<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
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
incorporation or organization) identification no.)
1315 PHILLIPS ST., DYERSBURG, TENNESSEE 38024
(Address of principal executive offices) (Zip Code)
(901) 285-2323
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $.01/Share New York Stock Exchange
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
---- ---
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practicable date.
Number of shares
Title of each outstanding as of April 30, 1998
- --------------------------- --------------------------------
Common Stock $.01 par value 13,332,542
<PAGE> 2
INDEX TO FORM 10-Q
DYERSBURG CORPORATION
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Balance Sheets at
April 4, 1998, and October 4, 1997, ................................................................3
Consolidated Condensed Statements of Income
for the Three Months Ended April 4, 1998,
and April 5, 1997; Six Months Ended
April 4, 1998, and April 5, 1997....................................................................4
Consolidated Condensed Statements of Cash
Flows for the Six Months Ended
April 4, 1998, and April 5, 1997....................................................................5
Notes to Consolidated Condensed Financial
Statements..........................................................................................6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...,,,,......................................................9
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS..........................................................11
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.........................................................................12
SIGNATURES.......................................................................................................12
</TABLE>
2
<PAGE> 3
DYERSBURG CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
April 4, October 4,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash ....................................................................... $ 282 $ 948
Accounts receivable, net of allowance for doubtful accounts
of $2,875 at April 4, 1998, and $2,075 at October 4, 1997 ................ 77,045 68,290
Inventories ................................................................ 68,329 52,222
Prepaid expenses and other................................................. 7,737 6,597
-------- --------
Total current assets .................................................. 153,393 128,057
Property, plant and equipment, net ......................................... 145,723 152,523
Goodwill, net .............................................................. 87,239 78,277
Deferred debt costs, net.................................................... 6,390 6,674
Other assets................................................................ 4,781 1,283
-------- --------
$397,526 $366,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ..................................................... $ 20,987 $ 23,721
Accrued expenses ........................................................... 16,943 14,758
Income taxes payable........................................................ -- 1,564
Current portion of revolving credit facility................................ 10,000 --
Current portion of long-term obligations.................................... 7,500 7,500
-------- --------
Total current liabilities ............................................. 55,430 47,543
Revolving credit facility .................................................. 54,650 28,050
Other long-term obligations ................................................ 171,983 175,400
Deferred income taxes....................................................... 7,688 8,459
Other liabilities........................................................... 3,908 6,258
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 - 13,332,542 at April 4, 1998, and
13,280,033 at October 4, 1997 .............................................. 133 133
Additional paid-in capital ................................................. 42,689 41,985
Retained earnings .......................................................... 61,045 58,986
Total shareholders' equity ................................................... 103,867 101,104
-------- --------
$397,526 $366,814
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
April 4, April 5, April 4, April 5,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales ..................... $ 109,958 $ 51,038 $ 201,889 $ 89,831
Costs and expenses:
Cost of sales............... 90,657 39,908 167,363 70,258
Selling, general, and
administrative ........... 11,525 6,412 19,709 12,222
Interest and amortization of
debt costs................ 5,570 1,467 10,996 2,949
----------- ----------- ----------- -----------
Total costs and expenses....... 107,752 47,787 198,068 85,429
----------- ----------- ----------- -----------
Income before income taxes..... 2,206 3,251 3,821 4,402
Income taxes................... 863 1,272 1,495 1,739
----------- ----------- ----------- -----------
Net Income .................... $ 1,343 $ 1,979 $ 2,326 $ 2,663
=========== =========== =========== ===========
Weighted average
shares outstanding:
Basic ............... 13,330,613 13,132,882 13,318,065 13,134,049
=========== =========== =========== ===========
Diluted ............. 13,392,711 13,211,821 13,395,488 13,199,439
=========== =========== =========== ===========
Earnings per share:
Basic ............... $ 0.10 $ 0.15 $ 0.17 $ 0.20
=========== =========== =========== ===========
Diluted ............. $ 0.10 $ 0.15 $ 0.17 $ 0.20
=========== =========== =========== ===========
Dividends per share ........... $ 0.01 $ 0.01 $ 0.02 $ 0.02
=========== =========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
DYERSBURG CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
April 4, April 5,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income .................................................................... $ 2,326 $ 2,663
Adjustments to reconcile to net cash (used
in) provided by operating activities:
Depreciation and amortization ............................................ 11,107 5,971
(Increase) decrease in accounts receivable, net .......................... (8,755) 4,710
Increase in inventory .................................................... (16,107) (13,353)
Other-net................................................................. (10,813) 2,631
-------- --------
Net cash (used in) provided by operating activities ................. (22,242) 2,622
INVESTING ACTIVITIES
Capital expenditures .......................................................... (11,154) (3,632)
Other-net ..................................................................... (890) (19)
-------- --------
Net cash used in investing activities ................................ (12,044) (3,651)
FINANCING ACTIVITIES
Acquisition of common stock for treasury ...................................... -- (160)
Net borrowings on long-term obligations ....................................... 33,183 917
Dividends paid ................................................................ (267) (262)
Issuance of common stock....................................................... 704 29
-------- --------
Net cash provided by financing activities ........................... 33,620 524
-------- --------
Net decrease in cash ................................................ (666) (505)
Cash at beginning of period ..................................................... 948 983
-------- --------
Cash at end of period............................................................ $ 282 $ 478
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
DYERSBURG CORPORATION
April 4, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
include the accounts of Dyersburg Corporation ("Company") and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Financial information as of
October 4, 1997, has been derived from the audited financial statements of the
Company, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated have been included. Due to
seasonal patterns, the results for interim periods are not necessarily
indicative of results to be expected for the year. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended October 4,
1997.
NOTE B--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 approximately $128 million.
The operating results of Alamac are included in the Company's condensed
consolidated statements of income from August 27, 1997, the acquisition date.
The following unaudited pro forma results of operations for fiscal 1997 assume
the Alamac acquisition and related financing transactions occurred at the
beginning of the period presented. In connection with the acquisition of Alamac,
the Company recorded an extraordinary charge of $905,000, or $0.07 per share,
related to the early extinguishment of debt. 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.
6
<PAGE> 7
NOTE B - BUSINESS COMBINATION (continued)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
April 4, April 5,
1998 1997
-------- --------
(in thousands except per share data)
<S> <C> <C>
Pro forma
Net Sales ........................... $201,889 $207,456
Income before extraordinary loss .... 2,326 1,805
Net income .......................... 2,326 900
Earnings per share-basic and diluted:
Income before extraordinary loss . $ 0.17 $ 0.14
Net income ....................... $ 0.17 $ 0.07
</TABLE>
NOTE C--INVENTORIES
<TABLE>
<CAPTION>
April 4, April 5,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Raw Materials ....................... $ 19,595 $ 18,243
Work in Process ..................... 20,627 14,011
Finished Goods ...................... 25,142 17,180
Supplies and Other .................. 2,965 2,788
-------- --------
$ 68,329 $ 52,222
======== ========
</TABLE>
7
<PAGE> 8
NOTE D--EARNINGS PER SHARE
The Company has adopted the Financial Accounting Standards Board (FASB)
Statement No. 128, Earnings per Share, and accordingly, the prior period
presentation has been restated. The table below sets forth the computations of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
April 4, April 5, April 4, April 5,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(in thousands except share and per share data)
<S> <C> <C> <C> <C>
Numerator for basic and
diluted earnings per
share--net income ............... $ 1,343 $ 1,979 $ 2,326 $ 2,663
Denominator:
Denominator for basic
earnings per
share--weighted average shares 13,330,613 13,132,882 13,318,065 13,134,049
Effect of dilutive securities:
Employee Stock Options ...... 62,098 78,939 77,423 65,390
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share--adjusted
weighted average shares ......... 13,392,711 13,211,821 13,395,488 13,199,439
=========== =========== =========== ===========
Basic earnings per
share ............................. $ 0.10 $ 0.15 $ 0.17 $ 0.20
=========== =========== =========== ===========
Diluted earnings per
share ............................. $ 0.10 $ 0.15 $ 0.17 $ 0.20
=========== =========== =========== ===========
</TABLE>
NOTE E--LONG-TERM OBLIGATIONS
In August 1997, the Company issued $125,000,000 principal amount of 9.75% Senior
Subordinated Notes due September 1, 2007 (the "Subordinated Notes"). The
Subordinated Notes are unsecured senior subordinated obligations and are
subordinated in right of payment to the prior payment in full of all senior
indebtedness. The Subordinated Notes are guaranteed by all of the Company's
subsidiaries (the "Guarantors"). Separate financial statements of the Guarantors
are not included herein because: (a) the Company is a holding company with no
assets or operations other than its investments in its subsidiaries; (b) the
Guarantors are wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the Subordinated Notes on a joint and several basis;
(c) the Guarantors comprise all of the direct and indirect subsidiaries of the
Company; and (d) management believes that such information is not material to
investors.
8
<PAGE> 9
During the second quarter of fiscal 1998, the Company entered into two
additional interest rate hedge agreements to reduce the impact of changes in
interest rates on the borrowings under the Credit Agreement. An interest rate
"collar" with a notional principal amount of $10,000,000 was entered into with a
cap of 7.00% and a floor of 5.00%, based on a floating rate of three-month
LIBOR. This Agreement terminates in February 2003. Under the "collar" agreement,
the Company agreed to make interest payments based on a floating rate of
three-month LIBOR if such rate falls below 5.00% and would receive interest
payments based on a floating rate of three-month LIBOR if such rate exceeds
7.00% during the life of the agreement.
The Company also entered into a $10,000,000 notional amount interest rate swap
agreement. Under the terms of the swap agreement, the Company agreed to make
interest payments based on a fixed rate of 5.85%, in exchange for payments based
on a floating rate of three-month LIBOR. The new swap agreement terminates in
March 2003. The carrying value of these new financial instruments approximates
fair value at April 4, 1998.
The new interest rate hedge agreements supplement the existing two interest rate
swap agreements having a notional principal amount of $10,000,000 each. These
existing agreements provide for the Company to make interest payments based on a
fixed rate of 7.06% and 6.17%, respectively, in exchange for payments based on a
floating rate of three-month LIBOR. The agreements terminate in April 2002 and
June 2002, respectively.
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net sales for the quarter ended April 4, 1998, increased by 115% to
$110.0 million versus $51.0 million for the same quarter of the prior year. The
increase in net sales was due to the inclusion of Alamac sales in fiscal 1998.
Without Alamac sales, net sales increased by 2%, or $1.3 million, from the
second quarter of fiscal 1997. Net sales for the six months ended April 4, 1998,
were 125% above the same period prior year. Excluding Alamac, net sales
decreased by less than 1%. Gross margins for the quarter and year-to-date
declined to 17.6% and 17.1%, versus 21.8% and 21.8% for the same periods in
fiscal 1997, respectively. The decrease in gross margins resulted from the
inclusion of Alamac's sales in fiscal 1998, which have historically experienced
gross margins of 8 to 14%.
Selling, general and administrative expenses increased 80% for the
second quarter and 61% year-to-date for fiscal 1998 compared to the same periods
in fiscal 1997 due to the inclusion of Alamac in fiscal 1998. As a percentage of
sales, these same expenses decreased to 10.5% and 9.8% for the second quarter
and year-to-date, respectively, for fiscal 1998, versus 12.6% and 13.6% for the
same periods in fiscal 1997. This decrease reflects the impact of Alamac's lower
selling, general and administrative expenses as a percent of sales.
9
<PAGE> 10
Interest expense in the second quarter of fiscal 1998 of $5.6 million
and year-to-date of $11.0 million, was significantly higher than that of the
same periods of fiscal 1997 due to the additional debt issued in relation to the
Alamac acquisition. The effective tax rate for the second quarter and
year-to-date of fiscal 1998 was approximately 39%, exceeding the federal
statutory rate due to certain expense items not being deductible for tax
purposes, principally $900,000 year-to-date from the amortization of goodwill.
Net income for the quarter ended April 4, 1998, was $1.3 million, or
$0.10 per share, versus $2.0 million, or $0.15 per share, for the same period in
fiscal 1997. For the six months ended April 4, 1998, net income was $2.3
million, or $0.17 per share, versus $2.7 million, or $0.20 per share, for the
same period in fiscal 1997. Earnings per share are the same whether calculated
on a basic or diluted basis. The diluted weighted average number of shares
outstanding for the quarter and six months ended April 4, 1998, was
approximately 13,393,000 and 13,395,000, respectively.
Management is presently reviewing its Alamac subsidiary with a bias
toward reducing the complexity of its operations, further refining the markets
to which it serves and identifying opportunities to reduce costs. Operating
results for the first six months of fiscal 1998 have not met expectations.
Actions under consideration include a reduction in manufacturing capacity and
the potential for a write-down of long-lived assets. The Company is in the
process of reviewing alternatives and is unable to estimate the full impact of
any such changes at this time.
Liquidity and Capital Resources
Working capital increased to $98.0 million and the current ratio
increased to 2.8:1 at April 4, 1998, from $80.5 million and 2.7:1, respectively,
at October 4, 1997. The Company's long-term debt-to-capital ratio was 68.6% at
April 4, 1998, compared to 66.8% at October 4, 1997.
Net receivables increased from $68.3 million at October 4, 1997, to
$77.0 million at April 4, 1998, as a result of seasonal sales levels.
Inventories increased to $68.3 million during the second quarter of fiscal 1998
in anticipation of seasonally stronger sales for the remainder of the fiscal
year.
Capital expenditures for the six months ended April 4, 1998, were $11.2
million versus $3.6 million for the same period in the prior year. Cash outlays
for capital spending are anticipated to approximate $25 million in fiscal 1998.
At April 4, 1998, the Company had $28.2 million of additional
borrowings available. 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.
10
<PAGE> 11
As described above, management is presently reviewing various
alternatives with respect to its Alamac operations. Certain potential
alternatives may involve a significant charge to earnings and/or a write-down of
long-lived assets. In the event such charges are recognized, it is a likely
result that an amendment to the bank Credit Agreement will be necessary.
Management believes it will be able to obtain an amendment acceptable to the
Company, but no assurances can be given.
As the year 2000 approaches, an issue impacting all companies has
emerged regarding how existing application software programs and operating
systems can accommodate this date value. The Company places significant reliance
on technology for many of its operational systems. A review of all systems has
been undertaken to ensure that they do not malfunction as a result of the year
2000. As a result of this process the Company expects to both replace some
systems and upgrade others. Management does not expect the financial impact of
this effort to be material to the consolidated financial statements.
Management's estimate of the ultimate cost and completion of necessary software
replacement or modification is based on numerous assumptions regarding future
events including continued availability of certain resources, third party
modification plans, and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated.
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company held the Annual Meeting of Shareholders on January 28,
1998, ("Annual Meeting"). At the Annual Meeting, the shareholders of the Company
elected: three Class III directors, Ravi Shankar, Marvin B. Crow, and Jerome M.
Wiggins for three-year terms and until their successors are duly elected and
qualified; two Class I directors, P. Manohar and Mickey Ganot for one-year terms
and until their successors are duly elected and qualified; one Class II
director, John D. Howard for a two-year term and until his successor is duly
elected and qualified. Continuing directors for the Company are Julius Lasnick,
L.R. Jalenak, Jr. and T. Eugene McBride.
<TABLE>
<CAPTION>
For Withheld (Abstain)
--------- ------------------
<S> <C> <C>
Ravi Shankar 9,262,700 159,800
Marvin B. Crow 9,392,100 30,400
Jerome M. Wiggins 9,251,850 170,650
P. Manohar 9,263,200 159,300
Mickey Ganot 9,264,400 158,100
John D. Howard 9,392,000 30,500
</TABLE>
The shareholders ratified the appointment of Ernst & Young LLP as the
independent certified public accountants of the Company for fiscal 1998. There
were 9,413,558 votes cast for such proposal, 3,000 votes cast against such
proposal, and 5,942 votes withheld (abstain) with respect to such proposal.
11
<PAGE> 12
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) 27 Financial Data Schedule (for SEC use only)
(b) The Corporation did not file any reports on Form 8-K during
the three months ended April 4, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 15, 1998 /s/ William S. Shropshire, Jr.
---------------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED APRIL 4, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> OCT-05-1998
<PERIOD-END> APR-04-1998
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 79,920<F1>
<ALLOWANCES> (2,875)<F1>
<INVENTORY> 68,329
<CURRENT-ASSETS> 153,393
<PP&E> 219,308
<DEPRECIATION> (73,585)
<TOTAL-ASSETS> 397,526
<CURRENT-LIABILITIES> 55,430
<BONDS> 226,623
0
0
<COMMON> 133
<OTHER-SE> 103,734
<TOTAL-LIABILITY-AND-EQUITY> 397,526
<SALES> 201,889
<TOTAL-REVENUES> 201,889
<CGS> 167,363
<TOTAL-COSTS> 167,363
<OTHER-EXPENSES> 19,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,996
<INCOME-PRETAX> 3,821
<INCOME-TAX> 1,495
<INCOME-CONTINUING> 2,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,326
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<FN>
<F1>
Amounts are reported net of reserves in the Consolidated Condensed Balance
Sheets.
Amounts inapplicable or not disclosed as a separate line on the Balance Sheet or
Statement of Income are reported as $0 herein.
</FN>
</TABLE>
