THIS DOCUMENT IS A COPY OF THE REPORT ON FORM 10-KSB FILED ON APRIL 1, 1997
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report Pursuant to Sec. 13 or 15(d) of the
Securities and Exchange Commission
For the Fiscal Year Ended 12/31/96 Commission File Number 0-774
DANIEL GREEN COMPANY
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 15-0327010
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
ONE MAIN ST., DOLGEVILLE, NEW YORK 13329
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 429-3131
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $2.50 PAR VALUE PER SHARE
(Title of 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, 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 by
amendment to this Form 10-KSB ( ).
Revenues of the Registrant for the Fiscal Year Ended December 31, 1996:
Net Sales of $23,060,724
Aggregate market value of the voting stock held by non-affiliates of the
registrant:
$4,100,148 as of March 24, 1997
<PAGE>
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
COMMON STOCK, OUTSTANDING AT MARCH 24, 1997
- ------------ -----------------------------
$2.50 PAR VALUE 1,511,892 shares
- --------------- ---------------------
List hereunder the following documents, if incorporated by reference, and the
part of the Form 10-KSB into which the document is incorporated:
Annual Report to Stockholders, December 31, 1996 Part II
Definitive Proxy Statement Dated March 7, 1997 Part III
PART I
Item 1. Description of Business.
The registrant and its predecessors have been engaged in the
manufacture and sale of quality leisure footwear since 1882. The Daniel Green
Company slipper is one of the oldest and best-known in the footwear industry.
Materials in Daniel Green slippers include satin, rayon, corduroy, nylon,
brocade, felt, polyurethane and several types of leather.
Women's slippers and leisure footwear, which normally account for
above 90% of the registrant's annual sales, retail within a price range varying
from $18.50 a pair to $88.00 a pair. Men's slippers are sold at prices ranging
between $19.50 and $48.00 a pair. The registrant produces about 35 to 45 styles
of slippers and 45 to 50 styles of leisure footwear, many of which change from
year to year. The registrant designs most of its own styles, having for many
years maintained a style research department. Several styles are imported and
are designed by the overseas manufacturers, or in concert with the registrant.
Most of the slippers and leisure footwear are sold under the name "Outdorables",
or under the trademarks Comfy(R), Dee Gee(R), and Daniel Green(R).
Most of the slippers and leisure footwear sold by the registrant are
manufactured in its plants in Dolgeville, New York (more fully described in Item
2 - Property). The Company's current product line includes imported shoe styles,
and this trend is likely to continue. The registrant has experienced no
difficulty in obtaining the raw materials needed to manufacture its products.
The registrant has never made a practice of entering into long-term purchase
contracts.
The registrant's products are sold directly to retailers through its
own sales force which covers the entire United States. Approximately 4,600
stores carry Daniel Green Company slippers and leisure footwear, including most
of the major department stores in the country. Export sales to Canada have
increased slightly due to the gradual elimination of restrictive tariffs and
duties. One customer accounted for more than 10% of the Company's business in
1996 and 1995 while in 1994, no customer accounted for more than 10% of the
Company's net sales. Due to the uncertain nature of the retail industry, the
loss of any one or more major customers could have a material adverse effect on
the Company's business.
2
<PAGE>
The registrant advertises its products through leading nationally
distributed magazines and for many years has built its advertising campaigns
around the trademarks Comfy(R) and Daniel Green(R). It avoids granting
restricted or exclusive shoe sales arrangements, believing that distribution of
its type of merchandise requires the greatest number of outlets. Private label
products are sold to a number of companies by internal management and no one
company accounts for a majority of the business of that division.
The registrant's business is a seasonal one. By offering a June 10th
payment date to customers buying slippers for shipment between January 1st and
May 10th, the registrant has been able to encourage customers to replenish their
stock more evenly throughout the year. Dating privileges are also given for
payment on May 10th for all Spring Outdorables shipped between November 25th and
March 24th, and November 10th dating for Fall Outdorables shipped between June
1st and September 24th. However, the majority of registrant's sales are
generated during the latter half of the year. In an effort to encourage earlier
shipments, the registrant offers a Christmas dating which allows customers to
pay on December 10th for orders of slippers and Dee Gee(R)'s shipped between
June 1st and October 24th.
The registrant experiences severe competition in the sale of its
slippers from other manufacturers of leisure footwear, particularly imports. It
maintains an active research and development staff which concentrates on
improving manufacturing techniques and plant scheduling. The registrant is not
aware of any patents held by others which might materially affect its ability to
compete.
The registrant believes that a definite advantage attaches to its
ownership of the registered trademarks Comfy(R), Dee Gee(R), and Daniel
Green(R), which have been used by the registrant for many years.
The registrant knows of no material effects that compliance with
federal, state and local provisions regulating the discharge of materials into
the environment may have upon the capital expenditures, earnings and competitive
position of the registrant.
The registrant has enjoyed an excellent relationship with its
approximately 350 employees, most of whom are full-time. All of the registrant's
employees, except for the salesmen, are employed in its plant at Dolgeville, New
York.
The amount of registrant's backlog orders believed to be firm as of
December 31, 1996 is $1,388,784 as compared with $543,413 as of December 31,
1995 and $759,901 as of December 31, 1994. All backlog orders are expected to be
filled within the next fiscal year. The backlog orders are a normal aspect of
the registrant's business due to its seasonal nature.
Item 2. Description of Properties.
The registrant's executive offices and manufacturing facilities are
located in Dolgeville, New York. This site consists of approximately 15
3
<PAGE>
acres of land on which there is a group of multi-storied buildings containing
approximately 326,000 square feet of floor space. These buildings are
constructed principally of wood and limestone. The principal buildings were
built between 1882 and 1890.
The registrant's real property, equipment and other fixed assets are
maintained in good condition and actively utilized.
Registrant believes that its plants, which contain a variety of
machinery for the manufacture of leisure footwear, are adequate to maintain
present production output.
All registrant's buildings are owned by the Company. A small portion of
the registrant's production machinery is leased. An updated computer mainframe
and telephone system were installed under capital lease arrangements in 1995 and
1996.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters.
This information is contained in the 1996 Annual Report to Stockholders
which was previously filed with the Commission, and is incorporated by reference
in this Form 10-KSB Annual Report as Exhibit 13.
Item 6. Management's Discussion and Analysis of Plan of Operations.
This information is contained in the 1996 Annual Report to Stockholders
which was previously filed with the Commission, and is incorporated by reference
in this Form 10-KSB Annual Report as Exhibit 13.
Item 7. Financial Statements.
The required financial statements together with the Report of Deloitte
& Touche LLP dated January 24, 1997, is contained in the 1996 Annual Report to
Stockholders which was previously filed with the Commission, and is incorporated
by reference in this Form 10-KSB Annual Report as Exhibit 13.
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
4
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act.
This information is contained in the Definitive Proxy Statement dated
March 7, 1997, which has been filed with the Commission, and is incorporated by
reference in this Form 10-KSB Annual Report.
Item 10. Executive Compensation.
This information is contained in the Definitive Proxy Statement dated
March 7, 1997, which has been filed with the Commission, and is incorporated by
reference in this Form 10-KSB Annual Report.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
This information is contained in the Definitive Proxy Statement dated
March 7, 1997, which has been filed with the Commission, and is incorporated by
reference in this Form 10-KSB Annual Report.
Item 12. Certain Relationships and Related Transactions.
This information is contained in the Definitive Proxy Statement dated
March 7, 1997, which has been filed with the Commission, and is incorporated by
reference in this Form 10-KSB Annual Report.
PART IV
Item 13. Exhibits, List, and Reports on Form 8-K.
(a). Exhibits
The following exhibits are incorporated by reference:
(13) 1996 Annual Report to Stockholders
(21) Subsidiary of the registrant
(27) Financial Data Schedule
(b). Reports on Form 8-K.
There were no reports filed on Form 8-K for the quarter ended
December 31, 1996.
5
<PAGE>
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, thereunto duly authorized.
DANIEL GREEN COMPANY
(Registrant)
DATE: March 31, 1997 By: /s/ James R. Riedman
James R. Riedman,
Chairman and Chief Executive
Officer
By: /s/ Warren J. Reardon III
Warren J. Reardon III,
President and Chief Operating
Officer
By: /s/ Stanley W. Kabot
Stanley W. Kabot, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in capacities and on the date indicated.
DIRECTORS
/s/ Edward Bloomberg /s/ Steven DePerrior
Edward Bloomberg Steven DePerrior
/s/ William L. Fay /s/ John B. French, Esq.
William L. Fay John B. French, Esq.
/s/ David T. Griffith /s/ Gregory Harden
David T. Griffith Gregory Harden
/s/ Gary E. Pflugfelder
Gary E. Pflugfelder
DATE: March 31, 1996
6
TO OUR STOCKHOLDERS
Every statement tells a story. Some are just more obvious than others.
We want to take the next few pages to detail for you what our story was in 1996
and what our financial statements have to tell. This was clearly a transition
year for our Company, so, while reading annual statements may be a terribly dry
sport to some, your attention will be rewarded by a much better understanding of
our future prospects.
Let's start with the balance sheet. On page 8, you'll see comparative balance
sheets for 1996 and 1995. Before we review the ending numbers, let's take a
moment to review how we got there. We started 1996, on the heels of the
Company's first year with an operating loss, $1,388,987 pre-tax. Combined with
an already leveraged balance sheet, our bank debt stood at a new record for
January, topping $11.2 million. While we moved quickly to address our problems
(the first step being a significant reduction in our workforce), the efforts
were not enough to prevent our lender from constructively terminating our
relationship. Without a competitive banking relationship, our prospects were
limited.
Those prospects began to change, however, when the Company received an infusion
of capital from Riedman Corporation of $1,500,000 in June. As part of that
transaction, Daniel Green issued 475,000 new shares of common stock. Ultimately,
in conjunction, Warren Reardon purchased 31,645 of these shares, making a very
important statement about his commitment and belief in the Company's future.
Under Warren's leadership, the employees of Daniel Green then set out to tackle
our balance sheet problems. The result of their efforts? Turn to page 9, the
Statements of Cash Flows. A very important sub-total is listed halfway down the
page, "Net cash provided by operating activities." It was a positive $3,023,818.
Two numbers in particular jump off the schedule, accounts receivable ($628,346)
and inventories ($2,446,540). The inventory is detailed in note #2 and
represents the result of some very aggressive inventory management. Ed Vedder,
Larry Sargeant and Gary Miller, in particular, deserve a large share of the
credit. Ultimately, if we can operate and build the business with less hard
assets, we can significantly increase the value of our operations.
The second initiative was to work as quickly as possible to replace our existing
lender. We recently signed a letter of commitment with Key Bank to do just that.
In 1996, we paid Fleet Bank an average interest rate of 9.54% and the rate
currently stands at 10.25%, or Prime Plus 2%. Our new relationship with Key is a
floating interest rate. As we write to you in late February, this new rate of
7.75% stands in sharp contrast to our old rate of 10.25%. Even at our lower
level of debt, this new rate will result in a substantial annual savings.
The third initiative to strengthen our balance sheet focused on our "Other
Assets." If you turn to page 11, note #5, while arcane, explains the current
status of our employees' retirement plan. As you can see, the Company has set
aside considerably more assets ($11,123,411) than the liabilities it has
incurred (actuarial present value of accumulated obligation - $7,338,486). This
excess represents assets which can be more effectively used to shore up the
financial footings of Daniel Green.
<PAGE>
At Daniel Green, we remain strongly commited to our tradition of providing
retirement benefits to our employees. On January 31st of 1997, a series of
employee meetings were held announcing steps we will be taking in the near
future to change the nature of those benefits. First, we will be implementing a
401(k) savings plan. Secondly, in the process of "reverting" the pension plan, a
significant amount of capital will be freed up and flow back to the Company.
These funds will remain in the Company and be used primarily to reduce our debt.
Lastly, as part of this transaction, we will be making a one time grant of stock
to current employees, making them partners and vested co-workers in our
financial well being. I should note, for those readers who are already retirees,
you will see no change to your existing benefits.
As we go through the year, we will continue to provide more details concerning
these changes, but rest assured, in addition to those of our employees, your
interests as shareholders will be well represented in the process.
These steps, the June infusion of capital, inventory and cash management,
renegotiating our debt and restructuring our retirement benefits, all add up to
a very solid performance on the balance sheet front.
Turning to our Profit and Loss statement, page 7, the first encouraging item is
our sales of $23,060,724. We were able to maintain a sales level comparable to
last year, while selling considerably fewer patterns.
We wrote to you in last year's Annual Statement about the culling of our product
line. While it caused us to realize a charge to write down our inventory in
1995, it clearly positioned us to improve our margins and manage our inventory
level. This focused approach, of course, means you better have some styles which
will sell. Jane Bynon, new to the Company in 1996, deserves a lot of credit for
changing our focus to also include world sourcing.
Our 1997 line features some new and innovative products which show the
considerable influence of imports. The chart on page 5 shows the impact of
non-domestic footwear in our line. This trend is likely to continue.
On the distribution side, we've also strengthened our position. The role of the
traditional independent shoe store has diminished over the years. As these
outlets have lost their market share, we have been successful in forging new
relationships. An expanding presence in May Co., J.C. Penney and even Cabella's
catalog, combined with some of our old stalwarts such as Arizona Mail Order and
Nordstrom's, helped replace the loss of old outlets.
The cost of goods sold, rose as a percentage of net sales to 79.8%. This is up
from 79.6% in 1995 and 76.3% in 1994, a rise seemingly at odds with our earlier
comments. Much of the rise, however, is a result of a conscious decision on our
part.
As we finished 1996, management took a close look at our inventory, both
finished and raw material. What we developed as a result of that exercise was an
aggressive and honest assessment of the real value of our factory damaged and
discontinued or close-out styles. Those two categories totaled 134,000 pairs of
shoes. We've done three very important things.
2
<PAGE>
First, we've recognized the decreased value of this inventory by two separate
charges to our financial statements. These charges totaled $479,000 and are
included as part of our Cost of Goods Sold. Excluding this charge, our margin in
1996 would have been 77.7%, a much more favorable comparison to 1995.
Secondly, we have moved quickly to realize what value we can from these shoes.
Since the first of the year, we have completed several sales totaling over
50,000 pairs. Encouragingly, these sales were at an average price which modestly
exceeded the value to which they had been written down. We are well underway to
dealing with this inventory and do not expect it to have any future material
impact.
Lastly, and most importantly, we are aggressively managing our production and
styles to mitigate these types of problems in the future.
Our selling and administrative expenses, while down from 1995, were also at an
unacceptably high level, 19.3% of sales. We believe that the 1994 SG&A level is
an achievable benchmark, and we've already taken steps to move us in that
direction. In the fall of last year, the decision was made to close our Lake
George and Finger Lakes stores and our New York City sales office. Net costs
associated with operating these locations totaled $281,516 in 1996. In 1997, we
will incur no costs associated with these operations, and in light of the
write-down of close-outs and damaged inventory discussed earlier, the lack of
these stores will have no material negative impact on our Cost of Goods Sold.
Our Dolgeville store remains open and continues to be an important part of our
operations.
We've also attacked other costs within the business and have already achieved a
significant savings in the cost of our health insurance and audit fees.
We have detailed a separate line item on the financial statement this year
entitled "Other Expenses." If you turn to note #9 on page 13, you'll see what
makes up this $497,230. The total is important because these are expenses which
truly are non-recurring and are unrelated to the ongoing nature of our core
business.
Finally, I'd like you to turn to note #6, page 11. You'll see that the company
has $767,400 and $1,234,400 of loss carryforwards available for Federal and New
York State tax purposes respectively. These are two important assets which we
are going to convert to cash the old fashioned way..soon!
Before leaving, one last note. Stan Kabot joined our team earlier this year as
our new Chief Financial Officer. Stan brings with him a strong financial
background, having worked both in public accounting (Price Waterhouse) and in
private industry (Schlegel Corp. and Indium Corp). As we move forward, Stan will
be a valuable resource for our Company.
Best wishes to you in 1997. Buy more slippers!
James R. Riedman Warren J. Reardon III
Chairman & Chief Executive Officer President & Chief Operating Officer
3
<PAGE>
Sales
Total net sales for 1996, were down by $500,048, a decrease of 2.1% and were
relatively flat in comparison to 1995.
Total pairs shipped in 1996 dropped 5.6% to 1,513,803 in comparison to the
1,603,842 pairs shipped in 1995. Total pairs shipped in 1994 amounted to
1,583,675. The average selling price per pair was $15.23 in 1996, which
represents an increase of 3.7% over 1995's average selling price of $14.69. This
increase is related to the pricing program implemented by the Company throughout
the year.
The sales mix between 1996 and last year has remained stable with no significant
changes within each product group. In 1996, slippers represented 68.7% of our
total shipments as compared with 69.2% in 1995. In 1994, slippers accounted for
59.5% of our shipments. "Outdorable" sales were 29.6% of our shipments in 1996,
while in 1995 they were 27.4%. In 1994, 32% of pairs sold were in the Outdorable
product line.
The Company anticipates a small increase in the number of slippers and shoes it
will sell in 1997. Initial reaction to new styles has been very positive.
Expenses
There was a slight increase in cost of goods sold in 1996. As a percentage of
net sales, it increased to 79.8% from 79.6% in 1995. In 1994, this percentage
was 76.3%.
Direct material purchases decreased in 1996 by 15.6% over 1995. While overall
direct labor costs went down by 20.1%, the labor cost per pair increased to
$2.67 in 1996 versus $2.35 in 1995. In 1994, labor cost per pair was $2.55.
Other manufacturing expenses declined by approximately $412,000 as compared to
1995. Due to a reduction in our work force, we experienced a 17.4% decrease from
1995 in our payroll taxes and groupinsurance program. Our spending levels went
down from last year which resulted in sales/use taxes being reduced by 28.8%. In
addition, fewer maintenance and repair projects in 1996, as compared to 1995,
resulted in a cost reduction of 37.9%.
Selling, general and administrative expenses went down by $257,578 or 5.5% from
last year. The majority of savings were realized through a reduction in spending
in the following areas: advertising, publicity and travel. Additional savings
were the result of cost-containment efforts made by the Company in 1996 and also
a reduction in our bad debt expense by 46% from 1995.
In the fourth quarter of fiscal 1996, the Company made a decision to close its
retail outlets located in the Finger Lakes and Lake George shopping complexes.
The decision was made based on poor performance and lower than expected returns
on the investment required to operate the retail store outlets. In addition, the
Company also closed its New York sales office due to limited use. A pre-tax
charge of approximately $191,000 was recorded for the exit costs associated with
these closings. The Company will continue to operate its factory outlet store in
Dolgeville.
4
<PAGE>
The $152,370 decrease in interest expense from 1995 to 1996 was due to lower
borrowings, even though the Company was experiencing higher average interest
charges. The average interest rate in 1996 was 9.54%.
Earnings were substantially impacted by a number of non-recurring items that
were incurred during the year. As a result, the Company recorded additional
expenses of $497,000 in 1996. Based on the settlement of these items, the
Company does not expect to incur similar expenses in the foreseeable future. The
expenses consisted of:
- - $53,000 in legal fees and settlement charges related to a patent
infringement lawsuit;
- - $191,000 associated with closing a sales office and two outlet stores;
- - $118,000 incurred to eliminate non-traditional footwear from the Company's
product line;
- - $114,000 in professional fees for financial and investment banking
services; and
- - $21,000 in severance payments for terminated employees.
Accounts Receivable
At December 31, accounts receivable were historically at their lowest level
since 1994. Accounts receivable decreased by $628,346 or 8.7% from last year.
The Company's seven largest customers accounted for approximately 50% of net
sales for 1996. At December 31, 1996, these customers accounted for
approximately 60% of net accounts receivable. An aggressive approach was
implemented in 1996 to ensure that collections were made on a timely basis, and
the Company plans are to continue this practice into 1997.
Inventories
Total inventories decreased significantly from last year, by $2,446,540 or
22.4%. Major reductions took place in raw materials and finished goods while
work-in-process increased by $569,654. The reduction in raw materials was
related to lower purchasing levels required to support manufacturing activities.
In addition, the Company had a write-down of approximately $280,000 for obsolete
and excess raw material. The increase in work-in-process was the result of
increased production activity during December in Dolgeville and in the Dominican
Republic. Finished goods went down by $2,402,333 or 32.1% for the year. Our
finished goods inventory of various slipper and shoe styles amounted to 460,892
pairs in stock, compared to 612,041 pairs at year-end 1995. As in previous
years, the Company thoroughly evaluated its product lines in December and
determined which styles to discontinue and effectively increased the number of
discontinued styles. The review resulted in the write-down of finished goods
inventory by $361,619 in 1996, compared to $173,692 in 1995.
Debt
Total debt consists of notes payable, the line of credit, and the capital lease
obligation. At the end of 1996, total debt was $6,861,555 as compared with
$11,216,067 in 1995 for an overall decrease of $4,354,512 or 38.8%. This
significant change reverses the trend of increasing debt loads that took place
in the prior three years (1993- 1995). Total debt was reduced by the proceeds
from issuing common stock in 1996, by making regular repayments of the debt, and
by improved cash management techniques.
5
<PAGE>
The Company has a commitment from a new lender and will be refinancing its line
of credit and certain long-term notes payable. Our new lender has agreed to
provide the Company with the following:
- - a $8,000,000 revolving line of credit;
- - a $1,000,000 equipment line of credit; and
- - a $2,300,000 mortgage/term loan.
The credit facility is for a three year period and will bear interest at LIBOR
plus 2.25%.
Cash Flow
As noted in the Statements of Cash Flows, net cash flow provided by operating
activities was $3,023,818 in 1996, in comparison to a negative $2,135,287 in
1995. The net cash flows from operating activities in 1996 were generated by an
increase in accounts payable and decreases in accounts receivable and inventory.
Cash flows used in investing activities declined significantly during the year,
particularly when compared to the level of capital spending in 1995. Cash flow
from financing activities were considerably less in 1996 than 1995 because the
Company made significant repayments against its line of credit with the bank,
offset by $1,500,000 for the issuance of common stock. Net cash on hand
decreased by $16,549 in 1996. Net cash on hand at year-end was $13,213, as
compared with $29,762 in 1995.
Financial Analysis
An analysis of the Company's financial position shows the effects of the year's
activity. Debt ratios (debt/equity, liabilities/equity, and total assets/total
liabilities) and liquidity ratios (current and quick ratios) improved
significantly in 1996 due to lower debt levels. Profitability ratios reflect the
net loss for the year, but are considerably less
Disclosure Statement
Management is not aware of any other known demands, commitments, or events,
other than those discussed above which would materially affect the company's
liquidity. There are not material capital expenditures or commitments which
would affect capital resources.
6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
Note 1996 1995 1994
<S> <C> <C> <C> <C>
Net Sales $ 23,060,724 $ 23,560,772 $ 23,214,609
Cost of goods sold 18,404,790 18,762,134 17,707,454
Selling and administrative expenses 4,445,901 4,703,479 3,693,204
Earnings before other expenses and income taxes 210,033 95,159 1,813,951
Other expenses:
Interest expense 820,090 972,460 721,478
Other expenses 9 497,230 511,686 --
Total other expenses 1,317,320 1,484,146 721,478
(Loss) earnings before income taxes (1,107,287) (1,388,987) 1,092,473
Income tax benefit (provision) 6 417,102 535,226 (457,145)
Net (loss) earnings $ (690,185) $ (853,761) $ 635,328
Net (loss) earnings per common share $ (.54) $ (.82) $ .61
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Common Stock
Shares Amount Additional Paid-in Retained Total
Capital Earnings
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 1,036,892 $ 2,592,230 -- $ 7,882,162 $ 10,474,392
Net earnings, 1994 -- -- -- 635,328 635,328
Balance, December 31, 1994 1,036,892 2,592,230 -- 8,517,490 11,109,720
Net loss, 1995 -- -- -- (853,761) (853,761)
Balance, December 31, 1995 1,036,892 2,592,230 -- 7,663,729 10,255,959
Issuance of common stock 475,000 1,187,500 312,500 -- 1,500,000
Net loss, 1996 -- -- -- (690,185) (690,185)
Balance, December 31, 1996 1,511,892 $ 3,779,730 $ 312,500 $ 6,973,544 $ 11,065,774
See notes to financial statements.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1996 and 1995
Assets Notes 1996 1995
<S> <C> <C> <C>
Current Assets:
Cash $ 13,213 $ 29,762
Accounts receivable (less allowances of $200,000 in 1996 and $275,000 in 1995) 7 6,582,081 7,210,427
Inventories 2,7 8,453,703 10,900,243
Deferred tax asset 6 - 320,977
Income taxes receivable 157,704 458,887
Other current assets 69,479 149,585
Total current assets 15,276,180 19,069,881
Property - Net 3,7 1,798,315 2,076,396
Other Assets:
Prepaid pension expense 5 2,375,369 2,281,237
Other assets 114,963 144,447
Total other assets 2,490,332 2,425,684
Total assets $19,564,827 $23,571,961
Liabilities
Current Liabilities:
Note payable - line of credit 7 $ 4,537,856 $ 8,301,730
Accounts payable 480,130 311,982
Accrued salaries and commissions 209,427 211,808
Accrued cooperative advertising 307,909 300,000
Other accrued liabilities 119,123 165,794
Notes payable - current 7 591,979 591,129
Capital lease obligation - current 23,480 17,115
Deferred income tax liability - current 6 258,193 -
Total current liabilities 6,528,097 9,899,558
Capital Lease Obligation - noncurrent - 10,916
Notes Payable - noncurrent 7 1,708,240 2,295,177
Deferred Income Tax Liability - noncurrent 6 262,716 1,110,351
Total liabilities 8,499,053 13,316,002
Stockholders' Equity: 8
Common stock - $2.50 par value; authorized 4,000,000 shares;
issued and outstanding in 1996 and 1995: 1,511,892shares
and 1,036,892 shares, respectively 3,779,730 2,592,230
Additional paid-in-capital 312,500 -
Retained earnings 6,973,544 7,663,729
Total stockholders' equity 11,065,774 10,255,959
Total liabilities and stockholders' equity $ 19,564,827 $ 23,571,961
See notes to financial statements.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net (loss) earnings $ (690,185) $ (853,761) $ 635,328
Adjustments to reconcile net(loss) earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 398,653 356,345 361,391
Net pension credit (94,132) (101,340) (64,862)
Loss (gain) on sale of property and equipment 89,819 -- (15,933)
Changes in assets andliabilities:
(Increase) decrease in:
Accounts receivable 628,346 (577,370) (423,733)
Inventories 2,446,540 70,437 (1,434,960)
Other current assets 381,289 (519,272) (4,851)
Other noncurrent assets 4,948 (53,459) (72,194)
Increase (decrease) in:
Accounts payable 168,148 (120,904) (49,980)
Accrued salaries and commissions (2,381) 25,199 17,368
Accrued cooperative advertising 7,909 120,000 --
Income taxes payable -- (402,947) 242,414
Other accrued liabilities (46,671) 18,154 14,801
Deferred tax liability (268,465) (96,369) 44,503
Net cash provided (used) by operating activities 3,023,818 (2,135,287) (750,708)
Investing Activities:
Purchases of property and equipment (201,355) (459,406) (300,001)
Proceeds from disposal of property and equipment 15,500 -- 17,510
Net cash used by investing activities (185,855) (459,406) (282,491)
Financing Activities:
Net borrowings (payments) from line of credit (3,763,874) 3,194,468 (767,515)
Issuance of common stock 1,500,000 -- --
Repayments of notes payable (586,087) (590,078) (537,902)
Principal payments under capital lease obligation (4,551) (3,486) (60,111)
Proceeds from issuance of notes payable -- -- 2,300,000
Net cash (used) provided by financing activities (2,854,512) 2,600,904 934,472
Net (decrease) increase in cash (16,549) 6,211 (98,727)
Cash, beginning of year 29,762 23,551 122,278
Cash, end of year $ 13,213 $ 29,762 $ 23,551
Supplemental cash flow information:
Cash paid during the year for interest $ 847,649 $ 954,646 $ 698,291
Cash paid during the year for income taxes $ -- $ 40,993 $ 170,229
See notes to financial statements.
</TABLE>
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - The Company is engaged exclusively in the manufacture
and sale of leisure footwear. Sales are made principally to retailers in the
United States.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Property and Accumulated Depreciation - Property is stated at cost, less
accumulated depreciation. Expenditures for maintenance, repairs, and minor
renewals and betterments are charged to earnings as incurred. Replacements of
significant items and major renewals and betterments are capitalized.
Depreciation is computed using the straight-line method with useful lives as
follows: Buildings and water plant - 10-67 years; machinery and equipment -5-15
years.
Income Taxes - Income taxes are provided on the earnings (losses) in the
financial statements. Deferred income taxes are provided to reflect the impact
of "temporary differences" between the amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. Tax credits are recognized as a reduction to income taxes inthe
year the credits are earned.
Net Earnings (Loss) Per Common Share - Net earnings (loss) per common share are
based on the weighted average number of common shares outstanding during the
year and totalled 1,280,978 shares in 1996 and 1,036,892 shares in 1995 and
1994.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to credit risk consist of accounts receivable. Companies in the
retail industry comprise asignificant portion of the accounts receivable
balance; collateral is not required.
2. INVENTORIES
Inventories as of December 31 consisted of the following:
1996 1995
Finished goods $ 5,075,618 $ 7,477,851
Work-in-process 1,351,945 782,291
Raw material 2,026,140 2,640,101
Total $ 8,453,703 $ 10,900,243
3. PROPERTY
Property as of December 31 consisted of the following:
1996 1995
Land $ 19,055 $ 19,555
Buildings and water plant 3,251,913 3,251,913
Machinery and equipment 5,427,711 5,415,774
8,698,679 8,687,242
Less accumulated
depreciation 6,900,364 6,610,846
Property - net $ 1,798,315 $ 2,076,396
4. LEASES
The Company leases machinery, equipment, office space and retail outlet space
generally under cancellable lease agreements which are classified as operating
leases for financial reporting purposes. Rental expense was $296,399 in 1996,
$219,950 in 1995, and $162,374 in 1994. The leases expire at various dates
through 2000 and provide for the following minimum rentals:
1997 $ 107,000
1998 95,000
1999 70,000
2000 59,000
2001 14,000
Total $ 345,000
10
<PAGE>
5. PENSION PLAN
The Company has a defined benefit pension plan covering all regular employees.
Benefits earned are based on years of service and the employee's annual
compensation over the entire service time. It has been the Company's policy to
fund the maximum amount which can be deducted for federal income tax purposes.
For 1996, 1995, and 1994, no contribution was allowed due to the full funding
limitation of the Internal Revenue Code.
The net pension credits included the followingcomponents:
1996 1995 1994
Service cost $ 285,204 $ 201,635 $ 233,264
Interest cost 570,251 560,720 572,966
Actual return on
plan assets (1,003,253) (1,271,440) (234,081)
Net amortization
and deferral 53,666 407,745 (637,041)
Net pension credit $ (94,132) $ (101,340) $ (64,892)
A reconciliation of the pension plan's funded status, determined as of the
plan's year end, September 30, 1996 and 1995, with amounts recognized in the
Company's balance sheets follows:
1996 1995
Actuarial present value of
accumulated benefit
obligation (including
vested benefits of 1996,
$7,232,953; 1995, $7,250,866) $ 7,338,486 $ 7,348,094
Plan assets at fair value, primarily
listed stocks and bonds, and
guaranteed investment contract $11,123,411 $ 10,662,651
Actuarial present value of projected
benefit obligation (8,595,110) (8,779,025)
Plan assets in excess of projected
benefit obligation 2,528,301 1,883,626
Unrecognized net loss (gain) from
past experience different from
that assumed (173,434) 232,219
Prior service cost not yet recognized
in net periodic pension cost 650,715 921,647
Unrecognized net asset as of
Oct. 1, 1985 being recognized
over 16 years (630,213) (756,255)
Prepaid pension expense $ 2,375,369 $ 2,281,237
The following assumptions were used in determining the actuarial present value
of the projected benefit obligation for all three years:
1996 1995 1994
Discount rate 7.0% 7.0% 8.5%
Rate of increase in future
compensation levels 3.5% 3.5% 3.5%
The expected long-term
rate of return on plan assets 8.5% 8.5% 8.5%
Subsequent to December 31, 1996, the Company elected to terminate the Plan and
is implementing a defined contribution plan. The Company has not completed its
analyses of the financial statement effect of terminating the plan, however,
upon completion, it is expected to have a positive effect on the Company's
financial position and results of operations.
6. INCOME TAXES
The provision (benefit) for income taxes consists of:
1996 1995 1994
Current:
Federal $(156,500) $(421,335) $ 357,176
State 3,112 (17,522) 55,152
(153,388) (438,857) 412,328
Deferred:
Federal (211,581) (34,603) (2,324)
State (52,133) (61,766) 47,141
(263,714) (96,369) 44,817
Total $(417,102) $(535,226) $ 457,145
The difference between tax computed at the statutory U.S. federal income tax
rate and the Company's effective tax rate is as follows:
1996 1995 1994
(Benefit) provision
at statutory rate $(376,500) $(472,300) $ 371,500
State and other taxes,
net of federal tax benefit (29,700) (71,600) 87,840
Other (10,902) 8,674 (2,195)
(Benefit) provision for
income taxes $(417,102) $(535,226) $ 457,145
11
<PAGE>
At December 31, 1996, the Company has approximately $767,400 and $1,234,400 of
net operating loss carryforwards available for Federal and New York State tax
purposes, respectively, which expire in 2011. For federal purposes, the entire
net operating loss generated in 1995 was utilized to generate a refund of income
taxes previously paid.
Components of the Company's deferred tax asset and liability as of December 31,
1996 and 1995 are as follows:
1996
Current Noncurrent
Assets
Contributions carryover $ 18,256 --
Non-deductible bad debt reserves 48,750 --
Uniform capitalization of inventory 159,352 --
Non-deductible sales allowances 29,250 --
Non-deductible inventory reserves -- --
State net operating loss carryforward 110,173 --
Federal net operating loss carryforward 260,916 --
Federal credit carryforwards 13,100 --
Liabilities
Prepaid pension expense (897,990) --
Depreciation -- (262,716)
Deferred tax liability $(258,193) $(262,716)
1995
Current Noncurrent
Assets
Contributions carryover $ 8,055 --
Non-deductible bad debt reserves 78,000 --
Uniform capitalization of inventory 122,283 --
Non-deductible sales allowances 29,250 --
Non-deductible inventory reserves 83,389 --
State net operating loss carryforward -- 56,677
Federal net operating loss carryforward -- --
Federal credit carryforwards -- --
Liabilities
Prepaid pension expense -- (889,682)
Depreciation -- (277,346)
Deferred tax asset (liability) $ 320,977 $(1,110,351)
A valuation allowance has not been provided against the Company's deferred tax
assets as of December 31, 1996 and 1995, since the Company believes it is more
likely than not that the deferred tax assets will be realized in future years.
7. NOTES PAYABLE
Subsequent to December 31, 1996, the Company received a commitment from a new
lender for a revolving line of credit ("revolver"), an equipment line of credit
and a mortgage/term loan. The Company expects to execute and finalize the
lending agreement in the first quarter of1997.
Under the terms of the commitment, the borrowing base for the revolver will be
based on certain balances of accounts receivable and inventory, as defined in
the agreement. The maximum credit amount under the revolver will be $8,000,000,
the interest rate will be LIBOR plus 2.25% and the revolver will expire on April
30, 2000. The revolver will be secured by accounts receivable, inventory,
equipment and cash.
The equipment line of credit will be for a maximum of $1,000,000, the interest
rate will be LIBOR plus 2.25%, the expiration date will be on April 30, 2000,
and it will be secured by new equipment purchased thereunder.
The minimum amount that will be available under the mortgage/term loan
approximates $2,300,000 which represents the total amount owed by the Company
under two notes payable to its existing lender as of December 31, 1996. The
Company has the ability to borrow an additional $1,900,000 under the
mortgage/term loan, which results in a total mortgage/term loan of$4,200,000, if
the Farmers' Home Administration issues 80% guaranty on the total mortgage/term
loan. The mortgage/term loan will be secured by the Company's manufacturing
facilities.
The balance owed under a line of credit to the Company's existing lender as of
December 31, 1996 and 1995 totalled $4,537,856 and $8,301,730, respectively.
12
<PAGE>
The Company has the following long-term notes payable as of December 31:
Note 1 - Note payable to bank in monthly principal installments through December
1997 of $35,714 plus interest at the prime rate plus one percent.
Note 2 - Note payable to bank in monthly principal installments of $11,904
through December 1997 and $41,905 from January 1998 through April 2001; interest
is due monthly at the prime rate plus one percent.
1996 1995
Note 1 payable to bank $ 428,559 $ 857,142
Note 2 payable to bank 1,819,058 1,961,906
Other notes payable 52,602 67,258
$2,300,219 $2,886,306
Less: Current portion 591,979 591,129
Noncurrent portion $1,708,240 $2,295,177
The aggregate principal payments of notes payable are as follows:
1997 $ 591,979
1998 524,572
1999 513,173
2000 502,857
2001 167,638
Total $ 2,300,219
The carrying value of the long-term notes payable to bank approximates fair
value.
The existing line of credit and the notes payable contain certain financial
covenants relative to working capital, tangible net worth, total debt to
tangible net worth and capital expenditures. In addition, the payment or
declaration of dividends and distributions is prohibited unless a written
consent from the lender is received. The Company was in compliance with these
financial covenants as of December 31, 1996. The Company was not in compliance
with certain of these financial covenants as of December 31, 1995. On March 5,
1996, the Company obtained waivers from the lender up to and including December
31, 1995.
8. STOCK OPTION PLAN
The Company has reserved 100,000 shares of its common stock for issuance under
the Company's Stock Incentive Plan which was adopted in 1995. The price at which
options can be exercised shall be at least $1 more than 100% of the fair market
value of the Company's stock on the date of grant; for an optionee who at the
time of grant owns more than 10% of the Company'sstock, the price at which
options can be exercised shall be at least $1 more than 110% of the fair market
value of the Company's stock on the date of grant.
The stock option activity for the years ended December 31, 1996 and 1995 is as
follows:
1996 1995
Options outstanding,
beginning of theyear 17,500 --
Options granted 10,000 17,500
Options cancelled (5,000) --
Options outstanding, end of year 22,500 17,500
Options exercisable, end of year 22,500 17,500
9. OTHER EXPENSES
During 1996, the Company recorded other expenses of approximately $497,000 in
the statement of operations for items considered by management to be of a
nonrecurring nature. These expenses included legal fees and a settlement cost
relative to a patent infringement lawsuit ($53,000), costs associated with the
closing of a sales office and two outlet stores ($191,000), costs incurred to
eliminate nontraditional footwear styles from the Company's product line
($118,000), professional fees associated with financial advisory and investment
banking services ($114,000) and various other costs ($21,000).
In the fourth quarter of 1995, the Company recorded an expense of $511,686 for a
write-off of certain raw materials inventory associated with a decision to
discontinue the production of certain styles of footwear.
13
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL AND MARKET DATA
Summarized quarterly financial data for 1996 and 1995 (Unaudited)
1996 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Net sales $ 3,763,545 $ 4,020,072 $ 7,341,607 $ 7,935,500
Gross profit on sales 898,738 968,951 1,974,810 813,435
Net income (loss) (399,075) (315,066) 196,508 (172,552)
Net income (loss) per common share (.38) (.30) .13 (.11)
NASDAQ high bid 4 1/8 3 1/2 3 3/4 3 3/4
NASDAQ low bid 3 5/8 2 1/2 3 1/8 2 7/8
1995
Net sales $ 4,015,406 $ 4,610,074 $ 6,612,108 $ 8,323,184
Gross profit on sales 1,146,554 1,198,206 1,984,921 468,957
Net income (loss) (207,010) (212,753) 138,679 (572,677)
Net income (loss) per common share (.20) (.20) .13 (.55)
NASDAQ high bid 5 5/8 4 3/4 4 7/8 5 1/2
NASDAQ low bid 3 1/4 3 5/8 3 5/8 4 1/2
Based on records maintained by the Transfer Agent, Bank of Boston Shareholder
Services, the number of shareholders of record was 632 at year end.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Daniel Green Company
Dolgeville, New York
We have audited the accompanying balance sheets of Daniel Green Company as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 areasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Daniel Green Company as of December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Rochester, New York
January 24, 1997
14
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $ 23,060,724 $ 23,560,772 $ 23,214,609 $ 24,125,228 $ 20,493,288
Income (loss) from continuing operations (690,185) (853,761) 635,328 293,423 438,718
Total assets 19,564,827 23,571,961 22,205,778 20,414,652 17,884,840
Long-term debt 1,708,240 2,306,093 2,894,413 1,317,232 1,805,914
Income (loss) from continuing operations
per common share (.54) (.82) .61 .28 .42
</TABLE>
Daniel Green Company's common stock is traded in the over-the-counter market and
is listed on the National Association of Security Dealers Automated Quotation
system (NASDAQ) under the ticker symbol DAGR.
Copies of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission are available and will be furnished upon written request
directed to the Company's main office, Dolgeville, New York 13329.
15
<PAGE>
Officers Directors
Edward Bloomberg
Independent Investment Advisor
James R. Riedman
Chairman & Chief Executive Officer Steven DePerrior
Principal
Warren J. Reardon III William M. Mercer,Inc.
President & Chief Operating Officer
William L. Fay
W. Lee Bynon President
Vice President of Sales Faytex Corp.
Stanley W. Kabot John B. French, Esq.
Treasurer & Chief Financial Officer Partner
Sullivan & Worcester
John B. French, Esq.
Clerk David T. Griffith
President
M. Griffith, Inc.
Gregory Harden
President
Harden Furniture
Gary E. Pflugfelder
Sales Consultant
Warren J. Reardon III
President & Chief Operating Officer
James R. Riedman
President
Riedman Corporation
16
Exhibit 21
Subsidiary of the Registrant
Jurisdiction of
Name Incorporation
Dee Gee Footwear, Inc. Massachusetts
(This subsidiary was incorporated in 1991 and was inactive from 1991 through
1996.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,213
<SECURITIES> 0
<RECEIVABLES> 6,782,081
<ALLOWANCES> 200,000
<INVENTORY> 8,453,703
<CURRENT-ASSETS> 15,276,180
<PP&E> 8,698,679
<DEPRECIATION> 6,900,364
<TOTAL-ASSETS> 19,564,827
<CURRENT-LIABILITIES> 6,528,097
<BONDS> 0
0
0
<COMMON> 11,065,774
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,564,827
<SALES> 23,060,724
<TOTAL-REVENUES> 23,060,724
<CGS> 18,404,790
<TOTAL-COSTS> 4,445,901
<OTHER-EXPENSES> 497,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820,090
<INCOME-PRETAX> (1,107,287)
<INCOME-TAX> (417,102)
<INCOME-CONTINUING> (690,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (690,185)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
