1
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 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 DR., SUITE 445
CHARLOTTE, NORTH CAROLINA 28277
(Address of principal executive offices) (Zip Code)

(704) 341-2299
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01/Share
(Title of each class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] No [ ]

Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.

Title of each Number of shares outstanding as of January 31, 2001
- --------------------------- ---------------------------------------------------
Common Stock $.01 par value 13,388,556

INDEX TO FORM 10-Q

DYERSBURG CORPORATION

PART I--FINANCIAL INFORMATION PAGE
- ----------------------------- ----

ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Condensed Balance Sheets at
December 30, 2000 and September 30, 2000........................3
Consolidated Condensed Statements of Operations
for the Three Months Ended December 30, 2000
and January 1, 2000.............................................4
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended
December 30, 2000 and January 1, 2000...........................5
Notes to Consolidated Condensed Financial
Statements......................................................6

ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................13

PART II--OTHER INFORMATION

ITEM 3--DEFAULTS UPON SENIOR SECURITIES......................................18

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS......................18

ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.....................................18

SIGNATURES...................................................................18

2
3

DYERSBURG CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
Debtor-In-Possession
(in thousands except share data)

DECEMBER 30, September 30,
2000 2000
------------ ------------

ASSETS
Current assets:
Cash .................................................... $ 141 $ 167
Accounts receivable, net of allowance for doubtful
accounts of $2,888 at December 30, 2000 and $2,700 at
September 30, 2000 ................................... 35,136 48,891
Inventories ............................................. 34,334 33,483
Income taxes receivable ................................. 1,354 1,354
Prepaid expenses and other .............................. 2,691 2,535
--------- ---------
Total current assets ........................................ 73,656 86,430

Property, plant and equipment, net .......................... 107,487 110,531
Goodwill, net ............................................... 85,920 86,624
Deferred debt costs, net .................................... 775 1,480
Assets held for sale and other .............................. 3,496 3,456
--------- ---------
$ 271,334 $ 288,521
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities:
Trade accounts payable .................................. $ 9,800 $ 13,606
Accrued expenses and other .............................. 11,053 10,691
Current portion of long-term obligations ................ 48,475 55,286
--------- ---------
Total current liabilities ................................... 69,328 79,583

Long-term obligations ....................................... 7,900 7,900

Liabilities subject to compromise
Senior subordinated notes ................................ 125,000 125,000
Accrued interest ......................................... 7,062 7,062
Commitments and contingencies

Shareholders' equity:
Preferred stock, authorized 5,000,000 shares; 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 13,388,556 shares .............. 134 134
Additional paid-in capital .............................. 42,828 42,828
Retained earnings ....................................... 19,814 26,746
Accumulated other comprehensive loss .................... (732) (732)
--------- ---------
Total shareholders' equity .................................. 62,044 68,976
--------- ---------
$ 271,334 $ 288,521
========= =========

See notes to consolidated financial statements.

3
4

DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Debtor-In-Possession
(in thousands except per share data)

THREE MONTHS ENDED
------------------------------
DECEMBER 30, January 1,
2000 2000
------------------------------

Net sales ................................... $ 51,980 $ 68,349

Cost of sales ............................... 47,646 57,834
Selling, general and administrative expenses 7,679 6,251
Restructuring charges ....................... 0 0

Interest and amortization of debt costs ..... 2,175 4,857
-------- --------

Income (loss) before reorganization items and
income taxes (benefit) ................... (5,520) (593)

Reorganization costs ........................ 1,411 --
-------- --------
Income (loss) before income taxes ........... (6,931) (593)
Federal and state income taxes (benefit) .... -- 24
-------- --------
Net income (loss) ........................... $ (6,931) $ (617)
======== ========

Weighted average shares outstanding:
Basic .................................... 13,389 13,354
Diluted .................................. 13,389 13,354
======== ========

Basic and diluted earnings per share:
Net Income (loss) ........................ $ (0.52) $ (0.05)
======== ========

See notes to consolidated condensed financial statements.

4
5

DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Debtor-In-Possession
(in thousands)

THREE MONTHS ENDED
-------------------------
DECEMBER 30, January 1,
2000 2000
------------ ----------

OPERATING ACTIVITIES
Net income (loss) ............................. $ (6,931) $ (617)
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization .............. 4,967 4,884
Deferred income taxes ...................... 0 1,352
Changes in operating assets and liabilities:
Accounts receivable ........................ 13,755 2,922
Inventories ................................ (852) (4,991)
Trade accounts payable and other current
liabilities ............................... (3,275) (1,459)
Other ...................................... (326) 6,963
-------- -------
Net cash provided by operating activities ..... 7,338 9,054

INVESTING ACTIVITIES
Capital expenditures .......................... (1,001) (1,617)
Other - net ................................... 448 528
-------- -------
(553) (1,089)

FINANCING ACTIVITIES
Net repayment of debt ......................... (5,536) (7,241)
Other ......................................... (1,275) (730)
-------- -------
Net cash used in financing activities ......... (6,811) (7,971)
-------- -------

Net increase (decrease) in cash ............... (26) (6)
Cash at beginning of year ..................... 167 158
-------- -------
Cash at end of year ........................... $ 141 $ 152
======== =======

See notes to consolidated condensed financial statements.

5
6

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION

December 30, 2000

NOTE A--NATURE OF OPERATIONS AND BUSINESS CONDITION

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").

6
7

NOTE A - NATURE OF OPERATIONS AND BUSINESS CONDITION (continued)

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
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. The Company also intends to reject its 1992 Stock Incentive
Plan and its Non-Qualified Stock Option Plan for Employees of Acquired
Companies.

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.

BASIS OF PRESENTATION

As described herein, 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.

7
8

NOTE A - NATURE OF OPERATIONS AND BUSINESS CONDITION (continued)

REORGANIZATION COSTS

Reorganization costs include legal and professional fees incurred and
expenses related to a retention bonus plan.

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 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 had no
effect on earnings and the financial position of the Company as the Company had
no derivative instruments at December 30, 2000, or October 1, 2000.

The accompanying unaudited consolidated condensed financial statements
include the accounts of Dyersburg Corporation ("Company") and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Financial
information as of September 30, 2000, has been derived from the audited
financial statements of the Company, but does not include all disclosures
required by generally accepted accounting principles. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
indicated have been included. Due to seasonal patterns, the results for interim
periods are not necessarily indicative of results to be expected for the year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended September 30, 2000.

NOTE B--INVENTORIES

December 30, September 30,
2000 2000
------------------------------
(in thousands)

Raw Materials ....................... $ 9,514 $10,076
Work in Process ..................... 10,152 9,769
Finished Goods ...................... 13,096 11,971
Supplies and Other .................. 1,572 1,667
------- -------
$34,334 $33,483
======= =======

NOTE C--LONG-TERM OBLIGATIONS

In August 1997, the Company issued $125,000,000 principal amount of the
Subordinated Notes. The Subordinated Notes are unsecured senior subordinated
obligations and are subordinated in right of payment to the prior payment in
full of all senior indebtedness. The Subordinated Notes are guaranteed by all of
the Company's subsidiaries (the "Guarantors"). Separate financial statements of
the Guarantors are not included herein because: (a) the Company is a holding
company with no assets or operations other than its investments in its
subsidiaries; (b) the Guarantors are wholly-owned subsidiaries of the Company
and have fully and unconditionally guaranteed the Subordinated Notes on a joint
and several basis; (c) the Guarantors comprise all of the direct and indirect
subsidiaries of the Company; and (d) management believes that such information
is not material to investors.

Effective August 17, 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 3.00% for the Revolver and
3.25% for the Term Loan, or, at the Company's option, bear interest at the
lender's base rate plus a margin 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 Company obtained the DIP Facility from the same lenders to replace
the Company's 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 the Company's and its subsidiaries assets and a pledge of
the shares of all of the Company's subsidiaries.

Actual interest expense and amortization of debt costs for the first
fiscal quarter of 2001 was $2.2 million. Had the Company not filed for
bankruptcy and interest continued to accrue on the Subordinated Notes then
interest expense would have increased by approximately $3.0 million for the same
period.

As a result of the decline in revenues and cash flow, the Company was
not in compliance with its cash flow covenant at December 30, 2000. The Company
has entered into an amendment to the DIP Facility which waives the covenant
defaults for the months ended December 30, 2000 and January 28, 2001. There can
be no assurance that further amendments or waivers of future defaults can be
obtained. The DIP Facility continues to be the Company's primary source of
liquidity. The Company continues to access its DIP Facility and has not realized
any reduction in its borrowing availability.

9
10

NOTE D -- EARNINGS PER SHARE

The table below sets forth the computations of basic and diluted
earnings per share:

December 30, January 1,
2000 2000
-------------------------------------------
(in thousands except share and per share data)

Numerator for basic and diluted earnings per
share--net loss ............................................ $ (6,931) $ (617)

---------------- --------------

Denominator for basic and diluted earnings per share -- adjusted
weighted average shares and assumed conversions ............... 13,388,556 13,353,814
================ ==============

Basic earnings per share ...................................... $ (0.52) $ (0.05)
================ ==============

Diluted earnings per share .................................... $ (0.52) $ (0.05)
================ ==============

NOTE E -- PENSION

The Company elected to freeze benefits under its salaried and hourly
defined benefit pension plans as of December 31, 1999. This resulted in the
recognition of a curtailment gain on the salary plan of approximately $1,700,000
in the quarter ended January 1, 2000. Also, in connection with the curtailment
of the hourly plan, the Company recognized additional minimum pension liability
of $456,000 (net of applicable taxes of $245,000). The additional minimum
pension liability has been recorded as accumulated other comprehensive loss on
the balance sheet at January 1, 2000.

NOTE F--COMPREHENSIVE LOSS

The following table provides a reconciliation of net loss reported in
the Company's consolidated condensed statements of operations to comprehensive
loss:

Three Months Ended
----------------------------
December 30, January 1,
2000 2000
------------ ----------
(in thousands)

Net loss .............................. $(6,931) $ (617)
Other comprehensive loss:
Additional minimum pension liability -- (701)

Tax effect ......................... -- 245
------- -------
Net of tax ......................... -- (456)

Comprehensive loss .................... $(6,931) $(1,073)
======= =======

NOTE G - RESTRUCTURING CHARGES

During the third quarter of fiscal 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 include 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 fiscal
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 were held for sale at January 1, 2000 and were
written down to their estimated fair values less costs of sale based primarily
on independent appraisals.

The Company is actively marketing the assets held for sale through the
use of internal sources and outside agents. Assets held for sale were $2,641,000
at December 30, 2000. As a result of the restructuring, the Company has idle
assets of approximately $1.9 million, which continue to be depreciated.

On January 31, 2001, the Company exercised its right of first refusal
on the purchase of two power plants adjacent to two of its textile manufacturing
facilities. The Company simultaneously sold these plants to a third party
generating net proceeds of approximately $3.5 million. Proceeds were applied to
pay down the revolving line of credit under the DIP Facility and increase the
borrowing availability under that facility. Additionally, one of the Company's
subsidiaries, Alamac Knit Fabrics, Inc., has entered into an agreement to sell
its facility in Hamilton, North Carolina. This facility has been closed since
July 1999. The Company can offer no assurances that this anticipated transaction
will be consummated on a timely basis, on terms favorable to the Company or at
all. See - Cautionary Note Regarding Forward-Looking Information.

11
12

NOTE G - RESTRUCTURING CHARGES (continued)

The following is a summary of activity in the restructuring reserves
for severance and related expenses (in thousands):

June 1999 restructuring charge $ 4,023
Payments (353)
--------
Balance at July 3, 1999 3,670
Payments (3,292)
Additional severance recorded 476
--------
Balance at October 2, 1999 854
Payments (457)
--------
Balance at January 1, 2000 397
Payments (129)
---------
Balance at April 1, 2000 268
Payments (24)
--------
Balance at July 1, 2000 244
Payments (45)
September 2000 severance recorded 216
--------
Balance at September 30, 2000 415
Payments (257)
--------
Balance at December 30, 2000 $ 158
========

NOTE H -- REPORTING SEGMENT INFORMATION

The Company has adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
reporting by public companies of information about operating segments, products
and services, geographic areas and major customers. The method of determining
what information to report is based on the way management organizes the segments
within the Company for making operating decisions and assessing financial
performance.

The Company's chief operating decision-maker is considered to be the
Chief Executive Officer ("CEO"). The Company's CEO evaluates both consolidated
and disaggregated financial information in deciding how to allocate recourses
and assess performance. The CEO uses certain disaggregated financial information
for the Company's primary knit fabric markets: textile and stretch fabrics.
Sales for textile and stretch fabrics for the quarters ended December 30, 2000
and January 1, 2000 were $44.9 million and $6.6 million, and $56.7 million and
$7.1 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.

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 an apparel manufacturing joint
venture in the Dominican Republic, which is not material at December 30, 2000.
The Company holds a 50% equity position in the joint venture, and accordingly
does not include net sales and other items of profit and loss in its
Consolidated Statements of Operations or the following table.

NOTE H - REPORTING SEGMENTS (continued)

Three Months Ended
-----------------------------
December 30, January 1,
2000 2000
----------- ----------
(in thousands)

Net Sales
Textile ....................... $ 51,468 $ 63,886
Apparel ....................... 512 4,463
--------- ---------
Consolidated net sales ........................ $ 51,980 $ 68,349
========= =========

Operating income (loss)
Textile ........................ $ (3,789) $ 5,798
Apparel ........................ (262) (818)

Amortization of goodwill ...................... 705 716
Interest and amortization of debt costs ....... 2,175 4,857
--------- ---------
Consolidated income (loss) before taxes .. $ (6,931) $ (593)
========= =========

Depreciation:
Textile ........................ $ 3,953 $ 3,775
Apparel ......................... 92 91
--------- ---------
$ 4,045 $ 3,866
========= =========

Capital Expenditures:
Textile ........................ $ 1,001 $ 1,607
Apparel ........................ 0 10
--------- ---------
$ 1,001 $ 1,617
========= =========
Assets at end of period:
Textile ........................ $ 175,145 $ 198,356
Apparel ........................ 2,848 9,986
Assets not allocated to segments 93,341 105,257
--------- ---------
$ 271,334 $ 313,599
========= =========

ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements within the
meaning of the federal securities laws, all of which are intended to be covered
by the safe harbors created thereby. These statements include all statements
regarding the Company's intent, belief and expectations (such as statements
concerning the Company's 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 an agreement of sale; 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 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.

RESULTS OF OPERATIONS

Net sales for the quarter ended December 30, 2000, decreased by 23.9%
to $51.9 million versus $68.3 million for the same quarter of the prior year.
Sales were negatively effected due to a weaker than expected retail environment.
Gross margins for the quarter decreased to 8.3% versus 15.4% for the same period
in fiscal 2000. Sales volume and gross margins were both negatively impacted by
reduced order activity as customers reacted with caution to the Company's
bankruptcy status.

Selling, general and administrative expenses for the quarter were $7.7
million compared to $6.3 million for the same period of 2000. First quarter 2000
contained a one-time curtailment gain of approximately $1.6 million stemming
from consolidation of employee benefit plans.

Interest expense in the first quarter of fiscal 2001 was reduced to
$2.2 million compared to $4.9 million in the previous year due to curtailment of
interest on the Subordinated Notes. Although the Company had a loss before
taxes, no income tax benefit was recorded for the quarter as the Company is in a
loss carry-forward position.

Net loss for the quarter ended December 30, 2000 was $6.9 million, or
$0.52 per share, versus net loss of $0.6 million, or $0.05 per share, for the
same period in fiscal 2000. Earnings per share are the same whether calculated
on a basic or diluted basis. The weighted average number of shares outstanding
for the quarter was approximately 13,389,000.

During the third quarter of fiscal 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

15
16

RESULTS OF OPERATIONS (CONTINUED)

the termination date. At October 2, 1999 substantially all employees had been
terminated or notified of their impending termination.

The cost of the reorganization was reflected as a restructuring charge,
before income taxes, of $10,993,000, recorded in the third quarter 1999,
increased by $585,000 during the fourth quarter. The components of the charge
included $4,499,000 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 were held for sale at December 30, 2000 and were written down to
their estimated fair values less costs of sale based primarily on independent
appraisals.

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.

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.

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

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.

As a result of the decline in revenues and cash flow, the Company was
not in compliance with its cash flow covenant at December 30, 2000. The Company
has entered into an amendment to the DIP Facility which waives the covenant
defaults for the months ended December 30, 2000 and January 28, 2001. The DIP
Facility continues to be the Company's primary source of liquidity. The Company
continues to access its DIP Facility and has not realized any reduction in its
borrowing availability.

On January 31, 2001, the Company exercised its right of first refusal
on the purchase of two power plants adjacent to two of its textile manufacturing
facilities. The Company simultaneously sold these plants to a third party
generating net proceeds of approximately $3.5 million. Proceeds were applied to
pay down the revolving line of credit under the DIP Facility and increase the
borrowing availability under that facility. Additionally, one of the Company's
subsidiaries, Alamac Knit Fabrics, Inc., has entered into an agreement to sell
its facility in Hamilton, North Carolina. This facility has been closed since
July 1999. The Company can offer no assurance that this anticipated transaction
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 equipment and 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.

Working capital at December 30, 2000, was $4.3 million versus $6.8
million at September 30, 2000. The current ratio at December 30, 2000 was 1.1:1,
equaling September 30, 2000's current ratio. The Company's debt-to-capital ratio
was 75.2% at December 30, 2000 compared to 73.9% at September 30, 2000.

Net receivables of $35.1 million at December 30, 2000, decreased from
$48.9 million at September 30, 2000, due to reduced sales levels. Inventories
increased to $34.3 million at the end of the first quarter of fiscal 2001 from
$33.4 million at the end of the fourth quarter of fiscal 2000.

Capital expenditures for the three months ended December 30, 2000, were
$1.0 million versus $1.6 million for the same period in the prior year. Cash
outlays for capital spending are anticipated to approximate $5 million in fiscal
2001.

17
18

Based on the borrowing base computation within the DIP Facility, the
amount of additional borrowing available at December 30, 2000, was approximately
$6.4 million. The Company believes that cash flow from operations and the
existing revolving credit facility will be sufficient to meet operating needs
and fund the capital spending program.

PART II--OTHER INFORMATION

ITEM 3--DEFAULTS UPON SENIOR SECURITIES

The Company commenced the Chapter 11 Cases on September 25, 2000. As a
result of filing the Chapter 11 Cases, no principal or interest payments will be
made on the Subordinated Notes. 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 PIK Note.

ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Plan of reorganization proposed by the Debtors was submitted to a
vote of the class 4 claimants, holders of the Subordinated Notes, and the class
8 claimants, holders of the Company's existing common stock. The ballots were
due to be cast by 5:00 p.m. on December 7, 2000. Both classes of voters accepted
the Plan. Of the votes cast from holders of the Subordinated Notes, 58 ballots
totaling 85,559,000 in amount voted to accept the Plan and 2 ballots totaling
20,000 in amount voted to reject the Plan. Of the votes cast from common stock
interests, 343 ballots totaling 3,093,938 in amount voted to accept the Plan and
34 ballots totaling 105,487 in amount voted to reject the Plan. No ballots cast
abstained or withheld a vote.

ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) Exhibits:
10.19 Material Contract
(a) Second Amendment to Post Petition Loan and Security
Agreement among Dyersburg Corporation and its Lenders
dated February 12, 2001.

(b) The Corporation did not file any reports on Form 8-K during the
three months ended December 30, 2000.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

February 13, 2001 /s/ William S. Shropshire, Jr.
--------------------------------------
William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer