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 April 3, 1999
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 April 15, 1999
- ---------------------------- -------------------------------------------------
Common Stock $0.01 par value 13,347,221
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INDEX TO FORM 10-Q
DYERSBURG CORPORATION
PART I--FINANCIAL INFORMATION PAGE
ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at
April 3, 1999, and October 3, 1998 ...........................3
Condensed Consolidated Statements of Operations
for the Three Months Ended April 3, 1999,
and April 4, 1998; Six Months Ended
April 3, 1999, and April 4, 1998..............................4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
April 3, 1999, and April 4, 1998..............................5
Notes to Condensed Consolidated Financial
Statements....................................................6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................9
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS....................12
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K...................................13
SIGNATURES.................................................................13
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Dyersburg Corporation
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
April 3, October 3,
1999 1998
-------- --------
ASSETS
Current assets:
Cash ......................................................... $ 180 $ 265
Accounts receivable, net of allowance for doubtful accounts
of $2,941 at April 3, 1999, and $2,899 at October 3, 1998 ... 55,250 71,359
Inventories .................................................. 49,602 45,147
Prepaid expenses and other ................................... 9,955 9,845
-------- --------
Total current assets .................................... 114,987 126,616
Property, plant and equipment, net ........................... 133,333 136,613
Goodwill, net ................................................ 92,376 93,752
Deferred debt costs and other, net ........................... 5,429 6,153
-------- --------
$346,125 $363,134
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................................... $ 14,624 $ 19,833
Accrued expenses ............................................ 13,793 14,706
Current portion of long-term obligations .................... 69,021 7,500
-------- --------
Total current liabilities ............................... 97,438 42,039
Long-term obligations ....................................... 132,900 198,900
Deferred income taxes ....................................... 9,972 10,242
Other liabilities ........................................... 1,994 3,582
Shareholders' equity:
Preferred stock, authorized 5,000,000 shares; none issued
Common stock, $.01 par value, authorized 40,000,000 shares;
issued and outstanding shares 13,347,221 at April 3, 1999, and
13,337,066 at October 3, 1998 ............................... 133 133
Additional paid-in capital.................................... 42,773 42,752
Retained earnings ............................................ 60,915 65,486
Total shareholders' equity .............................. 103,821 109,371
-------- --------
$346,125 $363,134
======== ========
See notes to condensed consolidated financial statements.
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Dyersburg Corporation
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except share and per share data)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net Sales ....................... $ 80,138 $ 109,958 $ 155,529 $ 201,889
Costs and expenses:
Cost of sales ................ 70,068 90,657 134,638 167,363
Selling, general, and
administrative ............. 8,816 11,525 17,413 19,709
Interest and amortization of
debt costs ................. 4,935 5,570 10,102 10,996
------------ ------------ ------------ ------------
Total costs and expenses ........ 83,819 107,752 162,153 98,068
------------ ------------ ------------ ------------
Income (loss) before income taxes (3,681) 2,206 (6,624) 3,821
Income tax (benefit) expense .... (1,029) 863 (2,320) 1,495
------------ ------------ ------------ ------------
Net Income (loss) ............... $ (2,652) $ 1,343 $ (4,304) $ 2,326
============ ============ ============ ============
Weighted average shares
outstanding:
Basic ....................... 13,345,598 13,330,613 13,342,321 13,318,065
Diluted ..................... 13,348,033 13,392,711 13,343,767 13,395,488
============ ============ ============ ============
Earnings (loss) per share:
Basic ....................... $ (0.20) $ 0.10 $ (0.32) $ 0.17
============ ============ ============ ============
Diluted ..................... $ (0.20) $ 0.10 $ (0.32) $ 0.17
============ ============ ============ ============
Dividends per share ............. $ 0.01 $ 0.01 $ 0.02 $ 0.02
============ ============ ============ ============
See notes to condensed consolidated financial statements.
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Dyersburg Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
---------------------------
April 3, April 4,
1999 1998
-------- --------
Operating activities
Net Income (loss) ........................................ $ (4,304) $ 2,326
Adjustments to reconcile to net cash (used in)
provided by operating activities:
Depreciation and amortization ....................... 10,442 11,107
Decrease (increase) in accounts receivable, net ..... 16,110 (8,755)
Increase in inventory ............................... (4,456) (16,107)
Other-net ........................................... (7,277) (10,813)
-------- --------
Net cash provided by (used in) operating activities . 10,515 (22,242)
Investing activities
Capital expenditures ..................................... (5,337) (11,154)
Other-net ................................................ (312) (890)
-------- --------
Net cash used in investing activities ............. (5,649) (12,044)
Financing Activities
Net (payments) borrowings on long-term obligations ....... (4,706) 33,183
Dividends paid ........................................... (266) (267)
Issuance of common stock ................................. 21 704
-------- --------
Net cash (used in) provided by financing activities $ (4,951) $ 33,620
-------- --------
Net decrease in cash .............................. (85) (666)
Cash at beginning of period ................................. 265 948
-------- --------
Cash at end of period ....................................... $ 180 $ 282
======== ========
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION
April 3, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Dyersburg Corporation ("Company") and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited condensed consolidated 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. Financial information as of October 3,
1998, has been derived from the audited financial statements of the Company, but
does not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. Due to seasonal
patterns, the results for interim periods are not necessarily indicative of
results to be expected for the year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 3, 1998.
NOTE B--CHANGE IN ACCOUNTING ESTIMATES FOR DEPRECIABLE LIVES OF CERTAIN
PROPERTY, PLANT AND EQUIPMENT
During the second quarter of fiscal 1999, the Company changed its
estimates for the useful lives of certain property, plant and equipment at its
Dyersburg Fabrics Inc. facilities. This change was implemented to reflect time
periods more consistent with actual historical experience and anticipated
utilization of the assets. The effect of the change was a decrease in
depreciation expense for each quarter of fiscal 1999 of approximately $350,000.
It is anticipated that this change will decrease depreciation expense for the
full fiscal year by approximately $1.4 million. For the quarter and six months
ended April 3, 1999, the effect of the change was to reduce the net loss by
approximately $228,000, or $0.02 per share and $455,000, or $0.03 per share,
respectively.
NOTE C--INVENTORIES
April 3, October 3,
1999 1998
------- -------
(in thousands)
Raw Materials ......... $12,220 $15,071
Work in Process ....... 16,603 15,218
Finished Goods ........ 18,167 12,039
Supplies and Other..... 2,612 2,819
------- -------
$49,602 $45,147
======= =======
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NOTE D--EARNINGS PER SHARE
The table below sets forth the computations of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
April 3, April 4, April 3, April 4,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(in thousands except share and per share data)
Numerator for basic and diluted
earnings per share--net income
(loss) ......................... $ (2,652) $ 1,343 $ (4,304) $ 2,326
Denominator:
Denominator for basic earnings
(loss) per share--weighted
average shares ................. 13,345,598 13,330,613 13,342,321 13,318,065
Effect of dilutive securities:
Employee Stock Options ........ $ 2,435 $ 62,098 $ 1,446 $ 77,423
------------ ------------ ------------ ------------
Denominator for diluted
earnings (loss) per share--
adjusted weighted average shares 13,348,033 13,392,711 13,342,767 13,395,488
============ ============ ============ ============
Basic earnings (loss) per
share .......................... $ (0.20) $ 0.10 $ (0.32) $ 0.17
============ ============ ============ ============
Diluted earnings (loss) per
share .......................... $ (0.20) $ 0.10 $ (0.32) $ 0.17
============ ============ ============ ============
NOTE E--LONG-TERM OBLIGATIONS
In August 1997, the Company issued $125,000,000 principal amount of
9.75% Senior Subordinated Notes due September 1, 2007 (the "Subordinated
Notes"). The Subordinated Notes are unsecured senior subordinated obligations
and are subordinated in right of payment to the prior payment in full of all
senior indebtedness. The Subordinated Notes are guaranteed by all of the
Company's subsidiaries (the "Guarantors"). Separate financial statements of the
Guarantors are not included herein because: (a) the Company is a holding company
with no assets or operations other than its investments in its subsidiaries; (b)
the Guarantors are wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the Subordinated Notes on a joint and several basis;
(c) the Guarantors comprise all of the direct and indirect subsidiaries of the
Company; and (d) management believes that such information is not material to
investors.
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NOTE E--LONG-TERM OBLIGATIONS
During January 1999, at its sole discretion and as provided for in the
original terms of the Credit Agreement, the Company reduced its line of credit
on the Revolving Credit Facility from $110 million to $90 million. The reduction
does not impact the Company's level of available credit as computed as of April
3, 1999. This action reduces certain commitment fees charged on unused lines of
credit.
During April 1999, the Company has amended its Credit Agreement, which
includes its $38.8 million Term Loan and $90 million Revolving Credit Facility.
The amendment waives certain financial covenants for the fiscal quarter ended
April 3, 1999, increases the borrowing rate on advances during periods where the
Company's Adjusted Funded Debt Coverage Ratio exceeds 5.0:1.0, and requires the
company to engage an appraisal firm or firms to appraise the inventory and
property, plant and equipment (see Exhibit 10(a) attached to this filing). Based
on the current business environment, it is likely that the Company will not be
in compliance with existing financial covenants in future periods including the
third quarter of fiscal 1999. Accordingly, generally accepted accounting
principles require that amounts outstanding under the Credit Agreement be
reflected in current liabilities on the balance sheet. However, the Company
continues to access its Revolving Credit Facility and has not realized any
reduction in its borrowing availability. Based on the borrowing base computation
within the Credit Agreement and excluding the impact of additional borrowings on
any financial ratio covenants contained in the Credit Agreement as amended, the
amount of additional borrowing available at April 3, 1999, was in excess of $34
million. The Company has requested additional amendments of the financial
covenants in the Credit Agreement with respect to future periods and a reduction
in the amount of mandatory principal payments on the Term Loan. Management
believes it will be able to obtain an amendment acceptable to the Company, but
no assurances can be given.
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Beginning in fiscal 1998 and continuing in 1999 the domestic circular
knit industry has been characterized by accelerating consolidation and a
supply/demand imbalance that has adversely affected the Company's results of
operations. The Company has experienced weakness in sales and margins in both
fleece and jersey fabrics. Competition from imports increased as global souring
patterns continued to shift between the Far East and the West. Unstable, often
faltering economies in the Far East caused many textile and apparel
manufacturers in the region to offer products to U.S. markets at reduced prices.
These low prices were made even more attractive to U.S. retailers by significant
and prolonged currency devaluations in several countries. The duration of these
market conditions, evidenced by additional, if not an excessive, supply of
low-priced imports is uncertain. Nonetheless, management of the Company believes
that current conditions will continue, at a minimum, throughout fiscal 1999. In
response to these business conditions, Dyersburg has broadened its price point
offerings, reduced costs, and focused on providing a continuous flow of
value-added and differentiated products to remain efficient and competitive.
Product offerings with fabric manufactured by the Company and sold through full
garment packages, have begun to favorably impact sales.
Net sales for the quarter ended April 3, 1999, decreased by 27% to
$80.1 million versus $110.0 million for the same quarter of the prior year. Net
sales for the six months ended April 3, 1999, decreased by 23.0% compared to the
same period of the prior year. The decrease in net sales was primarily a result
of reduced volume impacted by increased imports and softness in the knit market
as indicated above. Gross margins for the quarter and year-to-date declined to
12.6% and 13.4% versus 17.6% and 17.1% for the same period in fiscal 1998,
respectfully. Gross margins decreased as production was reduced for the lower
sales volume. However, margins were favorably impacted by a change in the
accounting estimate for useful lives of certain property and equipment at the
Company's Dyersburg Fabrics facilities. The effect of the change was a decrease
in depreciation expense in the second quarter of 1999 of approximately $350,000
and year-to-date of $700,000. It is anticipated that this change will decrease
depreciation expense for the full fiscal year by approximately $1.4 million. For
the quarter and year-to-date ended April 3, 1999, the effect of the change was
to reduce the net loss by approximately $228,000, or $0.02 per share and
$455,000, or $0.03 per share, respectively.
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Due to the continued softness in the knit market, management has
undertaken initiatives to increase revenues and reduce costs. Increased emphasis
on research and development directed at better uses of developing technology in
concert with market intelligence of retail customers is intended to intensify
the Company's focus on developing additional value added and differentiated
products and improving the speed to market of such products. Garment packaging,
whereby the Company converts fabric into a finished garment, has provided new
opportunities for fabric sales. Cost savings initiatives completed in the first
half of fiscal 1999 included reducing capacity by eliminating the weekend
operations at the Company's Dyersburg Fabrics subsidiary. Strategic plans to
further reduce manufacturing capacity, and the related costs, are being
developed by management to allow the Company the flexibility to further downsize
in response to changing business conditions.
Selling, general and administrative expenses decreased by 31% for the
second quarter and 17% year-to-date fiscal 1999 compared to the same periods in
fiscal 1998. The decrease was primarily due to reductions in administrative
costs due to the lower sales volume and reductions in certain expenses that are
based on performance. As a percentage of sales, these same expenses increased to
11.4% for the second quarter and 11.2% year-to-date for fiscal 1999 versus 10.5%
and 9.8% respectively, for the same periods in fiscal 1998. This percentage
increase primarily resulted from a decline in sales.
Interest expense in the second quarter of fiscal 1999 of $4.9 million
and year-to-date of $10.1 million was lower than that of the same periods of
fiscal 1998 due to reduced borrowing levels. The effective tax rate for the
second quarter of fiscal 1999 was 28% and year-to-date was 35.0%.
Net loss for the quarter ended April 3, 1999 was $2.7 million, or $0.20
per share, versus net income of $1.3 million, or $0.10 per share, for the same
period in fiscal 1998. For the six months ended April 3, 1999, the net loss was
$4.3 million, or $0.32 per share, versus net income of $2.3 million, or $0.17
per share, for the same period in fiscal 1998. Earnings (loss) per share are the
same whether calculated on a basic or diluted basis. The diluted weighted
average number of shares outstanding for the quarter and year-to-date was
approximately 13,348,000 and 13,344,000, respectively.
The Company recorded a non-recurring charge of $1.3 million for
restructuring charges in the third quarter of fiscal 1998. These restructuring
charges represent severance-related expenses associated with terminated
employees. During the third and fourth quarters of fiscal 1998, $727,000 was
paid for severance and related fringe benefits, resulting in a balance in
accrued restructuring charges of $575,000 at fiscal year end. During the first
and second quarters of fiscal 1999, approximately $77,000 and $326,000,
respectively was paid for severance and related fringe benefits; resulting in a
balance in accrued restructuring charges of $498,000 and $172,000, respectively
at each fiscal quarter end. All of the employees identified by the restructuring
plan have been terminated. Substantially all of the remaining balance in accrued
restructuring charges of $172,000 will be paid in the next six months.
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Liquidity and Capital Resources
Working capital and the current ratio decreased to $17.5 million and
1.2:1 at April 3, 1999, from $84.6 million and 3.0:1, respectively, at October
3, 1998. Changes in this ratio are the result of the classification of amounts
outstanding under the Company's Credit Agreement as to current liabilities. The
Company's debt-to-capital ratio was 66.0% at April 3, 1999, compared to 65.4% at
October 3, 1998. See discussion below and Note E of the Notes to Condensed
Consolidated Financial Statements.
Net receivables of $55.3 million at April 3, 1999, decreased from the
level at October 3, 1998, due to reduced sales levels. Inventories increased to
$49.6 million at the end of the second quarter from $45.1 million at the end of
the fourth quarter of fiscal 1998.
Capital expenditures for the six months ended April 3, 1999, were $5.3
million versus $11.2 million for the same period in the prior year. Cash outlays
for capital spending have been reduced in response to current business
conditions and are anticipated to approximate $8-$9 million in fiscal 1999.
As a result of the decline in operating results, the Company has
amended its Credit Agreement, which includes its $38.8 million Term Loan and $90
million Revolving Credit Facility. The amendment waivers certain financial
covenants for the fiscal quarter ended April 3, 1999, increases the borrowing
rate on advances during periods where the Company's Adjusted Funded Debt
Coverage Ratio exceeds 5.0:1.0, and requires the company to engage an appraisal
firm or firms to appraise the inventory and property, plant and equipment (see
Exhibit 10(a) attached to this filing). Based on the current business
environment, it is likely that the Company will not be in compliance with
existing financial covenants in future periods including the third quarter of
fiscal 1999. Accordingly, generally accepted accounting principles require that
amounts outstanding under the Credit Agreement be reflected in current
liabilities on the balance sheet. However, the Company continues to access its
Revolving Credit Facility and has not realized any reduction in its borrowing
availability. Based on the borrowing base computation within the Credit
Agreement and excluding the impact of additional borrowings on any financial
ratio covenants contained in the Credit Agreement as amended, the amount of
additional borrowing available at April 3, 1999, was in excess of $34 million.
The Company has requested additional amendments of the financial covenants in
the Credit Agreement with respect to future periods and a reduction in the
amount of mandatory principal payments on the Term Loan. Management believes it
will be able to obtain an amendment acceptable to the Company, but no assurances
can be given.
Year 2000
The Company has determined that it will need to modify or replace
portions of its software so that its computer system will function properly with
respect to dates in the year 2000 and beyond. The Company also has initiated
discussions with its significant suppliers, large customers and financial
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues where their systems interface with the Company's systems or
otherwise impact its operation.
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The Company's comprehensive Year 2000 initiative is being managed by a
team of internal staff. The team's activities are designed to ensure that there
is no adverse effect on the Company's core business operations and that
transactions with customers, suppliers and financial institutions are fully
supported. The Company is well underway with these efforts. The Company's
business application programs are currently compliant or will be made compliant
through the Year 2000 Project. The few remaining non-compliant programs are to
be brought into compliance by the vendors that will supply the programs or
through modifications by internal staff. The majority of the business
applications Year 2000 Project were completed by April 3, 1999, with a few
software programs scheduled to be replaced in the first half of 1999. The
Company continues to follow up with critical suppliers and customers concerning
their plans and progress in addressing the Year 2000 problem. The costs of the
Year 2000 Project are not expected to be material to the Company's results of
operations or financial position and are being expensed as incurred. These costs
represent the labor costs of time allocated from existing internal staff. The
costs of the project and the date on which the Company believes it will complete
the Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company held the Annual Meeting of Shareholders on January 27,
1999, ("Annual Meeting"). At the Annual Meeting, the shareholders of the Company
elected: four Class I directors, Julius Lasnick, P. Manohar, Mickey Ganot and
Donna Randall for three-year terms and until their successors are duly elected
and qualified. Continuing directors for the Company are Marvin Crow, L.R.
Jalenak, Jr., Jerome Wiggins, Ravi Shankar and T. Eugene McBride.
For Withheld (Abstain)
--------- ------------------
Julius Lasnick 7,535,823 238,711
P. Manohar 7,435,237 339,297
Mickey Ganot 7,433,237 341,297
Donna Randall 7,586,723 187,811
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The shareholders ratified the appointment of Ernst & Young LLP as the
independent certified public accountants of the Company for fiscal 1999. There
were 7,753,424 votes cast for such proposal, 16,110 votes cast against such
proposal, and 5,000 votes withheld (abstained) with respect to such proposal.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Exhibits:
10 - Material Contract
(a) Amendment No. 3 to Credit Agreement
27 Financial Data Schedule (for SEC use only)
(b) The Corporation did not file any reports on Form 8-K during the three
months ended April 3, 1999.
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.
/S/ William S. Shropshire, Jr.
May 14, 1999 ---------------------------------------------
William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
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