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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 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)
15720 JOHN J. DELANEY, SUITE 445
CHARLOTTE, NORTH CAROLINA 28277
(Address of principal executive offices) (Zip Code)
(704) 341-2299
(Registrant's telephone number, including area code)
1315 PHILLIPS ST., DYERSBURG, TENNESSEE 38024
(Former address if changed since last report)
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 28, 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 NUMBER
- ----------------------------- -----------
ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at
July 3, 1999, and October 3, 1998 ................................................ 3
Condensed Consolidated Statements of Operations
for the Three Months Ended July 3, 1999,
and July 4, 1998; Nine Months Ended
July 3, 1999, and July 4, 1998.................................................... 4
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
July 3, 1999, and July 4,1998..................................................... 5
Notes to Condensed Consolidated Financial
Statements........................................................................ 6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................... 10
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS........................................ 14
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K....................................................... 15
SIGNATURES .................................................................................... 15
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DYERSBURG CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share data)
July 3, October 3,
1999 1998
-------------- ------------
ASSETS
Current assets:
Cash ................................................................. $ 172 $ 265
Accounts receivable, net of allowance for doubtful accounts
of $3,380 at July 3, 1999, and $2,899 at October 3, 1998 ........... 56,773 71,359
Inventories .......................................................... 43,379 45,147
Prepaid expenses and other ........................................... 15,788 9,845
--------- ---------
Total current assets ............................................ 116,112 126,616
Property, plant and equipment, net ................................... 120,743 136,613
Goodwill, net ........................................................ 91,665 93,752
Deferred debt costs, net ............................................. 5,311 5,935
Assets held for sale and other ....................................... 4,124 218
--------- ---------
$ 337,955 $ 363,134
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............................................... $ 10,484 $ 19,833
Accrued restructuring expenses ....................................... 3,670 575
Other accrued expenses ............................................... 16,017 14,131
Current portion of long-term obligations ............................. 69,294 7,500
--------- ---------
Total current liabilities ....................................... 99,465 42,039
Long-term obligations ................................................ 132,900 198,900
Deferred income taxes and other ...................................... 10,310 13,824
Shareholders' equity:
Preferred stock, authorized 5,000,000 shares; none issued
Series A Preferred stock, authorized 200,000 shares; none issued
Common stock, $.01 par value, authorized 40,000,000
shares; issued and outstanding shares - 13,347,221 at
July 3, 1999, 13,337,066 at October 3,1998 ........................... 133 133
Additional paid-in capital ........................................... 42,773 42,752
Retained earnings .................................................... 52,374 65,486
--------- ---------
Total shareholders' equity ............................................. 95,280 108,371
--------- ---------
$ 337,955 $ 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 Nine Months Ended
----------------------------------- ----------------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------------- ------------- ------------ -------------
Net sales .......................... $ 83,053 $ 113,533 $ 238,582 $ 315,422
Costs and expenses:
Cost of sales ................... 70,864 92,151 205,502 259,514
Selling, general,and
administrative ................ 9,086 8,737 26,499 28,446
Restructuring charge ............ 10,993 1,300 10,993 1,300
Interest and amortization of debt
costs ........................... 5,248 5,955 15,350 16,951
------------ ------------ ------------ -----------
Total costs and expenses ........... 96,191 108,143 258,344 306,211
------------ ------------ ------------ -----------
Income (loss) before income taxes .. (13,138) 5,390 (19,762) 9,211
Income tax (benefit) expense ....... (4,597) 2,367 (6,917) 3,862
------------ ------------ ------------ -----------
Net income (loss) .................. $ (8,541) $ 3,023 $ (12,845) $ 5,349
============ ============ ============ ===========
Weighted average shares outstanding:
Basic ........................ 13,347,221 13,332,840 13,343,954 13,322,990
============ ============ ============ ===========
Diluted ...................... 13,347,221 13,371,247 13,343,954 13,364,251
============ ============ ============ ===========
Earnings per share:
Basic ........................ $ (0.64) $ 0.23 $ (0.96) $ 0.40
============ ============ ============ ===========
Diluted ...................... $ (0.64) $ 0.23 $ (0.96) $ 0.40
============ ============ ============ ===========
Dividends per share .......... $ 0.00 $ 0.01 $ 0.02 $ 0.03
============ ============ ============ ===========
See notes to condensed consolidated financial statements.
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DYERSBURG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine Months Ended
July 3, July 4,
1999 1998
----------- ----------
OPERATING ACTIVITIES
Net income (loss) ....................................................... $(12,845) $ 5,349
Adjustments to reconcile to net cash provided by (used in) operating
activities:
Depreciation and amortization ...................................... 15,303 15,543
Write-down of fixed assets ......................................... 6,970
(Increase) decrease in accounts receivable, net .................... 14,586 (8,639)
(Increase) decrease in inventory ................................... 1,768 (5,134)
(Decrease) in trade accounts payable ............................... (9,349) (9,453)
Other-net .......................................................... (920) (9,015)
------- -------
Net cash provided by (used in) operating activities ............ 15,513 (11,349)
INVESTING ACTIVITIES
Capital expenditures .................................................... (6,514) (15,378)
Other-net ............................................................... (4,414) (1,219)
-------- --------
Net cash used in investing activities .......................... (10,928) (16,597)
FINANCING ACTIVITIES
Net borrowings (repayments) on long-term obligations .................... (4,433) 26,936
Dividends paid .......................................................... (266) (399)
Issuance of common stock ................................................ 21 723
-------- --------
Net cash (used in) provided by financing activities ........... (4,678) 27,260
-------- --------
Net decrease in cash .......................................... (93) (686)
Cash at beginning of period ................................................ 265 948
-------- --------
Cash at end of period ...................................................... $ 172 $ 262
======== ========
See notes to consolidated condensed financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION
July 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 first 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 nine months
ended July 3, 1999, the effect of the change was to reduce the net loss by
approximately $228,000, or $0.02 per share and $683,000, or $0.05 per share,
respectively.
NOTE C--INVENTORIES
July 3, October 3,
1999 1998
-------- ----------
(in thousands)
Raw Materials ................................................................ $13,096 $15,071
Work in Process .............................................................. 11,058 15,218
Finished Goods ............................................................... 16,926 12,039
Supplies and Other ........................................................... 2,299 2,819
------- -------
$43,379 $ 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 Nine Months Ended
------------------- -----------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------------- ------------- ----------- -----------
(in thousands, except share and per share data)
Numerator for basic and diluted
earnings per share--net income
(loss) ........................... $ (8,541) $ 3,023 $ (12,845) $ 5,349
Denominator:
Denominator for basic earnings
(loss) per share--weighted
average shares .................. 13,347,221 13,332,840 13,343,954 13,322,990
Effect of dilutive securities:
Employee Stock Options .......... -- 38,407 -- 41,261
------------ ----------- ------------ -----------
Denominator for diluted
earnings (loss) per share --
adjusted weighted average
shares .......................... 13,347,221 13,371,247 13,343,954 13,364,251
============ =========== ============ ===========
Basic earnings (loss) per
share ........................... $ (0.64) $ 0.23 $ (0.96) $ 0.40
============ =========== ============ ===========
Diluted earnings (loss) per $ (0.64) $ 0.23 $ (0.96) $ 0.40
share ........................... ============ ============ ============ ===========
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.
During January 1999, the Company reduced its line of credit on the
Revolving Credit Facility from $110 million to $90 million. The reduction did
not impact the Company's level of
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available credit computed as of July 3, 1999, but reduced certain commitment
fees charged on unused lines of credit.
In April, May and August 1999, the Company amended its Credit
Agreement, which includes its Term Loan and Revolving Credit Facility. The
amendments waive certain financial covenants for the fiscal quarters ended
April 3, 1999 and July 3, 1999 through August 31, 1999, increase the borrowing
rate on advances during periods where the Company's Adjusted Funded Debt
Coverage Ratio exceeds 5.0:1.0, and require the Company to engage an appraisal
firm or firms to appraise the inventory and property, plant and equipment.
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 fourth 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.
NOTE F - SUBSEQUENT EVENTS
On August 4, 1999, the Company and certain of its subsidiaries
received a commitment from Congress Financial Corporation (Southern) and
BankBoston, N.A. to provide a revolving credit, term loan and letter of credit
facility in an aggregate principal amount of up to $110,000,000. It is
anticipated that the proceeds from this facility will be used to repay amounts
outstanding under the Company's existing Credit Agreement and to provide for
the Company's working capital needs. The Company anticipates consummating this
financing on or before August 31, 1999, however, there can be no assurance that
such financing will be consummated. The Company anticipates recording an
extraordinary charge in the fourth quarter 1999 for the write-off of existing
deferred financing costs of approximately $2.1 million.
NOTE G -- SHAREHOLDER RIGHTS PLAN
In June, 1999 the Board of Directors adopted a Shareholder Rights
Plan. Under the plan, shareholders of common stock received as a divided one
preferred stock purchase right for each share of common stock held (the "Right"
or "Rights"). Each Right, when exercisable, will entitle the registered holder
to purchase one one-hundredth of a share of new Series A Junior Preferred Stock
at an exercise price of $12 per Right, subject to certain adjustments. The
Rights are not presented in separate certificates and are only exercisable upon
a person's or group's acquisition of, or commencement of a tender or exchange
offer for, 15% or more of the Company's Common Stock ("Acquiring Party"). The
Rights are also exercisable in the event of certain mergers or asset sales
involving more than 50% of the Company's assets or earning power. Upon becoming
exercisable, each Right will allow the holder (other than the Acquiring Party)
to buy either securities of the Company or securities of the acquiring company
having a value twice the exercise price of the Rights. The Rights expire on
June 3, 2009 and are redeemable by the Board of Directors at $.001 per Right.
The Rights are exchangeable by the Board of Directors at an exchange ratio of
one share of common stock per Right at any time after the Rights become
exercisable.
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NOTE H - RESTRUCTURING CHARGES
During 1999, the Company announced the consolidation of certain
manufacturing facilities. The consolidation was accomplished through a
reduction of the weekend operations at the Company's Dyersburg, Tennessee
facility subsidiary, closing of the Company's facility in Hamilton, North
Carolina and the elimination of yarn spinning operations at the Company's
Trenton, Tennessee facility. Restructuring charges of $10,993,000 were charged
to operations during the third quarter 1999 as a result of eliminating the
Hamilton and Trenton operations. These restructuring charges represent a
write-down to net realizable value of $6,970,000 for property, plant and
equipment which are either held for sale or abandoned as a result of the
consolidation.
The Company has also recorded severance related expenses associated
with terminated employees of $4,023,000. Over 500 hourly and salaried employees
have been notified of their terminations. During the third quarter of fiscal
1999, $353,000 was paid for severance and related fringe benefits, resulting in
a balance in accrued restructuring charges of $3,670,000 at July 3, 1999.
Substantially all of the remaining balance in these restructuring charges will
be paid in the next six months. The Company believes cost savings associated
with the closing of certain facilities and the resulting consolidation of
manufacturing should exceed $9 million annually.
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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 experienced accelerating consolidation and excess supply 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 sourcing 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 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 and into fiscal 2000. In
response to these business conditions, Dyersburg has adopted a strategy to
broaden its price point offerings, reduce costs, and provide a continuous flow
of value-added and differentiated products to remain efficient and competitive.
The Company believes 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 July 3, 1999, decreased by 27% to
$83.0 million versus $113.5 million for the same quarter of the prior year. Net
sales for the nine months ended July 3, 1999, decreased by 24% 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
14.7% and 13.9% versus 18.8% and 17.7% for the same periods 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 facilities. The effect of the change was a decrease in
depreciation expense in the third quarter of 1999 of approximately $350,000 and
year-to-date of $1,050,000. 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 July 3, 1999, the effect of the change
was to reduce the net loss by approximately $228,000, or $0.02 per share and
$683,000, or $0.05 per share, respectively.
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. The
Company believes garment packaging, whereby the Company converts fabric into a
finished garment, has provided new opportunities for fabric sales.
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During 1999, the Company announced the consolidation of certain
manufacturing facilities. The consolidation was accomplished through a
reduction of the weekend operations at the Company's Dyersburg, Tennessee
facility subsidiary, closing of the Company's facility in Hamilton, North
Carolina and the elimination of yarn spinning operations at the Company's
Trenton, Tennessee facility. Restructuring charges of $10,993,000 were charged
to operations during the third quarter 1999 as a result of eliminating the
Hamilton and Trenton operations. These restructuring charges represent a
write-down to net realizable value of $6,970,000 for property, plant and
equipment which are either held for sale or abandoned as a result of the
consolidation. The Company is actively marketing such assets held for sale
through the use of internal sources and outside agents. The timing of the
disposal of these assets is not easily determined, but management of the
Company does not believe any significant sales will likely occur within one
year.
The Company has also recorded severance related expenses associated
with terminated employees of $4,023,000. Over 500 hourly and salaried employees
have been notified of their terminations. During the third quarter of fiscal
1999, $353,000 was paid for severance and related fringe benefits, resulting in
a balance in accrued restructuring charges of $3,670,000 at July 3, 1999.
Substantially all of the remaining balance in these restructuring charges will
be paid in the next six months. The Company believes cost savings associated
with the closing of certain facilities and the resulting consolidation of
manufacturing should exceed $9 million annually. The Company believes
approximately $1 million of such amount will represent an annual reduction in
depreciation expense. The Company will continue to evaluate further cost
reductions during the fourth quarter of fiscal 1999.
The Company also recorded a non-recurring charge of $1.3 million for
restructuring charges in the third quarter of fiscal 1998. These restructuring
charges represented severance-related expenses associated with terminated
employees. During fiscal 1998, $727,000 was paid for severance and related
fringe benefits, resulting in a balance in accrued restructuring charges of
$575,000 at fiscal year end. During the first, second and third quarters of
fiscal 1999, approximately $77,000, $326,000 and $47,000, respectively, was
paid for severance and related fringe benefits; resulting in a balance in
accrued restructuring charges of $498,000, $172,000 and $125,000, 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 $125,000 will be paid in the next
three months.
Selling, general and administrative expenses increased by 4% for the
third quarter, but decreased 7% year-to-date in 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 10.9% for the third quarter and 11.1% year-to-date for
fiscal 1999 versus 7.7% and 9.0%, respectively, for the same periods in fiscal
1998. This percentage increase primarily resulted from a decline in sales. The
Company believes cost savings initiatives completed in the third and fourth
quarters of fiscal 1999 should reduce selling, general and administrative
expenses by over $3 million annually which is expected to favorably impact the
ratio of selling, general and administrative expenses as a percent of sales
beginning in the first quarter of fiscal 2000.
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Interest expense in the third quarter of fiscal 1999 of $5.2 million
and year-to-date of $15.3 million was lower than that of the same periods of
fiscal 1998 due to reduced borrowing levels. The effective tax rate for the
third quarter and year-to-date fiscal 1999 was 35%.
Net loss for the quarter ended July 3, 1999 was $8.5 million, or $0.64
per share, versus net income of $3.0 million, or $0.23 per share, for the same
period in fiscal 1998. For the nine months ended July 3, 1999, the net loss was
$12.8 million, or $0.96 per share, versus net income of $5.3 million, or $0.40
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 13,347,000 and 13,344,000, respectively.
Liquidity and Capital Resources
Working capital and the current ratio decreased to $16.6 million and
1.2:1 at July 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 to current liabilities. The
Company's debt-to-capital ratio was 68.0% at July 3, 1999, compared to 65.6% at
October 3, 1998. See discussion below and Note E of the Notes to Condensed
Consolidated Financial Statements.
Net receivables of $56.8 million at July 3, 1999, decreased from the
level at October 3, 1998, due to reduced sales levels. Inventories decreased to
$43.4 million at the end of the third quarter of fiscal 1999 from $45.1 million
at the end of fiscal 1998.
Capital expenditures for the nine months ended July 3, 1999, were $6.5
million versus $15.4 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 million in fiscal 1999.
The Company has outstanding $125,000,000 principal amount of 9.75%
Senior Subordinated Notes due September 1, 2007 (the "Subordinated Notes").
These Subordinated Notes are unsecured senior subordinated obligations and are
subordinated in right of payment to the prior payment in full of all senior
indebtedness, including the indebtedness under the Company's Credit Facility
and the industrial revenue bonds. The proceeds of the Subordinated Notes,
together with borrowings under the Credit Facility, were used to acquire the
common stock of Alamac and retire outstanding senior indebtedness.
The Company is party to a Credit Agreement, consisting of a $90
million revolving credit facility and a $36.9 million term loan facility.
Borrowings under the Credit Agreement bear interest at either LIBOR plus a
specified margin between 0.75% and a 3.25%, or at the lender's adjusted base
rate, at the Company's option. The Company is required to maintain compliance
with certain financial covenants under the Credit Agreement, including
covenants relating to minimum net worth and interest ratio coverage.
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As a result of the decline in operating results, the Company was not
in compliance with certain financial and other covenants at April 3 and July 3,
1999. The Company has entered into an amendment to the Credit Agreement which
waives the covenants for the quarters ended April 3 and July 3, 1999. 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
fourth 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. The waiver currently
expires on August 31, 1999 and there can be no assurance that further waivers
can be obtained. The Credit Agreement continues to be the Company's primary
source of liquidity. The Company continues to access its Revolving Credit
Facility and has not realized any reduction in its borrowing availability.
On August 4, 1999, the Company and certain of its subsidiaries
received a commitment from Congress Financial Corporation (Southern) and
BankBoston, N.A. for a revolving credit, term loan and letter of credit
facility in an aggregate principal amount of up to $110,000,000 to replace the
Company's current credit facility and to support the Company's working capital
and general corporate needs. If obtained, the Company believes borrowings under
the facility would be sufficient to fund the Company's liquidity needs at least
through the end of fiscal 1999. However, the commitment is subject to various
conditions and there can be no assurance the Company will be able to consummate
the financing or obtain a substitutive facility on terms acceptable to the
Company.
During the third quarter and including July, 1999, the Company
terminated all of its outstanding interest rate hedge agreements. The cost to
unwind these agreements was insignificant. Presently, the Company has $125
million of its debt at a fixed rate, with the remaining balance of the Term
Loan and Revolving Credit Facility bearing interest at a floating rate of
interest.
Year 2000
The Company determined that it was necessary 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.
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's business application programs are currently compliant
and the Company is substantially complete with its Year 2000 Project. 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 have not been and are not
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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
to 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.
Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
This Current Report on Form 10-Q includes, and other communications
from the Company may include, forward-looking statements subject to various
assumptions regarding the Company's operating performance that may not be
realized and which are subject to significant known and unknown business,
economic and competitive uncertainties and contingencies, many of which are
beyond the Company's control. Consequently such matters should not be regarded
as a representation or warranty by the Company that such matters will be
realized or are indicative of the Company's financial condition or operating
results for future periods. Actual results may differ materially from those
contemplated by any forward-looking statement. These forward-looking statements
are being made in reliance upon the "safe harbor" provisions of The Private
Securities Litigation Reform Act of 1995.
The Company's liquidity, capital resources and results of operations
are subject to a number of risks and uncertainties including, but not limited
to, the following: the ability of the Company to consummate adequate financing
arrangements; risks associated with the Company's use of substantial leverage,
restrictions imposed by the terms of the Company's indebtedness; adverse
developments with respect to the Company's liquidity or results of operations;
the ability of the Company to respond to competitive pressures which may affect
the nature and viability of the Company's business strategy; the ability of the
Company to develop new products; trends in the economy as a whole which may
affect consumer confidence and consumer demand for the types of goods produced
by the Company; the seasonal nature of the Company's business; the ability of
the Company to predict consumer demand as a whole, as well as demand for
specific goods; changes in the cost and availability of raw materials; the cost
and availability of labor; governmental regulation and trade policies with
foreign nations; and the ability to effect conversions to new technological
systems, including becoming Year 2000 compliant.
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of shareholders.
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ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Exhibits:
10 - Material Contracts
(a) Amendment Number 4 to Credit Agreement among Dyersburg
Corporation (and certain of its subsidiaries) and Sun Trust
Bank, Atlanta, or Agents, dated June 18, 1999.
(b) Second Waiver Extension Agreement among Dyersburg Corporation
(and certain of its subsidiaries) and Sun Trust Bank,
Atlanta, or Agent and collateral Agent, dated August 13,
1999.
(c) Commitment Letter among Dyersburg Corporation (and certain of
its subsidiaries) and Congress Financial Corporation
(Southern) and BankBoston, N.A. dated August 4, 1999.
27 Financial Data Schedule (for SEC use only)
(b) The Corporation filed a Current Report on Form 8-K, effective June 3,
1999, regarding a shareholders rights agreement and an amended and
restated Charter.
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 17, 1999 /s/ William S. Shropshire, Jr.
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William S. Shropshire, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
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