance and related fringe benefits,
resulting in a balance in accrued restructuring charges of $575,000 at fiscal
year end. During the four quarters of fiscal 1999, approximately $77,000,
$326,000, $47,000 and $125,000 respectively, was paid in severance and related
fringe benefits. At October 2, 1999, there was no balance remaining related to
this restructuring charge.
13. REPORTABLE 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 years ended September 30, 2000,
October 2, 1999, October 3, 1998 were $251.0 million and $33.6 million, $273.2
million and $37.4 million, $380.6 million and $35.2 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.
35
38
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 an equity investment in a apparel manufacturing joint
venture in the Dominican Republic which is not material at September 30, 2000.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies footnote. The Company
evaluates the performance of each segment based on operating income excluding
amortization of goodwill, restructuring charges and other one-time items
reflected in the consolidated statement of operations. Equity in earnings (loss)
of unconsolidated affiliate is included in the apparel segment. Assets
attributable to the Company's operating segments consist primarily of accounts
receivable, inventories, and property plant and equipment. Assets not
attributable to segments include: cash, prepaid expenses and other current
assets, deferred income taxes, goodwill and other non-current assets.
2000 1999 1998
--------- --------- ---------
(in thousands)
Net Sales
Textile $ 284,589 $ 310,632 $ 415,849
Apparel 21,762 828 1,676
--------- --------- ---------
Consolidated net sales $ 306,351 $ 311,460 $ 417,525
========= ========= =========
Operating income (loss)
Textile $ 9,840 $ 11,784 $ 39,784
Apparel (5,588) (2,093) (712)
Amortization of goodwill 2,830 2,798 2,936
Restructuring 397 11,578 1,300
Reorganization 4,794 -- --
Interest 20,750 20,295 22,490
--------- --------- ---------
Consolidated income (loss) before taxes and
extraordinary loss $ (24,519) $ (24,980) $ 12,346
========= ========= =========
Depreciation
Textile $ 15,423 $ 15,536 $ 15,612
Apparel 359 285 109
--------- --------- ---------
$ 15,782 $ 15,821 $ 15,721
========= ========= =========
Capital Expenditures
Textile $ 6,497 $ 9,488 $ 16,475
Apparel 76 670 1,089
--------- --------- ---------
$ 6,573 $ 10,158 $ 17,564
========= ========= =========
Assets at end of year
Textile $ 189,176 $ 204,241 $ 251,991
Apparel 4,715 4,582 1,215
Assets not allocated to segments 94,630 114,111 109,928
--------- --------- ---------
$ 288,521 $ 322,934 $ 363,134
========= ========= =========
14. SUBSEQUENT EVENTS
One of the Company's subsidiaries, Alamac Knit Fabrics, Inc., has
entered into two letters of intent to sell three of its properties. The Company
can offer no assurance that these anticipated sale transactions will be
consummated on a timely basis, on terms favorable to the Company or at all. See
Management's Discussion of Financial Condition and Results of Operations -
Cautionary Note Regarding Forward-Looking Information.
36
39
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000
FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------
(in thousands, except share data)
Net sales $ 68,349 $ 78,724 $ 87,852 $ 71,426
Gross profit 10,515 8,205 7,931 6,081
Net income (loss) (617) (4,028) (4,731) (10,872)
Net income (loss) per share:
Basic (.05) (.30) (0.35) (0.81)
Fully diluted (.05) (.30) (0.35) (0.81)
Market prices of common stock:
High 1.06 1.25 0.24 0.20
Low .22 .38 0.17 0.01
1999
FIRST SECOND THIRD FOURTH(a)
- -----------------------------------------------------------------------------------------
(in thousands, except share data)
Net sales $ 75,391 $ 80,138 $ 83,053 $ 72,878
Gross profit 10,821 10,070 12,189 7,421
Income (loss) before extraordinary loss (1,652) (2,652) (8,541) (4,177)
Net income (loss) (1,652) (2,652) (8,541) (5,380)
Income (loss) per share
before extraordinary loss (.12) (.20) (0.64) (0.31)
Net income (loss) per share:
Basic (.12) (.20) (0.64) (0.40)
Fully diluted (.12) (.20) (0.64) (0.40)
Market prices of common stock:
High 4.38 3.81 1.81 1.25
Low 2.75 1.56 1.25 0.28
(a) Fourth quarter 1999 includes $1,203, or $0.09 per share extraordinary loss
for write-off of deferred financing costs associated with obtaining new debt
agreements.
37
40
DYERSBURG CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
- ---------------------------------- ------------ ---------- ------------- ---------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------ ---------- ------------- ---------
Additions
Balance at Charged to Balance
Beginning of Costs and at end of
Description Period Expenses Deductions(1) Period
------------ ---------- ------------- ---------
Year ended September 30, 2000
Allowance for doubtful accounts $2,826 $1,085 $1,211 $2,700
====== ====== ====== ======
Year ended October 2, 1999
Allowance for doubtful accounts $2,899 $2,566 $2,639 $2,826
====== ====== ====== ======
Year ended October 3, 1998
Allowance for doubtful accounts $2,075 $1,464 $ 640 $2,899
====== ====== ====== ======
(1) Write-offs, net of recoveries.
38
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
directors and executive officers of the Company as of September 30, 2000. All
officers serve at the discretion of the Board of Directors.
Name Age Position
---- --- --------
T. Eugene McBride 57 Chief Executive Officer and Chairman
M. L. (Chip) Fontenot 57 President, Chief Operating Officer and Director
William S. Shropshire, Jr. 43 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
Mark A. Cabral 47 Executive Vice President - Strategic Planning
Stephen J. Dauer 59 Executive Vice President - Sales and
Marketing
Sheldon R. Habinsky 57 Senior Vice President, Garment Packaging
Paul L. Hallock 52 Vice President - Finance and Assistant
Secretary - Treasurer
Harry M. Harden 42 Senior Vice President - Administration
Hunter Lee Lunsford, III 43 Executive Vice President - Operations
Jerry W. Miller 49 Executive Vice President-Research and
Development
Michael L. Lohafer 53 Vice President - International Operations
Thomas J. Albani 58 Director
James P. Casey 59 Director
John D. Howard 48 Director
L. R. Jalenak, Jr. 70 Director
Julius Lasnick 71 Director
P. Manohar 47 Director
Ravi Shankar 37 Director
The following is additional information with respect to the above-named
executive officers and directors.
Mr. McBride joined the Company in September 1988 as Executive Vice
President and was named President and Chief Operating Officer in January 1989.
He was named Chief Executive Officer in September 1990 and Chairman of the Board
of Directors in July 1995.
Mr. Fontenot joined the Company in January 1999 as President of
Marketing and a director. He was named President and Chief Operating Officer in
July 1999. Prior to joining the Company, Mr. Fontenot was President and Chief
Executive Officer of Decorative Home Accents from 1996-1998, and President,
Chief Executive Officer and Chairman of Perfect Fit Industries from 1989-1995.
Mr. Shropshire, a certified public accountant, joined the Company as
Executive Vice President, Chief Financial Officer, Secretary and Treasurer in
October 1996. For the previous five years, he was Chief Financial Officer,
Senior Vice President and Treasurer for Charter Bancshares, Inc.
39
42
Mr. Cabral was named Executive Vice President - Strategic Planning in
September 1999. He joined Alamac Knit Fabrics in 1970. His assignments have
included being Plant Manager of the Elizabethtown complex, General Manager of
Manufacturing, Vice President of Manufacturing, and Executive Vice President of
Operations at Alamac Knit Fabrics.
Mr. Dauer was named Executive Vice President - Sales and Marketing in
October 2000. Previously, he served as the Sr. Vice President - Sales since
November 1995.
Mr. Habinsky joined the Company as Senior Vice President, Garment
Packaging in July 2000. He joined Dyersburg after managing his own business that
designed and manufactured branded and private label apparel programs. He managed
and sourced these programs in the Far East and Central America.
Mr. Hallock joined the Company in April 1977. He was named Assistant
Secretary in November 1978, Assistant Secretary - Treasurer in November 1979,
and Vice President - Finance in March 1987.
Mr. Harden, was named Senior Vice President - Administration in April
1999. Prior to that date, he was Vice President of Human Resources since October
1, 1997. He was Director of Human Resources for the Alamac Division of WestPoint
Stevens from 1989 to 1997.
Mr. Lunsford was named Executive Vice President - Operations in
September 1999. He joined the Company in August 1997 as Vice President -
Manufacturing. He was named Executive Vice President of Operations at Dyersburg
Fabrics on May 1, 1998. Prior to joining the Company, Mr. Lunsford served as
Plant Manager from February 1992 until February 1997 and General Manager from
February 1997 until August 1997 at Dan River, a textile manufacturer.
Mr. Miller joined the Company in August 1993 as Director of
Manufacturing. He was named Vice President of Manufacturing in May 1994. He was
named President of United Knitting, Inc. in August 1997 and Executive Vice
President of Research and Development in May 1999.
Mr. Lohafer joined the Company in February 1998 as the Director of
Internal Audit. In September 1999, he was named Vice-President of International
Operations. Prior to joining the Company, Mr. Lohafer served as a consultant for
Rome-International from 1997-1998. Mr. Lohafer was also the Director of
Corporate Audit Services of Scientific-Atlanta, a cable television manufacturing
company from 1995 to 1996.
Mr. Albani was appointed to the Board of Directors in May 2000. He
served as president and chief executive officer of Electrolux Corporation from
1991 to 1998. Mr. Albani also serves on the board of directors of Select Comfort
Corporation.
Mr. Casey has served on the Board of Directors since 1999. From 1993 to
2000, Mr. Casey was President of Wellman, Inc's Fiber Division. Mr. Casey serves
on the Board of Directors of the Fashion Institute of Technology and on the
Board of Trustees of Philadelphia University.
Mr. Howard has been a Senior Managing Director of Bear Stearns & Co., a
merchant banking firm, since March 1997 and the Chief Executive Officer of
Gryphon Capital Partners Corporation, a merchant banking firm, from July 1996
through 1997. Previously, Mr. Howard was the Co-Chief Executive Officer of
Vestar Capital Partners, Inc., a merchant banking firm, from 1990 to 1996. Mr.
Howard has been a director of the Company from 1986 through July 1997 and since
January 1998. Mr. Howard also serves as a director of Celestial Seasonings, Inc.
and Safety First Inc.
Mr. Jalenak has served on the Board of Directors since 1992. Mr.
Jalenak retired in December 1993 from the position of Chairman of the Board of
Cleo Inc., a Gibson Greetings Company manufacturing gift wrap, greeting cards
and related products, a position he had held since June 1990. Mr. Jalenak is
also a director of Perrigo Company, Lufkin Industries and Party City
Corporation.
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Mr. Lasnick served as President-Manufacturing of Springs Industries,
Inc., a textile company, from 1991 until April 1993. Mr. Lasnick has served on
the Board of Directors since 1992.
Mr. Manohar has been a Group Executive Vice President/Finance of the
Texmaco group since 1989. Mr. Manohar was appointed to the Board of Directors as
a designee of Texmaco.
Mr. Shankar has been a Vice President of Operations in the textile
division of Polysindo Hong Kong Limited ("Texmaco") and a Director of Texmaco
Perkasa Engineering since 1987. Mr. Shankar was appointed to the Board of
Directors as a designee of Texmaco.
Under the terms of the Plan, subject to Bankruptcy Court appeal, the
board of directors of the Company after the restructuring will consist initially
of seven members, five of whom will be designated by the holders of the
Subordinated Notes and two of whom will be members of the Company's senior
management. The officers of the Company immediately before confirmation of the
Plan will continue to serve immediately thereafter in the same capacities.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, the Company's executive officers, and persons
who beneficially own more than ten percent of the Common Stock to file reports
of ownership and changes in ownership with the SEC. Such directors, officers,
and greater than ten percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms
furnished to the Company, or written representations from certain reporting
persons, the Company believes that during fiscal 2000 its officers, directors,
and greater than ten percent beneficial owners were in compliance with all
applicable filing requirements, except that Mr. McBride failed to file a Form 4
for one sale transaction, each of Messrs. Casey, Howard, Jalenak and Lasnick
failed to file a Form 5 for a grant of options pursuant to the Company's 1992
Stock Incentive Plan, and Mr. Albani failed to file a Form 3 when he was
appointed to the Board of Directors.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information as to annual, long-term, and
other compensation paid by the Company and its subsidiaries to the Company's
Chief Executive Officer and to each of the other Named Executive Officers of the
Company for services rendered in all capacities to the Company and its
subsidiaries.
Long Term
Compensation Awards
-------------------------------
Annual Compensation Securities
------------------------- Underlying All Other
Name and Principal Positions Fiscal Year Salary Bonus Options Compensation (1)
- ---------------------------- ----------- -------- --------- ------- -----------------
T. Eugene McBride 2000 $310,752 -- 27,500 $ 3,226
Chairman and Chief 1999 310,752 -- 60,000 4,682
Executive Officer 1998 311,929 -- 6,000 44,031
M. L. Fontenot 2000 300,000 -- 21,000 3,345
President and Chief 1999 201,676 $138,973 60,000 508
Operating Officer 1998 -- -- --
William S. Shropshire, Jr 2000 208,334 -- 18,000 2,015
Executive Vice President, 1999 190,008 -- 1,500 2,446
Chief Financial Officer, 1998 189,174 -- 5,000 26,009
Secretary and Treasurer
Stephen J. Dauer 2000 193,865 -- 13,000 2,753
Executive Vice President - 1999 185,016 -- 8,000 5,380
Sales 1998 182,262 -- 4,000 24,792
H. L. Lunsford, III 2000 183,423 -- 14,000 2,427
Executive Vice President - 1999 165,431 -- 10,000 2,941
Operations 1998 148,516 50,000 -- 13,192
- ----------
(1) Includes contributions by the Company in fiscal 2000 to the Dyersburg
Fabrics Inc. Profit Sharing Plan (the "Profit Sharing Plan")
Profit Sharing Group Term Life
Name Plan Insurance Premiums
---- ---- ------------------
T. Eugene McBride $1,700 $1,525
M. L. Fontenot 1,700 1,645
William S. Shropshire, Jr. 1,700 315
Stephen J. Dauer 1,700 1,053
H. L. Lunsford, III 1,700 727
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options granted in
fiscal 2000.
Potential
Realizable Value at
Number of Assumed Annual
Securities Percent of Rates of Stock
Underlying Total Options/ Price Appreciation
Options/ SAR's Granted for Option Term(2)
SAR's to Employees Exercise or Expiration -----------------------
Name Granted (1) in Fiscal Year Base Price Date 5% 10%
- ---- ----------- -------------- ---------- ---- --------- ----------
T. Eugene McBride 15,000 9.4 % $1.00 11/6/09 $ 9,450 $ 23,850
7,500 8.0 2.00 11/6/09 9,450 23,925
5,000 19.2 3.00 11/6/09 9,450 23,900
M. L. Fontenot 12,000 7.5 1.00 11/6/09 7,560 19,080
6,000 6.4 2.00 11/6/09 7,560 19,140
3,000 11.5 3.00 11/6/09 5,670 14,340
William S. Shropshire, Jr. 10,000 6.2 1.00 11/6/09 6,300 15,900
5,000 5.3 2.00 11/6/09 6,300 15,950
3,000 11.5 3.00 11/6/09 5,670 14,340
Stephen J. Dauer 7,000 4.4 1.00 11/6/09 4,410 11,130
4,000 4.3 2.00 11/6/09 5,040 12,760
2,000 7.7 3.00 11/6/09 3,780 9,560
H. L. Lunsford, III 8,000 5.0 1.00 11/6/09 5,040 12,720
4,000 4.3 2.00 11/6/09 5,040 12,760
2,000 7.7 3.00 11/6/09 3,780 9,560
- ------------------
(1) These options are exercisable after one year based on matrix of time and
growth of profitability of the Company. Minimum vesting is 25% per year.
(2) In accordance with Securities and Exchange Commission rules, the Company has
calculated the potential realizable value of the options set forth in this
table. Our use of these values should not be viewed as an endorsement of their
accuracy in predicting actual future rates of return. All of the Company's
outstanding options will be canceled under the Plan, if confirmed by the
Bankruptcy Court.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information as to options exercised by the
Named Executive Officers during fiscal 2000. The numbers and value of the
unexercised options held by the Named Executive Officers are also set forth in
the following table. None of the Named Executive Officers has held or exercised
separate stock appreciation rights ("SAR's").
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-the-Money Options at Fiscal
Shares Year End Year End
Acquired Value ----------------------------- --------------------------------
Named Executive Officer on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- -------- ----------- ------------- ----------- -------------
T. Eugene McBride -- $ -- 62,289 56,625 $ -- $ --
M. L. Fontenot -- -- 20,250 60,750 -- --
William S. Shropshire, Jr. -- -- 35,500 27,500 -- --
Stephen J. Dauer -- -- 18,161 16,150 -- --
H. L. Lunsford, III -- -- 21,900 26,100 -- --
EMPLOYMENT AGREEMENTS
In June 1999, the Company entered into change of control agreements and
non-competition, severance and employment agreements with certain key managers,
including Messrs. McBride, Fontenot and Shropshire. These agreements had been
recommended by the Board's compensation committee to insure management
continuity and stability. The agreements were similar for all managers. Each
change of control agreement (which has a rolling three-year term) provides that
if the manager is no longer employed by the Company after a change of control,
he is entitled to receive an amount equal to three times his annual compensation
at the time of termination. Each non-competition, severance and employment
agreement provides that the manager is entitled to receive severance upon
termination without just cause for the remainder of the agreement's two-year
term (or, in the case of Mr. McBride, three-year term) or six months, whichever
is greater.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or Texmaco designees are
entitled to receive an annual fee of $12,000 in cash and $4,000 worth of common
stock, plus $1,000 for each Board of Directors meeting attended and $500 for
each committee meeting attended. In addition, those directors who serve as a
chairman of a committee receive a $2,000 retainer and those directors who serve
on a committee receive a $1,000 retainer. Directors who are employed by the
Company receive no directors' fees. All directors are reimbursed for their
expenses incurred in attending meetings.
As of the date hereof, the 1992 Stock Plan provides for automatic
grants of non-qualified stock options to directors who have not served as an
officer or employee of the Company or any subsidiary or affiliate, or any person
beneficially owning five percent or more of the Common Stock of the Company
("Outside Directors"). Options to purchase 5,000 shares of Common Stock are
automatically granted to Outside Directors upon their initial election to the
Board of Directors. In addition, options to purchase 2,000 shares of Common
Stock are automatically granted to each Outside Director upon his reelection to
the Board of Directors if such director has served as such for at least one year
prior to reelection. The exercise price of such options is equal to the fair
market value of the Common Stock on the date of election. The term of such
options is ten years, and they are exercisable immediately after the date of the
grant.
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47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is
currently comprised of L. R. Jalenak, Jr., Julius Lasnick, and James P. Casey.
None of the above mentioned persons has at any time been an officer or employee
of the Company or any of its subsidiaries. No executive officer of the Company
served during fiscal year 2000 as a member of the compensation committee or as a
director of any entity of which any of the Company's directors serves as an
executive officer.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 8, 2000, there were 13,388,556 shares of Common Stock
outstanding. The following table sets forth, as of December 8, 2000, the
beneficial ownership of each current director, each of the executive officers
named therein, the executive officers and directors as a group, and each
shareholder known to management of the Company to own beneficially more than 5%
of the outstanding Common Stock. Unless otherwise indicated, the Company
believes that the beneficial owner set forth in the table has sole voting and
investment power.
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1)(2) Class
- -------------------------------------------------------------------------------------------
T. Eugene McBride 274,415 1.7%
M.L. Chip Fontenot 24,000 *
William S. Shropshire, Jr. 75,200 *
Mark A. Cabral 22,700 *
Stephen J. Dauer 134,337(3) 1.0%
Sheldon R. Habinsky -- *
Paul L. Hallock 174,001(4) 1.3%
Harry M. Harden 12,150 *
Hunter Lee Lunsford, III 59,400 *
Jerry W. Miller 43,357 *
Michael L. Lohafer --- *
Thomas J. Albani 5,000 *
James P. Casey 5,000 *
John D. Howard 8,588 *
L.R. Jalenak, Jr. 51,340 *
Julius Lasnick 31,107 *
P. Manohar --(5) *
Ravi Shankar --(5) *
Marimutu Sinivisan --(6) *
Texmaco 3,000,000(7) 22.4%
Directors and executive officers as a group 923,595 6.9%
(18 persons)
- -------------------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), shares of Common Stock subject to options held by directors and
executive officers of the Company that are exercisable within 60 days
of the date hereof are deemed outstanding for the purpose of computing
such director's or executive officer's beneficial ownership and the
beneficial ownership of all executive officers and directors as a
group.
(2) Includes shares of Common Stock issuable upon exercise of options
granted pursuant to the 1992 Stock Option Plan held by the individual
in the following amount: Mr. McBride, 43,414; Mr. Fontenot, 6,000; Mr.
Shropshire, 58,000; Mr. Cabral, 22,500; Mr. Dauer, 34,311; Mr. Miller,
40,857; Mr. Lunsford, 48,000; Mr. Harden, 12,150; Mr. Albani, 5,000;
Mr. Casey, 5,000; Mr. Howard, 7,000; Mr. Jalenak, 11,000; Mr. Lasnick,
13,267; and directors and executive officers as a group, 306,499.
(3) Includes 300 shares of Common Stock owned by Mr. Dauer's spouse.
(4) Includes 24,000 shares owned by Mr. Hallock's children.
(5) Excludes shares held by Texmaco that may be deemed to be beneficially
owned because such person is a Texmaco designee to the Company's Board
of Directors pursuant to the Texmaco Agreement.
(6) Excludes shares held by Texmaco that may be deemed to be beneficially
owned because such person is a controlling person of Texmaco.
(7) Address: Sentra Mulia Suite 1008, 10th Floor, JI. H.R. Resuna Said Kav.
X-6 No. 8, Jakarta-12540 Indonesia.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Texmaco
Texmaco is a Hong Kong corporation under common control with P.T.
Polysindo Eka Perkasa and PT Texmaco Jaya. Texmaco is a vertically integrated
polyester chemical and textile manufacturer based in Jakarta, Indonesia. The
mailing address and telephone number of the principal executive office of
Texmaco are Sentra Mulia Suite 1008, 10th Floor, JI. H.R. Resuna Said Kav. X-6
No. 8, Jakarta - 12540 Indonesia, 0-11-62-21-522-9390. Marimutu Sinivisan is a
controlling person of Texmaco.
On April 8, 1997, Texmaco acquired from certain shareholders of the
Company 3.0 million shares or approximately 22.8% of the outstanding Common
Stock. In connection with such purchase, Texmaco stated its intention to acquire
additional shares of Common Stock so that it would own a majority of the Common
Stock prior to November 5, 1998. On April 8, 1997, the Company and Texmaco
entered into an agreement pursuant to which the Company and Texmaco made certain
agreements, including:
1. If Texmaco and its affiliates do not own more than 50% of the
Company's outstanding Common Stock within 18 months following
the Closing Date, Texmaco and its affiliates shall be
prohibited from acquiring additional shares of Common Stock,
except pursuant to certain specified exceptions, such as
Texmaco's exercise of its preemptive rights, described below,
and Texmaco's receipt of stock dividends from the Company.
2. Texmaco shall have preemptive rights to acquire additional
shares of Common Stock in the event the Company proposes to
issue additional shares, except in certain specified events,
such as (i) stock dividends, stock splits, recapitalizations,
or other subdivisions of shares of Common Stock and (ii)
issuances of shares of Common Stock or related options to
employees, officers, and directors of, and consultants to, the
Company pursuant to the Company's current stock incentive
plan.
3. Subject to certain limited exceptions set forth in the
agreement, Texmaco and its affiliates shall not sell or
otherwise transfer any shares of the Common Stock that they
may own without first offering to sell such shares to the
Company.
4. Texmaco is entitled to designate three persons who are senior
executive officers of Texmaco to serve on the Company's Board
of Directors. However, if at any time Texmaco and its
affiliates own less than 20% but at least 15% of the
outstanding Common Stock, Texmaco shall be entitled to only
two designees. If at any time Texmaco and its affiliates own
less than 15% but at least 10% of the outstanding Common
Stock, Texmaco shall be entitled to only one designee. If at
any time Texmaco and its affiliates own less than 10% of the
outstanding Common Stock, Texmaco shall not be entitled to any
designees.
5. Texmaco shall use its best efforts to ensure that the
Company's Board of Directors has at all times four
disinterested members, who shall be persons who are not
affiliates of Texmaco and who are not Texmaco's designees to
the Board of Directors.
6. Any transaction between the Company and Texmaco or its
affiliates shall be on terms no less favorable than those that
would be obtained from unaffiliated parties in arm's length
transactions, and any such transaction or series of related
transactions that exceeds $1.0 million must be approved by a
committee comprised of the Company's disinterested directors.
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50
7. Texmaco shall have the right to request that the Company
effect registration under the Securities and Exchange Act of
1933, as amended (the "1933 Act"), of the shares owned by
Texmaco and its affiliates, subject to certain conditions
including, without limitation, the Company shall be obligated
to effect no more than three such demand registrations under a
Registration Statement on Form S-3 and no more than two such
demand registrations under a Registration Statement on Form
S-1. In the event that the Company proposes to register shares
of its Common Stock under the 1933 Act, Texmaco shall have the
right to request that shares of the Common Stock owned by it
be included in such registration, subject to certain customary
restrictions.
Pursuant to the agreement, Texmaco has designated P. Manohar and Ravi
Shankar as nominees to the Company's Board of Directors.
Under the Plan, subject to Bankruptcy Court approval, the Company will
reject the Texmaco Agreements pursuant to Section 365(a) of the Bankruptcy Code.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Financial Statements. See Item 8.
(a)(2) Supplemental Schedules Supporting Financial Statements.
See Item 8.
(a)(3) Exhibits. See Index to Exhibits, page 50.
(b) The Company filed Current Reports on Form 8-K on August 31,
2000 and September 29, 2000, regarding the bankruptcy and
proposed restructuring of the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
DYERSBURG CORPORATION
Date: December 20, 2000 /s/ T. Eugene McBride
-------------------------------------------
T. Eugene McBride
Chief Executive Officer
(Principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on December 20, 2000.
/s/ T. Eugene McBride /s/ Julius Lasnick
- -------------------------------------- -----------------------------------
T. Eugene McBride Julius Lasnick
Chairman Director
Chief Executive Officer
(Principal executive officer)
/s/ James P. Casey
- -------------------------------------- -----------------------------------
James P. Casey P. Manohar
Director Director
/s / M. L. Fontenot /s/ John D. Howard
- -------------------------------------- -----------------------------------
M. L. Fontenot John D. Howard
President, Chief Operating Officer Director
and Director
/s/ Thomas Albani
- -------------------------------------- -----------------------------------
Thomas Albani Ravi Shankar
Director Director
/s/ L. R. Jalenak, Jr. /s/ Paul L. Hallock
- -------------------------------------- -----------------------------------
L. R. Jalenak, Jr. Paul L. Hallock
Director Vice President - Finance and
Assistant Secretary - Treasurer
(Principal accounting officer)
/s/ William S. Shropshire, Jr.
- --------------------------------------
William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer
(Principal financial officer)
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INDEX TO EXHIBITS
Exhibit
No. Description
- -------- -----------------------------------------------------------------
2.1 Stock Purchase Agreement, dated as of July 15, 1997, by and among
Dyersburg Corporation, Alamac Sub Holdings, Inc., AIH Inc. and
WestPoint Stevens Inc. (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 18, 1997).
3.1 Amended and Restated Charter of Dyersburg Corporation
(incorporated by reference to Exhibit 3 to the Current Report on
Form 8-K filed with the Securities and Exchange Commission on
June 3, 1999).
3.2 Amended and Restated Bylaws of Dyersburg Corporation
(incorporated by reference to Exhibit 3.1 to the Current Report
on Form 8-K filed with the Securities and Exchange Commission on
April 17, 1997).
4.1 Rights Agreement, dated June 3, 1999, between Dyersburg
Corporation and SunTrust Bank, Atlanta, N.A. (incorporated by
reference to Exhibit 4 to Current Report on form 8-K filed with
the Securities and Exchange Commission on June 3, 1999.)
10.1 Loan Agreement between The Industrial Revenue Board of the City
of Trenton, Tennessee and Dyersburg Fabrics Inc. dated as of July
1, 1990 (incorporated by reference to Dyersburg Fabrics Inc.'s
Form 10-K for the fiscal year ended September 29, 1990).
10.2 Tax Sharing Agreement dated July 24, 1990 between Dyersburg
Fabrics Inc. and Dyersburg Corporation (incorporated by reference
to Dyersburg Fabrics Inc.'s Form 10-K for the fiscal year ended
September 29, 1990).
10.3+ Dyersburg Corporation 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 10(a).2 to the Registration Statement on
Form S-1 (Registration No. 33-46331)), as amended, (incorporated
by reference to Appendix A to Proxy Statement dated December 14,
1995).
10.4+ Dyersburg Fabrics Inc. Deferred Compensation Plan, as amended,
(incorporated by reference to Appendix A to Proxy Statement dated
December 14, 1995).
10.5 Form of Registration Rights Agreement dated as of April 30, 1992
between the Company and each shareholder of the Company
(incorporated by reference to Exhibit 10(k) to the Registration
Statement on Form S-1 (Registration No. 33-46331)).
10.6+ Dyersburg Corporation Non-qualified Stock Option Plan for
Employees of Acquired Companies (incorporated by reference to
Exhibit 4(c) to the Registration Statement on Form S-8
(Registration No. 33-74350)), as amended, (incorporated by
reference to Appendix A to Proxy Statement dated December 14,
1995).
10.7+ Amendment to Dyersburg Corporation 1992 Stock Incentive Plan
(incorporated by reference to a Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on March
28, 1996).
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10.8 Second Amended and Restated Letter of Credit Agreement dated as
of July 1, 1990, among Dyersburg Fabrics Limited Partnership, I,
Dyersburg Fabrics Inc., Dyersburg Corporation, DFIC, Inc., and
SunTrust Bank, Atlanta, relating to $7,900,000 The Industrial
Development Board of the City of Trenton, Tennessee Industrial
Development Revenue Bonds (Dyersburg Fabrics Inc. Project Series
1990) (incorporated by reference to Exhibit 10.11 to the
Quarterly Report on Form 10-Q of the quarter ended March 30,
1996).
10.9 Stock Purchase Agreement, dated April 8, 1997, between Polysindo
Hong Kong Limited and the sellers named therein (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 17, 1997).
10.10 Agreement, dated April 8, 1997, among Polysindo Hong Kong
Limited, PT. Texmaco Jaya and Dyersburg Corporation (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 17,
1997).
10.11 Purchase Agreement, dated August 20, 1997, by and among Dyersburg
Corporation, Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUEIC, Inc., IQUE
Limited Partnership, I, United Knitting Inc., UKIC, Inc., United
Knitting Limited Partnership, I, Bear, Stearns & Co., Inc. and
Prudential Securities Incorporated (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
Securities and Exchange commission on September 2, 1997).
10.12 Indenture, dated as of August 27, 1997, by and among Dyersburg
Corporation, Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUE Limited Partnership,
I, United Knitting Inc., UKIC, Inc., United Knitting Limited
Partnership, I, Alamac Knit Fabrics Inc., Alamac Enterprises
Inc., AIH Inc., and State Street Bank and Trust Company
(incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K filed with the Securities and Exchange Commission on
September 2, 1997).
10.13 Registration Rights Agreement, dated as of August 27, 1997, among
Dyersburg Corporation, the Guarantors named therein, Bear,
Stearns & Co. Inc. and Prudential Securities Incorporated
(incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K filed with the Securities and Exchange Commission on
September 2, 1997).
10.14 Dyersburg Corporation Deferred Compensation Plan, as amended in
fiscal 1998 (incorporated by reference to Exhibit 10.20 to the
Dyersburg Corporation's Form 10-K for the fiscal year ended
October 3, 1998).
10.15 Loan and Security Agreement dated August 17, 1999, by and among
Congress Financial Corporation (Southern), BankBoston, N.A., and
Dyersburg Corporation, Dyersburg Fabrics Limited Partnership, I,
Dyersburg Fabrics Inc., United Knitting, Inc., United Knitting
Limited Partnership, I, IQUE, Inc., IQUE Limited Partnership, I,
AIH Inc., and Alamac Knit Fabrics, Inc. (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 25, 1999).
10.16+ Form of Employment Contracts with Senior Management (incorporated
by reference to Exhibit 10.16 to the Annual Report on Form 10-K
for the fiscal year ended October 2, 1999).
10.17*+ Description of Dyersburg Corporation Executive Retention Plan
10.18* Post-Petition Loan and Security Agreement, dated September 25,
2000.
21* Subsidiaries
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23* Consent of Independent Auditors
27* Financial Data Schedule (for SEC use only)
* Filed herewith
+ Management contract or plan
52