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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 4, 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, Par Value $.01/Share New York Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of December 9, 1997, 13,321,899 shares of common stock were outstanding. The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $123,694,765 based on the closing price of such
stock on the New York Stock Exchange (NYSE) on December 9, 1997, assuming, for
purposes of this report, that all executive officers and directors of the
registrant are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
PART III
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on January 28, 1998, are incorporated by reference into
Items 10, 11, 12 and 13.
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DYERSBURG CORPORATION
FORM 10-K REPORT
TABLE OF CONTENTS
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PART I ...........................................................................................................4
ITEM 1. BUSINESS........................................................................................4
General.........................................................................................4
Products........................................................................................4
Manufacturing/Seasonality.......................................................................5
Sales and Marketing.............................................................................7
Inventory Management............................................................................7
Research and Development........................................................................7
Raw Materials...................................................................................8
Competition.....................................................................................8
Governmental Regulation.........................................................................8
Employees.......................................................................................9
Forward-Looking Statements/Risk Factors.........................................................9
Executive Officers of the Registrant...........................................................10
ITEM 2. PROPERTIES.....................................................................................11
ITEM 3. LEGAL PROCEEDINGS..............................................................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................12
PART II..........................................................................................................13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......................................................13
Market Information.............................................................................13
Holders 13
Dividends......................................................................................13
ITEM 6. SELECTED FINANCIAL DATA........................................................................14
ITEM 7. MANAGEMENT' S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................15
Results of Operations..........................................................................15
Liquidity and Capital Resources................................................................16
Seasonality....................................................................................17
Inflation......................................................................................17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................................................34
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<TABLE>
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PART III.........................................................................................................34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................34
ITEM 11. EXECUTIVE COMPENSATION........................................................................34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................................34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................34
PART IV..........................................................................................................35
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K...........................................................................35
SIGNATURES.......................................................................................................36
INDEX TO EXHIBITS................................................................................................37
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PART I
ITEM 1. BUSINESS
GENERAL
Dyersburg Corporation (the "Company") is a leading manufacturer of
knit fleece, jersey and stretch fabrics sold principally to domestic apparel
producers. The Company's fleece fabrics are used to produce (i) outerwear
apparel suitable for outdoor recreational activities, as well as casual
sportswear; (ii) children's and women's sportswear, including sweatshirts and
sweatpants; (iii) infant blanket sleepers and (iv) blankets and throws. The
Company's jersey fabrics are used to produce a broad range of women's and
children's lightweight apparel, including tops and shorts. The Company's
stretch fabrics are used to produce a variety of activewear, including
dancewear, swimwear, biking and running garments, recreational and casual
sportswear, and intimate apparel. The Company's manufacturing operations are
vertically integrated, beginning with the conversion of fiber into yarn and
knitting, dyeing and finishing the fabric in a wide range of styles and colors.
The Company's fabrics are used in apparel marketed by leading brands such as
Calvin Klein, Columbia, Health-Tex, Liz Claiborne, Osh Kosh B'Gosh, Patagonia,
Polo, Tommy Hilfiger and William Carter; and sold to catalog merchants and
specialty stores such as L.L. Bean and Eddie Bauer, department stores and
national chains.
The Company was formed in 1929 and, through the early 1990s, marketed
its fabrics to apparel manufacturers that supplied children's and women's
apparel. In 1992, the Company began implementing a strategy of broadening its
line of higher margin, value-added knit fabrics, including outerwear fleece and
stretch fabrics, and targeting manufacturers of brand name apparel, catalog
merchants, specialty stores, department stores and national chains. To support
this shift in strategy, over the past several years the Company has
substantially upgraded its manufacturing operations and has significantly
increased its investment in marketing, research and development and customer
service capabilities.
On August 27, 1997, the Company acquired AIH Inc. ("Alamac"), a
subsidiary of WestPoint Stevens Inc. ("WestPoint Stevens") (the "Acquisition").
Formed in 1946, Alamac is a leading manufacturer of interlock, jersey, pique
and other knit fabrics sold primarily to domestic apparel producers. Alamac's
interlock fabrics are used to produce men's, women's and children's turtlenecks
and women's sportswear. Alamac's pique fabrics are used to produce a variety of
casual wear, including golf and polo shirts. Similar to the Company's other
manufacturing operations, Alamac's manufacturing operations are vertically
integrated.
The Company is in the process of integrating Alamac's sales and
marketing personnel and other resources with the Company's existing operations
to establish coordinated product development, marketing and customer service
across its product lines for its combined customer base. The Company is
consolidating certain general and administrative activities, where appropriate,
to eliminate redundancies and exploit economies of scale. In addition, the
Company intends to invest in Alamac's manufacturing operations to improve
Alamac's manufacturing productivity.
PRODUCTS
The Company's products are divided into six principal categories:
fleece, interlock, jersey, pique, rib and stretch.
Fleece. The principal uses of the Company's fleece fabrics are in
manufacturing outerwear, children's and women's activewear and infant blanket
sleepers. The Company's fleece fabrics are made of acrylic, polyester, cotton
or blends of these fibers. The fabric is dyed and undergoes a series of
finishing and abrading processes by which a surface is brushed or "napped" to
give the fabric the "hand" or feel associated with fleece.
Outerwear Fleece. In 1992, the Company introduced a new line
of outerwear fleece designed for use in recreational and casual
sportswear apparel products. In 1993, this product line was
complemented
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by the introduction of Dyersburg E.C.O.(TM), outerwear fleece made of
yarn using fibers from recycled plastics. The Company's variety of
outerwear fleece fabrics has grown significantly, with new fabric
weights, blends, fiber configurations and finishes that promote
functionality. The Company's outerwear fleece products are engineered
for water repellency, wickability, moisture vapor transport and
warmth. The Company's branded outerwear fleece products have grown to
include Kinderfleece targeted to children's outerwear, Citifleece
targeted to adult outwear, Dyersburg E.C.O. Lite, a lighter weight
E.C.O. product, and Chamee(TM), a new microdenier product line.
Garments manufactured from these products are primarily sold to
catalog merchants and specialty retailers.
Other Fleece Products. Fleece fabrics sold to the children's
activewear market, principally sweatshirts and sweatpants, are made of
100% acrylic fibers or polyester/cotton blends. Acrylic's low cost,
ability to be dyed brighter colors and low shrinkage are of particular
importance to the children's activewear market. Fleece fabrics sold to
manufacturers of women's activewear are primarily made either of 50%
polyester/50% cotton blends or polyester/cotton blends with a higher
cotton content. In recent years, there has been increased use in
activewear apparel of polyester/cotton blends, which management
believes is attributable to increased consumer demand for natural
fibers, as well as the greater receptivity of these fabrics to
printing compared to 100% acrylic fabrics. Polyester/cotton blends are
also typically softer and less likely to "pill" than 100% synthetics,
while still offering less fabric shrinkage than 100% cotton products.
The Company's remaining major fleece fabric product
categories are fabrics used to manufacture infant blanket sleepers and
for home furnishings. The demand for infant blanket sleepers is
primarily attributable to its fire retardant characteristics. The
Company's Maison Fleece(TM) brand blankets and throws are made from
the Company's outerwear fleece fabrics for sale to the growing home
furnishings market.
Interlock. Interlock is made from 100% cotton ring spun and
cotton/polyester blends. Interlock is used primarily in men's, women's and
children's turtlenecks and women's sportswear. Interlock is considered one of
the leading base fabrications for domestic knit fabric production. The Company
believes that the recent addition of this product line resulting from the
Acquisition will present significant cross-selling opportunities.
Jersey. The Company markets a line of jersey fabrics for use in a
broad range of women's and children's lightweight apparel, principally tops,
T-shirts and shorts. Jersey is a flat-knit fabric, which is typically made from
a polyester/cotton blend or from 100% cotton fibers and, unlike fleece, is not
surface-finished. Jersey fabrics are also generally lighter in weight than
fleece. The Company produces jersey fabric in tubular and open width form.
Pique. Pique is a textured knit and is the predominant fabric used in
men's golf shirts. Fabric for knit collars and cuffs manufactured by the
Company are the other significant ingredients necessary to participate in the
golfwear category.
Rib. Rib is a stretch fabric, used primarily in tops. The stretch
results from the fabric construction, rather than the use of spandex. Rib
continues to be an important fashion fabric for branded and mass merchant
womenswear, and another important addition to the Company's product offerings
as a result of the Acquisition.
Stretch. Stretch fabrics consist of custom formulations of cotton,
spandex, nylon and other synthetic yarns designed for comfort, performance and
styling. To produce a variety of shades and patterns, stretch fabrics may be
knit from dyed yarns, dyed as cloth, sold to independent printers for printing
or garment-dyed by the customer. These fabrics are used in a variety of fashion
and activewear products, including dancewear, swimwear, biking and running
garments, recreational and casual sportswear and intimate apparel. The majority
of these fabrics are used by leading manufacturers to produce higher-priced
branded sportswear products. A new stretch product, Synsation, was introduced
in late 1996 aimed at the swimwear market.
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MANUFACTURING/SEASONALITY
To support the Company's strategy of broadening its line of
value-added fabrics and to increase its manufacturing efficiencies and reduce
manufacturing costs, the Company has invested significantly in its
manufacturing operations. The Company has updated its yarn manufacturing
facilities resulting in a reduction in the production of off-quality yarns and
a decrease in the labor component of its manufacturing costs. The Company's
dyeing and finishing operations have also been significantly expanded and
redesigned to accommodate the growing sales of outerwear fleeces and
performance cottons. As a result of its plant modernization program, the
Company has improved its ability to produce high quality, competitively priced
fabrics and to be versatile and flexible with respect to the weight, gauge and
composition of its fabrics. The Company's yarn spinning, knitting, dyeing and
finishing equipment can be used with a variety of fibers and blends to meet
shifts in consumer demand.
Knitted fabrics are made almost entirely from yarns containing
acrylic, cotton or polyester fibers or blends of these materials. These fibers
are blended, if required, carded to disentangle locks and straighten individual
fibers and drawn to produce continuous untwisted strands called "slivers." The
slivers are spun, drawn and twisted to produce yarn. The Company produces the
majority of its yarns, but also purchases yarn from a number of vendors. The
Company maintains several sources for branded and non-branded spandex and
synthetic blend yarns. The yarn is subsequently knit into fabric known as
"greige" or undyed fabric. After knitting is completed, the greige fabric is
dyed in computer-controlled, pressurized dyeing machines. Fabric dyeing is the
most time-consuming operation in fleece fabric manufacturing, with dyeing
cycles ranging from four to twelve hours, depending on the fabric and color
dyed. Efficiency and quality controls implemented as part of a plant
modernization program and new equipment have increased the Company's ability to
match colors and reduce energy costs and are expected to reduce the time
consumed in the dyeing process, as well as the overall production time for the
Company's fabrics. The Company is able to dye certain of its yarns, as well as
fabric, which allows it to produce fabrics in an unlimited variety of stripes
and patterns.
The Company finishes fleece fabric surfaces by napping or utilizing
other processes. Fabrics are napped by being fed through machines that fluff
one side of the fabric with rotating wire brushes, and then finished to produce
the distinctive pile and feel of fleece through Company-developed processes
that polish, raise and shear the fibers. Jersey fabric is a smooth, flat-knit
fabric that is dyed but is not surface-finished. The Company also produces pile
finished fleece fabrics, where a special knit construction produces an
unusually long nap. This deep "pile" can be "tumbled" in rotary dryers to
create a "sherpa" look; embossed, where patterns are cut into the pile; or
sheared, where the fibers are uniformly cut to form a very dense, compact
fabric with a smooth surface. In addition, with a special knit construction,
fabrics produced with any of these finishing techniques can be napped on both
sides. The Company also offers fabrics, both fleece and jersey, that are
mechanically compacted to reduce the wash shrinkage of garments.
The Company has two manufacturing facilities in Dyersburg, Tennessee,
one facility in each of Trenton and Cleveland, Tennessee and one facility in
each of Lumberton, Elizabethtown, Clinton and Hamilton, North Carolina. The
Company currently operates three shifts per day, seven days a week at each of
its facilities. The original Dyersburg facility spins 100% synthetic (acrylic
or polyester) and 50% polyester/50% cotton yarns. The Trenton facility spins
100% cotton yarns as well as cotton/synthetic blends. These yarns are used
along with yarns purchased from outside sources to knit fleece and jersey
fabrics at the Dyersburg knitting facility prior to dyeing and finishing. The
Company's facility in Cleveland, Tennessee uses the Company's yarn as well as
purchased yarn from outside sources to knit, dye and finish stretch and lining
fabrics.
The Clinton facility produces approximately 60% of Alamac's cotton and
polyester needs with the remaining requirements obtained from outside vendors.
All yarn dyeing requirements of Alamac are produced at the Elizabethtown
facility and shipped to the Lumberton and Hamilton facilities where yarns are
knitted into fabrics and finished.
Although the capacity at the Company's facilities varies by product
mix, the Company does not believe that significant capacity could be added
without additional capital investments in equipment. Management
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believes that the Company has the space to accommodate investment in equipment,
and equipment is available for purchase by the Company.
The Company's sales have historically had a pronounced seasonal
pattern with the majority of its sales occurring during its third and fourth
quarters. See "Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations."
SALES AND MARKETING
The Company maintains sales offices in New York, Chicago, Portland,
Seattle, Atlanta and Los Angeles. The Company employs sales representatives and
utilizes a network of independent sales agents coordinated through its
marketing organization in New York. In addition to calling on the Company's
customers, the Company's sales representatives attempt to create additional
demand for the Company's products by marketing directly to brand name clothing
designers and retailers.
The Company also maintains a resource center at its Elizabethtown
facility, where customers have access to a designer, six fully electronic
knitting machines and color and fabric libraries to facilitate the design and
development of apparel lines.
INVENTORY MANAGEMENT
The Company's customers typically negotiate their purchases from the
Company through informal purchase orders that specify their anticipated fabric
needs over periods as long as five months. The orders are revocable and serve
primarily to outline the customers' intentions over a specified term and permit
the Company to "block out" its production schedule. Although orders are subject
to cancellation by customers at any time before the Company receives color
specifications from the customers, fabric produced for canceled orders can
ordinarily be used to fill other orders. Because these informal purchase orders
are cancelable, the Company has no appreciable long-term backlog.
In order to facilitate its ability to respond quickly to customer
demands and due to the seasonal nature of the Company's business, the Company
puts substantial efforts into the management of its inventory. Based in part
upon the volume of informal customer purchase orders, the Company builds an
inventory of uncolored and basic color fabrics (such as blacks, whites and gray
heathers) during the Company's off-peak season. As customers determine their
precise needs, they provide the Company with firm orders for fabrics with
specific dyeing and finishing requirements. The Company's build-up of
inventory, together with its modern dyeing and distribution facilities, permits
the Company to quickly color, finish and ship fabric during the peak demand
season. In addition, the Company's ability to manage its inventory and to
efficiently dye and distribute its fabrics also enables the Company to produce
and ship fabrics not contained in inventory.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are coordinated
through the Company's marketing department and are directed toward maintaining
and improving the quality of the Company's products and the development of new
value-added products such as Dyersburg E.C.O., Synsation(TM), Kinderfleece(TM),
Citifleece(TM) and Maison Fleece to meet the changing needs of the knit fabric
market. Emphasis is placed on physical characteristics that provide competitive
differentiations between fabrics including "hand" or feel, warmth, fade
resistance and shrinkage reduction. The Company's research and development
activities are also focused on providing innovative stretch fabrics that will
meet the evolving needs of its customers, while developing new products to gain
entry in other markets. The Company was instrumental in developing products
from DuPont Lycra(R) spandex and DuPont Supplex(R) nylon to provide customers
with new types of performance fabrics that exhibit unique properties.
The costs of the Company's research and development activities are not
considered by management to be material to the results of operations or the
financial condition of the Company.
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RAW MATERIALS
The Company uses three primary fibers as raw material for producing
yarn: acrylic, polyester and cotton. Cotton makes up approximately 35%, acrylic
approximately 15%, and polyester approximately 45% of the raw material fiber
used in production. Cotton is an agricultural commodity, while acrylic and
polyester are petroleum based. These items are subject to market price
fluctuations, but supplies are not dependent on any single vendor, and
management believes that sources for materials will be adequate to meet
requirements. The Company purchases yarns from a number of vendors and
maintains several sources for branded and non-branded spandex and synthetic
blend yarns.
COMPETITION
The textile industry is extremely competitive and includes numerous
companies, no one of which is dominant in the industry. The Company and its
competitors market their products nationwide, as domestic shipping costs are
not a significant competitive factor. The Company's primary competition comes
from suppliers of knit fabric. The Company also competes with vertically
integrated apparel manufacturers that produce the fabric used in their apparel
products and with foreign manufacturers. The primary competitive factors in the
textile industry are product styling and differentiation, quality, customer
service and price. The importance of these factors is determined by the need of
particular customers and the characteristics of particular products.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling
and disposal of a variety of substances and wastes used in or resulting from
its operations and potential remediation obligations thereunder, particularly
the Federal Water Pollution Control Act, the Clean Air Act, the Resource
Conservation and Recovery Act (including amendments relating to underground
tanks) and the Comprehensive Environmental Response, Compensation and Liability
Act, commonly referred to as "Superfund" or "CERCLA." The Company has obtained,
and believes it is in compliance in all material respects with, all material
permits required to be issued by federal, state or local law in connection with
the operation of the Company's business as described herein.
The operations of the Company also are governed by laws and
regulations relating to workplace safety and worker health, principally the
Occupational Safety and Health Act and regulations thereunder which, among
other things, establish cotton dust, formaldehyde, asbestos and noise standards
and regulate the use of hazardous chemicals in the workplace. Alamac uses
resins containing formaldehyde in processing some of its products. Although the
Company does not use asbestos in the manufacture of its products, some of its
facilities contain some structural asbestos that management believes is all
properly contained.
Many of the manufacturing facilities owned by the Company have been in
operation for several decades. Historical waste disposal and hazardous
substance releases and storage practices may have resulted in on-site and
off-site remediation liability for which the Company would be responsible. In
addition, certain wastewater treatment facilities and air emission sources may
have to be upgraded to meet more stringent environmental requirements in the
future. Although the Company cannot with certainty assess at this time the
impact of future emission standards or enforcement practices under the
foregoing environmental laws and regulations and, in particular, under the 1990
Clean Air Act, upon its operations or capital expenditure requirements, the
Company believes that it is currently in compliance in all material respects
with applicable environmental and health and safety laws and regulations. The
Company is aware of certain environmental contamination at the Alamac
facilities. The Company estimates that the cost to remediate such contamination
will range from approximately $3.5 million to $5.0 million. Pursuant to the
Stock Purchase Agreement, WestPoint Stevens has agreed to indemnify the Company
for a portion of such costs.
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EMPLOYEES
At October 4, 1997, the Company employed approximately 3,850 people in
hourly, salaried, supervisory, management, and administrative positions. No
labor union represents any of the Company's employees and the Company believes
its relationship with its employees to be good.
FORWARD-LOOKING STATEMENTS/RISK FACTORS
This Form 10-K contains certain forward-looking statements regarding
the anticipated financial and operating results of the Company. The Company
undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is including the following
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. These factors,
many of which are beyond the Company's control, include substantial leverage,
restrictions imposed by terms of indebtedness, risks related to integration of
the Alamac operations, changes in the cost and availability of raw materials,
competition with other suppliers, the cost and availability of labor,
governmental regulation, governmental trade policies with foreign nations and
changes in demand or product mix.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding executive
officers of the Company as of October 4, 1997. All officers serve at the
discretion of the Board of Directors.
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Name Age Position
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T. Eugene McBride 54 Chief Executive Officer and Chairman
Jerome M. Wiggins 57 President and Chief Operating Officer
Janice L. Whitlock 46 President - Marketing
William S. Shropshire, Jr. 40 Executive Vice President, Chief
Financial Officer, Secretary and Treasurer
Ron Hester 54 President - Alamac
Jerry W. Miller 46 President - United Knitting
Stephen J. Dauer 56 Sr. Vice President - Sales
Paul L. Hallock 49 Vice President - Finance and Assistant
Secretary - Treasurer
Hunter Lee Lunsford, III 40 Vice President - Manufacturing
Jerry W. Patton 50 Vice President - Information Services
Margaret Schenck 49 Vice President - Operations/Customer
Development, United Knitting
Harry M. Harden 39 Vice President - Human Resources
</TABLE>
The following is additional information with respect to the
above-named executive officers.
Mr. McBride joined the Company in September 1988 as Executive Vice
President and was named President and Chief Operating Officer in January 1989.
He was named Chief Executive Officer, in September 1990 and Chairman of the
Board of Directors in July 1995. Prior to joining the Company, Mr. McBride was
Vice President - Operations at Pannill Knitting from 1986 to 1988 and Vice
President - Manufacturing at Buster Brown Apparel from 1980 to 1986.
Mr. Wiggins was elected President and Chief Operating Officer in July
1997 and previously served as President - Operations since January 1996. Mr.
Wiggins became a director of the Company in 1992. He joined the Company in
August 1989 as Vice President and Chief Financial Officer, Treasurer and
Secretary. Prior to joining the Company in 1989, he was Vice President of
Finance and Chief Financial Officer of V.F. Corporation, an apparel
manufacturer.
Ms. Whitlock, President - Marketing since December 1995, joined the
Company in September 1994 as Vice President of Merchandising. Previously, she
was Vice President of Merchandising at Flynt Fabrics and Burlington Industries.
Mr. Shropshire, a certified public accountant, joined the Company as
Executive Vice President, Chief Financial Officer, Secretary and Treasurer in
October 1997. For the previous five years, he was Chief Financial Officer and
Senior Vice President for Charter Bancshares, Inc.
Mr. Hester, President of Alamac since 1990, has served as Manager,
Vice President of Manufacturing, Plant Manager, and other positions within the
Company since 1963.
Mr. Miller joined the Company in August 1993 as Director of
Manufacturing and was named Vice President of Manufacturing in May 1994. He was
named President of United Knitting, Inc. ("UKI") in June 1997. Before joining
the Company, he was Director of Manufacturing with Sara Lee Products, which
included textiles and apparel manufacturing.
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Mr. Dauer became the Sr. Vice President - Sales in January 1996 after
joining the Company as Vice President - Marketing in June 1984. He had
previously been employed since 1966 by Burlington Industries and, in 1980,
became Vice President of Sales and Marketing - Women's Apparel in that
company's Knitted Fabric Division.
Mr. Hallock joined the Company in April 1977. He was named Assistant
Secretary in October 1978, Assistant Secretary - Treasurer in October 1981, and
Vice President - Finance in March 1987.
Mr. Lunsford joined the Company in August 1997 as Vice President -
Manufacturing. Prior to joining the Company, Mr. Lunsford served as Plant
Manager from February 1992 until February 1997 and General Manager from
February 1997 until August 1997 at Dan River, a textile manufacturer. While at
Dan River, Mr. Lunsford was responsible for certain apparel manufacturing
operations, plant and industrial engineering, purchasing, transportation, cost
and budgeting, and capital expenditures.
Mr. Patton joined the Company in 1966 in the production area. He was
named MIS Director in May 1990, Vice President - MIS in September 1993 and Vice
President - Administration in January 1996. Mr. Patton was named Vice President
- - Information Services in October 1997.
Ms. Schenck has been Vice President - Operations/Customer Development,
UKI, since January 1994, when United Knitting was acquired by the Company. For
more than five years prior to that time, she was Vice President -
Operations/Customer Service at United Knitting, Inc.
Mr. Harden, Vice President of Human Resources for the Company since
his appointment on October 1, 1997, has held various Human Resource positions
with WestPoint Pepperell, WestPoint Stevens and Alamac since 1980. His
responsibilities since 1989 have been as Vice Director of Human Resources for
the Alamac Division of WestPoint Stevens.
ITEM 2. PROPERTIES
The Company's business is conducted primarily through facilities
located in Dyersburg, Trenton and Cleveland, Tennessee and Clinton,
Elizabethtown, Hamilton and Lumberton, North Carolina. Each of these facilities
and the property on which they are located are owned by the Company. The
Company leases selling offices in New York, New York; Chicago, Illinois;
Seattle, Washington; Portland, Oregon; Atlanta, Georgia and Los Angeles,
California. The New York office contains approximately 13,000 square feet. The
Chicago, Seattle and Portland offices have approximately 700, 700 and 120
square feet, respectively. The Company also leases approximately 1,000 square
feet of office space in Cleveland, Tennessee for the corporate office of its
wholly-owned indirect subsidiary, IQUE, Inc.
The primary Dyersburg facility was built in 1929 with 275,000 square
feet of floor space. After several expansions, it now contains approximately
888,000 square feet of plant space situated on 30 acres of land. The knitting
facility (completed December 1993) encompasses approximately 155,000 square
feet situated on approximately 30 acres in the Dyersburg Industrial Park. The
floor space is distributed as follows: 683,000 square feet for manufacturing,
273,000 square feet for warehousing and distribution, 28,000 square feet for
offices and 60,000 square feet for maintenance shops and boiler space. A new
warehouse facility containing approximately 213,000 square feet will be
completed before the end of calendar year 1997.
The Trenton facility was built in the 1930s with approximately 94,000
square feet of floor space and has been expanded to approximately 188,000
square feet. The floor space is distributed as follows: approximately 98,000
square feet for manufacturing, approximately 61,000 square feet for
warehousing, approximately 24,000 square feet for office space and
approximately 5,000 square feet for maintenance and boiler space.
11
<PAGE> 12
The Cleveland facility was built in 1986 with approximately 70,000
square feet of floor space followed by a 38,000 square foot expansion in 1991.
A 45,000 square foot addition (primarily warehouse, distribution and laboratory
facilities) was completed in December 1994. A new 19,200 square foot expansion
is expected to be completed in 1998.
The Clinton facility was built in 1965 and contains approximately
367,000 square feet situated on approximately 48 acres of land. The
Elizabethtown facility was built in 1971 and contains approximately 193,000
square feet situated on approximately 148 acres of land. The Hamilton facility
was built in 1961 and contains approximately 383,000 square feet situated on
approximately 106 acres of land. The Lumberton facility was built in 1962 and
contains approximately 414,000 square feet situated on approximately 198 acres
of land.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various routine lawsuits arising out of the
conduct of its business, none of which are expected by the Company to have a
material adverse effect upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of fiscal 1997 ended October 4, 1997.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "DBG." The range of high and low sales prices of the Common
Stock during each quarter of the last two fiscal years are presented below:
<TABLE>
<CAPTION>
High Low
----------- -----------
<S> <C> <C> <C>
1997 First 7 1/4 5 3/8
Second 7 1/2 6 1/2
Third 8 5/8 7
Fourth 13 7/16 8 1/4
1996 First 6 1/4 4 1/4
Second 5 3 7/8
Third 5 1/2 4 3/8
Fourth 6 4 1/2
</TABLE>
HOLDERS
As of December 9, 1997, the Company had approximately 2,244
shareholders based on the number of record holders of the Company's Common
Stock and an estimate of the number of individual participants represented by
security position listings.
DIVIDENDS
During each quarter of fiscal 1997 and fiscal 1996, the Company
declared and paid regular quarterly cash dividends of $ .01 per share of Common
Stock.
The documents relating to the Company's debt instruments permit
dividends and certain other payments, including stock repurchases, by the
Company provided that such payments comply with certain restrictions. As of
October 4, 1997, the Company was in compliance with such financial covenants
and management of the Company does not believe that such restrictions are
likely to limit materially the anticipated future payments of dividends on the
Common Stock.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997(A) 1996 1995 1994(B) 1993
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except ratios, percentages and per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 250,193 $ 195,866 $ 199,413 $ 180,520 $ 151,283
Income before income taxes and
extraordinary loss 21,900 14,254 12,542 (c) 17,844 17,846
Income taxes 8,634 5,854 5,982 7,496 7,738
Income before extraordinary loss 13,266 8,400 6,560 10,348 10,108
Extraordinary loss (905) (d) --- --- --- (472)
Net income 12,361 8,400 6,560 10,348 9,636
PER SHARE OF COMMON STOCK:
Income before extraordinary loss $ 1.01 $ 0.62 0.46 0.74 $ 0.74
Extraordinary loss (0.07) --- --- --- (0.03)
Net income 0.94 0.62 0.46 0.74 0.71
Cash dividend 0.04 0.04 0.04 0.04 0.04
Stock range:
High 13 7/16 6 1/4 6 5/8 8 3/4 8 5/8
Low 5 3/8 3 7/8 4 1/4 6 3/8 5 1/2
Book value 7.61 6.75 6.08 5.65 4.80
Weighted average common
shares outstanding 13,155 13,643 14,196 14,010 13,573
CAPITAL EXPENDITURES AND DEPRECIATION:
Capital expenditures $ 14,041 $ 11,778 $ 12,816 $ 14,278 $ 6,632
Depreciation 11,742 9,573 10,001 8,630 7,948
STATISTICAL DATA:
Income before extraordinary item to average
shareholders' equity 14.05% 9.76% 7.90% 14.40% 17.10%
Inventory turnover (e) 5.69 (f) 5.20 5.96 5.74 6.22
Accounts receivable turnover (g) 5.75 (f) 5.63 5.53 5.68 5.89
Interest coverage (h) 3.93 3.31 3.03 4.58 5.14
Current ratio 2.69 4.37 3.79 3.65 4.01
SELECTED BALANCE SHEET DATA:
Working Capital $ 80,514 $ 52,083 $ 45,227 $ 47,219 $ 33,747
Total assets 366,814 195,007 188,872 194,192 148,040
Long-term obligations, excluding current
portion 203,450 80,950 76,800 87,276 64,900
Shareholders' equity 101,104 88,742 86,258 80,266 65,161
</TABLE>
(a) Fifty-three weeks. Includes operations of Alamac effective August 27, 1997.
(b) Includes operations of United Knitting effective January 19, 1994.
(c) Includes a pre-tax write-down of fixed assets of $2,153.
(d) Early extinquishment of debt negotiated with Alamac purchase.
(e) Cost of goods sold divided by average inventory.
(f) Excludes impact of Alamac.
(g) Net sales divided by average net accounts receivable.
(h) Net income before interest, taxes and extraordinary item divided by the sum
of annual interest and amortization of debt costs.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's fiscal year ends on the Saturday closest to September
30, which resulted in a fifty-three week fiscal year in 1997. The Company's
fiscal 1997 results are supported by the full year's operations of the
following subsidiaries: Dyersburg Fabrics Inc., UKI, and IQUE Inc. effective
April 18, 1996. The fiscal 1997 results also include six weeks of operations of
Alamac, which was acquired as of August 27, 1997.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales for this year totaled $250.2 million, up 28% from
$195.9 million for fiscal year 1996. These totals include six weeks of Alamac
sales of $26.8 million. Without the inclusion of the Alamac sales, sales
increased by 14.0%, or $27.5 million. The increase was primarily driven by
sales of the Company's value-added outerwear fleece fabrics, which increased by
approximately 48%, and sales of infant blanket sleepers, which increased by
approximately 38%. These increases were partially offset by decreased sales of
activewear acrylic and activewear cotton fabrics.
Gross Profit. Gross profit in fiscal 1997 increased to 22.9% of net
sales from 21.9% in the comparable period of the prior year. Exclusive of the
impact from Alamac, which has historically experienced gross margins of 11 to
14%, the Company's gross profit increased to 24.1%. This increase 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 as a percentage of sales for 1997 were 11.2% compared
to 11.5% for 1996. These expenses increased to $28.0 million in 1997 from $22.6
million in 1996. These increases were primarily due to a $2 million increase in
incentive compensation, profit sharing and sales bonus expense resulting from
the Company's increased profitability and a $700,000 increase in bad debt
expense resulting from increased reserves attributable to specific customer
accounts and the addition of Alamac.
Interest and Amortization of Debt Costs. Interest and amortization of
debt costs for 1997 was $7.5 million, compared to $6.2 million in 1996. In
August 1997, in conjunction with the acquisition of Alamac, the Company issued
$125 million in senior subordinated notes due 2007. With the issuance of the
new notes, the interest and amortization of debt costs increased during the
last month of the year by approximately $1.4 million.
Federal and State Income Taxes. Federal and state income taxes of $8.6
million for fiscal year 1997 and $5.9 million for the comparable period in 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
approximately 39.4% in 1997 from 41.1% in fiscal 1996 due to a reduction in
certain state taxes. The reduction in state taxes is expected to continue into
future periods.
Net Income. Income for fiscal 1997, before an extraordinary charge,
totaled $13.3 million, or $1.01 per share. During the fourth quarter, the
Company recorded an extraordinary charge of $905,000, or $0.07 per share,
related to the early extinguishment of debt in connection with the acquisition
of Alamac. Net income for fiscal 1996 was $8.4 million, or $0.62 per share.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales in fiscal 1996 decreased 1.8% to $195.9 million
from $199.4 million in fiscal 1995. This decrease resulted primarily from a
decreased demand for jersey and sleeper fabrics, partially offset by an
increase in sales of outerwear fleece fabrics.
15
<PAGE> 16
Gross Profit. Gross profit in fiscal 1996 increased to 21.9% of net
sales from 20.1% in fiscal 1995 as a result of a shift in the Company's product
mix to higher margin, value-added fabrics, 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 fiscal 1996 increased 5.2% to $22.6 million from
$21.5 million in fiscal 1995 and increased as a percentage of net sales to
11.5% in fiscal 1996 from 10.8% in fiscal 1995. This increase resulted
primarily from implementation of the Company's strategy to augment its
marketing, sales and customer service capabilities and, to a lesser degree,
increased promotions.
Interest and Amortization of Debt Costs. Interest and amortization of
debt costs for fiscal 1996 were unchanged from fiscal 1995 at $6.2 million.
Average outstanding debt and interest rates were substantially the same for
both fiscal years.
Federal and State Income Taxes. Federal and state income taxes of $5.9
million for fiscal 1996 and $6.0 million for fiscal 1995 were higher than the
federal statutory rate due to state income taxes and the non-deductibility of
goodwill amortization. The effective tax rate declined from 47.7% in fiscal
1995 to 41.1% in fiscal 1996, primarily due to a legal restructuring
implemented by the Company at mid-year which resulted in a reduction in certain
state taxes.
LIQUIDITY AND CAPITAL RESOURCES
Following the Alamac acquisition, the Company's primary capital
requirements are for working capital, debt service and capital expenditures.
Management believes that cash generated from operations, together with
borrowings available under the New Credit Facility, will be sufficient to meet
the Company's working capital and capital expenditure needs in the foreseeable
future.
Net cash provided by operating activities for fiscal 1997, 1996 and
1995 was $19.9 million, $13.6 million and $23.3 million, respectively. These
cash flows have been supplemented primarily by borrowings under the Company's
credit facilities. The average balances outstanding and the average interest
rates paid for 1997, 1996 and 1995 were approximately $46.3 million, $50.9
million, and $51.7 million, respectively, and 7.5%, 7.2%, and 7.1%,
respectively. The amount of additional borrowing available at October 4, 1997
was $48.5 million. Further reference is made in Note 6 to the consolidated
financial statements.
Working capital at October 4, 1997, was $80.5 million versus $52.1
million at September 28, 1996. The Company's current ratio was 2.7:1 and its
debt-to-capital ratio was 66.8% at October 4, 1997, compared to 4.4:1 and 47.7%
respectively, at September 28, 1996. Both ratios have been impacted by the
acquisition of Alamac. The current ratio declined due to the temporarily low
balance in accounts receivable which will continue to build an additional
$18-$20 million with no related increase in Alamac's current liabilities. The
debt ratio increased due to the new credit facilities undertaken to finance the
Alamac acquisition.
Net accounts receivables were $68.3 million as of October 4, 1997,
$25.9 million higher than September 28, 1996, due primarily to the inclusion of
Alamac's $24.1 million. Inventories increased from $23.2 million at September
28, 1996, to $52.2 million as of October 4, 1997, due to the inclusion of
Alamac's $32.2 million.
16
<PAGE> 17
SEASONALITY
The Company's business has a pronounced seasonal pattern with the
majority of sales occurring during the third and fourth fiscal quarters. The
following table sets forth the net sales and percentage of net sales for the
Company by fiscal quarter for the last three fiscal years.
<TABLE>
<CAPTION>
1997(1) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Quarter $ 38,793 17.4% $ 30,088 15.4% $ 40,679 20.4%
Second Quarter 51,038 22.8% 42,344 21.6% 48,370 24.2%
Third Quarter 68,383 30.6% 64,142 32.7% 57,022 28.6%
Fourth Quarter 65,135 29.2% 59,292 30.3% 53,342 26.8%
- --------------------------------------------------------------------------------------------------------------------
$ 223,349 100.0% $ 195,866 100.0% $ 199,413 100.0%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes Alamac sales for 1997. Alamac's seasonal swings are minimal with
sales percentages during the most recent first through fourth quarters being
22.8%, 25.2%, 27.0%, and 25.0%.
Due to this seasonal pattern of the Company's sales, inventories are
lowest at the end of the fiscal year and gradually increase over the following
six months in anticipation of the peak selling period. Receivables tend to
decline during the first fiscal quarter and are at their lowest point during
December through February. The net result is increased working capital
requirements from January through late in the fourth quarter.
Capital expenditures during 1997, 1996 and 1995 were $14.0 million,
$11.8 million, and $12.8 million, respectively. Cash outlays for capital
spending are anticipated to approximate $25 million in 1998. The Company
believes that cash flow from operations and the existing revolving credit
facility will be sufficient to meet operating needs and fund the capital
spending program.
INFLATION
Similar to other textile and apparel manufacturers, the Company is
dependent on the prices and supplies of certain principal raw materials
including cotton, acrylic and polyester fibers. During 1996, raw material
prices for polyester and acrylic stabilized after significant increases in 1995
and early 1996, while prices for cotton continued to increase. During 1997
prices for both cotton and polyester declined. The long-term impact of
subsequent raw material price fluctuations on the Company's performance is,
however, uncertain. The Company intends to support margins through continued
efforts to improve the product mix and improve product pricing as market
conditions permit.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements set forth below are included beginning on page 20.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors............................................................................ 19
Consolidated Balance Sheets as of October 4, 1997, and September 28, 1996................................. 20
Consolidated Statements of Income for the years ended October 4, 1997, and September 28, 1996, and
September 30, 1995................................................................................. 21
Consolidated Statements of Shareholders' Equity for the years ended October 4, 1997, September 28,
1996, and September 30, 1995....................................................................... 22
Consolidated Statements of Cash Flows for the years ended October 4, 1997, September 28, 1996, and
September 30, 1995................................................................................. 23
Notes to Consolidated Financial Statements................................................................ 24
Schedules:
Schedule II - Valuation and Qualifying Accounts............................................ 33
</TABLE>
All other financial statement schedules are omitted as the information is
not required or because the required information is presented in the
financial statements or the notes thereto.
18
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dyersburg Corporation
We have audited the accompanying consolidated balance sheets of
Dyersburg Corporation as of October 4, 1997 and September 28, 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended October 4, 1997. Our audits
also included the financial statement schedule listed in the Index at Item 8.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Dyersburg Corporation at October 4, 1997 and September 28, 1996,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended October 4, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Memphis, Tennessee
October 31, 1997
19
<PAGE> 20
Dyersburg Corporation
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
October 4, September 28,
1997 1996
---------- -------------
<S> <C> <C>
Assets
Current assets:
Cash ......................................... $ 948 $ 983
Accounts receivable, net of allowance for
doubtful accounts of $2,075 in 1997
and $1,500 in 1996 ........................ 68,290 42,427
Inventories .................................. 52,222 23,248
Prepaid expenses and other ................... 6,597 858
-------- --------
Total current assets ............................ 128,057 67,516
Property, plant and equipment, net .............. 152,523 67,758
Goodwill, net ................................... 78,277 59,097
Deferred debt costs and other, net .............. 7,957 636
-------- --------
$366,814 $195,007
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable ....................... $ 23,721 $ 8,296
Accrued expenses ............................ 14,758 6,700
Income taxes payable ......................... 1,564 437
Current portion of long-term obligations ..... 7,500 --
-------- --------
Total current liabilities ....................... 47,543 15,433
Long-term obligations ........................... 203,450 80,950
Deferred income taxes ........................... 8,459 8,765
Other liabilities ............................... 6,258 1,117
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 -
13,280,033 in 1997 and 13,154,508 in 1996 . 133 132
Additional paid-in capital ................... 41,985 41,460
Retained earnings ............................ 58,986 47,150
-------- --------
Total shareholders' equity ...................... 101,104 88,742
-------- --------
$366,814 $195,007
======== ========
</TABLE>
See accompanying notes.
20
<PAGE> 21
Dyersburg Corporation
Consolidated Statements of Income
(In thousands except per share data)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
October 4, September 28, September 30,
1997 1996 1995
---------- ------------- -------------
<S> <C> <C> <C>
Net sales ............................. $250,193 $195,866 $199,413
Cost of sales ......................... 192,802 152,884 159,245
General and administrative expenses ... 28,008 22,564 21,457
Interest and amortization of debt costs 7,483 6,164 6,169
-------- -------- --------
228,293 181,612 186,871
-------- -------- --------
Income before income taxes and
extraordinary loss ................. 21,900 14,254 12,542
Federal and state income taxes ........ 8,634 5,854 5,982
-------- -------- --------
Income before extraordinary loss ...... 13,266 8,400 6,560
Extraordinary loss, net of tax benefit (905) -- --
-------- -------- --------
Net income ............................ $ 12,361 $ 8,400 $ 6,560
======== ======== ========
Weighted average common and
common equivalent shares
outstanding ........................ 13,155 13,643 14,196
======== ======== ========
Earnings per share:
Income before extraordinary loss ... $ 1.01 $ 0.62 $ 0.46
Extraordinary loss ................. (0.07) -- --
-------- -------- --------
Net income ......................... $ 0.94 $ 0.62 $ 0.46
======== ======== ========
</TABLE>
See accompanying notes.
21
<PAGE> 22
Dyersburg Corporation
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at October 1, 1994 ........... $142 $46,821 $33,303 $ 80,266
Net income ........................... -- -- 6,560 6,560
Cash dividends paid ($.04 per share) . -- -- (568) (568)
---- ------- ------- --------
Balance at September 30, 1995 ........ 142 46,821 39,295 86,258
Net income ........................... -- -- 8,400 8,400
Cash dividends paid ($.04 per share) . -- -- (545) (545)
Acquisition and retirement of
1,051,275 shares of common stock .. (10) (5,404) -- (5,414)
Exercise of 9,555 stock options ...... -- 43 -- 43
---- ------- ------- --------
Balance at September 28, 1996 ........ 132 41,460 47,150 88,742
Net income ........................... -- -- 12,361 12,361
Cash dividends paid ($.04 per share) . -- -- (525) (525)
Acquisition and retirement of 27,000
shares of common stock ........... -- (160) -- (160)
Exercise of 152,525 stock options .... 1 685 -- 686
---- ------- ------- --------
Balance at October 4, 1997 ........... $133 $41,985 $58,986 $101,104
==== ======= ======= ========
</TABLE>
See accompanying notes.
22
<PAGE> 23
Dyersburg Corporation
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
October 4, September 28, September 30,
1997 1996 1995
---------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................... $ 12,361 $ 8,400 $ 6,560
Adjustments:
Extraordinary loss, net of tax benefit ..... 905 -- --
Depreciation ............................... 11,742 9,573 10,001
Amortization ............................... 2,136 2,029 2,029
Write-down of fixed assets ................. -- -- 2,153
Deferred income taxes and other ............ 847 554 (98)
Changes in operating assets and liabilities:
Accounts receivable ..................... (25,821) (5,507) 6,087
Inventories ............................. 4,487 (1,010) (1,601)
Trade accounts payable and other
current liabilities ................. 13,287 (758) (1,604)
Other ................................... (30) 288 (207)
--------- -------- --------
Net cash provided by operating activities ..... 19,914 13,569 23,320
INVESTING ACTIVITIES
Purchases of property, plant and equipment .... (14,041) (11,778) (12,816)
Purchase of AIH, Inc., net of cash acquired ... (127,679) -- --
Other ......................................... -- 187 108
--------- -------- --------
Net cash used in investing activities ......... (141,720) (11,591) (12,708)
FINANCING ACTIVITIES
Net borrowings (payments) on long-term
obligations ................................ 128,662 4,150 (9,400)
Deferred financing costs ...................... (6,697) -- --
Dividends paid ................................ (525) (545) (568)
Exercise of stock options ..................... 686 43 --
Acquisition of common stock ................... (160) (5,414) --
Other ......................................... (195) (203) (230)
--------- -------- --------
Net cash provided by (used in) financing
activities ................................. 121,771 (1,969) (10,198)
--------- -------- --------
Net (decrease) increase in cash ............... (35) 9 414
Cash at beginning of year ..................... 983 974 560
--------- -------- --------
Cash at end of year ........................... $ 948 $ 983 $ 974
========= ======== ========
</TABLE>
See accompanying notes.
23
<PAGE> 24
Notes To Consolidated Financial Statements
Dyersburg Corporation 1997 Annual Report
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Dyersburg Corporation and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates and assumptions.
Operations
The Company is a textile manufacturer of knit fabrics with customers
concentrated in the domestic apparel industry. The Company does not require
collateral for accounts receivable.
Intangible Assets
Goodwill, which consists of costs in excess of net assets acquired, is
amortized by the straight-line method over forty years. Deferred debt costs are
amortized by the interest method over the life of the related debt. Goodwill is
net of accumulated amortization of $17,100,000 and $15,193,000 and deferred debt
costs and other is net of accumulated amortization of $256,000 and $672,000 at
October 4, 1997 and September 28, 1996, respectively. The carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicated that goodwill was not recoverable, as
determined based on the estimated undiscounted cash flows of the entity acquired
over the remaining amortization period, the Company's carrying value of the
goodwill would be reduced by the estimated shortfall of cash flows.
Cash and Cash Equivalents
The Company considers cash equivalents to be temporary cash investments
with a maturity of three months or less when purchased.
Inventories
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
computed on the straight-line basis over the estimated useful lives of the
assets: buildings - 25 years; machinery and equipment - 5 to 15 years.
Income Taxes
The Company provides income taxes under the liability method.
Accordingly, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax purposes.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees and outside directors with an exercise price equal to the market value
of the shares at the date of grant. The Company accounts for stock option grants
in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees
and, accordingly, recognizes no compensation expense for the stock option
grants.
24
<PAGE> 25
Earnings Per Common Share
Earnings per common share is computed using the weighted average number
of common shares outstanding during each period, including common stock
equivalents, consisting of stock options calculated using the treasury stock
method, when dilutive.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS
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. Basic earnings per share presented under SFAS No. 128 will be computed
using the weighted average number of common shares outstanding and will be
substantially equivalent to earnings per share as previously reported. Diluted
earnings per share will include the dilutive effect of stock options in a manner
similar to that as previously reported.
In February 1997, the FASB issued, SFAS No. 129, Disclosure of
Information about Capital Structure. SFAS No. 129 establishes standards for
disclosing information about a company's capital structure. The adoption of SFAS
No. 129 is not expected to materially alter disclosures presently being
provided.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. The Statement establishes standards for the reporting and display of
comprehensive income and its components. The Statement requires that all items
that are income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The Company does not expect the
effect of adoption of Statement No. 130 to be material to the consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1997. The adoption of
the statement will affect only disclosures provided and will have no impact on
the Company's consolidated balance sheets or results of operations.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
2. BUSINESS COMBINATION
In August 1997, the Company acquired all the outstanding common stock
of AIH, Inc. from West Point Stevens, Inc. AIH, Inc., through its subsidiary,
Alamac Knit Fabrics, Inc. (collectively referred to as "Alamac") is a
manufacturer of knit fabrics sold primarily to domestic apparel producers. The
acquisition was accounted for using the purchase method of accounting. The
purchase price was $127,708,000, subject to adjustment for changes in pension
assets and liabilities subsequent to December 31, 1996. Under its previous
financing arrangements, Alamac sold its accounts receivable and, as a result,
the Company did not acquire Alamac's accounts receivable. Accordingly, the
Company will be required to finance approximately $40,000,000 to $45,000,000 of
additional working capital following the closing of the acquisition. The Company
used the net proceeds from the Senior Subordinated Notes (see Note 6), together
with borrowings under the Credit Agreement, 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. The total purchase price has been allocated as follows to the assets
acquired and liabilities assumed based on preliminary estimates of their fair
value as of the date of acquisition, which may differ from actual fair values.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Working capital $ 23,736
Property, plant and equipment 84,127
Goodwill 21,086
Other assets 3,859
Pension obligation (5,100)
---------
$ 127,708
=========
</TABLE>
25
<PAGE> 26
The operating results of Alamac are included in the Company's
consolidated statements of income from August 27, 1997, the acquisition date.
The following unaudited pro forma results of operations assume the Alamac
acquisition and related financing transactions occurred at the beginning of the
period presented. The pro forma results of operations do not purport to
represent what the Company's results would have been had such transactions in
fact occurred at the beginning of the years presented or to project the
Company's results of operations in any future period.
<TABLE>
<CAPTION>
Year Ended
------------------------------
Oct. 4, 1997 Sept. 28, 1996
------------ --------------
(In thousands, except per share data)
<S> <C> <C>
Pro forma
Net sales $468,556 $417,885
Income before extraordinary loss 13,422 2,184
Net income 12,517 2,184
Earnings per share:
Income before extraordinary loss $ 1.02 $ 0.16
Net income 0.95 0.16
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Oct. 4, 1997 Sept. 28, 1996
------------ --------------
(In thousands)
<S> <C> <C>
Raw materials ....... $18,243 $ 4,649
Work in process ..... 14,011 8,530
Finished goods ...... 17,180 9,145
Supplies and other .. 2,788 924
------- -------
$52,222 $23,248
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Oct. 4, 1997 Sept. 28, 1996
------------ --------------
(In thousands)
<S> <C> <C>
Land ............................. $ 2,378 $ 673
Buildings ........................ 68,884 32,612
Machinery and equipment .......... 145,678 88,370
-------- --------
216,940 121,655
Less allowance for depreciation .. 64,417 53,897
-------- --------
$152,523 $ 67,758
======== ========
</TABLE>
In 1995, the Company committed to replace certain spinning and drawing
machinery with leased equipment. Concurrently, the Company wrote down machinery
and equipment with original cost of $11,760,000 and accumulated depreciation of
$9,468,000. The write-down, less the proceeds from the sale of the assets,
resulted in a loss of $2,153,000.
26
<PAGE> 27
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
Oct. 4, 1997 Sept. 28, 1996
------------ --------------
(In thousands)
<S> <C> <C>
Accrued bonuses and commissions $ 5,565 $1,473
Workers' compensation 1,957 2,485
Accrued interest payable 1,934 636
Other 6,167 2,106
------- ------
$15,623 $6,700
======= ======
</TABLE>
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
Oct. 4, 1997 Sept. 28, 1996
------------ --------------
(In thousands)
<S> <C> <C>
Senior subordinated notes $125,000 $ --
Credit agreement 78,050 48,050
Industrial revenue bonds 7,900 7,900
Senior notes -- 25,000
-------- -------
210,950 80,950
Less current portion 7,500 --
-------- -------
$203,450 $80,950
======== =======
</TABLE>
In August 1997, the Company issued $125,000,000 principal amount of
9.75% Senior Subordinated Notes due September 1, 2007 (the "Subordinated
Notes"). These Subordinated Notes are unsecured senior subordinated obligations
and are subordinated in right of payment to the prior payment in full of all
senior indebtedness, including the indebtedness under the Credit Agreement and
the Industrial Revenue Bonds. The proceeds of the Subordinated Notes, together
with borrowings under the Credit Agreement, were used to acquire the common
stock of Alamac and retire outstanding Senior Notes (see Note 2).
On August 27, 1997, the Company entered into a Credit Agreement,
replacing its existing credit facility, consisting of a five-year $110,000,000
revolving line of credit (the "Revolver") and a five-year $50,000,000 amortizing
term loan (the "Term Loan"). Up to $12,000,000 of the amount available under the
Revolver may be used for the issuance of letters of credit. Borrowings under the
Credit Agreement bear interest at either LIBOR plus a specified margin between
0.75% and 2.75% or at the lender's adjusted base rate, at the Company's option
(8.23% at October 4, 1997). The balance under the Revolver is limited at all
times to a receivables and inventory borrowing base. The amount of additional
borrowings available at October 4, 1997 was $48,545,000. The Term Loan provides
for scheduled quarterly amortization such that $7,500,000 is repaid in each of
the first two years, $10,000,000 during the third year, and $12,500,000 during
each of the fourth and fifth years. Borrowings under the Credit Agreement are
secured by substantially all assets of the Company. 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.
The new credit facility restricts the payment of dividends. At October 4, 1997,
the amount of retained earnings available for the payment of dividends was
$8,277,000.
The Industrial Revenue Bonds bear interest at adjustable rates (3.85%
at October 4, 1997 and 4.0% at September 28, 1996) and mature November 1, 2002.
The bonds are secured by a letter of credit issued under the Revolver.
The 6.78% Senior Notes due 2002 were retired concurrent with the
Subordinated Notes offering which resulted in an extraordinary loss of $905,000,
net of a $591,000 tax benefit.
27
<PAGE> 28
The schedule of debt maturities presented below assumes borrowings
under the Revolver are outstanding until maturity:
<TABLE>
<CAPTION>
Year Amount
- ----------------------------------------------------------------------------------
(In thousands)
<S> <C>
1998 $ 7,500
1999 7,500
2000 10,000
2001 12,500
2002 40,550
Thereafter 132,900
- ----------------------------------------------------------------------------------
Total $210,950
- ----------------------------------------------------------------------------------
</TABLE>
Total interest paid was $ 6,185,000 in 1997, $5,930,000 in 1996, and
$5,777,000 in 1995.
The Company has letters of credit outstanding of $8,969,000 at October
4, 1997.
The Company has two interest rate swap agreements to reduce the impact
of changes in interest rates on the borrowings under the Credit Agreement. The
two interest rate swap agreements have a total notional principal amount of
$20,000,000. The differential paid or received is recognized as an adjustment to
interest expense. The Company agreed to make interest payments based on a fixed
rate of 7.06% and 6.17% on $10,000,000 and $10,000,000 notional principal,
respectively, in exchange for payments based on a floating rate of three-month
LIBOR. The agreements terminate April 26, 2002 and June 9, 2002, respectively.
The fair value of the swap agreements at October 4, 1997 is a loss of $450,000
and is not recognized in the financial statements.
The fair value of long-term obligations is estimated using discounted
cash flow analyses based on the Company's current incremental borrowing rate.
The carrying value of long-term obligations approximates fair value at October
4, 1997 and September 28, 1996. For all other financial instruments, the
carrying amounts approximate fair value due to their short maturities.
7. SHAREHOLDERS' EQUITY
On October 4, 1995, the Company approved a plan to repurchase up to
2,000,000 shares of Dyersburg Corporation common stock. Purchases were made at
the discretion of the Company as warranted based on market pricing. For the
years ended October 4, 1997 and September 28, 1996, a total of 27,000 and
1,051,275 shares, respectively, had been purchased under the repurchase plan at
an aggregate cost of approximately $160,000 and $5,414,000, respectively. The
Company does not presently anticipate further purchases under the plan.
The Company's Stock Option Plans (the "Option Plans") provide for the
granting of stock options to management, key employees and outside directors.
Options are subject to terms and conditions determined by the compensation
committee of the Board of Directors, and generally are exercisable in increments
of 20% per year beginning one year from date of grant and expire 10 years from
date of grant.
In 1996, the Company repriced certain stock options through the
cancellation of approximately 737,000 outstanding options and the simultaneous
granting of 367,000 options at a reduced exercise price equal to market at the
date of repricing. Except for the repricing, no other terms of the stock options
were changed.
28
<PAGE> 29
Option Plan activity is summarized in the table below.
<TABLE>
<CAPTION>
Number of Weighted average
Options excise price
--------- ----------------
<S> <C> <C>
Balance at October 1, 1994 759 $8.15
Options granted 2 5.63
Options canceled (4) 6.00
---- -----
Balance at September 30, 1995 757 8.16
Options granted 392 4.54
Options exercised (10) 4.50
Options canceled (740) 8.16
---- -----
Balance at September 28, 1996 399 4.70
Options granted 47 7.57
Options exercised (153) 4.50
Options canceled (26) 4.50
---- -----
Balance at October 4, 1997 267 $5.34
</TABLE>
Options outstanding at October 4, 1997 are summarized in the table below:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------- ------------------------
Weighted Average Weighted
Average Remaining Average
Exercise Contractual Exercise
Exercise Price Options Price Life (years) Options Price
- --------------------------------------------------------------------------------------------
(In thousands, except exercise price and contractual life)
<S> <C> <C> <C> <C> <C>
$4.00 - 6.00 228 $ 4.69 7.53 228 $ 4.69
$6.01 - 10.06 39 $ 9.10 10.00 19 $ 8.09
- --------------------------------------------------------------------------------------------
Total 267 247
- --------------------------------------------------------------------------------------------
</TABLE>
There were 247,000 and 251,000 options exercisable and 230,000 and
277,000 shares reserved for future grants at October 4, 1997 and September 28,
1996, respectively.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB No.
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.6%; volatility of the expected market
price of the common stock of .292; expected life of the options of 9.0 years;
and an expected dividend yield of 1%. Pro forma amounts for 1997 reflect total
compensation expense from the awards made in 1996 and 1997. Since compensation
expense from stock options is recognized over the future years' vesting period,
and additional awards generally are made from time to time, pro forma amounts
for 1997 may not be representative of future years' amounts. During 1997, 47,000
options were granted with a weighted average grant date fair value of $3.40.
29
<PAGE> 30
For purpose of the following pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
<TABLE>
<CAPTION>
Year ended
---------------------------------
October 4, September 28,
1997 1996
- ---------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net income:
As reported $12,361 $8,400
Pro forma 12,245 8,310
Net income per share
As reported $ 0.94 $ 0.62
Pro forma 0.93 0.61
</TABLE>
8. INCOME TAXES
Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
October 4, September 28,
1997 1996
---------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 8,006 $ 7,944
Other 2,599 2,167
------- -------
Total deferred tax liabilities 10,605 10,111
Deferred tax assets 6,710 1,728
------- -------
Net deferred tax liabilities $ 3,895 $ 8,383
======= =======
</TABLE>
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
October 4, September 28, September 30,
1997 1996 1995
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 9,014 $5,240 $ 5,570
State 249 154 590
Deferred, primarily federal (629) 460 (178)
------- ------ -------
$ 8,634 $5,854 $ 5,982
======= ====== =======
</TABLE>
30
<PAGE> 31
The provision for income taxes differed from the amount computed by
applying the statutory federal income tax rate of 35% to income before income
taxes due to the following:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 4, September 28, September 30,
1997 1996 1995
-----------------------------------------
(In thousands)
<S> <C> <C> <C>
Computed federal tax expense
at statutory rate $7,665 $4,989 $4,390
State taxes, net of federal
income tax benefit 162 100 383
Effect of nondeductibility of
amortization of goodwill 655 650 650
Other 152 115 559
------ ------ ------
$8,634 $5,854 $5,982
====== ====== ======
</TABLE>
Income tax payments were $7,154,000, $4,885,000, and $5,996,000 for
fiscal years 1997, 1996, and 1995, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company has two separate defined contribution plans that,
collectively, cover substantially all employees, excluding Alamac employees.
Contributions to one plan equal 7.5% of adjusted income, as defined, plus
additional amounts which the Board of Directors may authorize. Contributions to
the other plan are at the discretion of the Board of Directors. The contribution
for either plan shall not exceed the maximum amount deductible for federal
income tax purposes. Profit-sharing expense was $2,599,000, $1,875,000, and
$1,902,000 for fiscal years 1997, 1996, and 1995, respectively.
The Company has agreed to provide a defined benefit pension plan (the
Pension Plan) to substantially all full-time active employees of Alamac whose
employment transferred to the Company upon acquisition. The terms of such plan
have not been determined but will be substantially identical, with respect to
the classes of employees covered under the plan and eligibility, to the terms
provided by the seller prior to the purchase of Alamac. Benefits under the
existing plan were based on years of service and compensation and become vested
after five years of service. Substantially all benefits were vested at the
valuation date. The Company intends to fund the plan in accordance with the
Employee Retirement Income Security Act of 1974.
The following summarizes information including the plan's funded status
as of January 1, 1997 (See Note 2):
<TABLE>
<CAPTION>
Amount
-------
(In thousands)
<S> <C>
Projected benefit obligation $15,500
Plan assets at fair value 10,400
-------
Unfunded liability $ 5,100
=======
</TABLE>
The assumptions used to develop the plan's funded status include a
weighted average discount rate of 8.25% and average annual increase in
compensation of 3.5%.
Plan assets are invested primarily in United States Government and
corporate debt securities, equity securities and fixed income insurance
contracts.
31
<PAGE> 32
10. LEASES
The Company leases certain equipment and office space under
noncancelable operating leases. Most of these leases include renewal options and
some include purchase options. Rent expense was $4,123,000 in 1997, $3,050,000
in 1996, and $2,089,000 in 1995.
Future minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------------------------------------------------------------------------------
(In thousands)
<S> <C>
1998 $ 6,462
1999 6,022
2000 5,020
2001 4,751
2002 2,286
Thereafter 4,531
-------
Total aggregate future minimum lease payments $29,072
=======
</TABLE>
11. CONTINGENCIES
In connection with the acquisition of Alamac, the Company conducted an
environmental investigation of Alamac's facilities and identified environmental
contamination at certain facilities that will require remediation activities.
The Company estimates that the cost of such remediation activities will range
from approximately $3,500,000 to $5,000,000. As the Company continues to study
and evaluate necessary remediation activity, these estimates could change.
Pursuant to the Acquisition Agreement, WestPoint Stevens, Inc. agreed to pay 75%
of any costs occurring within three years of the closing of the acquisition for
matters identified in the Company's environmental investigation or arising as a
result of a breach of WestPoint Stevens' representations and warranties in
respect of environmental matters up to $10,000,000 and 67% of such costs in
excess of $10,000,000 and up to $20,000,000. WestPoint Stevens will not be
obligated to indemnify the Company for any such costs in excess of $20,000,000.
In addition, WestPoint Stevens agreed to indemnify the Company without regard to
time or dollar limitation for losses resulting from third-party claims relating
to the identified environmental contamination. Management believes that
WestPoint Stevens has the financial capability to honor this indemnity. As a
part of the acquisition of Alamac, the Company recorded an accrual of
approximately $875,000 for the estimated cost of remediation not covered by the
West Point indemnity.
The Company is involved in various legal actions and claims arising in
the ordinary course of business. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect to the
Company's financial position or results of operations.
32
<PAGE> 33
DYERSBURG CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------- ------------ ----------------------- ------------- ---------
COLUMN A COLUMN B COLUMN C - ADDITIONS COLUMN D COLUMN E
- ------------------------------------- ------------ ----------------------- ------------- ---------
Charged to
Balance at Charged to Other Balance
Beginning of Costs and Accounts - Deductions(1) at end of
Description Period Expenses Describe Describe Period
------------ --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended October 4, 1997
Allowance for doubtful accounts $1,500 $2,184 $1,609 $2,075
====== ====== ====== ======
Year ended September 28, 1996
Allowance for doubtful accounts $1,170 $1,057 $ 727 $1,500
====== ====== ====== ======
Year ended September 30, 1995
Allowance for doubtful accounts $1,000 $ 558 $ 388 $1,170
====== ====== ====== ======
</TABLE>
(1) Write-offs, net of recoveries.
33
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information with respect to
directors of the Company is included in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held January 28, 1998 (the "Proxy
Statement") under the caption "Proposal One - Election of Directors," which
information is herein incorporated by reference.
Information with respect to executive officers of the Company is
included in Part I of this Form 10-K under the caption "Executive Officers of
the Registrant."
Information with respect to Section 16(a) of the Securities Exchange
Act of 1934, as amended, beneficial ownership reporting compliance is included
in the Company's Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Requirements," which information is herein incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included in the
Proxy Statement under the caption "Executive Compensation," which information is
herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is included in the Proxy Statement under the
caption "Security Ownership of Management and Certain Beneficial Owners," which
information is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is included in the Proxy Statement under the caption "Certain
Transactions," which information is herein incorporated by reference.
34
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Financial Statements. See Item 8.
(a)(2) Supplemental Schedules Supporting Financial Statements. See Item
8.
(a)(3) Exhibits. See Index to Exhibits, page 37.
(b) Reports on Form 8-K:
1. Current Report filed July 18, 1997, regarding the
Stock Purchase Agreement, dated as of July 15, 1997,
by and among Dyersburg Corporation, Alamac Sub
Holdings Inc., AIH Inc. and WestPoint Stevens Inc.;
2. Current Report filed July 30, 1997, regarding the
Press Release, dated July 29, 1997, announcing plans
to issue up to $125 million aggregate principal
amount of Senior Subordinated Notes due 2007, to be
completed in August 1997; and
3. Current Report filed September 2, 1997, regarding (i)
the consummation of the transactions contemplated by
the Stock Purchase Agreement, dated July 15, 1997, by
and among Dyersburg Corporation, Alamac Sub Holdings
Inc., AIH Inc. and WestPoint Stevens Inc. pursuant to
which Dyersburg Corporation acquired all of the
outstanding stock of AIH Inc. under Item 2; and (ii)
the Financial Statements of Business to be Acquired
and Pro Forma Financial Information (incorporated by
reference to the Company's Quarterly Report on Form
10-Q for the quarter ended July 5, 1997).
(c) Exhibits. See Index to Exhibits, page 37.
(d) Financial Statement Schedules. See Item 8.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.
DYERSBURG CORPORATION
Date: December 30, 1997 /s/ T. Eugene McBride
-----------------------------------
T. Eugene McBride
Chief Executive Officer
(Principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on December 30, 1997.
/s/ T. Eugene McBride
- --------------------------------------- -----------------------------------
T. Eugene McBride Ravi Shankar
Chairman Director
/s/ Jerome M. Wiggins /s/ Mickey Ganot
- --------------------------------------- -----------------------------------
Jerome M. Wiggins Mickey Ganot
President and Chief Operating Director
Officer
/s/ William S. Shropshire, Jr. /s/ Marvin B. Crow
- --------------------------------------- -----------------------------------
William S. Shropshire, Jr. Marvin B. Crow
Executive Vice President, Director
Chief Financial Officer and
Secretary - Treasurer
(Principal financial officer)
/s/ Paul L. Hallock /s/ L.R. Jalenak, Jr.
- --------------------------------------- -----------------------------------
Paul L. Hallock L.R. Jalenak, Jr.
Vice President - Finance and Director
Assistant Secretary - Treasurer
(Principal accounting officer)
/s/ Julius Lasnick
- --------------------------------------- -----------------------------------
P. Manohar Julius Lasnick
Director Director
36
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 15, 1997, by and among
Dyersburg Corporation, Alamac Sub Holdings, Inc., AIH Inc. and
WestPoint Stevens Inc. (incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 18, 1997).
3.1 Amended and Restated Charter of Dyersburg Corporation (incorporated by
reference to Exhibit 3(a) to the Registration Statement on Form S-1
(Registration No. 33-46331)).
3.2 Bylaws of Dyersburg Corporation (incorporated by reference to Exhibit
3(b) to the Registration Statement on Form S-1 (Registration No.
33-46331)).
3.3 Amended and Restated Bylaws of Dyersburg Corporation (incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 17, 1997).
10.1 Loan Agreement between The Industrial Revenue Board of the City of
Trenton, Tennessee and Dyersburg Fabrics Inc. dated as of July 1, 1990
(incorporated by reference to Dyersburg Fabrics Inc.'s Form 10-K for
the fiscal year ended September 29, 1990).
10.2 Tax Sharing Agreement dated July 24, 1990 between Dyersburg Fabrics
Inc. and Dyersburg Corporation (incorporated by reference to Dyersburg
Fabrics Inc.'s Form 10-K for the fiscal year ended September 29, 1990).
10.3* Dyersburg Corporation 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 10(a).2 to the Registration Statement on Form S-1
(Registration No. 33-46331)), as amended, (incorporated by reference to
Appendix A to Proxy Statement dated December 14, 1995).
10.4* Dyersburg Fabrics Inc. Deferred Compensation Plan, as amended,
(incorporated by reference to Appendix A to Proxy Statement dated
December 14, 1995).
10.5 Form of Registration Rights Agreement dated as of April 30, 1992
between the Company and each shareholder of the Company (incorporated
by reference to Exhibit 10(k) to the Registration Statement on Form S-1
(Registration No. 33-46331)).
10.6* Dyersburg Corporation Non-qualified Stock Option Plan for Employees of
Acquired Companies (incorporated by reference to Exhibit 4(c) to the
Registration Statement on Form S-8 (Registration No. 33-74350)), as
amended, (incorporated by reference to Appendix A to Proxy Statement
dated December 14, 1995).
10.7 Second Amended and Restated Letter of Credit Agreement dated as of July
1, 1990, among Dyersburg Fabrics Limited Partnership, I, Dyersburg
Fabrics Inc., Dyersburg Corporation, DFIC, Inc., and SunTrust Bank,
Atlanta, relating to $7,900,000 The Industrial Development Board of the
City of Trenton, Tennessee Industrial Development Revenue Bonds
(Dyersburg Fabrics Inc. Project Series 1990) (incorporated by reference
to Exhibit 10.11 to the Quarterly Report on Form 10-Q of the quarter
ended March 30, 1996).
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C>
10.8 Amended and Restated Pledge and Security Agreement, dated as of July 1,
1990, made by Dyersburg Fabrics Limited Partnership, I, to SunTrust
Bank, Atlanta (incorporated by reference to Exhibit 10.12 to the
Quarterly Report on Form 10-Q for the quarter ended March 30, 1996).
10.9 Stock Purchase Agreement, dated April 8, 1997, between Polysindo Hong
Kong Limited and the sellers named therein (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 17, 1997).
10.10 Agreement, dated April 8, 1997, among Polysindo Hong Kong Limited, PT.
Texmaco Jaya and Dyersburg Corporation (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8- K filed with the
Securities and Exchange Commission on April 17, 1997).
10.11 Purchase Agreement, dated August 20, 1997, by and among Dyersburg
Corporation, Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUEIC, Inc., IQUE Limited
Partnership, I, United Knitting Inc., UKIC, Inc., United Knitting
Limited Partnership, I, Bear, Stearns & Co., Inc. and Prudential
Securities Incorporated (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 2, 1997).
10.12 Indenture, dated as of August 27, 1997, by and among Dyersburg
Corporation, Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUE Limited Partnership, I,
United Knitting Inc., UKIC, Inc., United Knitting Limited Partnership,
I, Alamac Knit Fabrics, Inc., Alamac Enterprises Inc., AIH, Inc., and
State Street Bank and Trust Company (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 2, 1997).
10.13 Registration Rights Agreement, dated as of August 27, 1997, among
Dyersburg Corporation, the Guarantors named therein, Bear, Stearns &
Co. Inc. and Prudential Securities Incorporated (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 2, 1997).
10.14 Credit Agreement, dated as of August 27, 1997, among Dyersburg
Corporation, Dyersburg Fabrics Limited Partnership, I, United Knitting
Limited Partnership, I, IQUE Limited Partnership, I, Alamac Knit
Fabrics, Inc., the Lenders listed therein, SunTrust Bank, Atlanta, as
Agent, and SunTrust Bank Atlanta, as Collateral Agent (incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 2, 1997).
11 Computation of earnings per share
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule (for SEC use only)
</TABLE>
*Compensation Plan
38
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
DYERSBURG CORPORATION
<TABLE>
<CAPTION>
FY Ended FY Ended FY Ended
October 4, September 28, September 30,
1997 1996 1995
-----------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 13,155 13,643 14,196
======== ======= =======
Income before extraordinary item $ 13,266 $ 8,400 $ 6,560
Extraordinary item (905) -- --
-------- ------- -------
Net income $ 12,361 $ 8,400 $ 6,560
======== ======= =======
PER SHARE AMOUNTS:
Income before extraordinary item $ 1.01 $ 0.62 $ 0.46
Extraordinary item (0.07) -- --
-------- ------- -------
Net income $ 0.94 $ 0.62 $ 0.46
======== ======= =======
</TABLE>
The dilutive effect of stock options, calculated using the treasury stock
method, was less than 1.5% during all periods presented.
39
<PAGE> 1
EXHIBIT 21
Subsidiaries
1. Dyersburg Fabrics Inc., a Tennessee corporation and direct subsidiary
2. United Knitting, Inc., a Tennessee corporation and an indirect
subsidiary
3. Dyersburg Fabrics Investment Corporation, a Delaware corporation and
intermediate investment corporation
4. Dyersburg Fabrics Limited Partnership, I, a Tennessee limited
partnership
5. United Knitting Investment Corporation, a Delaware corporation and
intermediate investment corporation
6. United Knitting Limited Partnership, I, a Tennessee limited partnership
7. IQUE, Inc., a Tennessee corporation and an indirect subsidiary
8. IQUE Investment Corporation, a Delaware corporation and intermediate
investment corporation
9. IQUE Limited Partnership, a Tennessee limited partnership
10. Alamac Knit Fabrics, Inc., a Delaware corporation and an indirect
subsidiary
11. AIH, Inc., a Tennessee corporation and a direct subsidiary
12. Alamac Enterprises, Inc., a Delaware corporation and an indirect
subsidiary
40
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 33-57612 and 33-32852) pertaining to the Dyersburg Corporation
1992 Incentive Stock Option Plan and in the Registration Statement (Form S-8 No.
33-74350) pertaining to the Dyersburg Corporation Stock Option Plan for
Employees of Acquired Companies of our report dated October 31, 1997, with
respect to the consolidated financial statements and schedule of Dyersburg
Corporation included in the Annual Report (Form 10-K) for the year ended October
4, 1997.
/s/ Ernst & Young LLP
Memphis, Tennessee
December 29, 1997
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED OCTOBER 4, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-04-1997
<PERIOD-END> OCT-04-1997
<CASH> 948
<SECURITIES> 0
<RECEIVABLES> 70,365 <F1>
<ALLOWANCES> (2,075)<F1>
<INVENTORY> 52,222
<CURRENT-ASSETS> 128,057
<PP&E> 216,940
<DEPRECIATION> (64,417)
<TOTAL-ASSETS> 366,814
<CURRENT-LIABILITIES> 47,543
<BONDS> 203,450
0
0
<COMMON> 133
<OTHER-SE> 100,971
<TOTAL-LIABILITY-AND-EQUITY> 366,814
<SALES> 250,193
<TOTAL-REVENUES> 250,193
<CGS> 192,802
<TOTAL-COSTS> 28,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,184
<INTEREST-EXPENSE> 7,483
<INCOME-PRETAX> 21,900
<INCOME-TAX> 8,634
<INCOME-CONTINUING> 13,266
<DISCONTINUED> 0
<EXTRAORDINARY> (905)
<CHANGES> 0
<NET-INCOME> 12,361
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<FN>
<F1>NOTES AND ACCOUNTS RECEIVABLE - TRADE ARE REPORTED NET OF ALLOWANCES FOR
DOUBTFUL ACCOUNTS IN THE BALANCE SHEET.
</FN>
</TABLE>
