<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
Form 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 3, 1997
DAN RIVER INC.
(Exact name of registrant as specified in its charter)
Commission file number 33-70442
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
There are 35 pages in the sequentially numbered, manually signed original of
this report.
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<PAGE> 2
The undersigned registrant hereby amends Item 7, sections (a) and (b),
of its Current Report on Form 8-K reporting the acquisition of substantially
all of the assets of The New Cherokee Corporation on February 3, 1997, to
include financial statements and pro forma financial data information as set
forth herein.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Page
----
Independent Auditor's Report 3
The New Cherokee Corporation Balance Sheets
as of September 28, 1996 and September 30, 1995 4-5
The New Cherokee Corporation Statements of
Operations for the fiscal years ended September
28, 1996, September 30, 1995 and October 1, 1994 6
The New Cherokee Corporation Statements of Changes
in Shareholders' Equity for the fiscal years ended
September 28, 1996, September 30, 1995 and
October 1, 1994 7
The New Cherokee Corporation Statements of Cash
Flows for the fiscal years ended September 28,
1996, September 30, 1995 and October 1, 1994 8-10
The New Cherokee Corporation Notes to Financial
Statements 11-23
The New Cherokee Corporation Unaudited Condensed
Balance Sheets as of December 28, 1996 and
September 28, 1996 24
The New Cherokee Corporation Unaudited Condensed
Statements of Operations for the three months
ended December 28, 1996 and December 30, 1995 25
The New Cherokee Corporation Unaudited Condensed
Statements of Cash Flows for the three months
ended December 28, 1996 and December 30, 1995 26
The New Cherokee Corporation Notes to Unaudited
Condensed Financial Statements 27-28
(b) Pro forma financial information (introduction). 29
Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of December 28, 1996 30-32
Unaudited Pro Forma Condensed Consolidated
Statement of Income for the fiscal year ended
December 28, 1996 33-34
<PAGE>
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The New Cherokee Corporation
Harris, North Carolina
We have audited the accompanying balance sheets of The New Cherokee
Corporation as of September 28, 1996 and September 30, 1995, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the years ended September 28, 1996, September 30, 1995, and October 1, 1994.
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 a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The New Cherokee Corporation
as of September 28, 1996 and September 30, 1995, and the results of its
operations and its cash flows for the years ended September 28, 1996,
September 30, 1995, and October 1, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 15 to the financial statements, the Company changed its
method of accounting for certain inventories from the last-in, first-out
(LIFO) basis to the first-in, first-out (FIFO) basis in 1995.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, as of September 28, 1996, the Company was in default
under certain covenants of its revolving and term credit agreements which
causes the balances to become due on demand. In addition, as discussed in
Note 19, negotiations are presently under way with a third party to sell
substantially all the assets of the Company. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from the outcomes of these uncertainties.
/s/ Pugh & Company, P.C.
Certified Public Accountants
Knoxville, Tennessee
October 18, 1996
(Except for Notes 8 and 19, as to which
the dates are October 31, 1996 and
November 20, 1996, respectively)
<PAGE>
<PAGE> 4
THE NEW CHEROKEE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
As of September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 497,726 $ 315,614
Trade Accounts Receivable 22,458,355 24,488,362
Inventories 12,389,823 20,024,645
Prepaid Items and Other 180,619 59,745
------------- ------------
Total Current Assets 35,526,523 44,888,366
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET 51,961,090 53,867,962
------------- ------------
OTHER ASSETS
Cash Value of Life Insurance, Net
of Policy Loans of $137,172 2,047,658 2,451,501
Intangible Assets, Net of Accumulated
Amortization of $335,161 ($303,184 in 1995) 115,900 127,877
Net Deferred Tax Asset -0- 8,466,647
Other 1,255,592 841,290
------------- ------------
Total Other Assets 3,419,150 11,887,315
------------- ------------
TOTAL ASSETS $ 90,906,763 $110,643,643
============= ============
/TABLE
<PAGE>
<PAGE> 5
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
As of September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Checks Written in Excess of Cash
on Deposit $ 2,320,832 $ 1,398,694
Trade Accounts Payable 4,228,776 5,504,068
Accrued Expenses:
Litigation Settlement -0- 1,715,000
ESOP Benefits 646,630 1,500,000
Other 2,018,585 2,021,401
Notes Payable 7,000,000 4,000,000
Current Maturities of Long-Term Debt 35,896,284 2,576,179
------------ ------------
Total Current Liabilities 52,111,107 18,715,342
------------ ------------
LONG-TERM LIABILITIES
Long-Term Debt 261,512 35,897,296
Accrued Rent 346,739 325,000
Deferred Compensation Plans 5,203,294 6,277,955
------------ ------------
Total Long-Term Liabilities 5,811,545 42,500,251
------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock 12,000,000 12,000,000
Common Stock 17,979,310 17,979,310
Capital in Excess of Par Value 20,384,496 20,384,496
Retained Earnings (Deficit) (14,172,239) 4,834,200
Treasury Stock, 4,886 Shares at Par (48,860) (48,860)
Deferred Compensation - Restricted
Stock 47,709 Shares at Cost (1,236,721) (1,236,721)
Notes Receivable From ESOP (1,921,875) (4,484,375)
------------ ------------
Total Shareholders' Equity 32,984,111 49,428,050
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 90,906,763 $110,643,643
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 6
THE NEW CHEROKEE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended
September 28, September 30, October 1,
1996 1995 1994
(Restated)
------------- ------------- ------------
<S> <C> <C> <C>
SALES $105,783,472 $125,757,564 $110,202,321
COST OF GOODS MANUFACTURED AND
SOLD 98,252,472 109,753,125 95,238,678
------------ ------------ ------------
GROSS MARGIN 7,531,000 16,004,439 14,963,643
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,592,241 14,958,285 15,382,094
------------ ------------ ------------
OPERATING INCOME (LOSS) BEFORE
ESOP CONTRIBUTIONS (3,061,241) 1,046,154 (418,451)
ESOP CONTRIBUTIONS 3,697,774 7,085,499 6,995,259
------------ ------------ ------------
NET OPERATING LOSS (6,759,015) (6,039,345) (7,413,710)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 8,988 13,088 25,382
Miscellaneous Income 408,008 564,662 22,072
Interest Expense (Net of Capitalized
Interest of $-0-, $-0-, and
$489,854, respectively) (3,186,263) (2,935,312) (603,293)
Miscellaneous Expense (Including
Litigation Settlements of $-0-,
$1,715,000, and $597,000,
respectively) (1,011,510) (3,055,088) (670,582)
------------ ------------ ------------
Net Other Expense (3,780,777) (5,412,650) (1,226,421)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES
(BENEFIT) (10,539,792) (11,451,995) (8,640,131)
INCOME TAXES (BENEFIT) 8,466,647 (3,794,515) (2,784,210)
------------ ------------ ------------
NET LOSS $(19,006,439) $ (7,657,480) $ (5,855,921)
============ ============ ============
LOSS PER SHARE:
Primary Loss Per Share Amounts $ (10.60) $ (4.27) $ (3.26)
============ ============ ============
Fully Diluted Loss Per Share
Amounts $ (7.94) $ (3.20) $ (2.55)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 7
THE NEW CHEROKEE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Years Ended September 28, 1996
<TABLE>
<CAPTION>
Capital in Retained
Preferred Common Excess of Earnings
Stock Stock Par Value (Deficit)
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCES, OCTOBER 2,
1993, AS ORIGINALLY
STATED $12,000,000 $17,979,310 $20,459,421 $ 14,891,613
Restatement for Change in
Accounting Principle;
Change in Method of
Accounting for Certain
Inventories From LIFO
to FIFO -0- -0- -0- 3,455,988
----------- ----------- ----------- ------------
BALANCES, OCTOBER 2,
1993, AS RESTATED 12,000,000 17,979,310 20,459,421 18,347,601
Repayment of Loans to
ESOP -0- -0- -0- -0-
Net Loss -0- -0- -0- (5,855,921)
----------- ----------- ----------- ------------
BALANCES, OCTOBER 1,
1994 12,000,000 17,979,310 20,459,421 12,491,680
Repayment of Loans to
ESOP -0- -0- -0- -0-
Receipt of 4,682 Shares
of Common Stock From
Executive Deferred
Stock Bonus Trust -0- -0- (74,925) -0-
Net Loss -0- -0- -0- (7,657,480)
----------- ----------- ----------- ------------
BALANCES, SEPTEMBER 30,
1995 12,000,000 17,979,310 20,384,496 4,834,200
Repayment of Loans to
ESOP -0- -0- -0- -0-
Net Loss -0- -0- -0- (19,006,439)
----------- ----------- ----------- ------------
BALANCES, SEPTEM-
BER 28, 1996 $12,000,000 $17,979,310 $20,384,496 $(14,172,239)
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 8
THE NEW CHEROKEE CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
For the Three Years Ended September 28, 1996
<TABLE>
<CAPTION>
Deferred
Compensation- Notes Total
Treasury Restricted Receivable Shareholders'
Stock Stock From ESOP Equity
-------- ------------ --------- -------------
<S> <C> <C> <C> <C>
BALANCES, OCTOBER 2,
1993, AS ORIGINALLY
STATED $ (2,040) $(1,358,466) $(15,491,318) $ 48,478,520
Restatement for Change
in Accounting Principle;
Change in Method of
Accounting for Certain
Inventories From
LIFO to FIFO -0- -0- -0- 3,455,988
-------- ----------- ------------ ------------
BALANCES, OCTOBER 2,
1993, AS RESTATED (2,040) (1,358,466) (15,491,318) 51,934,508
Repayment of Loans to
ESOP -0- -0- 5,923,608 5,923,608
Net Loss -0- -0- -0- (5,855,921)
-------- ----------- ------------ ------------
BALANCES, OCTOBER 1,
1994 (2,040) (1,358,466) (9,567,710) 52,002,195
Repayment of Loans
to ESOP -0- -0- 5,083,335 5,083,335
Receipt of 4,682
Shares of Common Stock
From Executive Deferred
Stock Bonus Trust (46,820) 121,745 -0- -0-
Net Loss -0- -0- -0- (7,657,480)
--------- ----------- ------------ ------------
BALANCES, SEPTEM-
BER 30, 1995 (48,860) (1,236,721) (4,484,375) 49,428,050
Repayment of Loans
to ESOP -0- -0- 2,562,500 2,562,500
Net Loss -0- -0- -0- (19,006,439)
-------- ----------- ------------ ------------
BALANCES, SEPTEM-
BER 28, 1996 $(48,860) $(1,236,721) $ (1,921,875) $ 32,984,111
======== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 9
THE NEW CHEROKEE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
September 28, September 30, October 1,
1996 1995 1994
(Restated)
-------------- ------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received From Customers $107,813,479 $ 126,116,453 $106,144,681
Cash Paid to Suppliers, Employees
and for Selling, General and
Administrative Expenses (99,478,559) (119,973,720) (97,408,911)
ESOP Contributions (3,697,774) (7,085,499) (6,995,259)
Interest Received 8,988 13,088 25,382
Interest Paid (3,321,526) (2,854,811) (1,093,147)
Miscellaneous Receipts 1,018,014 1,489,626 22,072
------------ ------------- ------------
Net Cash Provided by (Used in)
Operating Activities 2,342,622 (2,294,863) 694,818
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Equipment 77,076 2,117,327 -0-
Purchases of Property, Plant and
Equipment (6,347,636) (5,658,132) (30,981,220)
(Increase) in Other Assets 20,000 (20,000) -0-
(Increase) in Cash Value of Life
Insurance, Net (80,363) (459,537) (325,410)
Repayment on Loans to ESOP 2,562,500 5,083,335 5,923,608
Receipt on Note Receivable 1,454 1,613 824
Increase in Note Receivable -0- -0- (125,000)
------------ ------------- ------------
Net Cash Provided by (Used in)
Investing Activities (3,766,969) 1,064,606 (25,507,198)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Checks Written
in Excess of Cash on Deposit 922,138 263,610 (403,103)
Net Proceeds From Notes Payable 3,000,000 4,000,000 -0-
Proceeds From Long-Term Debt
Borrowing 800,000 3,700,000 31,200,000
Repayment on Long-Term Debt
Borrowing (3,115,679) (6,432,970) (5,979,559)
------------ ------------- ------------
Net Cash Provided by Financing
Activities 1,606,459 1,530,640 24,817,338
------------ ------------- ------------
NET INCREASE IN CASH 182,112 300,383 4,958
CASH AT BEGINNING OF YEAR 315,614 15,231 10,273
------------ ------------- ------------
CASH AT END OF YEAR $ 497,726 $ 315,614 $ 15,231
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 10
THE NEW CHEROKEE CORPORATION
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For The Years Ended
September 28, September 30, October 1,
1996 1995 1994
(Restated)
------------- ------------- ----------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash
Provided by (Used in) Operating
Activities:
Net Loss $(19,006,439) $ (7,657,480) $ (5,855,921)
------------ ------------- ------------
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used in)
Operating Activities:
Depreciation 7,567,426 8,688,294 7,540,814
Amortization 31,977 40,923 92,433
Loss on Sales of Equipment 610,006 924,964 -0-
Deferred Compensation Plans,
Net (1,026,211) (327,914) 190,215
Deferred Income Taxes
(Benefit) 8,466,647 (3,794,515) (2,552,490)
(Increase) Decrease in Assets:
Trade Accounts Receivable 2,030,007 358,889 (4,057,640)
Inventories 7,634,822 (3,466,709) 2,637,793
Prepaid Items and Other (140,874) 387,071 (47,064)
Increase (Decrease) in Liabilities:
Accounts Payable (1,275,292) (566,489) 2,737,113
Accrued Expenses and Other (2,549,447) 3,118,103 9,565
------------ ------------- ------------
Total Adjustments 21,349,061 5,362,617 6,550,739
------------ ------------- ------------
Net Cash Provided by (Used in)
Operating Activities $ 2,342,622 $ (2,294,863) $ 694,818
============ ============= ============
Supplementary Disclosure of Noncash
Financing Activities:
Transfer of Restricted Stock to
Treasury Stock $ -0- $ 121,745 $ -0-
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 11
THE NEW CHEROKEE CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 28, 1996, September 30, 1995, and October 1, 1994
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The New Cherokee Corporation (the Company) is a manufacturer of yarn and
woven fabrics for textile industry customers principally located in the
eastern United States. The Company utilizes the fifty-two/fifty-three week
method for its year-end, which is always the Saturday closest to September
30. This summary of significant accounting policies of the Company is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements. The summary of significant accounting policies is:
Use of 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 disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Accordingly, actual results could differ from
those estimates.
Inventories - Inventories, consisting of finished goods, stock in process,
raw materials in bales, purchased yarn and other manufacturing supplies are
stated at the lower of cost or market, using the first-in, first-out (FIFO)
method (see Notes 3 and 15).
Futures Contracts - The Company enters into futures contracts to hedge
certain raw material purchases, principally cotton, with the objective of
minimizing cost risk due to market fluctuations. Any gains or losses from
hedging transactions are included as part of the inventory cost.
Intangible Assets - Intangible assets consist of organization costs, which
represent past merger expenses and are being amortized using the straight-
line method over a five year period; and loan costs, which represent expenses
incurred in regards to long-term debt borrowing or refinancing and are being
amortized using the straight-line method over the lives of the loans, which
range from two to eight years.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is computed using both straight-line and accelerated
methods based on estimated useful lives of 5 to 50 years. The Company uses
accelerated methods for income tax reporting purposes, except for the asset
under capital lease which is treated as an operating lease for income tax
reporting purposes.
Income Taxes - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of certain
<PAGE>
<PAGE> 12
notes receivable from the Company's employee stock ownership plan,
inventories, accrued expenses, deferred compensation plans liabilities; and
calculation of depreciation expense for financial and income tax reporting.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses which are available to offset future
taxable income and tax credits which are available to offset future federal
income taxes.
NOTE 2 - TRADE ACCOUNTS RECEIVABLE
Factoring Agreement - The Company factors principally all of its receivables
from yarn and fabric sales with the factor assuming all credit risk. The
Company receives payment from the factor based on the average due date of the
invoices plus seven days for delays. Receivables consist of the following:
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Factored $21,277,099 $23,409,234
Other 1,181,256 1,079,128
----------- -----------
$22,458,355 $24,488,362
=========== ===========
</TABLE>
Included in accounts receivable - other as of September 28, 1996 and
September 30, 1995 are receivables totalling $140,695 for the sales of cotton
and $802,170 for the sales of cotton and equipment related to the closure of
the Spindale plant's yarn mill (see Note 16), respectively.
NOTE 3 - INVENTORIES
Inventories, priced on the basis described in Note 1, consist of the
following:
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Finished goods $ 6,177,616 $12,124,461
Stock in process 4,422,010 5,103,017
Cotton in bales 556,181 702,154
Polyester in bales 57,904 81,553
Rayon in bales 429,861 126,603
Purchased yarn 337,627 1,442,934
Dyes and chemicals 348,093 392,736
Supplies 41,603 41,603
Waste 18,928 9,584
----------- -----------
$12,389,823 $20,024,645
=========== ===========
/TABLE
<PAGE>
<PAGE> 13
In 1995, the Company changed its method of accounting for certain inventories
from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
method of inventory valuation (see Note 15).
NOTE 4 - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company has a defined contribution employee stock ownership plan (ESOP)
covering substantially all employees. The ESOP was originally funded
primarily by loans from the Company, which obtained the funds through loans
from banks. The Company's bank loans and loans to the ESOP have similar
terms and each is repayable within one year with interest at 4.898% for both
1996 and 1995 (4.386% to 4.898% in 1994). The ESOP obtains the funds to
repay its loans primarily through tax deductible contributions made by the
Company to the ESOP. The maximum contributions to all defined contribution
plans cannot exceed twenty-five percent of the compensation of eligible
employees plus contributions to pay interest on the ESOP loans. A summary of
total ESOP contributions for 1996, 1995, and 1994 is:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Contributions to ESOP for:
Debt Service:
Principal Payments $2,562,500 $5,083,335 $5,923,608
Interest Payments 164,646 338,132 486,374
Administrative Expenses 17,797 54,247 89,594
Benefits Accrued or Paid
to Participants 952,831 1,609,785 495,683
---------- ---------- ----------
$3,697,774 $7,085,499 $6,995,259
========== ========== ==========
</TABLE>
In 1995, benefits accrued to participants include approximately $1,125,000
related to employees terminated due to the closure of the Spindale plant's
yarn mill (see Note 16).
Certain notes, which were expensed as contributions in a prior year for
financial accounting purposes, will be deducted for income tax purposes as
contributions are made to retire the debt. For financial accounting
purposes, the bank loans are reflected as liabilities and the Company loans
to the ESOP are reflected as a reduction of stockholders' equity. The notes
receivable from the ESOP are secured by a stock pledge agreement which
pledges all shares of stock owned by the ESOP, including any stock rights, to
the Company (see Note 8). The bank, and subsequently the Company, release a
calculated number of pledged shares annually as specified by the agreements.
Subsequently, the ESOP allocates to plan participants' accounts the shares
released. Since the Company's common stock is not readily tradeable on an
established market, the ESOP requires that participants' distributions be
made in the form of cash payments in the amount of each participant's account
value, unless the participant specifically requests to receive shares of the
Company's common stock. As of September 28, 1996 and September 30, 1995, the
shares released and allocated and their market value per share, which is
based on the 1995 and 1994 ESOP stock valuations as performed by a third
party appraiser, Management Planning, Inc., were 1,496,660 and 1,374,539 and
$10.60 and $14.74, respectively, which represents a contingent repurchase
obligation of $15,864,596 and $20,260,705, respectively.
<PAGE>
<PAGE> 14
NOTE 5 - PROFIT SHARING PLAN
The Company has a profit sharing plan to enable employees to share in its
profits. All employees with one year of service are eligible to contribute
two percent of their total compensation, while the Company may contribute a
discretionary amount as determined annually by the board of directors. The
Company's board of directors elected not to make a discretionary contribution
for the years 1996, 1995, and 1994.
NOTE 6 - DEFERRED COMPENSATION PLANS
To provide compensation for the Company's chairman (effective May 1, 1990)
and the president (effective March 1, 1992), the Company contracted to defer
certain payments of bonuses and salaries due them until they retire. The
terms of the contracts permit the Company to invest the funds at the
officers' risk, with the income or loss from such investments, net of
applicable income taxes, being credited or charged to the deferred
compensation plans. The Company deducts this compensation for income tax
purposes in the year it is actually paid. The net deferred compensation
expense under the contracts for the years ended September 28, 1996, September
30, 1995, and October 1, 1994 was ($96,464), $10,488, and ($10,231),
respectively. As of September 28, 1996, the total accumulated deferred
compensation liability under the contracts was $458,654 ($437,244 in 1995).
Effective October 2, 1988, the Company entered into deferred compensation
agreements with certain key employees. At the discretion of the executive
committee of the board of directors, the Company may accrue compensation
based on the key employees' years of service and position with the Company.
The Company did not accrue any compensation in 1996 and 1995. For the year
ended October 1, 1994, the Company accrued $573,641 in deferred compensation
expense. Deferred compensation generally only becomes payable on retirement
of a participant. Participants that are terminated will receive only the
vested portion of their deferred compensation based on the agreement's
vesting schedule, which is pro-rata over a period of ten years. As of
September 28, 1996 and September 30, 1995, the total accumulated deferred
compensation liability under the preceding agreements was $3,150,155.
Effective June 1, 1989, the Company entered into a trust agreement for the
benefit of the Company's chairman. The Company agreed to contribute to the
trust shares of its common stock sufficient to equal the difference between
each actual allocation of stock to the Company's chairman by The New Cherokee
Corporation Employee Stock Ownership Plan (ESOP) and the allocation of stock
he would have received, but for the Internal Revenue Code Section 1042
election by the chairman's family. As of September 28, 1996 and September
30, 1995, 1,800 shares with a fair value of $19,080 and $26,532,
respectively, were either held in trust or accrued for the benefit of the
Company's chairman. The assets of the trust are to be distributed to the
Company's chairman upon termination of employment or to his estate at death.
The Company adjusted the deferred liability to the fair value of the shares
held in the trust, which resulted in a decrease of $7,452 ($3,528 in 1995).
In 1994 the Company recorded deferred compensation expense related to the
plan of $11,010.
<PAGE>
<PAGE> 15
Effective June 1, 1989, the Company also entered into an executive deferred
stock bonus trust agreement with certain key employees as beneficiaries. At
the discretion of the executive committee of the board of directors, the
Company may contribute shares of common stock to the trust. The shares of
stock will be allocated to each participant's trust account based on the
participant's years of service and position with the Company. Upon a
participant's retirement, disability or death the Company is to pay to the
participant or his estate, within a period not to exceed five years, an
amount equal to the fair market value of the stock held in the participant's
trust account in exchange for the shares. Participants that are terminated
will receive their trust account's value at termination date within a period
not to exceed five years. As of September 27, 1994, the Company, at the
request of the chairman of the board of directors of the Company,
retroactively amended the trust agreement effective October 1, 1989, so that
any amounts resulting from forfeiture by a terminated participant which were
reallocated to the chairman's account shall be either returned to the Company
or used to reduce future contributions to the trust by the Company. As a
result of the preceding amendment, the Company's deferred liability under the
trust agreement was reduced by $121,745. Under terms of the agreement, the
Company will not pay any deferred compensation to participants or their
estates until the earlier of October 1, 1995, or the payment in full of the
Company's term debt obligations which were obtained to fund the Company's
loans to its ESOP (see Note 9). As of September 28, 1996 and September 30,
1995, 42,029 shares and 49,103 shares with a fair value of $499,289 and
$790,638, respectively, were held in trust or accrued by the Company. Of the
shares held in trust as of September 28, 1996 and September 30, 1995, 4,153
and 7,589 shares related to terminated participants and were frozen at a
value of $97,803, and $178,721, respectively. During 1996, the Company did
not accrue an imputed dividend and also reversed the imputed dividends of
$90,927 ($53,114 in 1995 and $45,355 in 1994) accrued during 1995 and 1994.
The Company also adjusted the deferred liability to the fair value of the
shares held in trust, which resulted in a net decrease in the Company's
deferred liability under the plan of $177,930 ($28,251 in 1995 and $345,768
in 1994).
Effective September 29, 1991, the Company adopted an executive performance
share plan. At the discretion of the executive committee of the board of
directors, the Company may award certain key employees a specified number of
"performance" shares. Each "performance" share is equivalent in value to the
fair value as of the award date of one share of the Company's common stock.
Effective each December 31, the value of an outstanding "performance" share
will be adjusted to reflect any increase or decrease in the fair value of the
Company's common stock. Participants in the plan are fifty percent vested as
to the number of their "performance" shares upon receipt of an award.
Participants become fully vested in their "performance" shares after ten
years of continuous service. As of September 28, 1996 and September 30,
1995, the Company had outstanding 123,492 "performance" shares under the plan
with a vested value of $1,172,580 and $1,820,272, respectively. While the
executive committee did not award any "performance" shares for the years
ended September 28, 1996, September 30, 1995, and October 1, 1994, the
Company did adjust its deferred liability based on changes in the fair value
of the "performance" shares outstanding under the plan which resulted in
decreases in its deferred liability of $647,692 and $306,623, and an increase
of $83,208, respectively.<PAGE>
<PAGE> 16
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Land $ 782,277 $ 782,277
Buildings and Improvements 28,035,703 24,309,693
Machinery and Equipment 58,846,585 76,243,240
Furniture and Fixtures 3,645,575 3,685,998
Transportation Equipment 124,968 222,157
Asset Under Capital Lease 2,769,738 2,769,738
----------- -----------
94,204,846 108,013,103
Less Accumulated Depreciation 42,243,756 54,145,141
----------- -----------
Net Property, Plant and Equipment $51,961,090 $53,867,962
=========== ===========
</TABLE>
NOTE 8 - NOTE PAYABLE
Effective October 31, 1996, the Company has available a line of credit with
their factor of up to $19,000,000 or 90% of factored accounts receivable.
Interest is payable monthly at 1.5% over the highest publicly announced prime
rate of certain financial institutions. The line is scheduled to mature on
October 31, 1998. Total advances on the existing line as of September 28,
1996 and September 30, 1995 were $7,000,000 and $4,000,000, with interest at
prime plus 1.0% (9.75% as of September 28, 1996 and September 30, 1995),
respectively.
NOTE 9 - LONG - TERM DEBT
The following term notes are secured by deeds of trust on all real property
and improvements and a security interest in all receivables, finished goods
inventories, certain insurance policies, equipment and furniture and
fixtures. The Company has also assigned the stock pledge agreements with the
ESOP, which are discussed in Note 4, as collateral for the term notes.
<PAGE>
<PAGE> 17
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Spindale, North Carolina Operations:
Equipment obligation, due in monthly
installments based on usage, non-
interest bearing, due in 1997. $ 760,500 $ -0-
Sevierville, Tennessee Operations:
Term note, due in quarterly principal
installments of $320,313 on the last
day of February, May, August and
November, plus interest at 4.898%
payable monthly, and a final payment
due May 31, 1997. (Loan is under
technical default, therefore due on
demand). 960,938 2,242,188
Term note, due in quarterly principal
installments of $320,312 on the last
day of February, May, August and
November, plus interest at 4.898%
payable monthly, and a final payment
due May 31, 1997. (Loan is under
technical default, therefore due
on demand). 960,938 2,242,188
Term line of credit agreement with
maximum borrowings of $8,000,000,
due January 1997, with interest
payable monthly at the bank's
prime rate, currently 8.87% (8.75%
in 1995). (Loan is under technical
default, therefore due on demand). 6,200,000 6,700,000
Term loan, due in quarterly principal
installments of $1,350,000 beginning
in January 1997, with interest
currently ranging from 7.68% to
8.08%, through 2001. (Loan is under
technical default, therefore due
on demand). 27,000,000 27,000,000
Capital lease obligation, due in
annual installments of $18,544
through January 1999, reducing
to $15,000 through January 2019,
including interest at 2%. 275,420 289,099
----------- -----------
36,157,796 38,473,475
Less current maturities 35,896,284 2,576,179
----------- -----------
$ 261,512 $35,897,296
=========== ===========
</TABLE>
<PAGE>
<PAGE> 18
Maturities of long-term debt as of September 28, 1996 are as follows:
<TABLE>
<S> <C>
1997 $35,896,284
1998 3,938
1999 10,781
2000 10,963
2001 11,147
Thereafter 224,683
-----------
$36,157,796
===========
</TABLE>
The term note and line of credit agreements in effect as of September 28,
1996 contain restrictive covenants. Under certain of these covenants, the
Company is restricted as to the amounts which may be expended for property
and equipment, the amount of property and equipment which may be sold, and
the use of the proceeds. The covenants also prohibit or restrict changes in
senior management, dividends, loans or advances, investments in other
entities, incurrence of any new mortgages or liens and require the
maintenance of certain working capital, debt and net worth ratios. As of
September 28, 1996, the Company was not in compliance with certain of the
loan covenants described above. The Company has not received waivers of the
covenant violations and is in technical default under the terms of the note
agreements, which causes the balances to become due on demand. As a result,
the callable balances have been classified as current maturities as of
September 28, 1996. The Company is currently negotiating a sale of
substantially all of the assets of the Company which would facilitate
repayment of the above debts (see Note 19).
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of the same remaining
maturities. As of September 28, 1996 and September 30, 1995, the fair value
of the long-term debt approximates the amounts recorded in the financial
statements.
NOTE 10 - INCOME TAXES (BENEFIT)
Income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Current $ -0- $ -0- $ (231,720)
Deferred 8,466,647 (3,794,515) (2,552,490)
---------- ----------- -----------
$8,466,647 $(3,794,515) $(2,784,210)
========== =========== ===========
</TABLE>
<PAGE>
<PAGE> 19
Income taxes (benefit) as shown in the statements of operations varied from
the statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- --------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Loss Amount Loss Amount Loss
----------- ------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
At "expected"
tax rate $(3,616,327) (34.0)% $(3,893,678) (34.0)% $(2,937,645) (34.0)%
Change in
valuation
allowance 12,082,974 113.6 -0- 0.0 -0- 0.0
Other, net -0- 0.0 99,163 .9 153,435 1.8
----------- ------- ------------ ------- ------------ -------
$ 8,466,647 79.6% $(3,794,515) (33.1)% $(2,784,210) (32.2)%
=========== ====== ============ ======= ============ =======
</TABLE>
As of September 28, 1996, the Company had available for federal income tax
purposes net operating loss and tax credit carryovers which expire on the
following dates in the approximate amounts shown below:
<TABLE>
<CAPTION>
Net
Operating Tax
Losses Credits
----------- -------
<S> <C> <C>
1999 $ -0- $183,716
2000 -0- 52,880
2001 -0- 34,485
2003 -0- -0-
2004 6,298,000 -0-
2005 7,270,000 -0-
2009 6,905,000 -0-
2010 8,867,000 -0-
2011 13,920,000 -0-
----------- --------
$43,260,000 $271,081
=========== ========
/TABLE
<PAGE>
<PAGE> 20
The net deferred tax asset in the 1996 and 1995 balance sheets include the
following components:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current:
Deferred Tax Assets $ 870,340 $ 853,238
Deferred Tax Liabilities (284,953) (261,441)
------------ -----------
Net Deferred Tax Assets 585,387 591,797
Less Valuation Allowance (585,387) (591,797)
------------ -----------
Net Current Deferred Tax Asset $ -0- $ -0-
============ ===========
Long-Term:
Deferred Tax Assets $ 20,293,880 $16,445,233
Deferred Tax Liabilities (6,837,549) (6,611,639)
------------ -----------
Net Deferred Tax Assets 13,456,331 9,833,594
Less Valuation Allowance (13,456,331) (1,366,947)
------------ -----------
Net Long-Term Deferred Tax Asset $ -0- $ 8,466,647
============ ===========
</TABLE>
NOTE 11 - LEASE COMMITMENTS
The Company leases its Sevierville, Tennessee operating facility, a sales
office and storage space in New York City, certain equipment, and warehouse
space on an as needed basis for its Sevierville, Tennessee and its Spindale
and Harris, North Carolina locations. The operating facility lease is
classified as a capital lease and is included in property and equipment. The
Company is required to pay real and personal city property taxes on the
operating facility over the remaining lease term. The Company can purchase
the facility at the end of the lease for $1. All other leases are classified
as operating leases. Rental expense under all operating leases amounted to
$614,987 in 1996 ($685,560 in 1995 and $293,685 in 1994). Future minimum
rental payments under all noncancellable operating leases with remaining
terms in excess of one year as of September 28, 1996 are: $478,344 in 1997;
$423,447 in 1998; $366,975 in 1999; $361,830 in 2000; $357,841 in 2001; and
$1,555,797 thereafter.
NOTE 12 - LITIGATION
The nature and scope of the Company's business brings it into regular contact
with the general public and a variety of businesses and governmental entities
in the ordinary course of business. Such activities inherently subject the
Company to the hazards of litigation.
In April 1991, a former customer of the Company filed suit seeking damages
contending that the Company breached an alleged "Confinement Agreement", that
is, an arrangement pursuant to which the Company purportedly agreed to sell
certain fabrics exclusively to the customer for an indefinite period of time.
In addition, the customer was seeking additional damages related to the
continued sales of these fabrics by the Company in the open market. On
<PAGE>
<PAGE> 21
December 27, 1995, the Company entered into a settlement agreement which
required the Company to pay $1,715,000 on January 17, 1996 to release them
from the above suit. The settlement amount was recorded in miscellaneous
expense in the Company's 1995 statement of operations.
During the year ended October 1, 1994, the Company incurred aggregate
settlement costs of approximately $597,000 related to litigation with certain
former employees. In regard to the preceding, the Company also amended its
executive deferred stock bonus trust agreement which resulted in a reduction
of the Company's deferred compensation plans liability of $121,745 (see
Note 6). The preceding items are recorded net in miscellaneous expense in
the Company's 1994 statement of operations.
The Company is currently involved in certain employment/labor relations
proceedings. On August 5, 1996, a textile converter filed an arbitration
demand and commenced an action against the Company in the Supreme Court of
the State of New York. The Company has filed for a permanent stay and a
dismissal, respectively, of these matters. It is the opinion of management
that the Company will prevail in these matters. At present, the Company's
management is not aware of any other pending or threatened litigation.
NOTE 13 - CAPITAL STOCK
Capital stock consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Preferred Stock - Voting - Par Value $20,
Authorized, Issued and Outstanding
600,000 Shares in 1996 and 1995 $12,000,000 $12,000,000
Common Stock - Par Value $10, Authorized
3,000,000 Shares; Issued 1,797,931 Shares
in 1996 and 1995 17,979,310 17,979,310
----------- -----------
$29,979,310 $29,979,310
=========== ===========
</TABLE>
On October 29, 1992, the Company entered into a stock purchase agreement
with a third party to sell 600,000 shares of the Company's voting preferred
stock at a price of $20.50 per share. Subsequently, the Company amended its
charter to authorize an additional 1,200,000 shares of common stock and
600,000 shares of voting preferred stock, and on December 3, 1992, issued the
600,000 shares of voting preferred stock in exchange for cash and notes
totalling $12,300,000. The preferred stock is non-cumulative and is
convertible into common stock through December 31, 1998 at which time the
conversion rights expire. The stock purchase agreement requires that the
Company repurchase from the third party at fair market value all or any
portion of the 600,000 shares of voting preferred stock bought, if certain
conditions of the agreement are not fulfilled (see Note 19).
<PAGE>
<PAGE> 22
NOTE 14 - LOSS PER SHARE
Loss Per Share - Primary loss per share of common stock is computed based on
the weighted average number of common stock shares outstanding during the
year. Fully diluted loss per share of common stock is computed based on the
weighted average number of common stock and convertible preferred stock
shares outstanding during the year.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Number of Shares Used in
Per Share Computations:
Primary 1,793,045 1,793,045 1,797,727
========= ========= =========
Fully Diluted 2,393,045 2,393,045 2,298,162
========= ========= =========
</TABLE>
NOTE 15 - CHANGE IN METHOD OF ACCOUNTING FOR INVENTORY
The Company recorded its inventories at the lower of cost or market using the
first-in, first out (FIFO) method in 1995, whereas in prior years certain
inventories were recorded at the lower of cost or market using the last-in,
first-out (LIFO) method. The new method of accounting for inventory was
adopted to more closely recognize current cost of inventory. The effect of
the accounting change on the loss in 1995 and on the loss as previously
reported for 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Effect on:
Net Loss [Increase (Decrease)] $(814,335) $410,968
========= ========
Loss per common share assuming no dilution (.45) .23
========= ========
Loss per common share assuming full dilution (.34) .18
========= ========
</TABLE>
NOTE 16 - SPINDALE PLANT YARN MILL CLOSURE
In July 1995, the Spindale plant stopped processing yarn. The Company
incurred various expenses in the closure of the yarn mill facilities which
included retention pay of approximately $320,000 for employees who worked
until the yarn mill stopped production and also a loss on the sale of certain
yarn mill production equipment of approximately $903,000. Both amounts are
included in miscellaneous expense in the Company's 1995 statement of
operations. Included in miscellaneous income in the Company's 1995 statement
of operations is approximately $210,000 of the net sales proceeds from cotton
sold after the closure of the yarn mill.
<PAGE>
<PAGE> 23
NOTE 17 - MAJOR CUSTOMERS
During 1996, the Company had sales to two major customers (two in 1995 and
three in 1994) which accounted for approximately twenty-two percent of total
sales (twenty-nine percent in 1995 and thirty-eight percent in 1994).
NOTE 18 - SELF INSURANCE OF HEALTH BENEFITS
The Company self-insures health benefits. Stop-loss insurance is maintained
for claims paid in excess of $150,000 for each insured individual. Claims
were $756,288, $1,167,111, and $588,053 for the years ended September 28,
1996, September 30, 1995, and October 1, 1994, respectively.
NOTE 19 - SUBSEQUENT EVENTS
On November 20, 1996, the Company's Chairman signed a letter of intent to
negotiate the sale, subject to the shareholders approval, of substantially
all of the Company's assets to a third party for approximately $65,000,000
and the assumption by the buyer of certain operating liabilities (liabilities
considered ordinary in the course of business) of the Company. The Company
would be responsible for liquidation of all liabilities other than those
considered ordinary in the course of business, such as notes payable and
current maturities of long-term debt, using the proceeds from the sale.
Also, on November 20, 1996, the Company's Chairman and the preferred
shareholders entered into a letter agreement whereby the Company would redeem
its outstanding preferred shares for an aggregate minimum cost of
approximately $6,600,000, subject to consummation of the third party asset
sale by no later than May 31, 1997. The agreement provides that if the
Company's common shareholders either through liquidation or redemption were
to have available for distribution aggregate funds representing an amount
greater than $10.50 per share of common stock the preferred shareholders
would receive a pro-rata portion of such excess amount, if any. Should the
Company consummate the third party asset sale, any monies remaining after
secured debt repayment and the preferred stock redemption would be available
for distribution to general creditors and common shareholders, in that
respective order. The Company's common shareholders could receive an amount
significantly less than the book value per common share.<PAGE>
<PAGE> 24
THE NEW CHEROKEE CORPORATION
UNAUDITED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, September 28,
1996 1996
------------ ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 882 $ 498
Accounts receivable, net 15,101 22,458
Inventories 10,172 12,390
Prepaid expenses and other 340 181
----------- ----------
Total current assets 26,495 35,527
Property, plant and equipment 93,895 94,205
Less accumulated depreciation and amortization (43,649) (42,244)
----------- ----------
Net property, plant and equipment 50,246 51,961
Other assets 3,497 3,419
----------- ----------
$ 80,238 $ 90,907
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and notes payable $ 37,877 $ 42,896
Accounts payable 1,881 6,550
Accrued expenses 2,516 2,665
---------- ---------
Total current liabilities 42,274 52,111
Long-term debt 262 262
Deferred compensation plans 5,278 5,203
Other liabilities 343 347
Shareholders' equity:
Preferred stock, $20 par value, 600,000
shares authorized, issued and outstanding 12,000 12,000
Common stock, $10 par value, 3,000,000
shares authorized, 1,797,931 shares issued
and outstanding 17,979 17,979
Capital in excess of par value 20,385 20,385
Retained deficit (15,716) (14,172)
Treasury stock (49) (49)
Deferred compensation - restricted stock (1,237) (1,237)
Notes receivable from ESOP (1,281) (1,922)
----------- ----------
Total shareholders' equity 32,081 32,984
----------- ----------
$ 80,238 $ 90,907
=========== ==========
</TABLE>
See accompanying notes. <PAGE>
<PAGE> 25
THE NEW CHEROKEE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 28, December 30,
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Net sales $ 22,810 $ 27,521
Costs and expenses:
Cost of sales 19,897 25,302
Selling, general and administrative expenses 2,558 2,929
----------- -----------
Operating income (loss) before ESOP
contributions 355 (710)
ESOP contributions 851 1,199
----------- -----------
Net operating loss (496) (1,909)
Other income (expense), net (145) 127
Interest expense (903) (731)
----------- -----------
Loss before income taxes (1,544) (2,513)
Income tax benefit - 858
----------- -----------
Net loss $ (1,544) $ (1,655)
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<PAGE> 26
THE NEW CHEROKEE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 28, December 30,
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,544) $ (1,655)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,824 2,014
Deferred income tax benefit - (874)
Deferred compensation plans, net 75 (76)
Loss on sale of fixed assets 41 -
Changes in operating assets and liabilities:
Accounts receivable 7,357 4,944
Inventories 2,218 5,529
Prepaid expenses and other assets (237) (161)
Accounts payable and accrued expenses (4,818) (2,334)
Other liabilities (4) 43
----------- -----------
Net cash provided by operating
activities 4,912 7,430
Cash flows from investing activities:
Capital expenditures (326) (1,527)
Proceeds from sale of equipment 176 -
Repayment on loans to ESOP 641 640
----------- -----------
Net cash provided (used) by investing
activities 491 (887)
Cash flows from financing activities:
Payments of long-term debt and notes payable (5,019) (6,540)
----------- -----------
Net cash used by financing activities (5,019) (6,540)
Net increase in cash and cash equivalents 384 3
Cash and cash equivalents at beginning of period 498 316
----------- -----------
Cash and cash equivalents at end of period $ 882 $ 319
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<PAGE> 27
THE NEW CHEROKEE CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Unaudited Condensed Financial Statements
----------------------------------------
In the opinion of management, the accompanying unaudited condensed
financial statements of the New Cherokee Corporation ("TNCC") reflect
all adjustments considered necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. Such adjustments consist of normal recurring
accruals. Interim results are not necessarily indicative of results for
a full year. For further information, refer to the financial statements
and notes thereto for the year ended September 28, 1996.
On February 3, 1997, TNCC sold substantially all of its assets to Dan
River Inc. for $65 million in cash, subject to a working capital
adjustment, and the assumption of certain operating liabilities. The
unaudited condensed financial statements do not include any adjustments
attributable to the sale.
Also on February 3, 1997, TNCC redeemed its outstanding preferred shares
for $6.6 million in cash. The redemption agreement provides for
additional payments to the preferred shareholders in the event funds
available to common shareholders either through liquidation or
redemption represent greater than $10.50 per share of common stock.
2. Inventories
-----------
The components of inventory are as follows:
<TABLE>
<CAPTION>
December 28, September 28,
1996 1996
------------ -------------
(Dollars in thousands)
<S> <C> <C>
Finished goods $ 6,062 $ 6,178
Work in process 2,651 4,422
Raw materials 816 1,381
Supplies 643 409
---------- ----------
Total inventories $ 10,172 $ 12,390
========== ==========
</TABLE>
<PAGE>
<PAGE> 28
3. Shareholders' Equity
--------------------
Activity in Shareholders' Equity is as follows:
<TABLE>
<CAPTION>
Capital
Preferred Common in Excess Retained
Stock Stock of Par Deficit
--------- ------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at
September
28, 1996 12,000 17,979 20,385 (14,172)
Net loss - - - (1,544)
Repayment on
loans to
ESOP - - - -
------ ------ -------- ---------
Balance at
December
28, 1996 12,000 17,979 20,385 (15,716)
====== ====== ====== =========
Notes Total
Deferred Receivable Share-
Treasury Compen- from holders'
Stock sation ESOP Equity
-------- ------ ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at
September
28, 1996 (49) (1,237) (1,922) 32,984
Net loss - - - (1,544)
Repayment on
loans to
ESOP - - 641 641
-------- ------- --------- -------
Balance at
December
28, 1996 (49) (1,237) (1,281) 32,081
======== ======== ========= =======
</TABLE>
<PAGE>
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On February 3, 1997 Dan River Inc. (the "Company") acquired
substantially all of 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 Unaudited Pro Forma Condensed Consolidated Balance Sheet gives
effect to the acquisition of TNCC (the "Acquisition") as if it had occurred
on December 28, 1996, and combines the balance sheets of the Company and of
TNCC as of that date. The Unaudited Pro Forma Condensed Consolidated
Statement of Income assumes the Acquisition occurred at the beginning of the
fiscal year ended December 28, 1996, and combines the statement of income of
the Company for the year ended December 28, 1996 with the statement of
operations of TNCC for the same period.
For purposes of presenting the pro forma financial information of TNCC
for the year ended December 28, 1996, the results of TNCC's operations for
its fiscal year ended September 28, 1996 were adjusted by adding the results
of operations for the quarter ended December 28, 1996 and omitting the
results for the comparative quarter ended December 30, 1995. The revenues
and net loss of TNCC omitted for the quarter ended December 30, 1995 were
$27,521,000 and $1,655,000, respectively.
The pro forma information does not purport to reflect the results of
operations or financial position of the Company that actually would have
resulted had the Acquisition been consummated as of the dates indicated or to
project the Company's results of operations or financial position for any
future period or as of any future date.
<PAGE>
<PAGE> 30
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 28, 1996
<TABLE>
<CAPTION>
Dan River Inc. TNCC Adjustments Pro Forma
-------------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ 5,042 $ 882 $ (5,042)(1) $ 882
Accounts receiv-
able, net 55,782 15,101 1,200 (2) 72,083
Inventories 72,493 10,172 82,665
Prepaid expenses
and other
current assets 1,275 340 (340)(3) 1,275
Deferred income
taxes 5,643 - - 5,643
-------- --------- ---------- ---------
Total current
assets 140,235 26,495 (4,182) 162,548
Property, plant and
equipment, net 175,350 50,246 (4,292)(4) 221,304
Other Assets 5,465 3,497 1,400 (5) 6,865
(3,497)(3)
-------- --------- ---------- ---------
$321,050 $ 80,238 $ (10,571) $ 390,717
======== ========= ========== =========
</TABLE>
<PAGE>
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 28, 1996
<TABLE>
<CAPTION>
Dan River Inc. TNCC Adjustments Pro Forma
-------------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current
maturities of
long-term debt $ 6,990 $ 37,877 $ (37,377)(3) $ 6,990
(500)(6)
Accounts payable 21,531 1,881 - 23,412
Accrued expenses 18,423 2,516 (950)(3) 22,789
2,800 (7)
-------- --------- ---------- --------
Total current
liabilities 46,944 42,274 (36,027) 53,191
Other liabilities:
Long-term debt 162,478 262 62,658 (1) 225,898
500 (6)
Deferred income
taxes 17,857 - - 17,857
Other deferred
items 6,147 5,621 (5,621)(3) 6,147
Common stock
subject to
put rights 9,726 - - 9,726
Shareholders'
equity:
Preferred stock - 12,000 (12,000)(8) -
Common stock 8 17,979 (17,979)(8) 8
Additional paid-in
capital 64,801 20,385 (20,385)(8) 64,801
Retained earnings
(deficit) 13,698 (15,716) 15,716 (8) 13,698
Treasury stock (49) 49 (8) -
Deferred Compen-
sation-restricted
stock - (1,237) 1,237 (8) -
Notes receivable
from ESOP - (1,281) 1,281 (8) -
Pension Liability
adjustment (609) - - (609)
--------- --------- ----------- ---------
Total share-
holders'
equity 77,898 32,081 (32,081) 77,898
-------- --------- ----------- ---------
$321,050 $ 80,238 $ (10,571) $390,717
======== ========= =========== =========
/TABLE
<PAGE>
<PAGE> 32
Pro forma adjustments have been made to reflect the following:
(1) Funding of the Acquisition and related transaction costs with $5,042,000
of available cash, $35,000,000 in borrowings under a new term loan
facility, and $27,658,000 in borrowings under a new $90,000,000 working
capital line of credit.
(2) Estimated amount to be paid from an escrow account to Dan River Inc.,
for a purchase price adjustment relating to a working capital target
contained in the Acquisition agreement.
(3) Elimination of certain TNCC assets not acquired and certain liabilities
not assumed by Dan River Inc. under the Acquisition agreement.
(4) Adjustment to reflect the excess of the fair values of identifiable
assets acquired less liabilities assumed over the cost of the
Acquisition.
(5) Costs associated with obtaining financing for the Acquisition.
(6) Reclassification of certain assumed debt from current to long-term.
(7) Accrual of certain costs resulting from the Acquisition, including costs
associated with the consolidation of TNCC's marketing offices and
severance arrangements with certain TNCC employees.
(8) Elimination of TNCC shareholders' equity.
<PAGE>
<PAGE> 33
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
Dan River Inc. TNCC Adjustments Pro Forma
-------------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $ 379,567 $ 101,072 - $ 480,639
Costs and expenses:
Cost of sales 307,383 92,847 (1,000)(1) 399,230
Selling, general and
administrative
expenses 45,673 10,221 (4,132)(2) 51,762
Other operating costs,
net (428) 3,350 (2,877)(3) 45
---------- ---------- --------- ----------
Operating income(loss) 26,939 (5,346) 8,009 29,602
Other income (expense) 485 (867) - (382)
Interest expense (18,168) (3,358) (2,310)(4) (23,836)
---------- ---------- --------- ----------
Income (loss) before
income taxes 9,256 (9,571) 5,699 5,384
Provision for income
taxes 3,570 9,324 (10,816)(5) 2,078
---------- ---------- --------- ----------
Net income (loss) $ 5,686 $ (18,895) $ 16,515 $ 3,306
========== ========== ========= ==========
/TABLE
<PAGE>
<PAGE> 34
Pro forma adjustments have been made to reflect the following:
(1) Decrease in depreciation expense based on adjusted fixed asset values
and related estimated remaining useful lives.
(2) Elimination of certain selling, general and administrative expenses,
including: salaries and benefits of certain officers and other
employees who will not be employed by Dan River Inc., and; costs
associated with TNCC's marketing offices, which Dan River Inc. will
vacate.
(3) Elimination of expenses associated with TNCC's Employee Stock Ownership
Plan, the obligations of which were not assumed in connection with the
Acquisition, offset by additional expenses of providing a retirement
benefit to TNCC employees retained by the Company.
(4) Net increase in interest expense, as follows:
Interest on borrowings related to the
Acquisition, including a $35 million
term loan and $32.5 in borrowings
under a working capital line of
credit, with assumed average annual
variable interest rates of 8.026%
and 7.56% respectively $5,255,000
Amortization of deferred finance costs
on the above indebtedness 338,000
Interest on debt assumed in the
Acquisition 75,000
Elimination of TNCC historical interest
expense (3,358,000)
-----------
Net increase $2,310,000
===========
(5) Adjustment of pro forma income tax expense to reflect an assumed
effective tax rate of 38.6% of pre-tax income.
<PAGE>
<PAGE> 35
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: April 18, 1997 /s/ Barry F. Shea
-----------------------------------
Barry F. Shea
Vice President-Chief Financial Officer
</TABLE>
