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Company Name: DANIEL GREEN COMPANY Ticker Symbol: DAGR
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 2000 Commission File No. 0-774
DANIEL GREEN COMPANY
(Name of Small Business Issuer in its Charter)
MASSACHUSETTS 15-0327010
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
OLD TOWN, MAINE 04468
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (207) 827-4431
Former name, former address and former fiscal year, if changed since last
report: None.
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days. YES X NO
--- ---
CLASS OUTSTANDING AT JUNE 30, 2000
Common Stock $2.50 par value 1,560,789
Transitional Small Business Disclosure Format (Check One) Yes No X
--- ---
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DANIEL GREEN COMPANY
INDEX
Page
Number
<TABLE>
<CAPTION>
<S> <C>
Index........................................................................1
PART I - Financial Information
Consolidated Balance Sheets, Assets
June 30,2000 and December 31, 1999..................................2
Consolidated Balance Sheets, Liabilities & Stockholders' Equity
June 30,2000 and December 31, 1999..................................3
Consolidated Statements of Operations for the three months and six months
periods ended June 30, 2000 and 1999................................4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999..............................................5
Notes to Consolidated Financial Statements...................................6
Management Discussion & Analysis of Financial Condition and Results
of Operations.......................................................7
PART II - Other Information..................................................9
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<TABLE>
<CAPTION>
DANIEL GREEN COMPANY
Consolidated Balance Sheets
ASSETS
June 30 December 31
2000 1999
(Unaudited) (*)
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<S> <C> <C>
Current Assets:
Cash $ 424,188 $ 225,079
Accounts Receivable, trade
less allowances for doubtful accounts
(2000 - $ 571,476 1999 - $259,914) 5,451,667 4,167,612
Deferred Income Tax Asset 535,500 101,629
Finished Goods Inventories
10,195,054 3,542,255
Other Current Assets 139,888 71,725
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Total Current Assets 16,746,297 8,108,300
Property, plant & equipment:
Real Estate and Water Power, at cost 2,560,504 2,560,504
Machinery & Equipment at cost 3,049,046 1,594,847
----------- -----------
5,609,550 4,155,351
Less: Accumulated Depreciation 3,416,735 3,333,701
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Property, plant & equipment, net 2,192,815 821,650
Other Assets:
Deferred income tax asset 1,089,369 815,176
Deferred financing costs 413,335 435,612
Goodwill 881,510 -
Prepaid Pension Cost 2,497,719 -
Other Assets 3,895 70,923
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Total Other Assets 4,885,828 1,321,711
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Total Assets $23,824,940 $10,251,661
=========== ===========
</TABLE>
(*) Derived from audited financial statements.
See notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
DANIEL GREEN COMPANY
Consolidated Balance Sheets
Liabilities & Stockholders' Equity
June 30 December 31
2000 1999
(Unaudited) (*)
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<S> <C> <C>
Current Liabilities:
Notes Payable, line of credit $ - $ 1,903,078
Notes Payable, current 915,824 864,754
Accounts Payable, trade 1,118,481 548,816
Accrued Salaries & Commissions 233,492 170,935
Accrual for Closing Facilities
& Severance 179,854 0
Income Tax Payable 658,300 0
Other Accrued Liabilities 923,215 206,448
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Total Current Liabilities 4,029,166 3,694,031
Notes Payable, line of credit 6,919,228 0
Notes Payable, non-current 5,984,653 81,087
Other Liability 2,472,303 0
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Total Liabilities 19,126,384 3,775,118
Stockholders' Equity
Common Stock 4,245,823 4,245,823
Paid-in-excess of par value 815,940 815,940
Retained Earnings (43,778) 1,987,992
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5,017,985 7,049,755
Less: Treasury Stock (598,395) (573,212)
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Total stockholders' equity 4,419,590 6,476,543
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Total Liabilities & Stockholders'
Equity $23,824,940 $10,251,661
=========== ============
</TABLE>
(*) Derived from audited financial statements. See notes to consolidated
financial statements.
3
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DANIEL GREEN COMPANY
Consolidated Statements of
Operations
(unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales $6,398,449 $2,263,351 $ 7,554,006 $5,150,376
Costs and Expenses
Cost of Goods Sold 4,245,004 2,826,588 5,551,661 5,249,842
Selling, General &
Administrative 2,469,592 1,354,715 4,715,740 2,314,779
Interest Expense 437,282 30,744 69,282 51,977
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Total Costs and Expenses 7,151,878 4,212,047 10,336,683 7,616,598
Loss before credit for
Income Taxes (753,429) (1,948,696) (2,782,677) (2,466,222)
Credit for Income Taxes 263,886 470,233 750,906 591,893
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Net Loss $ (489,543) $(1,478,463) $(2,031,771) $(1,874,329)
===========================================================
Net Loss per Share:
Basic $ (0.31) $ (0.95) $ (1.30) $ (1.20)
Diluted $ (0.31) $ (0.95) $ (1.30) $ (1.20)
Shares Outstanding:
Basic 1,560,789 1,556,445 1,560,789 1,563,685
Diluted 1,560,789 1,556,445 1,560,789 1,563,685
</TABLE>
See notes to consolidated financial statements.
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DANIEL GREEN COMPANY
Consolidated Statements of
Cash Flows
(Unaudited) For the
For Six Months Ended
<TABLE>
<CAPTION>
June 30 June 30
2000 1999
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<S> <C> <C>
Operating Activities:
Net Loss $(2,031,771) $(1,874,329)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 83,003 164,804
Amortization 39,755 19,543
Changes in assets & liabilities:
(Increases) decreases in:
Accounts Receivable, trade 3,373,461 1,752,048
Income Tax Refund Receivable 0 387,142
Inventories (729,313) 1,327,244
Other Current Assets (41,757) 48,701
Other Assets (434,515) (760,005)
Increases (decreases) in:
Accounts Payable, trade (198,237) (505,111)
Accrued Salaries & Commissions (34,702) 183,019
Other Accrued Liabilities 264,664 311,001
-----------------------------------
Net Cash Provided by Operating Activities 290,588 1,054,057
Investing Activities:
Acquisition of business less cash acquired (11,485,900) 0
Sale of Marketable Securities 718,000 0
Purchase of property & equipment (204,199) (29,505)
-----------------------------------
Net cash used in Investing Activities (10,972,099) (29,505)
Financing Activities:
Net Borrowing (payments) on Line of Credit 5,716,152 (646,435)
Net Borrowing (payments) of Notes Payable 5,242,378 (272,683)
Purchase of Treasury Stock (25,183) (107,334)
Other Refinancing Expenses (52,727) 0
-----------------------------------
Net Cash Provided(Used) in Financing Activities 10,880,620 (1,026,452)
----------------------------------
Net Increase (Decrease) in Cash 199,109 (1,900)
Cash at Beginning of Period 225,079 7,300
-----------------------------------
cash at End of Period $ 424,188 $ 5,400
===================================
</TABLE>
See notes to consolidated financial statements.
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DANIEL GREEN COMPANY
Notes to Consolidated Financial Statements
Note 1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain adjustments, all of
which are of a normal and recurring nature, necessary to
present fairly the financial position as of June 30, 2000 and
the results of operations and cash flows for the six months
then ended.
Note 2. The results of operations for the six months ended June 30,
2000 are not necessarily indicative of the results to be
expected for the full year.
Note 3. Due to severe global competition, the Company ceased
domestic manufacturing and transitioned to a fully sourced
importer during the second half of 1999. At the same time,
several acquisition opportunities were aggressively evaluated
and pursued. This activity resulted in acquiring certain
assets of one of the Company's largest competitors, L. B.
Evans and Son ("Evans") on February 3, 2000. In addition, the
Company purchased all of the outstanding shares of Penobscot
Shoe Company ("Penobscot") from Riedman Corporation on March
30, 2000. Penobscot Shoe Company has been making women's
footwear for over 60 years and is based in Old Town, Maine.
Since a significantly more modern distribution facility, with
excess capacity came with the Penobscot acquisition, it was
decided that relocating the Daniel Green operation to Maine
would provide the most efficient and effective platform for
optimizing the synergies from the three businesses. During May
2000, and pursuant to a public announcement made by the
Company on March 30, 2000, the Company's headquarters and
distribution operation previously located in Dolgeville, New
York were relocated to, and consolidated with, the newly
acquired operations in Old Town, Maine. During the first
quarter of this year, the Company recorded an expense totaling
$508,811 for the purposes of closing the Dolgeville facility
($400,000) and severance to terminated employees ($108,811).
Note 4. The acquisition of Penobscot has been accounted for under
the purchase method of accounting and, accordingly, the
operation results of Penobscot have been included in the
Company's consolidated financial statements since the date of
acquisition. The estimated fair market value of assets and
liabilities acquired was $15,398,000 and $4,853,000
respectively. The acquired liabilities include a $2,490,000
obligation to dissenting stockholders of the acquired company.
This obligation was classified as long-term since the Company
intends to finance the payment on a long-term basis and has a
specific long-term financing arrangement in place for such
purpose on terms that are readily determinable. The excess of
the aggregate purchase price over the estimated fair market
value of the net assets acquired was approximately $897,000,
which is being amortized on a straight-line basis over 15
years.
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The following summary presents unaudited proforma consolidated
results of operations as if the acquisition had occurred at
the beginning of 2000 and 1999, and include adjustments for
estimated amounts of goodwill amortization, depreciation of
fixed assets acquired based on their estimated fair values,
increased interest expense assuming the purchase consideration
had resulted in additional borrowing during the periods
presented. The pro forma results are for illustrative purposes
only, and do not purport to be indicative of the actual
results which would have occurred had the transaction been
consummated as of the earlier dates, nor are they indicative
of results of operations which may occur in the future. The
results do not reflect synergies.
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 1999
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<S> <C> <C>
In thousands, except per share amounts (unaudited)
Net Sales $14,068 $15,773
Net Earnings (Loss) (1,227) (1,014)
Net Earnings (Loss) per Common Share (.78) (.65)
</TABLE>
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DANIEL GREEN COMPANY
Management Discussion & Analysis of Financial Condition and
Results of Operations
1. Liquidity and Capital Resources
As disclosed in Note 3 to the Consolidated Financial Statements
included herein, the Company acquired L.B. Evans & Son (Evans) and
Penobscot Shoe Company (Penobscot) during the quarter ended March
2000.
At June 30, 2000, the Daniel Green Company had working capital of
approximately $12,717,000 versus approximately $4,414,000 as of
December 31, 1999. The ratio of current assets to current liabilities
at June 30, 2000 was 4.16 to 1, compared to 2.19 to 1 at December 31,
1999.
The statement of cash flows for the six months ended June 30,
2000, shows an increase in cash and cash equivalents of approximately
$199,000 since December 31, 1999. Operating activities provided
$308,000 in cash. Purchases of property and equipment, mainly for data
processing and warehousing, used approximately $204,000 during the six
month period.
At the end of the second quarter of 2000, total indebtedness
consisted of: line of credit balance, noncurrent of $6,919,228, notes
payable, current $915,824, notes payable, noncurrent $5,984,653, and a
liability related to the dissenting stockholders of Penobscot of
$2,472,303; a total debt of $16,292,008.
As of August 11, 1999 the Company had in place a revolving line of
credit ("revolver"), with Manufacturers and Traders Trust Company (M&T
Bank), Buffalo, New York, which provided the Company with a $5,500,000
revolving line of credit and a $838,097 mortgage/term loan (80%
guaranteed by FMHA). The revolver is secured by accounts receivable,
inventory, equipment and cash. The revolving line termination date is
July 30, 2002. The interest rate established on the revolving line is
prime rate plus one percent (1%) per annum. The mortgage term loan is
secured by the Company's facilities and totaled $796,653 as of June 30,
2000. The mortgage term loan's principal and interest payments are
based on a ten-year amortization with a balloon payment on April 1,
2001. The mortgage term loan interest rate is LIBOR plus two and
one-quarter percent (2 -1/4%) per annum.
On March 30, 2000, the Company entered into a new loan agreement with
M&T Bank to support recent acquisition and working capital
requirements. The prior agreement was amended in its entirety to, among
other things:
- Provide a revolving credit facility in the maximum principal
amount of $12,500,000;
- Provide an additional term loan facility in the principal amount of
$6,000,000;
- Provide a supplement loan facility in the principal amount of up to
$2,800,000;
- Convert the Revolving Line Loan under the prior agreement into loans
under this agreement;
- Add Penobscot as a borrower under this agreement; and
- Make certain other changes to the terms and conditions of the prior
agreement.
Management is not aware of any known demands, commitments or
events that would materially affect its liquidity. There are no
material expenditures or commitments, which would affect capital
resources in a significant way. Cash generated by operations,
supplemented by borrowings, should cover planned requirements.
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2. Results of Operations
Net sales for the second quarter were $6,398,000, compared to
sales of $2,263,000 in the corresponding quarter last year. Included in
the current quarter were net sales of $4,781,000 attributable to the
brands acquired with Penobscot Shoe. The moving and reestablishment of
the Daniel Green product lines from New York to Maine negatively
affected sales during the quarter. The setting up and training involved
with the order processing, MIS and distribution systems proved more
time consuming and complex than anticipated. Once the systems were
installed, shipping activity slowly ramped up throughout the month of
June.
The gross margin in the current quarter was approximately 34%
compared to a negative margin in the same quarter last year. The
additional brands acquired by the Company provided for a larger sales
base and a higher margin.
Selling, general and administrative expenses in the second quarter
increased 59% from expenses reported during the comparable period of
1999. Most of these increased costs are a result of the significantly
higher level of business activity associated with the acquisitions and
start-up of systems.
During the second quarter, net interest expense amounted to
$368,000 compared to $30,744 last year.
1. Legal Proceedings
(a) On March 7, 2000 a lawsuit was filed in the United
States District Court for the Southern District of New York by
Group USA, Inc. alleging trademark infringement and unfair
competition based upon the Company's distribution, manufacture
and sale of footwear products bearing a trademark that is
claimed to be a colorable imitation of the interlocking DG
design trademarks owned by Group USA. The Company has agreed to
discontinue use of the trademark bearing the interlocking "D" and "G"
with respect to all merchandise manufactured in the future. Mutual
release are expected to be exchanged.
2. Changes in Securities - None.
3. Default upon Senior Securities - None.
4. Submission of matters to a vote of security holders. - None
5. Other Information - None.
6. Exhibits and Reports on Form 8K.
(a) Form 8K was filed March 30, 2000 regarding acquisition of Penobscot
Shoe Company.
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.
DANIEL GREEN COMPANY
Registrant
Date: August 14, 2000 /s/ David L. Keane
------------------ -------------------------
David L. Keane
Chief Financial Officer
Date: August 14, 2000 /s/ James R. Riedman
------------------ -------------------------
James R. Riedman
Chief Executive Officer
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