10-Q 1 g66948e10-q.txt DYERSBURG CORPORATION 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 December 30, 2000 Commission File No. 1-11126 DYERSBURG CORPORATION Debtor-In-Possession as of September 25, 2000 (Exact name of registrant as specified in its charter) TENNESSEE 62-1363247 (State or other jurisdiction of (I.R.S employer identification no.) incorporation or organization) 15720 JOHN J. DELANEY DR., SUITE 445 CHARLOTTE, NORTH CAROLINA 28277 (Address of principal executive offices) (Zip Code) (704) 341-2299 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01/Share (Title of each class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] No [ ] Indicate the number of shares outstanding of each issuer's classes of common stock, as of the latest practicable date. Title of each Number of shares outstanding as of January 31, 2001 --------------------------- --------------------------------------------------- Common Stock $.01 par value 13,388,556 2 INDEX TO FORM 10-Q DYERSBURG CORPORATION

2 3 DYERSBURG CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) Debtor-In-Possession (in thousands except share data)

See notes to consolidated financial statements. 3 4 DYERSBURG CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Debtor-In-Possession (in thousands except per share data)

See notes to consolidated condensed financial statements. 4 5 DYERSBURG CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Debtor-In-Possession (in thousands)

See notes to consolidated condensed financial statements. 5 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) DYERSBURG CORPORATION December 30, 2000 NOTE A--NATURE OF OPERATIONS AND BUSINESS CONDITION PETITION FOR RELIEF UNDER CHAPTER 11 On September 25, 2000, the Company and 13 of its subsidiaries (collectively, the "Debtors") filed voluntary petitions with the Bankruptcy Court for reorganization under Chapter 11 ("Chapter 11 Cases") and orders for relief were entered by the Bankruptcy Court. The Chapter 11 Cases have been consolidated for the purpose of joint administration under Case No. 00-3746. The Debtors are currently operating their businesses as debtors-in-possession pursuant to the Bankruptcy Code. Under the Bankruptcy Code, actions to collect pre-petition indebtedness are stayed and other contractual obligations against the Debtors may not be enforced. In addition, under the Bankruptcy Code, the Debtors may assume or reject executory contracts, including lease obligations. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be voted upon by creditors and equity holders to be approved by the Bankruptcy Court. However, the Bankruptcy Court entered an order allowing the Company to pay all pre-petition trade debt, which amounts have substantially been paid in full. Although the Debtors have filed a reorganization plan that provides for emergence from bankruptcy in the second fiscal quarter of 2001, there can be no assurance that the reorganization plan or plans proposed by the Debtors will be confirmed by the Bankruptcy Court, or that any such plan(s) will be consummated. A plan of reorganization must be confirmed by the Bankruptcy Court, upon certain findings being made by the Bankruptcy Court. The Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met. The Plan proposed by the Company involves a debt conversion of the Company's pre-petition 9 3/4% Subordinated Notes due 2007 (the "Subordinated Notes") into newly issued common equity of the reorganized Company and a $15.0 million Senior Subordinated Payment-in-Kind Note with an interest rate of 13% per annum and a term of seven years (the "PIK Note"). Under the Plan, the existing common stock of the Company would be cancelled and the holders of our currently outstanding common stock would receive two series of warrants to acquire up to 15% of the new common stock on a fully-diluted basis. The exercise price of the Series A Warrants will be $10.39 per share and will be exercisable for 5% of the new common stock. The exercise price of the Series B Warrants (together with the Series A Warrants, the "Warrants") will be $12.38 per share and will be exercisable for 10% of the new common stock. The Warrants expire five years after the date of issuance. Accordingly, the Company believes the outstanding common stock is highly speculative, and it may have no value. Prior to the bankruptcy filing, the Company did not make the $6,093,750 interest payment due September 1, 2000 under the terms of the Company's 9.75% Senior Subordinated Notes due September 1, 2000. The Company is in possession of its properties and assets, and continues to manage its business as debtor-in-possession subject to the supervision of the Bankruptcy Court. The Company has a $97.0 million debtor-in-possession credit facility in place (the "DIP Facility"). 6 7 NOTE A - NATURE OF OPERATIONS AND BUSINESS CONDITION (continued) The Company has filed various motions in the Chapter 11 Cases whereby it was granted authority or approval with respect to various items required by the Bankruptcy Code and/or necessary for the Company's reorganizational efforts. The Company has obtained orders providing for, among other things, (i) implementation of employee retention and incentive programs, (ii) the ability to pay vendors and other providers in the ordinary course for goods and services provided to the Company, and (iii) the extension of time to assume or reject leases or executory contracts. Under the Plan, the Company will reject the Shareholders' Agreement dated April 8, 1997, between the Company and PT Texmaco Jaya, and the Agreement dated April 8, 1997, among Polysindo Hong Kong Limited and the Company (the "Texmaco Agreements") pursuant to Section 365(a) of the Bankruptcy Code. The Company also intends to reject its 1992 Stock Incentive Plan and its Non-Qualified Stock Option Plan for Employees of Acquired Companies. FINANCIAL STATEMENT PRESENTATION AND GOING CONCERN MATTERS The Company's financial statements have been prepared on a going concern basis of accounting in accordance with AICPA Statement of Position ("SOP") 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." SOP 90-7 does not change the application of generally accepted accounting principles in the preparation of financial statements. However, it does require that financial statements for periods including and subsequent to filing the Chapter 11 petitions distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. The Company's recent losses and the Chapter 11 Cases raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, (i) the Company's ability to comply with its financing agreements, (ii) confirmation of a plan of reorganization under the Bankruptcy Code, (iii) the Company's ability to achieve profitable operations after such confirmation, and (iv) the Company's ability to generate sufficient cash from operations to meet its obligations. BASIS OF PRESENTATION As described herein, the Company has submitted a plan for reorganization to the Bankruptcy Court. Management believes that the plan of reorganization, subject to approval of the Bankruptcy Court, along with cash provided by its credit facility and operations, will provide sufficient liquidity to allow the Company to continue as a going concern; however, there can be no assurance that the sources of liquidity will be available or sufficient to meet the Company's needs. The proposed plan of reorganization could materially change the amounts currently recorded in the consolidated financial statements. The consolidated financial statements do not give effect to any adjustment to the carrying value of assets or amounts and classifications of liabilities that might be necessary as a result of the Chapter 11 Cases. 7 8 NOTE A - NATURE OF OPERATIONS AND BUSINESS CONDITION (continued) REORGANIZATION COSTS Reorganization costs include legal and professional fees incurred and expenses related to a retention bonus plan. ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133 had no effect on earnings and the financial position of the Company as the Company had no derivative instruments at December 30, 2000, or October 1, 2000. 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 accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Financial information as of September 30, 2000, has been derived from the audited financial statements of the Company, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated have been included. Due to seasonal patterns, the results for interim periods are not necessarily indicative of results to be expected for the year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2000. NOTE B--INVENTORIES

8 9 NOTE C--LONG-TERM OBLIGATIONS In August 1997, the Company issued $125,000,000 principal amount of 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. Effective August 17, 1999, the Company entered into a Credit Agreement, replacing its existing credit facility, consisting of a three-year $84,000,000 revolving line of credit (the "Revolver") and a three-year $26,000,000 term loan (the "Term Loan"). Borrowings under the Credit Agreement bear interest at either LIBOR plus a specified margin currently equal to 3.00% for the Revolver and 3.25% for the Term Loan, or, at the Company's option, bear interest at the lender's base rate plus a margin equal to 0.75%, for the Revolver and 1.25% for the Term Loan. The availability under the Revolver was limited at all times, through maturity, to a receivables and inventory borrowing base. The Company obtained the DIP Facility from the same lenders to replace the Company's Credit Agreement. The Bankruptcy Court approved the DIP Facility on an interim basis on September 25, 2000 and on a final basis on October 13, 2000. The DIP Facility provides for a term loan facility in an aggregate principal amount of $23.0 million, and a revolving loan facility in the aggregate principal amount of $74.0 million under a borrowing base formula. Term loans bear interest at the LIBOR rate plus 3.50% for LIBOR rate loans and at the base rate plus 1.50% for base rate loans. Revolving loans bear interest at the LIBOR rate plus 3.00% for LIBOR rate loans and at the base rate plus 1.00% for base rate loans. The DIP Facility expires on the earlier of (a) the substantial confirmation of the Company's restructuring or (b) 180 days from the entry by the Bankruptcy Court of the interim order approving the DIP Facility. The Company's obligations under the DIP Facility are secured by liens on substantially all of the Company's and its subsidiaries assets and a pledge of the shares of all of the Company's subsidiaries. Actual interest expense and amortization of debt costs for the first fiscal quarter of 2001 was $2.2 million. Had the Company not filed for bankruptcy and interest continued to accrue on the Subordinated Notes then interest expense would have increased by approximately $3.0 million for the same period. As a result of the decline in revenues and cash flow, the Company was not in compliance with its cash flow covenant at December 30, 2000. The Company has entered into an amendment to the DIP Facility which waives the covenant defaults for the months ended December 30, 2000 and January 28, 2001. There can be no assurance that further amendments or waivers of future defaults can be obtained. The DIP Facility continues to be the Company's primary source of liquidity. The Company continues to access its DIP Facility and has not realized any reduction in its borrowing availability. 9 10 NOTE D -- EARNINGS PER SHARE The table below sets forth the computations of basic and diluted earnings per share:

NOTE E -- PENSION The Company elected to freeze benefits under its salaried and hourly defined benefit pension plans as of December 31, 1999. This resulted in the recognition of a curtailment gain on the salary plan of approximately $1,700,000 in the quarter ended January 1, 2000. Also, in connection with the curtailment of the hourly plan, the Company recognized additional minimum pension liability of $456,000 (net of applicable taxes of $245,000). The additional minimum pension liability has been recorded as accumulated other comprehensive loss on the balance sheet at January 1, 2000. NOTE F--COMPREHENSIVE LOSS The following table provides a reconciliation of net loss reported in the Company's consolidated condensed statements of operations to comprehensive loss:

10 11 NOTE G - RESTRUCTURING CHARGES During the third quarter of fiscal 1999, the Company implemented a reorganization plan related to its textile business. The textile business had been running at less than full capacity due to the domestic circular knit industry experiencing excess supply and low-priced garment imports from Asia. The duration of these market conditions is uncertain. In response to these business conditions, the Company decided to reduce its U.S. manufacturing capacity. The major elements of the reorganization plan include the closing of the Company's facility in Hamilton, North Carolina and the elimination of yarn spinning operations at the Company's Trenton, Tennessee facilities, which were completed during the fourth quarter of fiscal 1999. Additionally, the plan resulted in the reduction of approximately 500 hourly and salaried employees, with severance benefits being paid over periods up to twelve months from the termination date. At October 2, 1999 substantially all employees had been terminated or notified of their impending termination. The cost of the reorganization was reflected as a restructuring charge, before income taxes, of $10,993,000, recorded in the third quarter of fiscal 1999, increased by $585,000 during the fourth quarter. The components of the charge included $4,499,000 for severance and related fringe benefits and $7,079,000 for the write-down of impaired fixed assets. Assets that are no longer in use have been sold or were held for sale at January 1, 2000 and were written down to their estimated fair values less costs of sale based primarily on independent appraisals. The Company is actively marketing the assets held for sale through the use of internal sources and outside agents. Assets held for sale were $2,641,000 at December 30, 2000. As a result of the restructuring, the Company has idle assets of approximately $1.9 million, which continue to be depreciated. On January 31, 2001, the Company exercised its right of first refusal on the purchase of two power plants adjacent to two of its textile manufacturing facilities. The Company simultaneously sold these plants to a third party generating net proceeds of approximately $3.5 million. Proceeds were applied to pay down the revolving line of credit under the DIP Facility and increase the borrowing availability under that facility. Additionally, one of the Company's subsidiaries, Alamac Knit Fabrics, Inc., has entered into an agreement to sell its facility in Hamilton, North Carolina. This facility has been closed since July 1999. The Company can offer no assurances that this anticipated transaction will be consummated on a timely basis, on terms favorable to the Company or at all. See - Cautionary Note Regarding Forward-Looking Information. 11 12 NOTE G - RESTRUCTURING CHARGES (continued) The following is a summary of activity in the restructuring reserves for severance and related expenses (in thousands): June 1999 restructuring charge $ 4,023 Payments (353) -------- Balance at July 3, 1999 3,670 Payments (3,292) Additional severance recorded 476 -------- Balance at October 2, 1999 854 Payments (457) -------- Balance at January 1, 2000 397 Payments (129) --------- Balance at April 1, 2000 268 Payments (24) -------- Balance at July 1, 2000 244 Payments (45) September 2000 severance recorded 216 -------- Balance at September 30, 2000 415 Payments (257) -------- Balance at December 30, 2000 $ 158 ========

NOTE H -- REPORTING SEGMENT INFORMATION The Company has adopted SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the reporting by public companies of information about operating segments, products and services, geographic areas and major customers. The method of determining what information to report is based on the way management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered to be the Chief Executive Officer ("CEO"). The Company's CEO evaluates both consolidated and disaggregated financial information in deciding how to allocate recourses and assess performance. The CEO uses certain disaggregated financial information for the Company's primary knit fabric markets: textile and stretch fabrics. Sales for textile and stretch fabrics for the quarters ended December 30, 2000 and January 1, 2000 were $44.9 million and $6.6 million, and $56.7 million and $7.1 million, respectively. The Company has aggregated these two markets into a single reportable textile segment as allowed under SFAS No. 131 because these product lines have similar long-term economic characteristics such as average gross margin, and the product lines are similar in regards to nature of production processes, type of customers, and method used to distribute products. The Company's textile segment manufactures in U.S. plants and markets fabric through its sales offices, principally sold to customers in the U.S. The Company also has an apparel segment. The apparel segment purchases fabric, contracts for cutting, sewing and packaging from companies in the U.S. and Mexico, and markets the finished apparel to customers in the U.S. The apparel segment has an equity investment in an apparel manufacturing joint venture in the Dominican Republic, which is not material at December 30, 2000. The Company holds a 50% equity position in the joint venture, and accordingly does not include net sales and other items of profit and loss in its Consolidated Statements of Operations or the following table. 12 13 NOTE H - REPORTING SEGMENTS (continued)

ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This report contains certain forward-looking statements within the meaning of the federal securities laws, all of which are intended to be covered by the safe harbors created thereby. These statements include all statements regarding the Company's intent, belief and expectations (such as statements concerning the Company's future operating and financial strategies and results) and any other statements that are not limited solely to historical fact. Investors are cautioned that all forward-looking statements involve known and unknown risks and uncertainties including, without limitation, risks associated with the Company's approval of plans and activities by the Bankruptcy Court, including the proposed Plan; the ability of the Company to continue as a going concern; the ability of the Company to operate pursuant to the terms of its DIP Facility and to fund future growth; the Company's ability to sell properties which are currently subject to an agreement of sale; the Company's ability to comply with restrictive financial and operating conditions imposed by the terms of the Company's DIP Facility; the Company's ability to obtain a new credit facility after it emerges from bankruptcy; the availability of trade credit and terms from vendors; the ability of the Company to operate successfully under a Chapter 13 14 11 proceeding and achieve planned sales and margin; potential adverse developments with respect to the Company's liquidity or results of operations; the ability of the Company to attract, retain and compensate key executives and associates; competitive pressures which may affect the nature and viability of the Company's business strategy; trends in the economy as a whole which may affect consumer confidence and consumer demand for the Company's products; the seasonal nature of the Company's business and the ability of the Company to predict consumer demand as a whole, as well as demand for specific goods; the ability of the Company to attract and retain customers; potential adverse publicity; the Company's ability and success in achieving cost savings; potential adverse developments with respect to the cost and availability of raw materials and labor; risks associated with governmental regulation and trade policies; and potential adverse developments regarding product demand or mix. Moreover, although the Company believes that any assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could prove to be inaccurate. Therefore, in light of these known and unknown risks and uncertainties, there can be no assurances that the forward-looking statements included in this report will prove to be accurate and the inclusion of such information should not be regarded as a representation by the Company or any other person that the forward-looking statements included in this report will prove to be accurate. The Company undertakes no obligation to update any forward-looking statements contained in this report. OVERVIEW Proceedings Under Chapter 11 of the Bankruptcy Code On September 25, 2000, the Company and 13 of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of title 11 of the Bankruptcy Code in the Bankruptcy Court and orders for relief were entered by the Bankruptcy Court. The Chapter 11 Cases have been consolidated for the purpose of joint administration under Case No. 00-3746. The Debtors are currently operating their businesses as debtors-in-possession pursuant to the Bankruptcy Code. Although the Debtors expect to emerge from bankruptcy in the second quarter of fiscal 2001, there can be no assurance that the Plan proposed by the Debtors will be confirmed by the Bankruptcy Court, or that the Plan will be consummated. See - Cautionary Note Regarding Forward-Looking Information. As provided by the Bankruptcy Code, a plan of reorganization must be confirmed by the Bankruptcy Court. The Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met. The Plan proposed by the Company involves a debt conversion of the Company's pre-petition Subordinated Notes into newly issued common equity of the reorganized Company and the PIK Note. Under such circumstances the existing common stock of the Company would be cancelled and the holders of our currently outstanding common stock would receive the Warrants to acquire up to fifteen (15%) percent of the new common stock on a fully-diluted basis. Accordingly, the Company believes the outstanding common stock is highly speculative, and may have no value. At the first hearing held on September 26, 2000 before Judge Mary F. Walrath, the Bankruptcy Court entered first day orders granting authority to the Debtors, among other things, to pay pre-petition and post-petition employee wages, salaries, benefits and other employee obligations, to pay vendors and other providers in the ordinary course for goods and services received after September 25, 2000, and to pay pre-petition unsecured trade claims to vendors. Substantially all pre-petition trade claims have been paid in full. The Company obtained the DIP Facility from the same lenders that financed the Company's Credit Agreement dated as of August 17, 1999. The Bankruptcy Court approved the DIP Facility on an interim basis on September 25, 2000 and on a final basis on October 13, 2000. The DIP Facility provides 14 15 for a term loan facility in an aggregate principal amount of $23.0 million, and a revolving loan facility in the aggregate principal amount of $74.0 million under a borrowing base formula. Term loans bear interest at the LIBOR rate plus 3.50% for LIBOR rate loans and at the base rate plus 1.50% for base rate loans. Revolving loans bear interest at the LIBOR rate plus 3.00% for LIBOR rate loans and at the base rate plus 1.00% for base rate loans. The DIP Facility expires on the earlier of (a) the substantial confirmation of the Company's restructuring or (b) 180 days from the entry by the Bankruptcy Court of the interim order approving the DIP Facility. The Company's obligations under the DIP Facility are secured by liens on substantially all of the Company's and its subsidiaries assets and a pledge of the shares of all of the Company's subsidiaries. The Company has filed various motions in the Chapter 11 Cases whereby it was granted authority or approval with respect to various items required by the Bankruptcy Code and/or necessary for the Company's reorganizational efforts. The Company has obtained orders providing for, among other things, (i) implementation of employee retention and incentive programs, (ii) the ability to pay vendors and other providers in the ordinary course for goods and services provided to the Company, and (iii) the extension of time to assume or reject leases or executory contracts. Under the Plan, the Company will reject the Texmaco Agreements pursuant to Section 365(a) of the Bankruptcy Code. The Company also intends to reject its 1992 Stock Incentive Plan and its Non-Qualified Stock Option Plan for Employees of Acquired Companies. RESULTS OF OPERATIONS Net sales for the quarter ended December 30, 2000, decreased by 23.9% to $51.9 million versus $68.3 million for the same quarter of the prior year. Sales were negatively effected due to a weaker than expected retail environment. Gross margins for the quarter decreased to 8.3% versus 15.4% for the same period in fiscal 2000. Sales volume and gross margins were both negatively impacted by reduced order activity as customers reacted with caution to the Company's bankruptcy status. Selling, general and administrative expenses for the quarter were $7.7 million compared to $6.3 million for the same period of 2000. First quarter 2000 contained a one-time curtailment gain of approximately $1.6 million stemming from consolidation of employee benefit plans. Interest expense in the first quarter of fiscal 2001 was reduced to $2.2 million compared to $4.9 million in the previous year due to curtailment of interest on the Subordinated Notes. Although the Company had a loss before taxes, no income tax benefit was recorded for the quarter as the Company is in a loss carry-forward position. Net loss for the quarter ended December 30, 2000 was $6.9 million, or $0.52 per share, versus net loss of $0.6 million, or $0.05 per share, for the same period in fiscal 2000. Earnings per share are the same whether calculated on a basic or diluted basis. The weighted average number of shares outstanding for the quarter was approximately 13,389,000. During the third quarter of fiscal 1999, the Company implemented a reorganization plan related to its textile business. The textile business had been running at less than full capacity due to the domestic circular knit industry experiencing excess supply and low-priced garment imports from Asia. The duration of these market conditions is uncertain. In response to these business conditions, the Company decided to reduce its U.S. manufacturing capacity. The major elements of the reorganization plan included the closing of the Company's facility in Hamilton, North Carolina and the elimination of yarn spinning operations at the Company's Trenton, Tennessee facilities which were completed during the fourth quarter of fiscal 1999. Additionally, the plan resulted in the reduction of approximately 500 hourly and salaried employees, with severance benefits being paid over periods up to twelve months from 15 16 RESULTS OF OPERATIONS (CONTINUED) the termination date. At October 2, 1999 substantially all employees had been terminated or notified of their impending termination. The cost of the reorganization was reflected as a restructuring charge, before income taxes, of $10,993,000, recorded in the third quarter 1999, increased by $585,000 during the fourth quarter. The components of the charge included $4,499,000 for severance and related fringe benefits and $7,079,000 for the write-down of impaired fixed assets. Assets that are no longer in use have been sold or were held for sale at December 30, 2000 and were written down to their estimated fair values less costs of sale based primarily on independent appraisals. The Company is actively marketing the assets held for sale through the use of internal sources and outside agents. Assets held for sale were $2,641,000 at December 30, 2000. As a result of the restructuring, the Company has idle assets of $1.9 million, which continue to be depreciated. LIQUIDITY AND CAPITAL RESOURCES On September 25, 2000, the Debtors filed the Chapter 11 Cases which will affect the Company's liquidity and capital resources in fiscal 2001. The Company entered into a loan and security agreement effective August 17, 1999, with Congress Financial Corporation (Southern) and BankBoston, N.A. for a revolving credit, term loan and letter of credit facility in an aggregate principal amount of up to $110.0 million (the "Credit Agreement"), to replace the Company's previous credit facility and to support the Company's working capital and general corporate needs. The Company obtained the DIP Facility from the same lenders to replace the Credit Agreement. The Bankruptcy Court approved the DIP Facility on an interim basis on September 25, 2000 and on a final basis on October 13, 2000. The DIP Facility provides for a term loan facility in an aggregate principal amount of $23.0 million, and a revolving loan facility in the aggregate principal amount of $74.0 million under a borrowing base formula. Term loans bear interest at the LIBOR rate plus 3.50% for LIBOR rate loans and at the base rate plus 1.50% for base rate loans. Revolving loans bear interest at the LIBOR rate plus 3.00% for LIBOR rate loans and at the base rate plus 1.00% for base rate loans. The DIP Facility expires on the earlier of (a) the substantial confirmation of the Company's restructuring or (b) 180 days from the entry by the Bankruptcy Court of the interim order approving the DIP Facility. The Company's obligations under the DIP Facility are secured by liens on substantially all of its and its subsidiaries assets and a pledge of the shares of all of the Company's subsidiaries. The Company currently receives trade credit or terms from substantially all of its vendors and suppliers. There can be no assurance that the Company will continue to receive trade credit or terms from its vendors. See - Cautionary Note Regarding Forward-Looking Information. The Company's primary capital requirements are for working capital, debt service and capital expenditures. Management believes that cash generated from operations, borrowings available under the DIP Facility and trade credit will be sufficient to meet the Company's working capital and capital expenditure needs while the Company is in bankruptcy. 16 17 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company is in the process of seeking a new credit facility to replace the DIP Facility once the Company emerges from bankruptcy. The Company intends to use the anticipated facility to repay outstanding borrowings under the Credit Agreement and the DIP Facility, as well as for working capital requirements. The Company believes its obligations under any new credit facility will be fully secured by liens on substantially all of the assets of the Company and its subsidiaries and a pledge of the shares of all of the Company's subsidiaries. There can be no assurance that the Company will be able to enter into a new credit facility on favorable terms, or at all. See - Cautionary Note Regarding Forward-Looking Information. As a result of the decline in revenues and cash flow, the Company was not in compliance with its cash flow covenant at December 30, 2000. The Company has entered into an amendment to the DIP Facility which waives the covenant defaults for the months ended December 30, 2000 and January 28, 2001. The DIP Facility continues to be the Company's primary source of liquidity. The Company continues to access its DIP Facility and has not realized any reduction in its borrowing availability. On January 31, 2001, the Company exercised its right of first refusal on the purchase of two power plants adjacent to two of its textile manufacturing facilities. The Company simultaneously sold these plants to a third party generating net proceeds of approximately $3.5 million. Proceeds were applied to pay down the revolving line of credit under the DIP Facility and increase the borrowing availability under that facility. Additionally, one of the Company's subsidiaries, Alamac Knit Fabrics, Inc., has entered into an agreement to sell its facility in Hamilton, North Carolina. This facility has been closed since July 1999. The Company can offer no assurance that this anticipated transaction will be consummated on a timely basis, on terms favorable to the Company or at all. See - Cautionary Note Regarding Forward-Looking Information. Management believes that cash generated from operations, borrowings available under a new credit facility, if obtained, trade credit and proceeds from the potential sale of some of its equipment and properties, will be sufficient to meet the Company's working capital needs from the time it emerges from bankruptcy through the end of fiscal 2001. Any adverse developments with respect to any of the foregoing could materially adversely affect the Company's liquidity. In such an event, the Company would seek alternative sources of liquidity, but there can be no assurance that any such sources would be available to the Company. Accordingly, there can be no assurance that the Company will generate sufficient liquidity after it emerges from bankruptcy. See -- Cautionary Note Regarding Forward-Looking Information. Working capital at December 30, 2000, was $4.3 million versus $6.8 million at September 30, 2000. The current ratio at December 30, 2000 was 1.1:1, equaling September 30, 2000's current ratio. The Company's debt-to-capital ratio was 75.2% at December 30, 2000 compared to 73.9% at September 30, 2000. Net receivables of $35.1 million at December 30, 2000, decreased from $48.9 million at September 30, 2000, due to reduced sales levels. Inventories increased to $34.3 million at the end of the first quarter of fiscal 2001 from $33.4 million at the end of the fourth quarter of fiscal 2000. Capital expenditures for the three months ended December 30, 2000, were $1.0 million versus $1.6 million for the same period in the prior year. Cash outlays for capital spending are anticipated to approximate $5 million in fiscal 2001. 17 18 Based on the borrowing base computation within the DIP Facility, the amount of additional borrowing available at December 30, 2000, was approximately $6.4 million. 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. PART II--OTHER INFORMATION ITEM 3--DEFAULTS UPON SENIOR SECURITIES The Company commenced the Chapter 11 Cases on September 25, 2000. As a result of filing the Chapter 11 Cases, no principal or interest payments will be made on the Subordinated Notes. The Plan proposed by the Company involves a debt conversion of the Subordinated Notes into newly issued common equity of the reorganized Company and the PIK Note. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Plan of reorganization proposed by the Debtors was submitted to a vote of the class 4 claimants, holders of the Subordinated Notes, and the class 8 claimants, holders of the Company's existing common stock. The ballots were due to be cast by 5:00 p.m. on December 7, 2000. Both classes of voters accepted the Plan. Of the votes cast from holders of the Subordinated Notes, 58 ballots totaling 85,559,000 in amount voted to accept the Plan and 2 ballots totaling 20,000 in amount voted to reject the Plan. Of the votes cast from common stock interests, 343 ballots totaling 3,093,938 in amount voted to accept the Plan and 34 ballots totaling 105,487 in amount voted to reject the Plan. No ballots cast abstained or withheld a vote. ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (a)(1) Exhibits: 10.19 Material Contract (a) Second Amendment to Post Petition Loan and Security Agreement among Dyersburg Corporation and its Lenders dated February 12, 2001. (b) The Corporation did not file any reports on Form 8-K during the three months ended December 30, 2000. 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. February 13, 2001 /s/ William S. Shropshire, Jr. -------------------------------------- William S. Shropshire, Jr. Executive Vice President, Chief Financial Officer, Secretary and Treasurer 18

DYERSBURG CORP 10-Q