<PAGE>
1
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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 September 27, 1997
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 33-70442
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 November 3, 1997:
Class A: 12,712,945 Shares
Class B: 1,442,220 Shares
There are 17 pages in the sequentially numbered, manually signed original of
this report.
Exhibit Index is on page 16.
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2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
See Following Pages.
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3
DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, September 27,
1996 1997
------------ ------------
<S> <C> <C>
(in thousands, except share
and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 5,042 $ 1,416
Accounts receivable, net 55,782 69,421
Inventories 72,493 100,722
Prepaid expenses and other current assets 1,275 3,530
Deferred income taxes 5,643 5,893
------------ ------------
Total current assets 140,235 180,982
Property, plant and equipment 274,698 314,476
Less accumulated depreciation and amortization (99,348) (108,630)
------------ ------------
Net property, plant and equipment 175,350 205,846
Other assets 5,465 6,806
------------ ------------
$ 321,050 $ 393,634
============ ============
</TABLE>
See accompanying notes.
<PAGE>
4
<TABLE>
<CAPTION>
December 28, September 27,
1996 1997
------------ ------------
(in thousands, except share
and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 6,990 $ 11,943
Accounts payable 21,531 27,699
Accrued compensation and related benefits 13,652 14,134
Other accrued expenses 4,771 10,595
------------ ------------
Total current liabilities 46,944 64,371
Other liabilities:
Long-term debt 162,478 206,522
Deferred income taxes 17,857 16,451
Other deferred items 6,147 11,343
------------ ------------
Total other liabilities 186,482 234,316
Common stock subject to put rights 9,726 13,389
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000
shares authorized; no shares issued and
outstanding - -
Common stock, Class A, $.01 par value; 175,000,000
shares authorized; 12,712,945 shares issued and
outstanding 127 127
Common stock, Class B, $.01 par value; 35,000,000
shares authorized; no shares issued and
outstanding - -
Common stock, Class C, $.01 par value; 5,000,000
shares authorized; 1,442,220 shares issued and
outstanding 14 14
Additional paid-in capital 64,668 61,005
Retained earnings 13,698 21,021
Pension liability adjustment (609) (609)
------------ ------------
Total shareholders' equity 77,898 81,558
------------ ------------
$ 321,050 $ 393,634
============ ============
</TABLE>
See accompanying notes.
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5
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
Sept. 28, Sept. 27, Sept. 28, Sept. 27,
1996 1997 1996 1997
--------- -------- -------- --------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net sales $ 95,090 $ 116,254 $ 272,031 $ 344,189
Costs and expenses:
Cost of sales 75,901 88,019 220,975 268,739
Selling, general
and administrative
expenses 10,910 14,114 33,866 39,212
Other operating
costs, net - - - 7,875
---------- ---------- ---------- ----------
Operating income 8,279 14,121 17,190 28,363
Other income (expense),
net 52 (392) 429 (269)
Interest expense (4,517) (5,578) (13,959) (16,177)
---------- ---------- ---------- ----------
Income before
income taxes 3,814 8,151 3,660 11,917
Provision for
income taxes 1,509 3,142 1,447 4,594
---------- ---------- ---------- ----------
Net income $ 2,305 $ 5,009 $ 2,213 $ 7,323
========== ========== ========== ==========
Earnings per share $ 0.16 $ 0.35 $ 0.16 $ 0.52
========== ========== ========== ==========
Weighted average
shares outstanding 14,155,165 14,155,165 14,155,165 14,155,165
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
6
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
Sept. 28, Sept. 27,
1996 1997
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,213 $ 7,323
Adjustments to reconcile net income to
net cash provided by operating activities:
Noncash interest expense 890 1,031
Depreciation and amortization 15,658 20,839
Deferred income taxes 411 (1,656)
Loss on writedown/disposal of equipment 139 78
Writedown-plant closure -- 7,875
Changes in operating assets and liabilities,
net of business acquired:
Accounts receivable 2,788 1,633
Inventories 7,259 (16,432)
Prepaid expenses and other assets (279) (313)
Accounts payable and accrued expenses (1,512) 4,732
Other liabilities 263 2,196
---------- -----------
Net cash provided by operating
activities 27,830 27,306
Cash flows from investing activities:
Total capital expenditures (24,419) (13,711)
Plant and equipment acquired in
exchange for debt 4,236 1,113
Accrued equipment purchases (1,089) (1,424)
---------- -----------
Capital expenditures in cash (21,272) (14,022)
Acquisition of business -- (64,661)
Proceeds from sale of discontinued product line 2,801 --
Proceeds from sale of assets 1,347 1,777
---------- -----------
Net cash used by investing activities (17,124) (76,906)
Cash flows from financing activities:
Payments of long-term debt (16,818) (7,585)
Net payments - working capital facility (18,800) (5,900)
Proceeds from issuance of long-term debt 25,313 60,783
Payments of debt issuance costs -- (1,324)
---------- -----------
Net cash provided (used) by financing
activities (10,305) 45,974
---------- -----------
Net increase (decrease) in cash and cash equivalents 401 (3,626)
Cash and cash equivalents at beginning of period 1,540 5,042
---------- -----------
Cash and cash equivalents at end of period $ 1,941 $ 1,416
========== ===========
</TABLE>
See accompanying notes.
<PAGE>
7
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 subsidiary,
Dan River Factory Stores, Inc. (together, 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 28, 1996.
2. Earnings per share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which is required to be adopted in the fourth quarter of
fiscal 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating basic earnings
per share, the dilutive effect of stock options will be excluded. The
Company does not expect SFAS 128 to have a significant effect on the
calculation of basic and diluted earnings per share, except the
antidilutive effect of the convertible subordinated junior notes will not
be included in the calculation of diluted earnings per share for the year
ended December 30, 1995.
3. Inventories
The components of inventory are as follows:
<TABLE>
<CAPTION>
December 28, September 27,
1996 1997
------------ ------------
(in thousands)
<S> <C> <C>
Finished goods $ 24,558 $ 30,512
Work in process 38,274 57,631
Raw materials 2,679 3,588
Supplies 6,982 8,991
-------- --------
Total Inventories $ 72,493 $100,722
======== ========
</TABLE>
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8
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Shareholders' Equity
Activity in Shareholders' Equity is as follows:
<TABLE>
<CAPTION>
Total
Additional Pension Share-
Common Stock Paid-In Retained Liability holders'
Class A Class C Capital Earnings Adjustment Equity
------- -------- ---------- -------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at Decem-
ber 28, 1996 $ 127 $ 14 $64,668 $13,698 $ (609) $77,898
Change in common
stock subject to
put rights -- -- (3,663) -- -- (3,663)
Net income -- -- -- 7,323 -- 7,323
------ ------ ------- ------- -------- ------
Balance at September
27, 1997 $ 127 $ 14 $61,005 $21,021 $ (609) $81,558
======= ======= ======= ======= ========= =======
</TABLE>
5. Other Operating Costs, Net
During the quarter ended June 28, 1997, the Company recorded a pre-tax
charge of $7,875,000 as a result of its decision to close its Riverside
apparel fabrics weaving operation in Danville, Virginia. The charge
includes $373,000 for severance and other benefits related to approximately
200 employees. The remainder of the charge relates principally to
writedowns and other costs associated with the divestitures of real estate
and equipment. The Company will close the facility during the fourth
quarter of 1997 and anticipates substantially all of the facility's assets
will be relocated or disposed of within a 2-year period.
6. Income Taxes
At December 28, 1996, the Company had net operating loss carryforwards of
$900,000, which expire in 2005. In addition, the Company had available a
minimum tax credit carryforward of $8,100,000, and investment credit and
other general business credit carryforwards of $5,300,000. If not used,
substantially all of the investment credit and other general business
credit carryforwards will expire in the years 1997 through 2000.
On September 3, 1991, the Company completed a financial restructuring (the
"Restructuring") which involved issuing common and preferred stock to
various parties. The Company believes that the Restructuring did not
<PAGE>
9
result in a "change in ownership" under Section 382 of the Internal
Revenue Code. However, Section 382 and related regulations promulgated by
the Internal Revenue Service (IRS) are extremely complex, and the
Company's assessment of whether or not a "change in ownership" occurred
involves judgments as to certain factual issues and interpretations as to
certain legal issues for which there is little guidance.
From the date of the Restructuring through December 28, 1996, the Company
utilized an aggregate of $16,876,000 in net operating loss carryforwards
and $1,723,000 in general business credit carryforwards for federal income
tax purposes that are subject to review by the IRS. The utilization of
these carryforwards and related tax benefits could be significantly
restricted or eliminated if the Restructuring is ultimately deemed to
constitute a "change in ownership."
7. Acquisition
On February 3, 1997, the Company acquired substantially all the assets of
The New Cherokee Corporation ("TNCC") for $65 million in cash, subject to
a working capital adjustment, and the assumption of certain operating
liabilities. The purchase price and associated fees and expenses of
approximately $2 million were funded at closing with $12.1 million of cash
on hand, and borrowings under a new working capital line of credit and
term loan of $19.9 million and $35 million, respectively. In July 1997,
as a result of the working capital adjustment, the Company received $1.7
million from an escrow deposit. The acquisition has been accounted for
using the purchase method of accounting and the preliminary allocation of
the purchase price did not result in the recording of goodwill.
The following summarized, unaudited pro forma results of operations assume
the acquisition of TNCC had occurred at the beginning of each period
presented. The pro forma information is presented for informational
purposes and is not indicative of results which would have occurred or
which may occur in the future.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 28, September 27,
1996 1997
------------ ------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $350,294 $353,399
Net income (loss) (101) 7,794
Earnings (loss) per share (0.01) 0.55
</TABLE>
8. Public Offering and Recapitalization
On September 26, 1997, the Company filed a registration statement for the
sale of Class A Common Stock to the public (the "Offering").
In connection with the Offering, the shareholders of the Company approved
a multi-step recapitalization plan which became effective on November 3,
1997 (the "Recapitalization"). Prior to the Recapitalization, the Company's
outstanding capital stock included 1,500,000 authorized shares of voting
stock, par value $.01 per share ("Old Voting Stock") (726,454 shares of
which were outstanding as of
December 28, 1996), and 1,500,000 authorized shares of non-voting common
stock, par value $.01 per share ("Old Nonvoting Stock") (82,413 shares of
which were outstanding as of December 28, 1996).
The Company first amended and restated its Articles of Incorporation (the
"Restated Articles"). Upon filing of the Restated Articles: (i) Class A
Common Stock, par value $.01 per share, entitled to one vote per share,
Class B Common Stock, par value $.01 per share, entitled to 4.39 votes per
share, and Class C Common Stock, par value $.01 per share, nonvoting, were
created; (ii) each outstanding share of Old Voting Stock was reclassified
and exchanged for 17.5 shares of Class A Common Stock of the Company
("Class A Common") and (iii) each outstanding share of Old Nonvoting Stock
was reclassified and exchanged for 17.5 shares of Class C Common Stock of
the Company ("Class C Common") (the "Reclassification"). Shares of Class C
Common will automatically convert into shares of Class A Common on a share-
for-share basis upon consummation of the Offering.
Upon consummation of the Offering, the Company will complete an exchange
offer (the "Exchange Offer") pursuant to which certain members of senior
management of the Company (and certain of their family members) that held
Old Voting Stock prior to the Reclassification will exchange 2,062,070
shares of Class A Common for shares of supervoting Class B Common Stock
("Class B Common") on a share-for-share basis.
All share and per share amounts in the accompanying financial statements
and the related notes have been adjusted to reflect the impact of the
Reclassification on the number of shares outstanding and the per share
amounts. No adjustment has been made in the accompanying financial
statements and the related notes for the Exchange Offer or the automatic
conversion of Class C Common into Class A Common upon the consummation of
the Offering.
9. Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information", effective for years
beginning after December 15, 1997. SFAS 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from SFAS 14, "Financial
Reporting for Segments of a Business Enterprise". Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment
profit or loss, certain revenue and expense items and segment assets and
reconciliations to corresponding amounts in the general purpose financial
statements. SFAS 131 also requires information about products and services,
geographic areas of operation, and major customers. The Company is required
to adopt SFAS 131 at the end of its 1998 fiscal year. The Company has not
completed its analysis of the effect of adoption on its financial statement
disclosure, however, the adoption of SFAS 131 will not affect results of
operations or financial position.
<PAGE>
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Acquisition of The New Cherokee Corporation
The Company acquired substantially all the assets and assumed certain
liabilities of The New Cherokee Corporation ("TNCC") for $63.3 million in cash.
TNCC manufactured and sold substantially the same types of light weight yarn
dyed apparel fabrics as the Company. The results of TNCC have been included
since the date acquired, February 3, 1997.
The purchase included the inventory, receivables, property, plant, and
equipment of TNCC, including the Sevierville Plant located in Sevierville,
Tennessee, the Spindale Plant in Spindale, North Carolina, and the Harris
Finishing Plant in Harris, North Carolina. The Company also assumed certain
liabilities of TNCC including trade payables and some accrued liabilities.
Funding for the acquisition is described in the Liquidity and Capital Resources
portion of this section.
General
Net sales for the third quarter of 1997 were $116.3 million, an increase of
$21.2 million (22.3%) compared to the third quarter of 1996. For the quarter,
sales of home fashions products were up $6.2 million (10.3%) and sales of
apparel fabrics products were up $14.9 million (42.9%).
The increase in sales of home fashions products resulted from higher unit
volumes and higher average pricing reflecting a better sales mix of products.
The increase in sales of apparel fabrics resulted from the acquisition of TNCC
on February 3, 1997. Unit volume of apparel fabrics more than doubled, offset
by lower average pricing reflecting a less rich sales mix that included lower
price greige fabrics and higher levels of commission finishing.
Gross profit for the third quarter of 1997 was $28.2 million, 24.3% of sales, up
$9.0 million or 47.1% from the second quarter of 1996, during which gross
profit represented 20.2% of sales. The increase in gross profit was due to
higher unit volumes, lower raw material prices and reduced manufacturing costs
for the production of apparel fabrics as a result of the acquisition of TNCC.
Selling, general and administrative expenses for the third quarter of 1997 were
$14.1 million (12.1% of sales) as compared to $10.9 million (11.5% of sales)
during the third quarter of 1996. The increase relates to higher incentive
compensation expense, increased selling and administrative expense as a result
of the acquisition of TNCC and increased product design and other costs
associated with the Company's new line of Nautica(R) brand home fashions
products.
Due to the factors described above, operating income of $14.1 million was up
$5.8 million or 70.6% from the second quarter of 1996.
Interest expense for the third quarter of 1997 was $5.6 million, an increase of
$1.1 million or 23.5% from the third quarter of 1996. The increase in interest
expense was due to higher debt levels reflecting the acquisition of TNCC offset
<PAGE>
11
somewhat by lower average rates. The lower average rates reflect the
acquisition debt related to TNCC, most of which is financed at floating rates
which are lower than the Company's fixed rate public debt, thereby reducing the
average interest rate.
An income tax provision of $3.1 million was recorded in the third quarter of
1997 (38.5% of pretax income) compared to a provision of $1.5 million (39.6% of
pretax income) for the third quarter of 1996. The increased provision was due
to higher levels of pretax income. Accordingly, the Company recorded net
income of $5.0 million for the third quarter of 1997 compared to $2.3 million
in the third quarter of 1996.
Net sales for the first nine months of fiscal 1997 were $344.2 million, an
increase of $72.2 million or 26.5% compared to $272.0 million for the first
nine months of fiscal 1996. Net sales of home fashions products during the
first nine months of fiscal 1997 were $183.0 million, an increase of $9.9
million or 5.7% compared to $173.1 million for the first nine months of fiscal
1996. Net sales of apparel fabrics during the first nine months of fiscal 1997
were $161.2 million, an increase of $62.3 million or 63.0% compared to $98.9
million for the first nine months of fiscal 1996. The increase in net sales of
home fashions products was due to higher unit volume aided somewhat by higher
average pricing reflecting an improved product mix. The increase in net sales
of apparel fabrics resulted primarily from the acquisition of TNCC, which was
consummated on February 3, 1997. Apparel fabrics unit volumes were almost
double the levels of the corresponding period in fiscal 1996. This was offset
somewhat by lower average pricing reflecting a sales mix that included a
higher proportion of lower priced greige fabrics that were sold to the
converter trade (purchasers of unfinished fabric who contract out the
finishing to third parties) and higher commission finishing sales.
Gross profit for the first nine months of fiscal 1997 was $75.5 million
(21.9% of net sales), an increase of $24.4 million or 47.8% from gross profit
of $51.1 million (18.8% of net sales) for the first nine months of fiscal
1996. The increase in gross profit was due to higher unit volumes, lower raw
material prices, and better manufacturing performance in apparel fabrics where
there was increased activity levels and reduced costs as a result of the
acquisition of TNNC.
Selling, general and administrative expenses for the first nine months of
fiscal 1997 were $39.2 million (11.4% of net sales), an increase of $5.3
million or 15.8% from $33.9 million (12.4% of net sales) for the first nine
months of fiscal 1996. The increase was caused by higher incentive
compensation expense, increased selling and administrative expense as a result
of the acquisition of TNCC, and increased product design and roll-out costs
associated with the introduction of the "Nautica" brand of home fashions
products.
The Company incurred a one-time charge in the second quarter of fiscal 1997
as a result of the decision to close its Riverside apparel fabrics weaving
operation in Danville, Virginia. The production from this facility will be
moved to other Company facilities. Accordingly, its closure will reduce fixed
costs without any decrease in production. The $7.9 million pre-tax charge
($4.8 million after tax; $0.34 per share), reflected under "Other operating
costs, net", includes $0.4 million for severance and other employee benefit
costs. The remainder of the charge relates principally to writedowns and other
costs associated with the divestiture of real estate and equipment.
For the reasons described above, operating income during the first nine
months of fiscal 1997 was $28.4 million (8.2% of net sales), an increase of
$11.2 million or 65.0% from $17.2 million (6.3% of net sales) for the first
nine months of fiscal 1996. Excluding the one-time charge related to the
closure of the Riverside facility, operating income would have been $36.2
million, an increase of $19.0 million or 110.8% compared to the first nine
months of 1996.
Other income (expense), net for the first nine months of fiscal 1997 includes
$0.6 million of costs related to fees and expenses incurred in connection with a
proposed business combination that did not materialize, offset in part by
miscellaneous items of income.
Interest expense was $16.2 million for the first nine months of fiscal 1997,
an increase of $2.2 million or 15.9% from $14.0 million for the first nine
months of fiscal 1996. The increase in interest expense was due to higher debt
levels arising from the acquisition of TNCC offset somewhat by lower average
interest rates. The lower average interest rates reflect the debt incurred to
finance the acquisition of TNCC, most of which was financed at floating rates
which are lower than the Company's fixed rate public debt, thereby reducing
the average interest rate.
The income tax provision was $4.6 million (38.5% of pre-tax income) for the
first nine months of fiscal 1997, an increase of $3.2 million compared to an
income tax provision of $1.4 million (39.5% of the pre-tax income) recorded
for the first nine months of fiscal 1996. Accordingly, the Company recorded
net income of $7.3 million (2.1% of net sales) or $0.52 per share for the
first nine months of fiscal 1997 compared to a net income of $2.2 million
(0.8% of net sales) or $0.16 per share for the first nine months of fiscal
1996.
<PAGE>
12
LIQUIDITY AND CAPITAL RESOURCES
General
The Company believes that internally generated cash flow, supplemented by
borrowings under its revolving credit facility and vendor financing, will be
sufficient to meet its foreseeable debt service requirements, capital
expenditures, and working capital needs. The Company is considered highly
leveraged, with a total debt to total capital ratio of 69.7% at September 27,
1997.
The Company filed a Preliminary Registration Statement Form S-1 with the
Securities and Exchange Commission (the "SEC") on September 26, 1997. Upon the
SEC declaring the Registration Statement effective, the Company intends to
offer for sale common stock which will be listed on the New York Stock Exchange
(the "Offering"). If such Offering is consummated, it is anticipated that the
Company will receive approximately $65 million in net proceeds during the
fourth quarter, 1997. However, there can be no assurance that the Offering
will be consummated or that the net proceeds will approximate $65 million.
Should the Offering be consummated, the Company plans to use the net proceeds
to reduce its debt.
Credit Facilities and Vendor Financing
The total cash requirement on February 3, 1997 to consummate the acquisition of
TNCC's assets was $67 million including an escrow deposit of $6.5 million and
approximately $2 million for fees, expenses and certain closing items. The
funds were provided by using $12.1 million of cash on hand and borrowings of
$19.9 million and $35 million, respectively, under a new working capital credit
line and term loan, described as follows. The Company received $1.7 million
from the escrow deposit in July 1997.
On February 3, 1997, in order to finance the acquisition of TNCC, the
Company replaced its $60.0 million revolving credit facility with a working
capital line of credit (the "Working Capital Facility") under which the Company
has $90.0 million aggregate borrowing availability, subject to a borrowing base
limitation, and a four-year term loan (the "Term Loan Facility"), under which
the Company has $35.0 million of aggregate borrowing availability. The Working
Capital Facility and Term Loan Facility (together, the "Credit Facilities") are
secured by the Company's accounts receivable and inventories, the personal
property located at the three former Cherokee manufacturing facilities, and the
real property of the TNCC North Carolina manufacturing facilities.
The Working Capital Facility bears interest at the Base Rate, as defined
(8.50% as of October 27, 1997) or LIBOR plus 2% (7.78% as of October 27, 1997)
for periods of one, two, three or six months, at the Company's option. The
Working Capital Facility is non-amortizing and any amounts outstanding are due
at the final maturity of February 3, 2001. At October 27, 1997, the Company
had an aggregate of $11.5 million of borrowings and $0.2 million in letters of
credit outstanding under the Working Capital Facility and had $71.5 million in
unused and available borrowings under the Working Capital Facility.
The Term Loan Facility bears interest at the Base Rate or LIBOR plus 2.50%
(8.28% as of October 27, 1997) for periods of one, two, three or six months,
at the Company's option. Principal payments are required in the following
amounts for each fiscal year: 1997, $1.75 million; 1998, $4.25 million; 1999,
$5.0 million, and 2000, $24.0 million, of which $20.25 million is due November
2000. At October 27, 1997, the Company had an aggregate of $34.1 million of
borrowings outstanding under the Term Loan Facility.
The Credit Agreement relating to the Credit Facilities contains certain
covenants including requirements for the maintenance of a certain cash
interest coverage ratio and a minimum net worth and limitations on mergers and
consolidations, affiliated transactions, incurring liens, making restricted
payments, entering into sale and leaseback transactions, disposing of assets
and owning, purchasing or acquiring margin securities. An event of default
under the Credit Agreement includes a Change in Control (as defined) as well
as the Company's default on certain of its other indebtedness. Borrowings
under the Working Capital Facility are tied to a borrowing base formula which
is dependent on the level of eligible accounts receivable and inventories,
less $10 million.
In addition, the Company finances certain capital improvements through
vendors of the capital assets, and will continue to utilize this method of
financing where it deems appropriate.
<PAGE>
13
Working Capital
Net cash generated from operating activities was $27.3 million in the nine
months ended September 27, 1997. Included in that amount is a use of cash for
operating assets and liabilities of $8.2 million, primarily comprised of a
$10.1 million use for operating working capital (accounts receivable - $1.6
million source, inventories - $16.3 million use, and accounts payable and
accrued expenses - $4.7 million source).
During the comparable nine month period ended September 28, 1996, net cash
generated from operating activities was $27.8 million. Included in that amount
is a source of cash from operating assets and liabilities of $8.5 million,
primarily comprised of a $8.5 million source from operating working capital
(accounts receivable - $2.8 source, inventories - $7.3 million source, and
accounts payable and accrued expenses - $1.5 million use).
Capital Improvements
During the first nine months of 1997, the Company purchased $13.7 million in
equipment and manufacturing improvements. The Company expects to continue
modernizing and making capital improvements over the next several years, which
are anticipated to be financed through cash generated by operations, vendor
financing, and borrowings under the credit agreement.
Recent Accounting Pronouncement
See Note 9 to Notes to Condensed Consolidated Financial Statements.
<PAGE>
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Dan River has registered the "Bed-in-a-Bag" name as a trademark. In
February 1997, a competitor filed a Petition for Cancellation of the trademark
in the United States Patent and Trademark Office (the "U.S. Patent Office"). Dan
River filed its answer to the Petition for Cancellation and intends to
vigorously defend the action. The Petition Challenges only the exclusivity of
the trademark and not the Company's right to continue to use the phrase in
connection with its products. Therefore, while the Company cannot predict the
outcome of this matter, the Company believes that the loss of such exclusivity
would not have a material adverse effect on the Company's business or prospects.
Items 2-5. No disclosure required.
Item 6. Exhibits and Reports on Form 8-K.
None.
<PAGE>
15
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.
<TABLE>
<S> <C>
Date: November 4, 1997 /s/ Barry F. Shea
-----------------------------------
Barry F. Shea
Vice President-Chief Financial Officer
(Authorized Signing Officer and
Principal Financial Officer)
</TABLE>
<PAGE>
16
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<S> <C> <C>
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed. 16
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF DAN RIVER INC. AS OF SEPTEMBER 27, 1997
AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 27,1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 1,416
<SECURITIES> 0
<RECEIVABLES> 69,421
<ALLOWANCES> 0
<INVENTORY> 100,722
<CURRENT-ASSETS> 180,982
<PP&E> 314,476
<DEPRECIATION> 108,630
<TOTAL-ASSETS> 393,634
<CURRENT-LIABILITIES> 64,371
<BONDS> 206,522
13,389
0
<COMMON> 141
<OTHER-SE> 81,417
<TOTAL-LIABILITY-AND-EQUITY> 393,634
<SALES> 344,189
<TOTAL-REVENUES> 344,189
<CGS> 268,739
<TOTAL-COSTS> 276,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,177
<INCOME-PRETAX> 11,917
<INCOME-TAX> 4,594
<INCOME-CONTINUING> 7,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,323
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0
</TABLE>
