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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 September 30, 2000 Commission File No. 0-774
DANIEL GREEN COMPANY
(Name of Small Business Issuer in its Charter)
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<S> <C>
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)
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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 ___
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CLASS OUTSTANDING AT SEPTEMBER 30, 2000
Common Stock $2.50 par value 1,585,098
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Transitional Small Business Disclosure Format (Check One) Yes __ No X
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DANIEL GREEN COMPANY
INDEX
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<CAPTION>
Page
Number
<S> <C>
Index..............................................................................1
PART I - Financial Information
Consolidated Balance Sheets, Assets
September 30,2000 and December 31, 1999...................................2
Consolidated Balance Sheets, Liabilities & Stockholders' Equity
September 30,2000 and December 31, 1999...................................3
Consolidated Statements of Operations for the three months and six months
periods ended September 30, 2000 and 1999.................................4
Consolidated Statements of Cash Flows for the six months ended
September 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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1
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Item 1 Financial Statements
DANIEL GREEN COMPANY
Consolidated Balance Sheets
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<CAPTION>
ASSETS
September 30, December 31,
2000 1999
(Unaudited) (*)
------------ ------------
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Current Assets:
Cash $ 309,996 $ 225,079
Accounts Receivable, trade
less allowances of $690,000 in 2000
and $321,000 in 1999 10,633,912 4,167,612
Deferred Income Tax Asset 535,500 101,629
Finished Goods Inventories, at lower of
cost (FIFO) or market: 11,209,981 3,542,255
Other Current Assets 157,600 71,725
----------- -----------
Total Current Assets 22,846,989 8,108,300
Property, plant & equipment:
Real Estate and Water Power, at cost 2,560,504 2,560,504
Machinery & Equipment at cost 3,126,681 1,594,847
----------- -----------
5,687,185 4,155,351
Less: Accumulated Depreciation 3,461,257 3,333,701
----------- -----------
Property, plant & equipment, net 2,225,928 821,650
Other Assets:
Deferred income tax asset 1,089,369 815,176
Prepaid Pension Cost 2,497,719 -
Other Assets, net 1,223,794 506,535
----------- -----------
Total Other Assets 4,810,882 1,321,711
----------- -----------
Total Assets $29,883,799 $10,251,661
=========== ===========
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(*) Derived from audited financial statements.
See notes to consolidated financial statements.
2
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DANIEL GREEN COMPANY
Consolidated Balance Sheets
Liabilities & Stockholders' Equity
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<CAPTION>
September 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 910,668 864,754
Accounts Payable, trade 3,441,511 548,816
Accrued Salaries & Commissions 182,308 170,935
Income Tax Payable 833,350 0
Other Accrued Liabilities 725,188 206,448
----------- -----------
Total Current Liabilities 6,093,025 3,694,031
Notes Payable, line of credit 11,119,228 0
Notes Payable, non-current 5,780,481 81,087
Other Liability 1,875,156 0
----------- -----------
Total Liabilities 24,867,890 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 391,573 1,987,992
----------- -----------
5,453,336 7,049,755
Less: Treasury Stock (437,427) (573,212)
----------- -----------
Total stockholders' equity 5,015,909 6,476,543
----------- -----------
Total Liabilities & Stockholders'
Equity $29,883,799 $10,251,661
=========== ===========
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(*) Derived from audited financial statements.
See notes to consolidated financial statements.
3
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DANIEL GREEN COMPANY
Consolidated Statements of Operations
(unaudited)
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For the For the
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales $11,192,226 $3,694,844 $18,746,232 $ 8,845,220
Costs and Expenses
Cost of Goods Sold 7,170,100 2,583,448 12,721,761 7,833,290
Selling, General &
Administrative 2,948,765 988,871 7,664,505 3,303,650
Interest Expense 451,430 65,035 520,712 117,012
--------------------------------------------------------------------------
Total Costs and Expenses 10,570,295 3,637,354 20,906,978 11,253,952
Income (Loss) before
Income Taxes (Credit) 621,931 57,490 (2,160,746) (2,408,732)
Income Taxes (Credit) 186,579 13,797 (564,327) (578,096)
--------------------------------------------------------------------------
Net Income (Loss) $ 435,352 $43,693 $(1,596,419) $(1,830,636)
==========================================================================
Net Income (Loss) per Share:
Basic $ 0.27 $ 0.03 $ (1.02) $ (1.17)
Diluted $ 0.27 $ 0.03 $ (1.02) $ (1.17)
Shares Outstanding:
Basic 1,588,640 1,579,211 1,571,320 1,568,860
Diluted 1,588,640 1,579,211 1,571,320 1,568,860
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See notes to consolidated financial statements.
4
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DANIEL GREEN COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
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For the
For Nine Months Ended
September 30 September 30
2000 1999
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<S> <C> <C>
Operating Activities:
Net Loss $ (1,596,419) $(1,830,636)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 167,280 248,151
Changes in assets & liabilities:
(Increases) decreases in:
Accounts Receivable, trade (1,808,784) 874,414
Income Tax Refund Receivable 0 387,142
Inventories (1,744,240) 924,839
Other Current Assets (59,469) (576,724)
Other Assets (359,569) (656,850)
Increases (decreases) in:
Accounts Payable, trade 2,470,128 304,853
Accrued Salaries & Commissions (85,886) 46,735
Other Accrued Liabilities (283,502) 16,381
----------------------------------------------
Net Cash Used by Operating Activities (3,300,461) (261,695)
Investing Activities:
Acquisition of business less cash acquired (11,485,900) 0
Sale of Marketable Securities 718,000 0
Purchase of property & equipment (281,834) (133,082)
----------------------------------------------
Net cash used in Investing Activities (11,049,734) (133,082)
Financing Activities:
Net Borrowing on Line of Credit 9,916,152 1,175,615
Net Borrowing (payments) of Notes Payable 5,033,050 (365,359)
Purchase of Treasury Stock 135,785 38,259
Other Refinancing Expenses (649,875) (456,038)
----------------------------------------------
Net Cash Provided in Financing Activities 14,435,112 392,477
----------------------------------------------
Net Increase (Decrease) in Cash 84,917 (2,300)
Cash at Beginning of Period 225,079 7,300
----------------------------------------------
Cash at End of Period $ 309,996 $ 5,000
==============================================
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See notes to consolidated financial statements.
5
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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 September 30, 2000 and the results of operations and
cash flows for the nine months then ended.
Note 2. The results of operations for the nine months ended
September 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 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 Company
Limited Partnership ("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).
The liability remaining related to this as of September 30,
2000 is approximately $80,000.
6
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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 million and $4.853
million respectively. The acquired liabilities include a
$2,490 million 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 million, which is being
amortized on a straight-line basis over 15 years.
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.
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Nine Months Ended September 30, 2000 1999
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In thousands, except per share amounts (unaudited)
Net Sales $25,260 $22,063
Net Earnings (Loss) (370) (231)
Net Earnings (Loss) per Common Share (.23) (.15)
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7
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Note 5.
In the first quarter of 2001, the Company plans to
adopt Statement of Financial Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging
Activities." This standard, as amended, will require the
Company to recognize all derivative financial instruments on
the balance sheet at fair value with changes in fair value
recorded to the statement of operations or comprehensive
income, depending on the nature of the investment. The
Company has not yet determined the effect that this standard
will have, if any, on the Company's consolidated financial
position, results of operations and cash flows.
In September 2000, the Financial Accounting Standards
Board issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities," which supercedes SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This standard is effective
for transfers occurring after March 31, 2001, with certain
disclosure requirements effective for the year ending
December 31, 2000. The Company does not believe the adoption
of this standard will have a significant impact on the
Company's consolidated financial position, results of
operations or cash flows.
In December 1999, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognition in Financial Statements,"
which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the
SEC. SAB 101, as amended, is required to be adopted by the
Company no later than the fourth quarter of fiscal year
2000. Although the Company has not fully assessed the
implications of SAB 101, management does not believe the
adoption of SAB 101 will have a significant impact on the
Company's consolidated financial position, results of
operations or cash flows.
8
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DANIEL GREEN COMPANY
Item 2 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 Company Limited
Partnership ("Evans") and all of the outstanding stock of Penobscot Shoe
Company (Penobscot) during the quarter ended March, 2000.
At September 30, 2000, the Daniel Green Company had working capital
of approximately $16,754,000 versus approximately $4,414,000 as of December
31, 1999. The ratio of current assets to current liabilities at September 30,
2000 was 3.75 to 1, compared to 2.19 to 1 at December 31, 1999.
The statement of cash flows for the nine months ended September 30,
2000, shows an increase in cash and cash equivalents of approximately $85,000
since December 31, 1999. Operating activities used $3,300,461 in cash
primarily as a result of the net loss for the period and increases in accounts
receivable and inventories. These uses of cash were partially offset by an
increase in accounts payable. Purchases of property and equipment, mainly for
data processing and warehousing, used approximately $282,000 during the nine
month period.
At the end of the third quarter of 2000, total indebtedness consisted
of: line of credit balance, noncurrent of $11,119,228, notes payable, current
$910,668, notes payable, noncurrent $5,780,481, and a liability related to the
dissenting stockholders of Penobscot of $1,875,156; a total debt of
$19,685,533.
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 $782,981 as of September 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.
9
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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 is 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.
2. Results of Operations
Net sales for the third quarter were $11,192,000, compared to sales of
$3,695,000 in the corresponding quarter last year. Included in the current
quarter were net sales of $7,133,000 attributable to the brands acquired with
Penobscot Shoe.
The gross margin in the current quarter was approximately 36% compared to a
30% 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 third quarter increased
from expenses reported during the comparable period of 1999 as a result of the
significantly higher level of business activity associated with the
acquisitions and start-up of new software systems. As a percentage of sales,
selling, general and administrative in the third quarter of 2000 were 26%,
compared to 27% in the comparable period of 1999.
During the third quarter, net interest expense amounted to $451,000 compared
to $65,000 last year.
10
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Part II - Other Information
1. Legal Proceedings
(a) On October 16, 2000 the company settled a lawsuit filed in the
United States District Court for the Southern District of New York by
Group USA, Inc. alleging trademark infringement and unfair
competition. The parties reached a non-monetary settlement.
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.
11
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6. Exhibits and Reports on Form 8K - None.
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: November 20, 2000 /s/ Robert M. Weedon
----------------- ----------------------------
Robert M. Weedon
Chief Financial Officer,
/s/ James R. Riedman
------------------------
JAMES R. RIEDMAN, CEO
12
