1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 5, 1997
Commission File No. 1-11126
DYERSBURG CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1363247
(State or other jurisdiction of (I.R.S employer identification no.)
incorporation or organization)
1315 PHILLIPS ST., DYERSBURG, TENNESSEE 38024
(Address of principal executive offices) (Zip Code)
(901) 285-2323
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $.01/Share New York Stock Exchange
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X No
----- -----
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Title of each Number of shares outstanding as of July 5, 1997
- --------------------------- -----------------------------------------------
Common Stock $.01 par value 13,139,658
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INDEX TO FORM 10-Q
DYERSBURG CORPORATION
PART I - FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ ------------
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Balance Sheets at
July 5, 1997, September 28, 1996, and
June 29, 1996..................................................... 3
Consolidated Condensed Statements of Income
for the Three Months Ended July 5, 1997,
and June 29, 1996; Nine months Ended
July 5, 1997, and June 29, 1996................................... 4
Consolidated Condensed Statements of Cash
Flows for the Nine Months Ended
July 5, 1997, and June 29, 1996................................... 5
Notes to Consolidated Condensed Financial
Statements........................................................ 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 7
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE
OF SHAREHOLDERS.................................................. 8
ITEM 5--OTHER INFORMATION....................................................... 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................... 9
SIGNATURES .................................................................... 10
EXHIBIT INDEX................................................................... 11
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DYERSBURG CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
July 5, September 28, June 29,
1997 1996 1996
-------- ------------- --------
ASSETS
Current assets:
Cash ................................... $ 1,677 $ 983 $ 805
Accounts receivable, net ............... 48,522 42,427 47,778
Inventories ............................ 30,456 23,248 30,340
Prepaid expenses and other ............. 846 858 1,125
-------- -------- --------
Total current assets .............. 81,501 67,516 80,048
Intangibles ............................ 58,181 59,733 60,048
Property, plant and equipment, net ..... 65,685 67,758 69,098
-------- -------- --------
Total assets ............................. $205,367 $195,007 $209,194
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................. $ 12,173 $ 8,296 $ 10,669
Accrued expenses ....................... 11,982 7,137 8,459
-------- -------- --------
Total current liabilities ......... 24,155 15,433 19,128
Deferred income taxes and other ........ 9,186 9,239 8,824
Long-term debt ......................... 75,837 81,593 93,339
-------- -------- --------
Total liabilities ........................ 109,178 106,265 121,291
-------- -------- --------
Stockholders' equity:
Common stock ........................... 131 132 137
Additional paid-in capital ............. 41,355 41,460 44,279
Retained earnings ...................... 54,703 47,150 43,487
-------- -------- --------
Total stockholders' equity ............... 96,189 88,742 87,903
Total liabilities and stockholder's equity $205,367 $195,007 $209,194
======== ======== ========
See notes to consolidated condensed financial statements.
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DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share data)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
July 5, June 29, July 5, June 29,
1997 1996 1997 1996
---------------------------- ----------------------------
Net sales .................. $ 68,383 $ 64,142 $ 158,214 $ 136,574
Costs and expenses:
Cost of sales ........... 50,419 49,504 120,677 108,290
Selling, general, and
administrative ........ 7,716 6,309 19,938 15,811
Interest and amortization
of debt costs ......... 1,516 1,676 4,465 4,590
----------- ----------- ----------- -----------
Total costs and expenses ... 59,651 57,489 145,080 128,691
----------- ----------- ----------- -----------
Income before income taxes . 8,732 6,653 13,134 7,883
Income taxes ............... 3,449 2,772 5,188 3,278
----------- ----------- ----------- -----------
Net income ................. $ 5,283 $ 3,881 $ 7,946 $ 4,605
=========== =========== =========== ===========
Weighted average common
shares outstanding ....... 13,137,999 13,660,755 13,135,333 13,904,896
=========== =========== =========== ===========
Per common share data:
Net income ......... $ 0.40 $ 0.28 $ 0.60 $ 0.33
=========== =========== =========== ===========
Dividends .......... $ 0.01 $ 0.01 $ 0.03 $ 0.03
=========== =========== =========== ===========
See notes to consolidated condensed financial statements.
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DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
-----------------------
July 5, June 29,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income ................................................... $ 7,946 $ 4,605
Adjustments to reconcile to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 9,228 8,773
Deferred income taxes .................................... (54) 47
Change in accounts receivable ............................ (6,096) (10,857)
Change in inventories .................................... (7,208) (8,102)
Other-net ................................................ 8,734 3,185
-------- --------
Net cash provided by (used in) operating activities . 12,550 (2,349)
INVESTING ACTIVITIES
Capital expenditures ......................................... (5,685) (10,777)
Other-net .................................................... 84 225
-------- --------
Net cash used in investing activities ............... (5,601) (10,552)
FINANCING ACTIVITIES
Retirement of debt ........................................... (157) (151)
Net (repayment) borrowing under revolving credit agreement ... (5,600) 15,843
Dividends paid ............................................... (393) (413)
Issuance of common stock ..................................... 55 43
Retirement of common stock ................................... (160) (2,590)
-------- --------
Net cash (used in) provided by financing activities (6,255) 12,732
-------- --------
Net increase (decrease) in cash .................... 694 (169)
Cash at beginning of period ..................................... 983 974
-------- --------
Cash at end of period ........................................... $ 1,677 $ 805
======== ========
See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION
July 5, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
include the accounts of Dyersburg Corporation and its wholly-owned subsidiaries
("Company"). All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Financial information as of
September 28, 1996 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 28,
1996.
NOTE B--INVENTORIES
July 5, Sept. 28, June 29,
1997 1996 1996
-------------- ---------------- -----------------
(in thousands)
Raw Materials $ 7,436 $ 5,573 $ 8,367
Work in Process 9,470 8,530 7,643
Finished Goods 13,550 9,145 14,330
-------------- ---------------- -----------------
$ 30,456 $ 23,248 $ 30,340
============== ================ =================
NOTE C--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted in the
quarter ending January 3, 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. The impact of Statement 128 on the calculation of earnings
per share for the three and nine months ended July 5, 1997 and June 29, 1996 is
not expected to be material.
NOTE D - SUBSEQUENT EVENTS
On July 15, 1997, the Company entered into a stock purchase agreement
to acquire the stock of AIH Inc., a wholly owned subsidiary of WestPoint
Stevens, Inc. for a cash purchase price of $126,000,000. Management intends to
finance the purchase through a combination of new Senior Subordinated Notes and
an extended revolving credit facility. The acquisition is expected to be
consummated before the October 4, 1997 fiscal year end.
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net Sales. Net sales for the first nine months of fiscal 1997 increased
15.8% to $158.2 million from $136.6 million in the first nine months of fiscal
1996. The increase resulted primarily from an increase in sales of the
Company's value-added outerwear fleece fabrics, which increased by
approximately 68%, and sales of infant blanket sleepers, which increased by
approximately 30%. These increases were partially offset by decreased sales of
active-wear acrylic and active-wear cotton fabrics. Net sales for the quarter
ended July 5, 1997, increased 6.6% to $68.4 million from $64.1 million for the
quarter ended June 29, 1996. The increase in net sales resulted from an
increase in sales of infant blanket sleepers and outerwear fleece products for
the third quarter of fiscal 1997 as compared to the same period in fiscal 1996.
Gross Profit. Gross profit in the first nine months of fiscal 1997
increased to 23.7% of net sales from 20.7% in the comparable period of the prior
year. Gross margin improved to 26.3% for the third quarter of 1997 versus 22.8 %
for the same period in fiscal 1996. These increases resulted primarily from the
shift in the Company's product mix to higher margin, value-added fabrics,
particularly outerwear fleece fabrics, lower raw material costs and lower
production costs as a result of the Company's plant modernization program.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses in the first nine months of fiscal 1997 increased 26.1%
to $19.9 million from $15.8 million in the comparable period in fiscal 1996.
Selling, general and administrative expenses increased 22.3% for the third
quarter of fiscal 1997 compared to the same period in fiscal 1996. However,
these same expenses as a percentage of sales were 11.3% for the third quarter of
1997 versus 9.8% for the same period in fiscal 1996, and 12.6% for the first
nine months of fiscal 1997 compared to 11.6% for the same period in fiscal
1996. For the nine and three months ended July 5, 1997, the increases were
primarily due to an increase in incentive compensation resulting from the
Company's increased profitability, such expenses increasing by $2.1 million and
$0.7 million, respectively, and a $1.1 million and $0.6 million increase,
respectively, in bad debt expense resulting from increased reserves
attributable to specific customer accounts. Before giving effect to these
items, selling, general and administrative expenses as a percentage of net
sales declined in the first nine months of fiscal 1997 compared to the first
nine months of fiscal 1996.
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Interest and Amortization of Debt Costs. Interest and amortization of
debt costs for the first nine months of fiscal 1997 of $4.5 million were
relatively unchanged from the comparable period in fiscal 1996. Third quarter
interest expense of $1,516,000, was 9.5% lower than the same period in fiscal
1996.
Federal and State Income Taxes. Federal and state income taxes of
$5.2 million for the first nine months of fiscal 1997 and $3.3 million for the
comparable period in fiscal 1996 were higher than the federal statutory rate
due to state income taxes and the non-deductibility of goodwill amortization.
The effective tax rate declined to 39.5% in the first nine months of fiscal
1997 primarily due to a legal restructuring implemented by the Company in
fiscal 1996 which resulted in a reduction in certain state taxes. The impact of
the restructuring is expected to continue into future periods.
Liquidity and Capital Resources
Working capital at July 5, 1997, decreased to $57.3 million versus
$60.9 million at June 29, 1996, due primarily to an increase in accrued expenses
of $3.5 million reflecting the higher tax and compensation accruals due to the
higher income to date in fiscal 1997. The Company's current ratio (current
assets to current liabilities) was 3.37:1 and its debt-to-capital ratio was
44.1% at July 5, 1997, compared to 4.37:1 and 47.9% at September 28, 1996 and
4.18:1 and 51.5% at June 29, 1996.
Net receivables increased from $37.7 million at April 5, 1997, to $48.5
million at July 5, 1997, as a result of seasonal sales levels. Inventories
decreased from $36.6 million to $30.5 million during the third quarter of
fiscal 1997 in anticipation of seasonally weaker sales for the remainder of the
fiscal year.
Capital expenditures for the nine months ended July 5, 1997, were $5.7
million versus $10.8 million for the same period in the prior year. The Company
anticipates that capital expenditures in fiscal 1997 will approximate $11.0
million as compared to $11.8 million in 1996.
At July 5, 1997, the Company had $19.4 million of unused available bank
lines of credit. The Company believes that cash generated from operations and
the available revolving credit facility will be sufficient to fund the capital
spending and normal operating needs.
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders.
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Item 5. Other Information
- --------------------------------------------------------------------------------
On July 15, 1997, the Company entered into a Stock Purchase Agreement
with each of Alamac Sub Holdings Inc. ("Seller"), AIH Inc. ("Alamac") and
WestPoint Stevens Inc. ("WestPoint Stevens") pursuant to which the Company will
acquire all of the outstanding capital stock of Alamac (the "Acquisition").
Through its four manufacturing facilities located in North Carolina, Alamac
manufactures and sells knitted fabrics primarily to manufacturers of men's,
women's and children's apparel. The cash purchase price (the "Purchase Price")
to be paid by the Company in the Acquisition will be $126.0 million, subject to
adjustment for changes in working capital and certain other items related to
pension assets and liabilities subsequent to December 31, 1996. The closing of
the Acquisition is required to occur on or before September 15, 1997. Prior to
consummation of the Acquisition, Alamac will transfer all of its cash and assets
related to its Whitmire, South Carolina spinning plant to WestPoint Stevens or
one of its affiliates and, accordingly, such assets will not be owned by Alamac
following the Acquisition. In addition, under its current financing
arrangements, Alamac sells its accounts receivable and, as a result, the Company
will not acquire Alamac's accounts receivable. Accordingly, the Company
estimates that, in addition to the Purchase Price, it will be required to
finance approximately $40.0 to $45.0 million of additional working capital
following the closing of the Acquisition.
The respective obligations of the Company, Seller and WestPoint Stevens
to effect the Acquisition are subject to the satisfaction of certain
conditions, including (i) the termination or expiration of the relevant waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii)
obtaining all necessary consents and approvals, and (iii) the absence of any
law or order which restrains, enjoins or otherwise prohibits the Acquisition.
The obligations of the Company to effect the Acquisition are further
conditioned on, among others (i) the absence of any material adverse change in
Alamac's business, results of operations or financial condition prior to the
closing and (ii) the Company having received sufficient funds to effect the
closing.
Pursuant to the Stock Purchase Agreement, the Company and WestPoint
Stevens will enter into an Interim Services Agreement pursuant to which
WestPoint Stevens will provide certain information, credit, accounts
receivable, accounts payable, purchasing and other corporate services for a
period of up to nine months following the closing.
The Company intends to use the net proceeds from a proposed private
placement of $125.0 million in aggregate principal amount of Senior
Subordinated Notes due 2007 (the "Offering"), together with borrowings under a
$160.0 million revolving credit and term loan agreement (the "New Credit
Facility"), to finance the Purchase Price and working capital needs, repay
amounts outstanding under the Company's existing credit facility and certain
other indebtedness and pay related fees and expenses.
Item 6. Exhibits and Reports on Form 8-K.
- --------------------------------------------------------------------------------
(a)(1) Exhibits:
11 -- Statements regarding computation of earnings per share
27 -- Financial Data Schedule
(2) Financial Statements of Business to be Acquired:
Report of Independent Auditors
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1996
Consolidated Statements of Operations for the years ended
December 31, 1994, December 31, 1995 and December 31, 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 31, 1995 and December 31, 1996
Notes to Consolidated Financial Statements
Interim Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of December 31,
1996 and June 30, 1997
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1996 and June 30, 1997
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and June 30, 1997
Notes to Condensed Consolidated Financial Statements
(3) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Financial Statements:
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended September 28, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended July 5, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the twelve months ended July 5, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
July 5, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(b) The Company filed a Current Report on Form 8-K, effective April 17, 1997
regarding changes in control of the Company and a change in certain provisions
of its Bylaws.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 4, 1997 /s/ William S. Shropshire, Jr.
-----------------------------------------
William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
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EXHIBIT INDEX
- --------------------------------------------------------------------------------
(a)(1) Exhibits:
11 -- Statements regarding computation of earnings per share
27 -- Financial data schedule
(2) Financial Statements of Business to be Acquired:
Report of Independent Auditors
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1996
Consolidated Statements of Operations for the years ended
December 31, 1994, December 31, 1995 and December 31, 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 31, 1995 and December 31, 1996
Notes to Consolidated Financial Statements
Interim Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of December 31,
1996 and June 30, 1997
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1996 and June 30, 1997
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and June 30, 1997
Notes to Condensed Consolidated Financial Statements
(3) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Financial Statements:
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended September 28, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended July 5, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the twelve months ended July 5, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
July 5, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors
WestPoint Stevens Inc.
We have audited the accompanying consolidated balance sheets of AIH Inc., a
subsidiary of WestPoint Stevens Inc. (see Note 1) as of December 31, 1995 and
1996 and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the management of WestPoint Stevens Inc.
Our responsibility is to express an opinion on these financial statements 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
AIH Inc., a subsidiary of WestPoint Stevens Inc. at December 31, 1995 and 1996
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Columbus, Georgia
May 19, 1997, except for
Note 12, as to which
the date is July 15, 1997
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AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
DECEMBER 31,
-------------------
1995 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,886 $ 9,554
Inventories (Note 4)...................................... 29,267 30,123
Other current assets...................................... 2,649 2,876
-------- --------
Total current assets.............................. 37,802 42,553
Property, plant and equipment, net (Notes 2 and 4).......... 107,269 104,194
-------- --------
Total assets...................................... $145,071 $146,747
======== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,508 $ 5,673
Accrued employee related liabilities...................... 3,913 4,362
Deferred income taxes (Note 6)............................ 2,674 2,192
Intercompany, net (Notes 4, 7 and 8)...................... 1,583 626
Accrued interest (Note 4)................................. 1,609 --
Other accrued liabilities (Note 3)........................ 3,527 3,228
-------- --------
Total current liabilities......................... 19,814 16,081
Long-term related party debt (Note 4)....................... 71,000 76,603
Deferred income taxes (Note 6).............................. 19,296 19,393
Commitment and contingencies (Notes 4, 9 and 10)
Owner's equity (Notes 7 and 8).............................. 34,961 34,670
-------- --------
Total liabilities and owner's equity.............. $145,071 $146,747
======== ========
See accompanying notes.
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AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
Net sales................................................... $249,935 $231,721 $222,019
Cost of goods sold.......................................... 213,831 206,842 196,518
-------- -------- --------
Gross earnings.................................... 36,104 24,879 25,501
-------- -------- --------
Selling, general and administrative expenses................ 20,678 19,733 17,495
Amortization of excess reorganization value................. 33,624 25,229 --
-------- -------- --------
Operating earnings (loss)......................... (18,198) (20,083) 8,006
-------- -------- --------
Securitization expense on sale of accounts receivable (Note
4)........................................................ 1,057 1,184 955
Interest expense (Note 4)................................... -- 5,514 7,942
Royalty expense............................................. 7,120 5,275 --
Other (income) expense, net................................. -- (18) (219)
-------- -------- --------
Net loss before income tax expense (benefit)................ (26,375) (32,038) (672)
Income tax expense (benefit) (Note 6)....................... 2,835 (2,683) (385)
-------- -------- --------
Net loss.......................................... $(29,210) $(29,355) $ (287)
======== ======== ========
See accompanying notes.
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AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- -------
OPERATING ACTIVITIES:
Net loss.................................................. $(29,210) $(29,355) $ (287)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of excess reorganization value............ 33,624 25,229 --
Depreciation and other amortization.................... 11,976 11,117 8,059
Deferred income taxes.................................. 2,835 (2,683) (385)
Changes in operating assets and liabilities:
Accounts receivable.................................. (233) 424 --
Inventories.......................................... (1,692) (352) (856)
Other current assets................................. (2,004) (373) (227)
Accounts payable and other liabilities............... (1,277) 3,215 (1,134)
Employee related liabilities......................... (99) 552 449
-------- -------- -------
Net cash provided by operating activities................... 13,920 7,774 5,619
-------- -------- -------
INVESTING ACTIVITIES:
Capital expenditures...................................... (24,475) (9,757) (4,998)
Net proceeds from sale of assets.......................... 3,285 261 --
-------- -------- -------
Net cash used in investment activities...................... (21,190) (9,496) (4,998)
-------- -------- -------
FINANCING ACTIVITIES:
Intercompany, net......................................... 7,270 5,999 (943)
Indebtedness
Related party borrowings............................... -- 72,609 3,994
Credit Facility
Borrowings........................................... -- -- 2,000
Repayments........................................... -- -- (2,000)
Dividends................................................. -- (71,000) (4)
-------- -------- -------
Net cash provided by financing activities................... 7,270 7,608 3,047
-------- -------- -------
Increase in cash and cash equivalents....................... -- 5,886 3,668
Cash and cash equivalents at beginning of year.............. -- -- 5,886
-------- -------- -------
Cash and cash equivalents at end of year.................... $ -- $ 5,886 $ 9,554
======== ======== =======
See accompanying notes.
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AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts and
operations of AIH Inc. ("AIH") and its wholly owned subsidiaries, Alamac Knit
Fabrics, Inc. and Alamac Enterprises, Inc. (collectively "Alamac"). AIH is a
wholly owned indirect subsidiary of Alamac Holdings Inc. ("Holdings"), which is
an indirect subsidiary of WestPoint Stevens Inc. ("WestPoint"). All material
intercompany accounts and transactions have been eliminated. AIH was
incorporated in September 1995 and its primary asset is its investment in its
wholly owned subsidiaries. Prior to becoming an AIH subsidiary in September
1995, Alamac Knit Fabrics, Inc. ("Knit Fabrics") was a wholly owned subsidiary
of Alamac Holdings Inc., another WestPoint subsidiary company. Alamac
Enterprises, Inc. ("AE"), was incorporated in September 1995 and its primary
assets are trademarks and patents used by Knit Fabrics. Prior to September 1995
such trademarks and patents were owned by another WestPoint subsidiary.
Operating results in the accompanying consolidated financial statements for
periods prior to September 1995 are based on the operating results of Knit
Fabrics.
BUSINESS
Alamac manufactures and sells knitted fabrics primarily to manufacturers of
men's, women's and children's apparel. Alamac also supports a close working
relationship with major retailers to provide fabric, fashion and color
direction, quality standards specifications and customer service programs where
required.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Alamac records revenues principally when products are shipped to customers.
Consistent with recognized practice in the textile industry, Alamac also records
revenues to a lesser extent (approximately 7%, 5% and 3% of total revenues for
the years ended December 31, 1994, 1995 and 1996, respectively) on a bill and
hold basis under which the goods are complete, packaged and ready for shipment.
These goods are effectively segregated from inventory which is available for
sale, the risks of ownership of the goods have passed to the customer, and the
underlying customer orders are supported by contracts or written confirmations.
The credit status of each customer is approved and monitored. Also see Note 4
"Indebtedness -- Accounts Receivable Securitization". Sales to one customer
represented approximately 13%, 16% and 15% of net sales for the years ended
December 31, 1994, 1995 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Alamac to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
Alamac maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Alamac performs periodic
evaluations of the relative credit standing of those financial institutions that
are considered in Alamac's investment strategy.
17
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising Alamac's customer base.
However, as of December 31, 1996, substantially all of Alamac's sales were to
companies in the apparel industry.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with banks. Deposits with
banks are generally insured in limited amounts. All liquid investments with an
original maturity of three months or less when purchased are considered to be
cash equivalents. Short-term investments totaling approximately $5.9 million and
$9.6 million are included in cash and cash equivalents at December 31, 1995 and
1996, respectively. These investments are carried at cost, which approximates
market value.
INVENTORIES
Inventory costs include material, labor and factory overhead. Inventories
are stated at the lower of cost or market (net realizable value). At December
31, 1995 and 1996, approximately 85% of the Company's inventories are valued at
the lower of cost or market using the "dollar value" last-in, first-out ("LIFO")
method. The remainder of the inventories (approximately $4.5 million and $4.7
million at December 31, 1995 and 1996, respectively) are valued at the lower of
cost (substantially first-in, first-out method) or market.
Inventories consist of the following (in thousands of dollars):
DECEMBER 31
------------------
1995 1996
------- -------
Finished goods.............................................. $ 9,451 $ 7,967
Work in progress............................................ 5,595 7,532
Raw materials and supplies.................................. 17,262 16,901
------- -------
32,308 32,400
LIFO reserve................................................ (3,041) (2,277)
------- -------
$29,267 $30,123
======= =======
PROPERTY, PLANT AND EQUIPMENT
As a result of WestPoint's adoption of Fresh Start reporting as of
September 30, 1992, property, plant and equipment balances were adjusted to
their estimated fair values and historical accumulated depreciation was
eliminated. Additions since September 30, 1992 are stated at cost.
Depreciation is computed over estimated useful lives using the
straight-line method for financial reporting purposes and accelerated methods
for income tax reporting. Depreciation expense was approximately $12.0 million,
$11.1 million, and $8.1 million in the years ended December 31, 1994, 1995 and
1996, respectively. (See Note 2 "Change in Accounting Estimate".)
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED TO IDENTIFIABLE ASSETS
("EXCESS REORGANIZATION VALUE")
In September 1992, WestPoint completed a "prepackaged" plan of
reorganization and, in accordance with SOP 90-7, WestPoint established a new
basis of accounting ("Fresh Start"). In Fresh Start reporting, WestPoint's
assets and liabilities were adjusted to their fair values as of September 30,
1992. The excess of the reorganization value over the value of identifiable
assets was reported as Excess Reorganization Value at
18
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1992. Excess Reorganization Value of approximately $95 million was
allocated to Alamac and has been amortized on a straight-line basis over three
years and was fully amortized by September 1995.
HEDGING TRANSACTIONS
All of Alamac's cotton purchases are handled by WestPoint and charged to
Alamac at actual cost. WestPoint engages in hedging activities within the normal
course of its business. Management has been authorized to manage exposure to
price fluctuations relevant to the purchase of cotton through the use of a
variety of derivative nonfinancial instruments. Derivative nonfinancial
instruments require or permit settlement by the delivery of commodities and
include exchange traded commodity futures contracts and options. Gains and
losses on these hedges, which were not material at December 31, 1995 and 1996,
are deferred and subsequently recognized in operations as cost of goods sold in
the same period as the hedged item. WestPoint does not hold or issue derivative
instruments for trading purposes.
PENSION PLANS
WestPoint has a number of defined benefit pension plans covering
essentially all employees. The benefits are based on years of service and
compensation. WestPoint's practice is to fund amounts which are required by the
Employee Retirement Income Security Act of 1974.
WestPoint also sponsors an employee savings plan covering certain
employees. Participants in this plan elect to make contributions as either a
percent of earnings or a basic contribution. For the periods prior to December
31, 1994, there were no contributions by WestPoint for this plan. WestPoint
amended the plan to provide for WestPoint contributions beginning in 1995 (see
Note 5 "Employee Benefit Plans -- Retirement Savings Plan").
OTHER EMPLOYEE BENEFITS
WestPoint accounts for post-retirement and post-employment benefits in
accordance with FAS 106, "Employer's Accounting for Post Retirement Benefits
Other Than Pensions" and FAS 112, "Employer's Accounting for Post Employment
Benefits."
STOCK BASED COMPENSATION
WestPoint grants stock options for a fixed number of shares of its common
stock in accordance with certain of its benefit plans. WestPoint accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and, accordingly, recognizes no compensation expense for
the stock option grants if the exercise price is equal to or more than the fair
value of the shares at the date of grant.
INCOME TAXES
WestPoint accounts for income taxes under FAS 109, "Accounting for Income
Taxes". Under the provisions of FAS 109, deferred income taxes are provided at
the enacted marginal rates on the differences between the financial statement
and income tax bases of assets and liabilities. WestPoint and its subsidiaries
file a consolidated federal income tax return and separate, combined or unitary
state and local income tax returns in accordance with the filing requirements
and options applicable in the jurisdiction in which income tax returns are
required. Income tax expense for AIH is presented in the accompanying financial
statements on a separate return basis consistent with the terms of a tax sharing
agreement between AIH and WestPoint.
19
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
WestPoint has adopted FASB Statement No. 107, "Disclosure about Fair Value
of Financial Instruments", which requires disclosure of fair value, to the
extent practical, of certain of Alamac's financial instruments. The fair value
amounts do not necessarily represent the amount that could be realized in a sale
or settlement. Alamac's financial instruments are comprised principally of
long-term subordinated debt. (See Note 4 "Credit Arrangements".)
The estimated fair value of long-term subordinated debt at December 31,
1996 approximates book value since, in management's opinion, such obligations
are at market rates of interest for unsecured debt. Alamac does not anticipate
settlement of long-term subordinated debt at other than book value and currently
intends to hold this financial instrument through maturity.
The fair value of other financial instruments classified as current assets
or liabilities approximate their carrying values due to the short-term
maturities of these instruments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1996, WestPoint adopted Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("Statement 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairments are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of Statement
121 had no impact on WestPoint's or AIH's financial position.
2. CHANGE IN ACCOUNTING ESTIMATE
Effective January 1, 1996, Alamac extended its estimates of useful lives
for its property, plant and equipment. The effect of this change in estimate was
to reduce depreciation expense by approximately $3.9 million for the year ended
December 31, 1996. A summary of average economic lives assigned to property and
equipment is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 AND 1995 1996
-------------- --------------
Buildings and buildings improvements.................. 10 to 40 years 10 to 40 years
Furniture and fixtures................................ 5 to 10 years 6 to 12 years
Machinery and equipment -- used....................... 8 years 13 years
Machinery and equipment -- new........................ 8 to 15 years 10 to 18 years
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
The composition of other accrued liabilities is as follows (in thousands of
dollars):
DECEMBER 31,
----------------
1995 1996
------ ------
Reserve for customer returns................................ $2,500 $2,500
Property taxes payable...................................... 788 479
Other....................................................... 239 249
------ ------
$3,527 $3,228
====== ======
Components of "Other (income) expense, net" are principally interest income
from cash equivalents.
20
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Alamac made state income tax payments of $.6 million, $.1 million and $-0-
in the years ended December 31, 1994, 1995 and 1996, respectively. Alamac made
interest payments of approximately $-0-, $3.9 million and $3.9 million in the
years ended December 31, 1994, 1995, and 1996.
4. CREDIT ARRANGEMENTS
BANK CREDIT AGREEMENT
Alamac has a Credit Facility with certain lenders (collectively, the
"Banks"), which consists of a $25.0 million revolving credit facility due May
23, 2001. At Alamac's option, interest under the Credit Facility will be payable
either at the prime rate plus .25% or at LIBOR plus 1.5%. The loans under the
Credit Facility are secured by the pledge of the inventories and certain other
assets. Availability under the Credit Facility is determined by a borrowing
calculation of 60% of FIFO inventory values, as defined. No amounts were
outstanding under this facility at December 31, 1995 and 1996.
All amounts outstanding under the Credit Facility reduce WestPoint's
availability under its Senior Credit Facility. Additionally, the amounts
outstanding under the WestPoint Senior Credit Facility are secured by the pledge
of the stock of WestPoint's subsidiaries, including AIH.
Alamac's credit agreement contains a number of customary covenants
including, among others, restrictions on the incurrence of indebtedness,
transactions with affiliates, and certain asset dispositions. Certain provisions
require Alamac to maintain certain financial ratios, such as a minimum cash flow
coverage ratio and minimum tangible net worth, as defined. Additionally,
intercompany payables and receivables balances occurring subsequent to November
1995 between Alamac and its WestPoint affiliates must be settled within 30 days
of each month-end.
ACCOUNTS RECEIVABLE SECURITIZATION
WestPoint, through a "bankruptcy remote" receivables subsidiary
("Receivables Subsidiary") has a trade receivables program ("Trade Receivables
Program") which provides for the sale of accounts receivable, on a revolving
basis. Alamac's trade receivables are sold to an affiliate in connection with
this program. Alamac recognizes in its operating results, the anticipated
periodic costs for bad debts, returns and allowances and other customer
accommodations impacting the collection of trade receivables. At December 31,
1995 and 1996, all of Alamac trade receivables outstanding, totaling
approximately $37.4 million and $37.0 million, respectively, had been sold to
WestPoint and were outstanding. The sale is reflected as a reduction of accounts
receivable in the accompanying Consolidated Balance Sheets. The Trade
Receivables Program was financed through the issuance of (a) $115 million of
Floating Rate Class A Trade Receivables Participation Certificates ("Class A
Certificates"); (b) $18 million of Floating Rate Class B Trade Receivables
Participation Certificates ("Class B Certificates"), and (c) $27 million of
Investor Revolving Certificates. The Class A Certificates and Class B
Certificates bear interest at LIBOR plus .27% and LIBOR plus .57%, respectively,
and the Investor Revolving Certificates bear interest at LIBOR plus .375%. The
expected final payment date of amounts outstanding under the Trade Receivables
Program is May 18, 1999, but earlier termination could occur upon the occurrence
of certain defined events. The cost of the Trade Receivables Program allocated
to Alamac, $1.1 million, $1.2 million and $1.0 million for the years ended
December 31, 1994, 1995 and 1996, respectively, is charged to securitization
expense in the accompanying Consolidated Statements of Operations.
The Trade Receivables Program requires WestPoint and Receivables Subsidiary
to perform certain servicing obligations with respect to the existing and future
trade receivables sold by WestPoint. WestPoint is not subject to any financial
covenants under the Trade Receivables Program, but the documentation for the
21
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trade Receivables Program provides for early termination of the Trade
Receivables Program and early payment of the securities issued thereunder upon
certain events, which include the incurrence of losses or delinquencies on the
receivables in excess of certain levels or the bankruptcy or insolvency of
WestPoint.
RELATED PARTY INDEBTEDNESS
In April 1995, Knit Fabrics, as payment of a $71.0 million dividend
distribution, entered into an unsecured subordinated debt agreement with its
parent company at that time, Alamac Holdings Inc. (the "Subordinated
Agreement"). The Subordinated Agreement, with an original principal amount of
$71 million at April 1995, bears interest at 11% payable semi-annually or, at
the option of Knit Fabrics, can be converted to additional subordinated debt.
Principal amounts outstanding under the Subordinated Agreement mature in April
1999. Accrued interest outstanding on the Subordinated Agreement at December 31,
1996 of approximately $1.7 million was converted to additional subordinated debt
in April 1997 under the same terms as the Subordinated Agreement. Such interest
has been classified as long-term related party debt in the accompanying
Consolidated Balance Sheets. Additionally, during 1996 approximately $3.9
million of interest expense also was converted to additional related party debt.
5. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
WestPoint has a defined benefit pension plan that covers substantially all
its full-time employees including substantially all Alamac employees. Benefits
are based on years of service and compensation. Benefits become vested upon
completion of five years of service. No vesting occurs until the employee has
completed five years of service. WestPoint's practice is to fund amounts which
are required by the Employee Retirement Income Security Act of 1974.
22
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes information including the plan's funded status as
of the plan's December 31 year end and assumptions used to develop the net
periodic pension expense for all WestPoint operations (in thousands of dollars):
DECEMBER 31,
---------------------------------------
1995 1996
----------- -------------------------
ACCUMULATED ASSETS ACCUMULATED
BENEFITS EXCEED BENEFITS
EXCEED ACCUMULATED EXCEED
ASSETS BENEFITS ASSETS
----------- ----------- -----------
Actuarial present value of accumulated benefit
obligations:
Vested........................................... $ 312,899 $ 85,620 $200,902
Nonvested........................................ 3,696 3,835 5,706
--------- -------- --------
Accumulated benefit obligations.................... 316,595 89,455 206,608
Effect of future salary increases.................. 23,633 -- 16,918
--------- -------- --------
Projected benefit obligation....................... 340,228 89,455 223,526
Plan assets at fair value.......................... 281,443 102,718 197,174
--------- -------- --------
Projected benefit obligation less than (in excess
of) plan assets.................................. (58,785) 13,263 (26,352)
Unrecognized net actuarial losses.................. 75,670 15,458 27,089
Minimum pension liability adjustment............... (52,037) -- (10,171)
--------- -------- --------
Pension related asset (liability).................. $ (35,152) $ 28,721 $ (9,434)
========= ======== ========
Actuarial assumptions for funded status
information:
Discount rate.................................... 7.25% 8.25% 8.25%
Average rate of increase in compensation
levels........................................ 4.0% -- 3.5%
At December 31, 1995, WestPoint changed the discount rate to 7.25% from
8.5% which increased the projected benefit obligation by approximately $43.5
million. At December 31, 1996, WestPoint changed the discount rate to 8.25% from
7.25% which decreased the projected benefit obligation by approximately $38.5
million.
The provisions of Financial Accounting Standards Board Statement No. 87
Employee Accounting for Pensions (SFAS No. 87) require recognition in the
balance sheet of an additional minimum liability for pension plans with
accumulated benefits in excess of plan assets. At December 31, 1995 and 1996,
minimum pension liability adjustments of $52.0 million ($32.0 million after
related income taxes) and $10.2 million ($6.4 million after related income
taxes), respectively, were included in WestPoint's Consolidated Financial
Statements.
Plan assets are primarily invested in United States Government and
corporate debt securities, equity securities and fixed income insurance
contracts. At December 31, 1995 and 1996, WestPoint's pension plans held Notes
and Debentures of WestPoint with a market value of $13.2 million and $17.0
million, respectively.
23
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense included in WestPoint's Consolidated Financial Statements
was calculated as follows (in thousands of dollars):
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
Service costs -- benefits earned during the year... $ 7,428 $ 6,174 $ 8,244
Interest cost on projected benefit obligation...... 22,731 23,757 24,255
Actual loss (return) on plan assets................ 5,026 (49,969) (22,276)
Deferred actuarial gains (losses).................. (22,285) 33,038 (1,170)
-------- -------- --------
Net pension expense................................ $ 12,900 $ 13,000 $ 9,053
======== ======== ========
Total pension expense allocated to AIH for benefits to Alamac employees
under this plan was approximately $2.3 million, $2.0 million and $1.3 million
for the years ended December 31, 1994, 1995 and 1996, respectively.
The assumptions used to develop the plan's funded status and expenses were
as follows:
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
---- ---- -----
Assumptions:
Discount rate............................................. 7.0% 8.5% 7.25%
Expected long-term rate of return on plan assets.......... 8.5% 8.5% 10.0%
Average rate of increase in compensation levels........... 4.0% 4.0% 4.0%
RETIREMENT SAVINGS PLAN
WestPoint amended its Retirement Savings Value Plan (the "401K Plan")
effective January 1, 1995, to provide that WestPoint will match 50 percent of
each employee's before-tax contributions up to two percent of the employee's
compensation. WestPoint's contributions may be made either in cash or in shares
of its common stock. During both 1995 and 1996, Alamac was allocated
approximately $.4 million, of expense in connection with the 401K Plan.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to sponsoring defined benefit pension plans, WestPoint sponsors
various defined benefit post-retirement plans that provide health care and life
insurance benefits to certain current and future retirees. All such
post-retirement benefit plans are unfunded. Amounts allocated to Alamac under
these plans during the three years ended December 31, 1996 were not material.
6. INCOME TAXES
Alamac accounts for income taxes under FAS 109. Under FAS 109, deferred
income taxes are provided at the enacted marginal rates on the difference
between the financial statement and income tax bases of assets and liabilities.
Deferred income tax provisions or benefits are based on the change in the
deferred tax assets and liabilities from period to period.
24
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision (benefit) for income taxes consisted of the following
(in thousands of dollars):
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------- -----
Current.................................................. $ -- $ -- $ --
Deferred................................................. 2,835 (2,683) (385)
------ ------- -----
$2,835 $(2,683) $(385)
====== ======= =====
Income tax expense (benefit) from operations differs from the statutory
federal income tax rate of 35% for the following reasons (in thousands of
dollars):
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- -------- -----
Income tax expense (benefit) at federal statutory income
tax rate................................................. $(9,231) $(11,213) $(235)
State income taxes (net of effect of federal income tax)... 311 (374) (150)
Amortization of Excess Reorganization Value................ 11,768 8,830 --
Other -- net............................................... (13) 74 --
------- -------- -----
Income tax expense (benefit)............................... $ 2,835 $ (2,683) $(385)
======= ======== =====
Components of the net deferred income tax liability are as follows (in
thousands of dollars):
DECEMBER 31,
-------------------
1995 1996
-------- --------
Deferred tax liabilities:
Property, plant and equipment............................. $(21,978) $(21,866)
Inventories............................................... (2,711) (2,277)
Other..................................................... -- (427)
Deferred tax assets:
Reserves for intercompany items, employee benefits and
other.................................................. 2,683 2,901
Other..................................................... 36 84
-------- --------
$(21,970) $(21,585)
======== ========
7. WESTPOINT CORPORATE ALLOCATIONS
Corporate expenses of WestPoint, including corporate officers' salaries and
related employee benefits, travel costs, and related support staff and
operations (including cash management, accounting, tax and other corporate
services) are allocated to the operating units of WestPoint. In addition,
certain direct operating costs including pensions, property taxes, group health
insurance, fire and other insurance, and workers compensation are recorded on a
consolidated basis by WestPoint and allocated to the operating divisions. In the
opinion of WestPoint's management, these charges have been made on a basis which
is reasonable, however, they are not necessarily indicative of the level of
expenses which might have been incurred by Alamac on a stand-alone basis.
25
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Alamac was charged approximately $22.9 million, $22.9 million, and $19.4
million for these services and operating costs during the years ended December
31, 1994, 1995 and 1996, respectively, which was allocated between cost of goods
sold and selling, general and administrative expenses as follows (in thousands
of dollars):
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
Cost of goods sold........................................ $11,153 $11,646 $10,397
Selling, general and administrative expenses.............. 11,715 11,283 9,015
------- ------- -------
$22,868 $22,929 $19,412
======= ======= =======
8. SUMMARY ACTIVITY WITH WESTPOINT AND AFFILIATES
Upon incorporation, AIH authorized 1,000 shares of $1.00 par value common
stock. At December 31, 1995 and 1996, 100 shares of AIH common stock were issued
and outstanding. The cumulative net earnings of, and net intercompany advances
between, Knit Fabrics, AIH, and WestPoint affiliates as of the date of AIH's
incorporation were deemed by management to be additional paid-in capital of AIH
and are included in owners' equity.
WestPoint provides centralized cash management for Alamac. Substantially
all cash receipts are remitted to WestPoint and substantially all disbursements
are made by WestPoint. There are no terms of settlement for interest charges on
these intercompany accounts. However, intercompany payables and receivables
balances occurring subsequent to November 1995 between Alamac and its WestPoint
affiliates must be settled within 30 days of each month-end. Components of the
activity with WestPoint and affiliates as reflected in the accompanying
Consolidated Balance Sheets are as follows (in thousands of dollars):
DECEMBER 31,
--------------------
1995 1996
-------- --------
Intercompany, net........................................... $ 1,583 $ 626
Accrued interest............................................ 1,609 --
Long-term related party debt................................ 71,000 76,603
Owner's equity.............................................. 34,961 34,670
-------- --------
$109,153 $111,899
======== ========
An analysis of the net transactions with WestPoint and affiliates are as
follows (in thousands of dollars):
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
Net balances at the beginning of year............... $ 152,880 $ 131,096 $ 109,153
Gross sales....................................... (254,726) (235,452) (225,874)
Payments of direct operating costs and purchases
of raw materials............................... 233,356 215,723 211,551
WestPoint allocations............................. 22,868 22,929 19,412
Intercompany borrowings........................... -- 72,609 3,994
Other............................................. 5,928 2,603 (6,046)
Net loss.......................................... (29,210) (29,355) (287)
Dividends......................................... -- (71,000) (4)
--------- --------- ---------
Net balances at the end of year..................... $ 131,096 $ 109,153 $ 111,899
========= ========= =========
26
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LITIGATION AND CONTINGENT LIABILITIES
Alamac is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and non-hazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. Certain of Alamac's facilities may occasionally experience permit
violation under such laws and regulations. Alamac believes that it has
adequately provided in its financial statements for any expenses and liabilities
that may result from such matters. Alamac's operations are governed by laws and
regulations relating to employee safety and health which, among other things,
establish exposure limitations for cotton dust, formaldehyde, asbestos and
noise, and regulate chemical and ergonomic hazards in the workplace. Although
Alamac does not expect that compliance with any such laws and regulations will
adversely affect its operations, there can be no assurance such regulatory
requirements will not become more stringent in the future or that Alamac will
not incur significant costs in the future to comply with such requirements.
Alamac is involved in various legal proceedings, as plaintiff, which are
normal to its business. It is the opinion of management that the aforementioned
actions and claims, if determined adversely to Alamac, will not have a material
adverse effect on the financial condition or operations of Alamac taken as a
whole.
10. COMMITMENTS AND CONTINGENCIES
Alamac has contracts to purchase steam, at a fixed price per thousand
pounds through December 31, 2001, from electric power cogeneration plants
located at two manufacturing facilities. The term of the steam purchase
contracts are concurrent with ground leases between Alamac and the power
supplier for the lease of land adjacent to its facilities on which the
cogeneration plants are located. The steam purchase contracts and the ground
leases have 15 year extension options subject price renegotiation.
In November 1992, WestPoint entered into an agreement with a textile waste
purchaser. Under the terms of the agreement, WestPoint agreed to sell certain
textile by-products generated by WestPoint's facilities, including the Alamac
facilities, through November 1997. The pricing, delivery and scheduling of
shipments are determined pursuant to negotiations. In April 1997, WestPoint
extended the agreement through November 2002 under substantially the same terms.
Alamac has an agreement to provide engineering and technology consulting
and knowledge transfer to Arvind Mills ("Arvind"), an Indian company entering
the knit fabric industry. During the year ended December 31, 1995, Alamac has
received approximately $1.7 million for services to Arvind in establishing a
manufacturing facility with additional fees of approximately $900,000 due upon
satisfactory commencement of commercial production at the facility. The facility
is scheduled to begin production in early 1998. Also, Alamac has an agreement
with Arvind to receive royalties based on Arvind's domestic and export sales for
a period of six years from the start of commercial production.
Certain office space in New York and certain machinery are subleased,
through verbal arrangements with WestPoint, at terms which mirror the original
lease terms. Certain of these leases have payment terms which result in payment
amounts exceeding the amount of lease expense recognized during the period. The
difference is reflected as a prepaid lease asset in the accompanying
Consolidated Balance Sheets. Alamac also leases from third parties certain sales
office space. The operating leases have various renewal options. Rental
27
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense for operating leases, either directly charged or included in corporate
allocations, was as follows (in thousands of dollars):
YEAR ENDED DECEMBER 31, WESTPOINT OTHER TOTAL
- ----------------------- --------- ----- -------
1994.................................................... $ 4,191 $ 81 $ 4,272
1995.................................................... 7,134 80 7,214
1996.................................................... 7,056 80 7,136
The minimum aggregate rentals under operating leases are payable to the
lessors as follows (in thousands of dollars):
YEAR ENDED DECEMBER 31, WESTPOINT OTHER TOTAL
- ----------------------- --------- ----- -------
1997.................................................... $ 2,974 $ 80 $ 3,054
1998.................................................... 3,086 18 3,104
1999.................................................... 2,284 6 2,290
2000.................................................... 2,043 -- 2,043
2001 and thereafter..................................... 1,464 -- 1,464
------- ---- -------
$11,851 $104 $11,955
======= ==== =======
11. SUBSEQUENT EVENT -- SALE OF YARN MILL (UNAUDITED)
In May 1997, WestPoint's Board of Directors approved the purchase of
Alamac's Whitmire yarn mill and related assets for a cash payment of
approximately $25.0 million. Whitmire had a net book value of assets to be sold
of approximately $21.7 million at December 31, 1996. WestPoint's Board of
Directors has obtained a fairness opinion relative to this proposed transaction.
The excess of cash proceeds over the net book value of assets to be sold will be
treated as a capital transaction by AIH. The sale is expected to close in June
1997.
The Whitmire yarn mill produced approximately 26.2 million pounds of yarn,
of which, approximately 2.3 million pounds were sold to an affiliate for
approximately $3.1 million during the year ended December 31, 1996. In the
opinion of WestPoint's management, these related party sales are priced at the
fair market value at the date of sale.
12. SUBSEQUENT EVENT
On July 15, 1997, WestPoint entered into a definitive agreement pursuant to
which WestPoint will sell its subsidiaries AIH Inc., Alamac Knit Fabrics Inc.
and Alamac Enterprises Inc., other than cash, accounts receivable and a yarn
mill located in Whitmire, S.C., to Dyersburg Corporation ("Dyersburg") for
approximately $126 million. Certain current liabilities and long-term debt on
the accompanying balance sheets will not be assumed by Dyersburg. Such
liabilities will be retained by WestPoint Stevens Inc. or retired at the closing
date of the acquisition by Dyersburg. Dyersburg has entered into contractual
commitments, subject to normal closing conditions, for the necessary financing
to conclude this transaction. The transaction is subject to financing and
customary closing conditions, including receipt of applicable regulatory
clearances. It is anticipated that the transaction will be consummated in early
September 1997.
28
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,554 $ 2,135
Inventories............................................... 30,123 32,785
Other current assets...................................... 2,876 3,317
-------- --------
Total current assets.............................. 42,553 38,237
Property, plant and equipment, net.......................... 104,194 102,233
-------- --------
Total Assets...................................... $146,747 $140,470
======== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,673 $ 6,853
Accrued employee related liabilities...................... 4,362 3,200
Deferred income taxes..................................... 2,192 2,456
Intercompany, net......................................... 626 (1,529)
Other accrued liabilities................................. 3,228 2,898
-------- --------
Total current liabilities......................... 16,081 13,878
Long-term related party debt................................ 76,603 80,735
Deferred income taxes....................................... 19,393 20,551
Owner's equity.............................................. 34,670 25,306
-------- --------
Total liabilities and owner's equity.............. $146,747 $140,470
======== ========
See accompanying notes to condensed consolidated financial statements.
29
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED JUNE 30
------------------------
1996 1997
--------- ---------
Net sales................................................... $114,004 $127,793
Cost of goods sold.......................................... 101,439 111,321
-------- --------
Gross earnings.................................... 12,565 16,472
Selling, general and administrative expenses................ 9,473 8,012
-------- --------
Operating earnings................................ 3,092 8,460
Securitization expense on sale of accounts receivable....... 492 520
Interest expense............................................ 3,861 4,132
Other (income) expense, net................................. (101) (257)
-------- --------
Net income (loss) before income tax expense (benefit)....... (1,161) 4,065
Income tax expense (benefit)................................ (495) 1,427
-------- --------
Net income (loss)................................. $ (666) $ 2,638
======== ========
See accompanying notes to condensed consolidated financial statements.
30
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
SIX MONTHS
ENDED JUNE 30
-----------------
1996 1997
------ -------
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (666) $ 2,638
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and other amortization.................... 4,100 4,268
Deferred income taxes.................................. (495) 1,422
Changes in operating assets and liabilities:
Inventories.......................................... 325 (2,662)
Other current assets................................. (455) (441)
Accounts payable and other liabilities............... (436) 850
Employee related liabilities......................... (1,389) (1,162)
Other................................................ 7 (7)
------ -------
Net cash provided by operating activities................... 991 4,906
INVESTING ACTIVITIES:
Capital expenditures...................................... (2,665) (2,300)
------ -------
Net cash used for investing activities...................... (2,665) (2,300)
FINANCING ACTIVITIES:
Intercompany, net......................................... (1,397) (2,155)
Indebtedness:
Related party borrowings (repayments).................. (51) 4,132
Credit facility borrowings............................. 1,000 --
Dividends................................................. -- (12,002)
------ -------
Net cash used for financing activities...................... (448) (10,025)
------ -------
Decrease in cash and cash equivalents....................... (2,122) (7,419)
Cash and cash equivalents at beginning of period............ 5,886 9,554
------ -------
Cash and cash equivalents at end of period.................. $3,764 $ 2,135
====== =======
See accompanying notes to condensed consolidated financial statements.
31
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
AIH Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ending June 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the annual financial statements and footnotes thereto of AIH Inc. included
herein.
2. SUBSEQUENT EVENT-SALE OF AIH INC.
On July 15, 1997, WestPoint entered into a definitive agreement pursuant to
which WestPoint will sell its subsidiaries AIH Inc., Alamac Knit Fabrics Inc.
and Alamac Enterprises Inc., other than cash, accounts receivable and a yarn
mill located in Whitmire, S.C., to Dyersburg Corporation ("Dyersburg") for
approximately $126 million. Certain current liabilities and long-term debt on
the accompanying balance sheets will not be assumed by Dyersburg. Such
liabilities will be retained by WestPoint Stevens Inc. or retired at the closing
date of the acquisition by Dyersburg. Also, see Note 11. "Subsequent Event-Sale
of Yarn Mill" in the annual financial statements and footnotes thereto of AIH
Inc. included herein. Dyersburg has entered into contractual commitments,
subject to normal closing conditions, for the necessary financing to conclude
this transaction. The transaction is subject to financing and customary closing
conditions, including receipt of applicable regulatory clearances. It is
anticipated that the transaction will be consummated in early September 1997.
The accompanying condensed consolidated financial statements are derived
from the historical books and records of AIH Inc. and do not give effect to any
purchase accounting adjustments which Dyersburg may record as a result of its
acquisition.
32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of July 5, 1997 and the unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended September 28, 1996 and the nine and twelve
months ended July 5, 1997 (the "Pro Forma Financial Statements") are derived
from (i) the Company's consolidated balance sheet as of July 5, 1997 and its
consolidated income statements for the fiscal year ended September 28, 1996 and
the nine and twelve months ended July 5, 1997, and (ii) the balance sheet of
Alamac as of June 30, 1997 and its statements of operations for the year ended
December 31, 1996 and the nine and twelve months ended June 30, 1997.
The Pro Forma Financial Statements give effect to (i) the Acquisition, (ii)
the Offering, (iii) the borrowings under the New Credit Facility and (iv) the
application of the net proceeds from the Offering and the borrowings under the
New Credit Facility to finance the Acquisition and repay amounts outstanding
under existing debt agreements (collectively, the "Transactions"). The Pro Forma
Financial Statements give effect to the Transactions as if they had occurred on
July 5, 1997 in the case of the balance sheet, and on October 1, 1995 in the
case of the statements of operations.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Financial
Statements do not purport to represent what the Company's results of operations
or financial position would actually have been had the Transactions in fact
occurred on such dates or to project results of operations for or at any future
period or date.
The Acquisition will be accounted for under the purchase method of
accounting. The total purchase price for the Acquisition will be allocated to
the assets and liabilities acquired based upon their relative fair values at the
closing of the Acquisition, based upon valuation and other studies which are not
yet complete. The allocation of the purchase price reflected herein is subject
to revision when additional information from the valuations and studies become
available. However, the Company does not expect that the effects of the final
allocation will differ materially from those set forth herein.
33
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DYERSBURG
CORPORATION ALAMAC
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
SEPTEMBER 28, 1996(A) DECEMBER 31, 1996(A) ADJUSTMENTS CONSOLIDATED
--------------------- -------------------- ----------- ------------
Net sales...................... $195,866 $222,019 $417,885
Cost of sales.................. 152,884 196,518 $ 2,011(b) 351,413
Selling, general and
administrative expenses...... 20,707 17,495 (2,111)(c) 36,091
Goodwill amortization.......... 1,857 -- 577(d) 2,434
Interest and amortization of
debt costs................... 6,164 8,678 8,787(e) 23,629
-------- -------- -------- --------
181,612 222,691 9,264 413,567
-------- -------- -------- --------
Income (loss) before income
taxes........................ 14,254 (672) (9,264) 4,318
Federal and state income taxes
(benefit).................... 5,854 (385) (3,335)(f) 2,134
-------- -------- -------- --------
Net income (loss).............. $ 8,400 $ (287) $ (5,929) $ 2,184
======== ======== ======== ========
Net income per share........... $ 0.62 $ 0.16
Weighted average common shares
outstanding.................. 13,643 13,643
Other data:
EBITDA(g)................. $ 31,848 $ 48,013
Ratio of EBITDA to
interest expense........ 2.0x
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
34
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 5, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DYERSBURG
CORPORATION ALAMAC
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JULY 5, 1997 JUNE 30, 1997(A) ADJUSTMENTS CONSOLIDATED
------------ ---------------- ----------- ------------
Net sales.................................. $158,214 $183,728 $341,942
Cost of sales.............................. 120,677 160,026 $ 1,508(b) 282,211
Selling, general and administrative
expenses................................. 18,538 11,560 (1,540)(c) 28,558
Goodwill amortization...................... 1,400 -- 433(d) 1,833
Interest and amortization of debt costs.... 4,465 6,692 6,267(e) 17,424
-------- -------- ------- --------
145,080 178,278 6,668 330,026
-------- -------- ------- --------
Income before income taxes................. 13,134 5,450 (6,668) 11,916
Federal and state income taxes............. 5,188 1,907 (2,400)(f) 4,695
-------- -------- ------- --------
Net income................................. $ 7,946 $ 3,543 $(4,268) $ 7,221
======== ======== ======= ========
Net income per share....................... $ 0.60 $ 0.55
Weighted average common shares
outstanding.............................. 13,135 13,135
Other data:
EBITDA (g)............................... $ 26,717 $ 45,068
Ratio of EBITDA to interest expense...... 2.6x
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
35
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JULY 5, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DYERSBURG ALAMAC
CORPORATION TWELVE MONTHS
TWELVE MONTHS ENDED
ENDED JUNE 30, PRO FORMA PRO FORMA
JULY 5, 1997(A) 1997(A) ADJUSTMENTS CONSOLIDATED
--------------- ---------------- ----------- ------------
Net sales.................................. $217,506 $235,808 $453,314
Cost of sales.............................. 165,271 206,400 $ 2,011(b) 373,682
Selling, general and administrative
expenses................................. 24,827 16,034 (2,088)(c) 38,773
Goodwill amortization...................... 1,864 -- 577(d) 2,441
Interest and amortization of debt costs.... 6,039 8,820 8,494(e) 23,353
-------- -------- ------- --------
198,001 231,254 8,994 438,249
-------- -------- ------- --------
Income before income taxes................. 19,505 4,554 (8,994) 15,065
Federal and state income taxes............. 7,764 1,537 (3,238)(f) 6,063
-------- -------- ------- --------
Net income................................. $ 11,741 $ 3,017 $(5,756) $ 9,002
======== ======== ======= ========
Net income per share....................... $ 0.89 $ 0.68
Weighted average common shares
outstanding.............................. 13,253 13,253
Other data:
EBITDA(g)................................ $ 37,448 $ 59,126
Ratio of EBITDA to interest expense...... 2.5x
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
36
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Company's statement of operations for the twelve months ended July 5,
1997 and Alamac's statements of operations for the nine and twelve months
ended June 30, 1997 represent a compilation of statements of operations for
each quarterly period in such nine and twelve-month periods. As a result,
such statements of operations include estimates inherent in preparing
interim financial statements. The operating results of the Company for the
three months ended September 28, 1996 have been included in both the pro
forma statements of operations for the year ended September 28, 1996 and the
twelve months ended July 5, 1997. Net sales and net income of the Company
for the three months ended September 28, 1996 were $59,292 and $3,795,
respectively. The operating results of Alamac for the three months ended
September 30, 1996 have been included in both the pro forma statements of
operations for the year ended September 28, 1996 and the twelve months ended
July 5, 1997. Net sales and net loss of Alamac for the three months ended
September 30, 1996 were $52,080 and $526, respectively. The operating
results of Alamac for the three months ended December 31, 1996 have been
included in the pro forma statements of operations for the year ended
September 28, 1996, and the nine and twelve months ended July 5, 1997. Net
sales and net income of Alamac for the three months ended December 31, 1996
were $55,935 and $905, respectively.
(b) The assets of Alamac's Whitmire, South Carolina spinning plant are to be
transferred to WestPoint Stevens prior to the Acquisition. The increase in
cost of goods sold reflects the estimated incremental cost of purchasing
yarn from third-party vendors at market rates compared to the Whitmire cost
of production included in the historical Alamac statements of operations.
(c) Reflects the elimination of certain management and other fees allocated to
Alamac by WestPoint Stevens for services which will not be incurred by
Alamac under the Company's ownership. In addition to these management and
other allocated fees, the Company has identified anticipated annual cost
savings (which are not included in pro forma adjustments) of approximately
$3,000 in selling, general and administrative expenses. The Company is in
the process of developing formal plans to achieve these estimated savings.
As management continues to gain additional information and formulate its
transition strategy, other areas of potential cost savings may be
identified. However, there can be no assurance that any of these anticipated
savings can be achieved or that the effects of any such savings will not be
offset by unexpected, unforeseen increases in other costs.
(d) Reflects the increased goodwill amortization expense based upon the
preliminary purchase price allocation of the Acquisition, using the
straight-line method over a 40-year life.
37
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(e) Reflects the pro forma adjustment to interest expense with respect to the
following:
TWELVE
FISCAL YEAR NINE MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 28, 1996 JULY 5, 1997 JULY 5, 1997
------------------ ------------ ------------
Interest expense and amortization of deferred debt
costs incurred under the New Credit Facility at a
LIBOR-based rate, assumed to be 8.0%, based on
the pro forma estimated average outstanding
balance of $129,000, $121,200 and $122,300 for
each of the pro forma periods,
respectively(1)(2)............................... $10,679 $ 7,753 $10,425
Interest expense and amortization of deferred debt
costs incurred in connection with the $125,000 of
Senior Subordinated Notes due 2007, at an assumed
interest rate of 9.75%(2)........................ 12,545 9,409 12,545
Elimination of the Company's historical interest
expense and fees associated with the existing
credit facility and senior notes assumed to be
repaid from the proceeds of the New Credit
Facility and the Notes........................... (5,540) (3,871) (5,281)
Elimination of Alamac historical interest
expense.......................................... (8,897) (7,024) (9,195)
------- ------- -------
Net increase in interest expense................. $ 8,787 $ 6,267 $ 8,494
======= ======= =======
- ---------
(1) Includes interest on assumed outstanding borrowings in all periods
presented of $42,500 to fund working capital. See note (e) of the notes
to unaudited pro forma condensed consolidated balance sheet.
(2) A 1/8% increase in the assumed interest rate on the Notes and New
Credit Facility would increase interest expense by $317, $231 and $309
for the year ended September 28, 1996, and the nine and twelve months
ended July 5, 1997, respectively.
(f) Reflects the income tax effect of the pro forma adjustments at the statutory
rate of 36%.
(g) EBITDA represents income before interest and amortization of debt costs,
federal and state income taxes, and depreciation and amortization. EBITDA is
generally considered to provide information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations, or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
38
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 5, 1997
(DOLLARS IN THOUSANDS)
DYERSBURG ALAMAC
CORPORATION JUNE 30, PRO FORMA PRO FORMA
JULY 5, 1997 1997 ADJUSTMENTS CONSOLIDATED
------------ ------------- ----------- ------------
ASSETS
Current assets:
Cash.................................. $ 1,677 $ 2,135 $ (2,135)(a) $ 1,677
Accounts receivable, net.............. 48,522 -- 48,522
Inventories........................... 30,456 32,785 (1,516)(a) 62,998
1,273(c)
Prepaid expenses and other............ 846 4,846 (3,506)(a) 5,589
3,403(c)
-------- -------- -------- --------
Total current assets.................... 81,501 39,766 (2,481) 118,786
Property, plant and equipment, net...... 65,685 102,233 (18,262)(a) 149,656
Goodwill................................ 57,697 -- 23,072(c) 80,769
Deferred debt costs and other........... 484 -- 6,700(b) 7,184
-------- -------- -------- --------
Total assets............................ $205,367 $141,999 $ 9,029 $356,395
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................ $ 12,173 $ 6,853 $ 19,026
Accrued expenses...................... 11,982 6,098 $ (1,143)(b) 20,899
4,412(c)
(450)(b)(d)
Deferred income taxes................. -- 2,456 (2,456)(c) --
Current portion of long-term
obligations........................ -- -- 7,500(b) 7,500
-------- -------- -------- --------
Total current liabilities............... 24,155 15,407 7,863 47,425
Deferred income taxes and other......... 9,186 20,551 (20,551)(c) 9,186
Long-term obligations................... 75,837 80,735 (80,735)(a) 204,395
203,995(b)(e)
(67,937)(b)
(7,500)(b)
-------- -------- -------- --------
Total liabilities....................... 109,178 116,693 35,135 261,006
Shareholders' equity:
Common stock.......................... 131 -- 131
Additional paid-in capital............ 41,355 -- 41,355
Retained earnings..................... 54,703 -- (800)(b)(d) 53,903
Net equity of Alamac.................. -- 25,306 55,316(a) --
(80,622)(c)
-------- -------- -------- --------
Total shareholders' equity.............. 96,189 25,306 (26,106) 95,389
-------- -------- -------- --------
Total liabilities and shareholders'
equity................................ $205,367 $141,999 $ 9,029 $356,395
======== ======== ======== ========
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
39
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the transfer of certain assets and liabilities, including the
Whitmire, South Carolina spinning plant, to WestPoint Stevens or its
affiliates prior to the Acquisition.
(b) Reflects the financing of the Acquisition and certain other financing
transactions as follows:
Proceeds from Senior Subordinated Notes due 2007............ $125,000
Initial borrowings under New Credit Facility................ 78,995
--------
Gross proceeds.............................................. 203,995
Repayment of existing credit facility....................... (42,937)
Repayment of existing senior notes.......................... (25,000)
Payment of accrued interest................................. (1,143)
Debt costs.................................................. (6,700)
Other costs................................................. (1,250)
--------
Net proceeds after refinancing.................... $126,965
========
At the close of the Transactions, the current portion of the New Credit
Facility will be $7,500.
(c) The Acquisition will be accounted for under the purchase method of
accounting pursuant to which the purchase price will be allocated to the
acquired assets and liabilities based upon their relative fair values as of
the closing date. The preliminary allocation of the purchase price
($126,000, plus acquisition costs of $965) is summarized below:
Inventory................................................... $ 32,542
Prepaid expenses and other.................................. 4,743
Property, plant and equipment............................... 83,971
Goodwill.................................................... 23,072
Accounts payable............................................ (6,853)
Accrued liabilities......................................... (10,510)
--------
Net purchase price................................ $126,965
========
The Stock Purchase Agreement contemplates a post-closing adjustment to
adjust the purchase price for changes in working capital and certain
pension obligations, as defined, between December 31, 1996 and the closing
date. No working capital or pension adjustment has been included in the
above purchase price allocation.
(d) Reflects the extraordinary loss of $800, net of tax benefit of $450,
associated with the commitment fee paid for unused bridge loan financing
which will be expensed by the Company at the time the Transactions are
consummated.
(e) Historically, Alamac accounts receivable have been sold to WestPoint
Stevens, who then sold them to a related-party financing source.
Accordingly, the Company estimates that, in addition to the purchase price,
it will be required to finance approximately $40,000 to $45,000 of
additional working capital following the Acquisition. These estimated
borrowings to fund working capital are not reflected in the unaudited pro
forma condensed consolidated balance sheet as of July 5, 1997.