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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 1-13421
DAN RIVER INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1854637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2291 Memorial Drive 24541
Danville, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 799-7000
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
Number of shares of common stock outstanding as of March 31, 2001:
Class A: 19,703,439 Shares
Class B: 2,062,070 Shares
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Forward Looking Statements.
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This Quarterly Report contains forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities and Exchange Act of 1934.
These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those included in such forward
looking statements. The words "believes," "expects," "intends," "estimates"
or "anticipates" and similar expressions, as well as future or conditional
verbs such as "will," "should," "would," and "could," are intended to
identify forward-looking statements. Specific forward looking statements
contained in this Quarterly Report include, among others, statements
regarding adequacy of our liquidity and capital resources. These forward
looking statements are found in Part I, Item 2. There can be no assurance
that our assumptions are correct.
The forward looking statements in this Quarterly Report are also subject to
certain risks and uncertainties including, among others, that our performance
in future periods may be adversely impacted by the cyclical nature of the
textile industry, intense competition within the textile industry from both
foreign imports and domestic sources of supply, fluctuations in the price and
availability of cotton and other raw materials, our inability to make capital
improvements necessary to maintain competitiveness, our inability to increase
prices in order to recover increased energy, raw material, labor or other
costs, possible adverse changes in governmental regulation regarding the
import of cotton and textile products, difficulties in integrating acquired
businesses and achieving cost savings, changes in environmental regulations,
deterioration of relationships with or the loss of material customers, and
adverse changes in general market and industry conditions, including but not
limited to high inventory levels at retail or within the textile industry
generally.
We believe that the forward looking statements in this Quarterly Report are
reasonable; however, such statements are based on current expectations and
undue reliance should not be placed on such statements. We undertake no
obligation to update publicly any forward-looking statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
See Following Pages.
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DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 30,
2001 2000
------------ ------------
(in thousands, except share
and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 2,144 $ 3,675
Accounts receivable, net 88,617 84,726
Inventories 192,205 206,227
Prepaid expenses and other current assets 6,825 6,254
Deferred income taxes 16,220 16,656
------------ -----------
Total current assets 306,011 317,538
Property, plant and equipment 519,812 508,498
Less accumulated depreciation and amortization (225,392) (216,035)
------------ -----------
Net property, plant and equipment 294,420 292,463
Goodwill, net 115,636 115,011
Other assets 13,024 20,461
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$ 729,091 $ 745,473
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DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 30,
2001 2000
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(in thousands, except share
and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 39,087 $ 25,872
Accounts payable 26,845 27,622
Accrued compensation and related benefits 22,951 20,437
Other accrued expenses 15,830 11,233
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Total current liabilities 104,713 85,164
Other liabilities:
Long-term debt 317,593 343,399
Deferred income taxes 24,544 28,583
Other liabilities 11,568 11,135
Shareholders' equity:
Preferred stock, $.01 par value; authorized
50,000 shares; no shares issued -- --
Common stock, Class A, $.01 par value;
authorized 175,000,000 shares; issued
and outstanding 19,703,439 shares 197 197
Common stock, Class B, $.01 par value;
authorized 35,000,000 shares; issued
and outstanding 2,062,070 shares 21 21
Common stock, Class C, $.01 par value;
authorized 5,000,000 shares; no shares
outstanding -- --
Additional paid-in capital 209,096 209,096
Retained earnings 61,359 67,878
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Total shareholders' equity 270,673 277,192
------------ ------------
$ 729,091 $ 745,473
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See accompanying notes.
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DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------
March 31, April 1,
2001 2000
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(in thousands, except per share data)
Net sales $ 164,000 $ 164,949
Costs and expenses:
Cost of sales 147,944 134,051
Selling, general and
administrative expenses 16,821 15,971
Amortization of goodwill 806 711
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Operating income (loss) (1,571) 14,216
Other income 164 198
Equity in loss of joint venture (67) --
Interest expense (8,648) (7,338)
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Income (loss) before income taxes (10,122) 7,076
Provision (benefit) for income taxes (3,603) 3,003
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Net income (loss) $ (6,519) $ 4,073
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Earnings (loss) per share:
Basic $ (0.30) $ 0.18
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Diluted $ (0.30) $ 0.18
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See accompanying notes.
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DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
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March 31, April 1,
2001 2000
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(in thousands)
Cash flows from operating activities:
Net income (loss) $ (6,519) $ 4,073
Adjustments to reconcile net income to
net cash provided by operating activities:
Noncash interest expense 265 188
Depreciation and amortization of
property, plant and equipment 9,765 9,253
Amortization of goodwill 806 711
Deferred income taxes (3,603) 2,660
Writedown/disposal of assets 96 9
Changes in operating assets and liabilities:
Accounts receivable (4,169) (17,835)
Inventories 14,637 (4,646)
Prepaid expenses and other assets 1,233 (2,315)
Accounts payable and accrued expenses 9,698 12,819
Other liabilities 265 (90)
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Net cash provided by operating
activities 22,474 4,827
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Cash flows from investing activities:
Capital expenditures (6,913) (8,494)
Proceeds from sale of assets 22 118
Investment in subsidiary (3,681) --
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Net cash used by investing activities (10,572) (8,376)
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Cash flows from financing activities:
Payments of long-term debt (7,090) (5,553)
Payments of debt issuance costs (843) --
Net borrowings (payments) - working capital
facility (5,500) 13,000
Repurchase of common stock -- (2,874)
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Net cash provided (used) by financing
activities (13,433) 4,573
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Net increase (decrease) in cash and cash
equivalents (1,531) 1,024
Cash and cash equivalents at beginning of period 3,675 2,084
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Cash and cash equivalents at end of period $ 2,144 $ 3,108
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See accompanying notes.
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DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Dan River Inc. and its wholly-owned
subsidiaries, (collectively, the "Company"). In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of results for the interim
periods presented have been included. Interim results are not
necessarily indicative of results for a full year. For further
information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 30, 2000.
2. Adoption of New Accounting Standard
Effective as of the beginning of fiscal 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended ("SFAS 133"),
which requires that derivative instruments be reported on the balance
sheet at fair value. The standard also establishes criteria for
designation and effectiveness of hedging relationships.
In connection with the purchasing of cotton for anticipated
manufacturing requirements, the Company may enter into cotton futures
and option contracts in order to reduce the risk associated with future
price fluctuations. Under SFAS 133, certain cotton futures and option
contracts will no longer be accounted for as hedges. Due to the
insignificance of such contracts and the absence of other derivative
instruments subject to SFAS 133, the adoption of the new standard did
not have a material impact on the Company's financial position or
results of operations.
3. Inventories
The components of inventory are as follows:
March 31, December 30,
2001 2000
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(in thousands)
Finished goods $ 75,612 $ 78,597
Work in process 100,423 110,591
Raw materials 3,109 3,215
Supplies 13,061 13,824
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Total Inventories $192,205 $206,227
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4. Shareholders' Equity
Activity in Shareholders' Equity is as follows:
Total
Additional Share-
Common Stock Paid-In Retained holders'
Class A Class B Capital Earnings Equity
------- -------- ---------- -------- ----------
(in thousands)
Balance at Dec-
ember 30, 2000 $ 197 $ 21 $209,096 $67,878 $277,192
Net loss -- -- -- (6,519) (6,519)
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Balance at March
31, 2001 $ 197 $ 21 $209,096 $61,359 $270,673
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5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
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March 31, April 1,
2001 2000
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Numerator for basic and diluted earnings
per share -- net income (loss) $(6,519,000) $ 4,073,000
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Denominator for basic and diluted earnings
per share--weighted average shares 21,765,509 22,501,461
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Basic earnings (loss) per share $ (0.30) $ 0.18
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Diluted earnings (loss) per share $ (0.30) $ 0.18
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6. Segment Information
Summarized information by reportable segment is shown in the following
tables:
Three Months Ended
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March 31, April 1,
2001 2000
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(in thousands)
Net sales:
Home fashions $ 120,529 $ 114,373
Apparel fabrics 32,202 36,951
Engineered products 11,269 13,625
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Consolidated net sales $ 164,000 $ 164,949
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Operating income (loss):
Home fashions $ 485 12,239
Apparel fabrics (497) 3,232
Engineered products (398) 750
Corporate items not allocated to segments:
Amortization of goodwill (806) (711)
Other (355) (1,294)
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Consolidated operating income (loss) $ (1,571) $ 14,216
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
NET SALES
Net sales for the first quarter of fiscal 2001 were $164.0 million, a
decrease of $0.9 million or 0.6% from the first quarter of fiscal 2000.
Home Fashions
Net sales of home fashions products were $120.5 million for the first quarter
of fiscal 2001, up $6.2 million or 5.4% from the first quarter of fiscal
2000. Incremental sales from the Import Specialists business we acquired in
April 2000 were $3.0 million. The remainder of the increase is attributable
to a significant program with a large mass merchant that began in the third
quarter of fiscal 2000, which more than compensated for generally soft demand
at retail for our home fashions products.
Apparel Fabrics
Net sales of apparel fabrics for the first quarter of fiscal 2001 were $32.2
million, a decrease of $4.7 million or 12.9% from the first quarter of fiscal
2000. Most of the decrease is attributable to the segment's largest product
category, shirting fabrics, in which sales declined by $3.2 million, or
15.6%, reflecting the sluggish retail environment and softness in the career
apparel market.
Engineered Products
Net sales of engineered products for the first quarter of fiscal 2001 were
$11.3 million, a decrease of $2.4 million or 17.3% from the first quarter of
fiscal 2000. The decrease generally reflects the slowdown in activity in the
automobile and tire industries, which began to impact demand for our products
in the fourth quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $16.8 million for the first
quarter of fiscal 2001 (10.3% of net sales), an increase of $0.9 million or
5.3% from $16.0 million (9.7% of net sales) for the first quarter of fiscal
2000. Most of the increase is attributable to incremental expenses from the
Import Specialists business, which we acquired in April 2000.
OPERATING INCOME
The Company generated a consolidated operating loss of $1.6 million in the
first quarter of fiscal 2001, compared to $14.2 in operating income for the
first quarter of fiscal 2000.
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Segment Operating Income:
Operating income for the home fashions segment was $0.5 million for the first
quarter of fiscal 2001, including $0.2 million in operating income
contributed by the Import Specialists business. In the first quarter of
fiscal 2001 the soft retail environment, combined with our focus on inventory
reduction, led to promotional pricing which adversely affected our product
mix and resulted in lower margins. In addition, profitability was negatively
impacted by higher energy and raw material costs, and by production
curtailments which were necessary in order to attain targeted inventory
levels.
The apparel fabrics segment generated a $0.5 million operating loss for the
first quarter of fiscal 2001, compared to $3.2 million in operating income
for the first quarter of fiscal 2000. In addition to the lower sales volume
in the first quarter of fiscal 2001, profitability was negatively impacted by
higher energy and raw material costs, and production curtailments that were
necessary in order to keep inventories in line with demand for our products.
The engineered products segment generated a $0.4 million operating loss in
the first quarter of fiscal 2001, compared to $0.8 million in operating
income in the first quarter of fiscal 2000. The decrease in profitability
reflects both the lower sales volume and higher per-unit manufacturing costs
resulting from reduced manufacturing running schedules.
Corporate Items:
Amortization of goodwill was $0.8 million in the first quarter of fiscal 2001
compared to $0.7 million in the first quarter of fiscal 2000. The increase in
fiscal 2001 is attributable to goodwill resulting from our April 2000
acquisition of Import Specialists.
Other expenses not allocated to segments totaled $0.4 million in the first
quarter of fiscal 2001 compared to $1.3 million in the first quarter of
fiscal 2000. The fiscal 2000 amount includes $1.1 million related to
depreciation on the write-up of the Company's fixed assets from its
acquisition in 1989. The vast majority of the write-up was for manufacturing
equipment that is now fully depreciated.
INTEREST EXPENSE
Interest expense was $8.6 million for the first quarter of fiscal 2001, up
$1.3 million over the first quarter of fiscal 2000. Approximately 75% of the
increase was caused by higher average debt levels, with the remainder
attributable to higher average interest rates.
INCOME TAX PROVISION
The Company recorded a $3.6 million income tax benefit (35.6% of the pre-tax
loss) for the first quarter of fiscal 2001, compared to a $3.0 million
provision (42.4% of pre-tax income) for the first quarter of fiscal 2000.
The effect of nondeductible goodwill amortization decreased the income tax
benefit for the first quarter of fiscal 2001 by 2.7% of the pre-tax loss and
increased the income tax provision in the first quarter of fiscal 2000 by
3.9% of pre-tax income.
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NET INCOME AND EARNINGS PER SHARE
The net loss for the first quarter of fiscal 2001 was $6.5 million or $0.30
per share compared to net income of $4.1 million or $0.18 per share for the
first quarter of fiscal 2000. Weighted average diluted shares outstanding
decreased to 21.8 million for the first quarter of fiscal 2001 from 22.5
million for the first quarter of fiscal 2000, due to the repurchase of shares
during the first half of fiscal 2000 under the Company's stock repurchase
program.
LIQUIDITY AND CAPITAL RESOURCES
General
We believe that internally generated cash flow, supplemented by borrowings
under our working capital line of credit, will be sufficient to meet our
foreseeable debt service requirements, capital expenditures, and working
capital needs. We had a debt to total capital ratio of 56.9% at March 31,
2001.
Credit Facilities
We maintain a credit facility comprised of a term loan and a $150 million
secured working capital line of credit. This credit facility is secured by
our accounts receivable, inventories and real and personal property. The
credit facility bears interest at the Base Rate plus applicable percentage,
as defined (8.75% as of May 9, 2001) or LIBOR plus applicable percentage
(6.67% as of May 9, 2001), for periods of one, two, three or six months, at
our option.
The working capital line is non-amortizing and any amounts outstanding are
due at the final maturity of September 30, 2003. As of March 31, 2001,
$109.6 million was used and $40.4 million was unused and available for
borrowing. The term loan had an outstanding principal balance of $111.4
million at March 31, 2001. Scheduled amortization payments for fiscal 2001
on the term loan total $23.0 million, $6.5 million of which was paid in the
first quarter.
The credit facility is provided pursuant to a loan agreement which contains
certain covenants, including the maintenance of certain interest coverage
ratio and maximum debt levels and limitations on mergers and consolidations,
affiliated transactions, incurring liens, disposing of assets and limitations
on investments. An event of default under the loan agreement includes Change
of Control (as defined) as well as non-compliance with certain other
provisions.
Working Capital
Net cash generated from operating activities in the three months ended March
31, 2001 was $22.5 million. Included in that amount is cash generated from
operating assets and liabilities of $21.7 million, comprised of a $20.2
million source from operating working capital (accounts receivable - $4.2
million use, inventories - $14.7 million source, and accounts payable and
accrued expenses - $9.7 million source) and a $1.5 million source of cash for
prepaid expenses and other assets and other liabilities.
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During the comparable three month period ended April 1, 2000, net cash
generated from operating activities was $4.8 million. Included in that
amount is a use of cash from operating assets and liabilities of $12.1
million, comprised of a $9.7 million use from operating working capital
(accounts receivable - $17.8 million use, inventories - $4.6 million use, and
accounts payable and accrued expenses - $12.8 million source) and a $2.4
million use of cash for prepaid expenses and other assets and other
liabilities.
Investing Activities
During the first three months of fiscal 2001, we purchased $6.9 million in
equipment and manufacturing improvements. In addition we invested $3.7
million in our Mexican garment manufacturing operations, including $3.2
million paid in connection with the purchase of our joint venture partner's
interest.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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PART II - OTHER INFORMATION
Items 1-5. No disclosure required.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Exhibits listed as applicable on the accompanying Exhibit
Index are filed as part of this Quarterly Report.
(b) Reports on Form 8-K. None.
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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.
DAN RIVER INC.
Date: May 11, 2001 /s/ Barry F. Shea
-----------------------------------
Barry F. Shea
Executive Vice President-Chief
Financial Officer
(Authorized Signing Officer and
Principal Financial Officer)
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EXHIBIT INDEX
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Exhibit No. Description of Exhibit Page
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3.1 Amended and Restated Articles of
Incorporation of Dan River Inc.
(incorporated by reference to
Exhibit 3.1 in Amendment No. 1
to Registration Statement on
Form S-1 (File No. 333-36479))
3.2 Bylaws of Dan River Inc.
(incorporated by reference to
Exhibit 3.2 in Amendment No. 1
to Registration Statement on
Form S-1 (File No. 333-36479))
11 Statement regarding Computation of
Earnings per share (incorporated by
reference to Note 4 to the Unaudited
Condensed Consolidated Financial
Statements included in this
Quarterly Report on Form 10-Q)