<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
Form 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended January 3, 1998
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 1-13421
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
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock par value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 2, 1998: $159,946,580
Number of shares of common stock outstanding as of March 2, 1998:
Class A: 16,777,075 shares
Class B: 2,062,070 shares
Documents Incorporated by Reference: Part II incorporates information by
reference from the Annual Report to Shareholders for the year ended January
3, 1998. Part III incorporates information by reference from the Proxy
Statement of the Annual Meeting of Shareholders to be held April 22, 1998.
Exhibit Index: Page 16
<PAGE> 2
PART I
Item 1. Business
General
Founded in 1882, Dan River Inc. (the "Company" or "Dan River") is a leading
manufacturer and marketer of textile products for the home fashions and
apparel fabrics markets. The Company designs, manufactures and markets a
coordinated line of value-added home fashions products consisting of packaged
bedroom furnishings such as comforters, sheets, pillowcases, shams, bed
skirts, decorative pillows and draperies. Dan River also manufactures and
markets a broad range of high quality woven cotton and cotton-blend apparel
fabrics and believes that it is the leading supplier of men's dress shirting
fabrics in North America (based on net sales).
On February 3, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of The New Cherokee Corporation ("Cherokee"),
which was a supplier of yarn-dyed fabrics to men's and women's shirting
manufacturers and of sportswear fabrics to the converting trade. The assets
purchased consisted primarily of two woven fabrics manufacturing facilities
located in Spindale, North Carolina and Sevierville, Tennessee, and a
finishing facility located in Harris, North Carolina, together with
associated real property, machinery and equipment, inventories and
receivables.
The following table sets forth for the periods indicated the dollar amount
and percentage of total net sales of the Company attributable to home
fashions products and apparel fabrics:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Dollar amount:
Home fashions
products.................. $255.8 $243.2 $231.8
Apparel fabrics............. 220.6 136.4 153.0
------ ------ ------
Total..................... $476.4 $379.6 $384.8
====== ====== ======
Percentage:
Home fashions
products.................. 53.7% 64.1% 60.2%
Apparel fabrics............. 46.3 35.9 39.8
------ ------ ------
Total..................... 100.0% 100.0% 100.0%
======= ======= =======
</TABLE>
<PAGE> 3
Home Fashions Products
Products
The Company's home fashions products include packaged bedroom furnishings
such as comforters, sheets, pillowcases, shams, bed skirts, decorative
pillows and draperies which are marketed under the "Dan River" brand name, as
well as under various other trademarks and licenses from, among others,
"Colours by Alexander Julian," "D. Porthault," "John Wilman," "Liberty" and
"Nautica." Home fashions products are offered in a wide variety of styles
and patterns, including fashion designs and, to a lesser extent, solid
colors. Products range from a 120-thread count muslin sheet of blended
polyester and cotton to a top-of-the-line 250-thread count percale 100%
cotton sheet.
Dan River has established itself as an innovator in merchandising home
fashions products. The Company was a leader in introducing the complete bed
ensemble, which it markets under the name "Bed-in-a-Bag." The "Bed-in-a-Bag"
complete bed ensemble consists of a comforter with matching sheets,
pillowcases, shams and a dust ruffle. Management believes that the Company's
ability to manufacture wide-width, yarn-dyed fabrics in short runs in a wide
variety of innovative styles, such as woven plaids, for use in home fashions
products differentiates the Company from its competitors.
Customers
The Company distributes home fashions products through key retailers in all
retail trade classes including department stores, specialty home fashions
stores, direct marketers, national chains, mass merchants and regional
discounters. The Company markets its home fashions products to approximately
360 customers, none of which accounted for more than 10% of the Company's
total net sales in fiscal 1997. The Company has pursued and established
strong relationships with large, high volume retailers including Wal-Mart
Stores, Inc., Kmart Corporation, Federated Department Stores, Inc., J.C.
Penney Company, Inc. and The May Department Stores Company. As a supplement
to its primary distribution channels, a Dan River subsidiary operates factory
outlet stores which sell home fashions products directly to consumers.
Sales and Marketing
The home fashions products sales and marketing staff consists of
approximately 60 persons and is headquartered in New York City, with
satellite offices in Atlanta, Boston, Chicago, Dallas, Los Angeles,
Philadelphia and San Francisco. These marketing professionals, stylists and
product development personnel work as early as one year in advance of a
retail selling season to develop new fabrics, styles, colors, constructions
and finishes. Together with the marketing group, stylists often work
directly with the Company's customers to create fabrics that respond to
rapidly changing fashion trends and customer needs. New styles are also
developed internally for the April and October bed and bath home textile
trade shows, where they are shown to buyers and are placed in production
based on customer acceptance. Orders for home fashions products are filled
from inventory or, if inventory is not available, products are manufactured
and generally shipped within six to 12 weeks of order placement.
<PAGE> 4
Apparel Fabrics
Products
The Company manufactures and markets a broad range of high quality woven
cotton and cotton-blend fabrics, which are marketed primarily to
manufacturers of men's, women's and children's clothing. The Company's yarn-
dyed and piece-dyed woven apparel fabrics include oxford cloth, pinpoint
oxford cloth, fancy broad cloth, seer-suckers, mid and light weight denim,
twills and chambrays. The Company also manufactures and distributes apparel
fabrics to uniform manufacturers and for use in decorating and crafts, 100%
cotton fabrics to the furniture market and greige (unfinished) fabrics to
converters.
Management believes that the Company enjoys a reputation as a leader in
creating new fabric styles and designs within the apparel fabrics market.
The Company's product development professionals work independently as well as
directly with customers to develop new fabric styles and constructions. In
addition, the Company's product development personnel increasingly work
directly with retailers to develop fabrics. These retailers often specify
that the Company's fabrics be used by their suppliers in the manufacture of
garments to be sold by them. The Company believes that it is a leader in
wrinkle resistant technology for shirting fabrics and markets Dri-Don(R)
blended easy care fabrics and 100% cotton Wrinkl-Shed(R) fabrics. As a result
of the Cherokee acquisition, the Company now manufactures and markets fabrics
utilizing Tencel lyocell, an innovative new fiber. These versatile,
innovative fabrics are used primarily in manufacturing women's sportswear.
Customers
The Company distributes its apparel fabrics primarily to domestic
manufacturers of men's, women's and children's clothing which, in turn,
operate sewing plants throughout the United States and the Caribbean. The
Company's customers market clothing manufactured from its apparel fabrics
under such brand names as Arrow, Brooks Brothers, Hathaway, Liz Claiborne,
L.L. Bean, Land's End, Osh Kosh B'Gosh and Van Heusen, as well as under
private labels through retailers such as J.C. Penney Company, Inc. and Sears,
Roebuck & Co. The Company markets uniform fabrics to customers such as
Cintas Corporation and Red Kap, and distributes apparel fabrics to home
sewing retailers such as Wal-Mart Stores, Inc., Fabric-Centers of America,
and through various wholesale distributors, for use in decorating and crafts,
as well as garment sewing. The Company's upholstery fabrics are sold to
furniture manufacturers.
Sales and Marketing
The Company's apparel fabrics sales and marketing staff consists of approxi-
mately 55 persons and is headquartered in New York City, with satellite
offices in Chicago, Dallas, Danville, High Point (North Carolina), Los
Angeles and San Francisco. Apparel fabrics are generally "made to order"
products. Fabrics are manufactured and generally shipped within nine to 12
weeks of order placement. Orders for apparel fabrics are based on customer
selections from offerings of color, content, construction, design and finish,
and fabrics are made to customer specifications, which may be developed
jointly with the customer.
<PAGE> 5
Manufacturing Process
Dan River is a vertically integrated manufacturer involved in all aspects of
the woven textile manufacturing process, from spinning and weaving to dyeing,
finishing, and sewing. Substantially all of the Company's facilities for the
manufacture of home fashions products are located in Danville, Virginia. As
a result of the acquisition of Cherokee, with spinning and weaving facilities
located in Spindale, North Carolina and Sevierville, Tennessee and finishing
facilities located in Harris, North Carolina, the Company added almost a
million square feet of manufacturing and warehousing floor space dedicated to
the manufacture of apparel fabrics in addition to its existing apparel
fabrics manufacturing facilities in Danville.
During the past five fiscal years, the Company has made significant
investments in an extensive facility modernization program focused on
installing advanced manufacturing technologies in an effort to be the low
cost manufacturer in the industry. Within its home fashions operations, the
Company has installed modern, high-speed air-jet looms; automatic sheet
cutting, hemming and folding equipment; lower cost open-end spinning
equipment; and computerized comforter equipment. Within its apparel fabrics
operations, the Company has modernized its yarn preparation processes through
the installation of more efficient, lower cost, open-end spinning, carding,
drawing and combing equipment. The Company's ongoing capital improvement
programs have modernized and streamlined substantially all significant
components of the manufacturing process for both home fashions products and
apparel fabrics, helping the Company reduce lead times, minimize inventory
levels and maximize flexibility to respond to changing market conditions,
while at the same time increasing the quality of its products.
During fiscal 1997, the Company completed construction of a new 258,000
square foot home fashions finished goods warehouse and distribution center
which is located adjacent to its new home fashions accessory sewing plant in
Danville, Virginia. The Company believes the new warehouse will enable it to
better and more efficiently service its home fashions customers and
accommodate further growth of its home fashions business. Additionally, the
Company closed its Riverside apparel fabrics weaving facility in Danville as
part of its plan to consolidate apparel manufacturing operations.
Dan River has engineered its manufacturing processes to meet the quick
response delivery requirements of its customers. Quick response techniques
reduce turnaround time (the time required to process a particular order)
which improves customer service and production efficiency. Furthermore, Dan
River has the capability to offer electronic data interchange programs to all
of its customers. These programs minimize the lead time for customer orders
and permit a more efficient, targeted manufacturing schedule, as well as
improvements in efficiency, communications, planning and processing times at
each stage of production. The Company has electronic data interchange
programs in place with most of its major home fashions products customers.
Raw Materials
Dan River uses substantial quantities of cotton in its manufacturing
operations. By law, U.S. textile companies are generally prohibited from
<PAGE> 6
importing cotton, subject to certain exceptions which take effect primarily
when the U.S. price of cotton exceeds the world price. Cotton is an
agricultural product subject to weather conditions and other factors
affecting agricultural markets. Accordingly, the price of cotton is subject
to considerable fluctuation.
Dan River purchases cotton primarily in the domestic market directly from
merchants or through brokers. Generally, the Company seeks to purchase
sufficient amounts of cotton to cover existing order commitments; however,
the Company may purchase cotton in advance of orders on terms that it deems
advantageous, and while the Company does not speculate on the price of
cotton, it may hedge prices from time to time through forward contracts and
the futures and options markets. The Company also uses significant
quantities of polyester, which is available from several sources.
Although the Company has always been able to obtain sufficient supplies of
both cotton and polyester, any shortage or interruption in the supply or
variations in the quality of either could have a material adverse effect on
the Company's business. Additionally, fluctuations in cotton and polyester
prices can significantly affect the Company's profitability, particularly on
a short term basis, since Dan River and other textile manufacturers cannot
always mirror such fluctuations in the pricing of their products.
The Company also uses various other raw materials, such as dyes and
chemicals, in its manufacturing operations. The Company believes these
materials are readily available from a number of sources. Dan River also
supplements its internal manufacturing capabilities by purchasing yarn and
unfinished fabrics from outside sources and by contracting with third parties
for various manufacturing services, including certain printing and sewing
operations. During fiscal 1997, less than 10% of the Company's manufacturing
requirements were purchased from outside sources.
Trademarks and Licenses
The Company holds licenses to produce and sell home fashions products under
"Colours by Alexander Julian," "D. Porthault," "John Wilman," "Liberty" and
"Nautica" and certain other names or marks, and to use certain designs on its
home fashions textile products. Such licenses generally provide that the
Company has the exclusive right for a limited period, generally three years
subject to renewal for additional periods, to use the respective brand name
and/or design in the sale of certain types of products in certain geographic
regions. Dan River also holds non-exclusive licenses with respect to the use
and advertising of certain processes or synthetic fibers or fabrics.
Management believes that the failure of the Company to continue to hold any
one of its licenses or trademarks (other than "Dan River") would not have a
material adverse effect on the Company's business.
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
<PAGE> 7
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.
Competition
The Company's competitive position varies by product line. Competitive
factors include price, product styling and differentiation, quality,
flexibility of production and finishing, delivery time and customer service.
The Company sells its products primarily to domestic customers and competes
with both large, integrated textile manufacturers and numerous smaller
companies specializing in limited segments of the market. Some competitors
have significantly greater financial resources than Dan River.
The Company is one of several domestic manufacturers of home fashions
products. Certain of the Company's competitors have a significantly greater
share of the domestic market than the Company, including WestPoint Stevens
Inc., Springs Industries, Inc. and Pillowtex Corp., which management believes
collectively account for over 50% of the home fashions bedding products
market.
With the acquisition of Cherokee, the Company believes that it is a leading
producer of lightweight yarn-dyed woven cotton and cotton-blend apparel
fabrics in North America. With respect to men's shirtings, management
believes the Company is the largest producer of oxford cloth and pima cotton
pinpoint oxford cloth and the leading producer of lightweight yarn-dyed dress
shirting fabrics in North America (based on net sales). In the sportswear
and upholstery fabrics markets, the Company is one of a number of domestic
producers.
The Company is subject to foreign competition. The Company believes that
over half of the apparel fabrics (much in the form of imported garments) and
approximately 15% of the home fashions products sold in the U.S. are
manufactured overseas. One of the Company's business strategies is to seek
niche apparel fabrics markets that are less susceptible to foreign
competition. The Company believes that its domestic manufacturing base and
emphasis on shortening production and delivery times allow the Company to
respond more quickly than foreign producers to changing fashion trends and to
its domestic customers' delivery schedules.
The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable
domestic political deliberation. The Company benefits from protections
afforded to apparel manufacturers based in certain Caribbean and Central
American countries which ship finished garments into the U.S. under Item
9802.00.80 of the Harmonized Tariff Schedule of the U.S. as authorized by the
Caribbean Basin Recovery Act. Item 9802.00.80 reduces certain tariffs which
would otherwise apply to apparel garments manufactured outside the U.S. and
shipped into the U.S., provided that the garments are manufactured from
fabric produced and cut domestically. Item 9802.00.80 is beneficial for Dan
River and other domestic producers of apparel fabrics, because it creates an
attractive manufacturing base for apparel in close proximity to the U.S.
<PAGE> 8
In January 1995, a multilateral trade organization, the WTO, was established
to replace the GATT. This new body has set forth the mechanisms by which
world trade in textiles and clothing will be progressively liberalized with
the elimination of quotas and the reduction of duties. The implementation
began in January 1995 with the phasing-out of quotas and the reduction of
duties to take place over a 10-year period. The selection of products at
each phase is made by each importing country and must be drawn from each of
the four main textile groups: tops and yarns, fabrics, made-up textile
products and apparel. The elimination of quotas and the reduction of tariffs
under the WTO may result in increased imports of certain textile products and
apparel into North America. These factors could make the Company's products
less competitive against low cost imports from developing countries.
NAFTA, which was entered into by the United States, Canada and Mexico and
became effective on January 1, 1994, has created the world's largest free-
trade zone. The agreement contains safeguards sought by the U.S. textile
industry, including a rule of origin requirement that products be processed
in one of the three countries in order to benefit from NAFTA. NAFTA will
phase out all trade restrictions and tariffs on textiles and apparel among
the three countries. In addition, NAFTA requires merchandise to be made from
yarns and fabrics originating in North America in order to avoid trade
restrictions. Thus, not only must apparel be made from North American fabric
but the fabric must be woven from North American spun yarn. Although
management believes that the Company may benefit from NAFTA, there can be no
assurance that the removal of these barriers to trade will not have a
material adverse effect on the Company's business.
Order Backlog
The Company's order backlog was approximately $104 million at January 3,
1998, as compared to approximately $72 million at December 28, 1996, which
was prior to the Cherokee acquisition. Substantially all of the orders on
hand at January 3, 1998 are expected to be filled within four months of that
date.
Governmental Regulation
Dan River is subject to various federal, state and local environmental laws
and regulations limiting the discharge of pollutants and the storage,
handling and disposal of a variety of substances. In particular, the
Company's dyeing and finishing operations result in the discharge of
substantial quantities of wastewater and in emissions to the atmosphere.
The Company is subject to the federal Clean Water and Clean Air Acts, and
related state and local laws and regulations. The Company's operations also
are governed by laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and regulations
thereunder, which, among other things, establish cotton dust, formaldehyde,
asbestos and noise standards, and regulate the use of hazardous chemicals in
the workplace. The Company believes that it is currently in compliance in
all material respects with the environmental or health and safety laws and
regulations and does not believe that the cost of, or any operational
constraints or modifications required to assure, future compliance with such
laws or regulations will have a material adverse effect on its results of
<PAGE> 9
operations or financial condition. However, there can be no assurance that
environmental requirements will not become more stringent in the future or
that the Company will not incur significant costs to comply with such
requirements.
At the property formerly owned by Cherokee at Spindale, North Carolina, there
is groundwater contamination consisting of diesel fuel, for which the owner
of an adjoining property has acknowledged responsibility. The neighboring
landowner is engaged in cleanup operations under the direction of the North
Carolina Department of Health, Environment and Natural Resources. Prior to
purchasing the Spindale property, the Company identified additional
contamination, consisting primarily of benzene in excess of applicable action
levels, that the Company believes, based on reports from its environmental
consultant, also originates on the adjoining property. The Company also
believes cleanup of the benzene contamination may not be required under
current North Carolina policy, and that in the event the Company is required
to clean up the contamination, it may be eligible to apply for funding from
the North Carolina underground storage tank trust fund. In addition,
liabilities arising from environmental contamination associated with pre-
closing operation of Cherokee's facilities were excluded in connection with
the Company's purchase of Cherokee's assets and therefore not assumed by the
Company. In any event, the Company believes that if it were required to
clean up the currently known contamination because it is the owner of the
affected property, the cost of such cleanup would not have a material adverse
effect on its results of operations or financial condition.
Employees
At January 3, 1998, the Company had approximately 5,300 employees, of which
approximately 4,500 were hourly employees. Of these hourly employees,
approximately 3,500 are located primarily in the Company's Danville, Virginia
operations and represented by a collective bargaining agreement which expires
on January 1, 2002. The Company believes that its relations with its
employees are good.
Item 2. Properties
On February 3, 1997, the Company acquired substantially all of the assets of
Cherokee, including greige manufacturing facilities in Spindale, North
Carolina and Sevierville, Tennessee, and a finishing plant in Harris, North
Carolina. The Company owns the North Carolina facilities, totaling
approximately 595,000 square feet of manufacturing space. The Company leases
the Sevierville, Tennessee facility (consisting of approximately 419,000 feet
of manufacturing space) with an option to purchase the facility for nominal
consideration in 2018.
Substantially all of Dan River's other apparel fabrics facilities, and
substantially all of its home fashions and corporate facilities, are located
<PAGE> 10
in Danville, Virginia. Most of the Danville facilities are owned by the
Company. The owned facilities occupy a total of approximately 5,680,000
square feet, with approximately 2,600,000 square feet of space currently used
for manufacturing. The Company's 116,000 square foot accessory sewing plant
and new 258,000 square foot distribution center are leased, with an option to
purchase for nominal consideration. The Company leases approximately 873,000
square feet of additional warehouse and manufacturing space in Danville.
During fiscal 1997 the Company sold its yarn mill in Alabama. The Company
leases each of its marketing and sales offices and, through its subsidiary,
Dan River Factory Stores, Inc., the Company leases seven factory outlet
stores in Georgia, Illinois, Maryland, Ohio, South Carolina and Tennessee,
each of which averages approximately 6,000 square feet of total space. The
Company owns its factory outlet store in Danville, Virginia.
The Company's manufacturing facilities generally operate on a five, six or
seven day 24-hour per day schedule depending on the nature of the operations
and demand for specific products of the Company, as well as other factors.
The Company believes that its existing facilities are adequate to service
existing demand for the Company's products. The Company considers its plants
and equipment to be in good condition.
Item 3. Legal Proceedings
From time to time, the Company is a party to litigation arising in the
ordinary course of its business. The Company is not currently a party to any
litigation that management believes, if determined adversely to the Company,
would have a material adverse effect on the Company. A competitor has filed
a Petition for Cancellation with the U.S. Patent Office challenging the
Company's "Bed-in-a-Bag" trademark. See Business"--Trademarks and Licenses."
Item 4. Submission of Matters to a Vote of Security Holders.
In October 1997, prior to the completion of the initial public offering of
the Company's Class A Common Stock, the shareholders of the Company
unanimously approved pursuant to written consent (i) the Amended and Restated
Articles of Incorporation of the Company; (ii) an exchange offer pursuant to
an Exchange Agreement whereby certain members of senior management and their
families would be permitted to exchange shares of the Company's Class A
Common Stock, par value $.01 per share, owned by them for supervoting Class B
Common Stock, par value $.01 per share; and (iii) the 1997 Stock Incentive
Plan and the 1997 Stock Plan for Outside Directors.
Executive Officers of the Registrant
Following is information concerning the executive officers of Dan River, who
are elected by the Board of Directors and hold office generally until the
next annual meeting of the Board or until their successors are elected and
qualified:
<PAGE> 11
<TABLE>
<CAPTION>
Name Age Position with Dan River
---- --- -----------------------
<S> <C> <C> <C>
Joseph L. Lanier, Jr......... 66 Chairman, Chief Executive Officer
and Director
Richard L. Williams.......... 64 President, Chief Operating Officer
and Director
Barry F. Shea................ 49 Vice President-Chief Financial
Officer
Scott D. Batson.............. 41 Vice President-Finance
Anthony J. Bender............ 40 Vice President-Information Systems
Gregory R. Boozer............ 42 Vice President-Manufacturing
Services
Edward E. Carroll............ 58 Vice President-Industrial Relations
Harry L. Goodrich............ 47 Vice President, Secretary and
General Counsel
George R. Herron............. 57 Vice President-Cotton Procurement
Larry W. Van de Visser....... 61 Vice President-Administration
Gary D. Waldman.............. 41 Controller
</TABLE>
Joseph L. Lanier, Jr. has been Chairman of the Board of Directors and Chief
Executive Officer of Dan River or Braelan Corp. (the "Predecessor") since
1989. Mr. Lanier is also a director of SunTrust Bank, Inc. (a bank holding
company), Flowers Industries, Inc. (a food company), Torchmark Corporation
(an insurance company) and Dimon Incorporated (a tobacco products company and
distributor of cut flowers).
Richard L. Williams has been a director and President and Chief Operating
Officer of Dan River or the Predecessor since 1989.
Barry F. Shea was a director of the Predecessor from 1989 to 1991. He was
Vice President-Finance, Chief Financial Officer and Assistant Secretary of
Dan River or the Predecessor from 1989 until 1996 and has been Vice
President-Chief Financial Officer from 1996 to the present.
Scott D. Batson has been Vice President-Finance of Dan River since 1995 and
was Director of Finance from 1990 to 1995. Mr. Batson was also Treasurer of
the Predecessor from 1990 to 1995.
Anthony J. Bender has been Vice President-Information Systems of Dan River
since 1995. Mr. Bender was Director of Systems Development of Springs
Industries, Inc. (a manufacturer and distributor of textile products) from
1993 until 1995, and held a number of management consulting positions with
Price Waterhouse, LLP from 1985 to 1993.
Gregory R. Boozer has been Vice President-Manufacturing Services of Dan River
since 1989.
Edward E. Carroll has been Vice President-Industrial Relations of Dan River
since 1995. He was Director of Employee Relations of Dan River from 1984
until 1995.
<PAGE> 12
Harry L. Goodrich has been Secretary and General Counsel of Dan River or the
Predecessor since 1989 and has been Vice President of Dan River since 1995.
George R. Herron has been Vice President-Cotton Procurement of Dan River
since 1987.
Larry W. Van de Visser was Controller of Dan River from 1990 until 1995 and
Vice President-Controller of Dan River from 1995 to 1996. He has been Vice
President-Administration of Dan River since 1996.
Gary D. Waldman has been Controller of Dan River since 1996. He was
Assistant Controller of Dan River from 1992 until 1996, and Director of Taxes
from 1990 until 1992.
Other significant employees of the Company are James E. Martin and Thomas L.
Muscalino.
Mr. Martin has headed Dan River's apparel fabrics operations since 1990. He
is 48 years old.
Mr. Muscalino has headed Dan River's home fashions operations since 1993.
From 1975 until 1992, he held a number of marketing positions with WestPoint
Stevens Inc. (a textile company), including President of its Consumer
Products Division in 1992. He is 47 years old.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The information contained in the section entitled "Market and Dividend Data"
is incorporated herein by reference from the 1997 Annual Report to
Shareholders.
The Company has sold no securities within the past three years which were not
registered under The Securities Act of 1933, except for the sale of 66,423
shares of Class A Common Stock which were issued to employees of the Company
upon exercise of stock options held by them, the proceeds of which were paid
to a stockholder of the Company who was contractually obligated to and did in
fact surrender the shares which were subject to the options. See "Security
Ownership of Certain Beneficial Owners and Management", Note 5, in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on April
22, 1998, which Note 5 is incorporated by reference herein.
<PAGE> 13
Item 6. Selected Financial Data.
Information contained in the section entitled "Five Year Summary of Selected
Financial Data" is incorporated by reference from the 1997 Annual Report to
Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information contained in the section entitled "Management's Discussion and
Analysis" is incorporated herein by reference from the 1997 Annual Report to
Shareholders.
Item 7A. Quantitative and Quantitative Disclosures Above Market Risk.
Not Applicable
Item 8. Consolidated Financial Statements and Supplementary Data.
Information contained in the sections entitled "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," and "Report of Independent Auditors" are
incorporated herein by reference from the 1997 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the directors under the caption, "Election of
Directors," is incorporated herein by reference from Registrant's "Proxy
Statement for the Annual Meeting of Shareholders" to be held on April 22,
1998.
For information regarding the executive officers of the Registrant, see Part
I, "Executive Officers of the Registrant."
Section 16(a) Beneficial Ownership Reporting Compliance. Subsequent to the
printing of its Proxy materials for the 1998 Annual Meeting, the Registrant
became aware that Annual Report of Changes in Beneficial Ownership on Form 5
was not timely filed on behalf of Mr. Joseph L. Lanier, Jr., in connection
with his purchase of 100 shares of Class A Common Stock on November 21, 1997.
The appropriate Form 5 has now been filed.
Item 11. Executive Compensation
Incorporated herein by reference from sections of the Registrant's "Proxy
Statement for the Annual Meeting of Shareholders to be held on April 22,
1998" under the captions entitled, "Election of Directors--Director
Compensation" and "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the section of the Registrant's "Proxy
Statement for Annual Meeting of Shareholders to be held on April 22, 1998"
entitled "Security Ownership of Certain Beneficial Owners and Management."
<PAGE> 14
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the section in the Registrant's "Proxy
Statement for Annual Meeting of Shareholders to be held on April 22, 1998"
entitled "Executive Compensation", "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions".
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements
The following Financial Statements are filed under Item 8 of this
Report:
Consolidated Balance Sheets as of January 3, 1998 and December 28,
1996.
Consolidated Statements of Income for the fiscal years ended
January 3, 1998, December 28, 1996 and December 30, 1995.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 3, 1998, December 28, 1996 and December 30, 1995.
Consolidated Statements of Cash Flows for the fiscal years ended
January 3, 1998, December 28, 1996 and December 30, 1995.
Notes to Consolidated Financial Statements for the fiscal years
ended January 3, 1998, December 28, 1996 and December 30, 1995.
Report of Independent Auditors.
2. The following Financial Statement Schedules are filed as part of
this Report:
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because, under applicable rules, the
omitted Schedules are not required, are inapplicable, or the
information required is included in the Financial Statements or in
the Notes thereto.
3. Exhibits.
The Exhibits listed as applicable on the accompanying Index to
Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K.
None.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DAN RIVER INC.
By: /s/ JOSEPH L. LANIER, JR.
-------------------------
Joseph L. Lanier, Jr.
Chairman and Chief Executive Officer
Date: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By: /s/ DONALD J. KELLER By: /s/ JOHN F. MAYPOLE
-------------------------- --------------------------
Donald J. Keller, Director John F. Maypole, Director
Date: March 24, 1998 Date: March 24, 1998
By: /s/ JOSEPH L. LANIER, JR. By: /s/ BARRY F. SHEA
-------------------------- --------------------------
Joseph L. Lanier, Jr., Barry F. Shea, Vice-President-
Chairman and Chief Executive Chief Financial Officer
Officer and Director (Principal Financial and
(Principal Executive Officer) Accounting Officer)
Date: March 24, 1998 Date: March 24, 1998
By: /s/ EDWARD J. LILL By: /s/ RICHARD L. WILLIAMS
------------------------- --------------------------
Edward J. Lill, Director Richard L. Williams, President
and Chief Operating Officer and
Director
Date: March 24, 1998 Date: March 24, 1998
</TABLE>
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Asset Purchase Agreement dated
January 10, 1997 by and between
Dan River Inc. and The New Cherokee
Corporation.<F1>
2.2 First Amendment to Asset Purchase
Agreement between Dan River Inc.
and The New Cherokee Corporation
dated as of February 2, 1997.<F1>
3.1 Amended and Restated Articles of
Incorporation of Dan River Inc.<F2>
3.2 Bylaws of Dan River Inc.<F2>
4.1 Form of Indenture between the
Dan River Inc. and Marine Midland Bank,
N.A., as Trustee (including Form
of Note).<F3>
10.1 Loan and Security Agreement dated
February 3, 1997 among Dan River Inc.
and Fleet Capital Corporation.<F4>
10.2 Amendment No. 1, dated December 22,
1997, to Loan and Security Agreement
among Dan River Inc. and Fleet
Capital Corporation
10.4 Registration Rights Agreement, dated
as of September 3, 1991, among Dan
River Inc. and the parties named
therein.<F5>
10.4.1 Amendment dated as of October 27,
1997 to the Registration Rights
Agreement.
10.5 Voting Agreement among Joseph L.
Lanier, Jr., Richard L. Williams
and Barry F. Shea and certain
members of their families.<F6>
*10.7 Employment Agreement, dated as of
October 29, 1997, between Dan
River Inc. and Joseph L. Lanier, Jr.<F6>
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
*10.8 Employment Agreement, dated as of
October 29, 1997, between Dan River
Inc. and Richard L. Williams.<F6>
*10.9 Employment Agreement, dated as of
October 29, 1997, between Dan
River Inc. and Barry F. Shea.<F6>
*10.10 Form of Post-employment Letter Agreement
between the Dan River Inc. and certain
of its officers.<F5>
*10.12 Post-employment Letter Agreement between
Dan River Inc. and Gregory R.
Boozer.<F7>
*10.13 Post-employment Letter Agreement between
Dan River Inc. and Harry L. Goodrich.<F8>
*10.14 Dan River Inc. Amended and Restated
Stock Option Plan and form of Option
Agreement in effect prior to Decem-
ber 30, 1994.<F5>
*10.14.1 Dan River Inc. Amended and Restated
Stock Option Plan and form of Option
Agreement; as amended as of Decem-
ber 30, 1994.<F7>
*10.15 Dan River Management Incentive Plan.
*10.16 Form of Dan River Inc. 1997 Stock
Incentive Plan.<F9>
*10.19 Form of Dan River Inc. 1997 Stock
Plan for Outside Directors.<F9>
10.21 Equipment Lease Agreement No.
2891-0, dated as of December 29,
1989, as amended, between MDFC
Equipment Leasing Corporation
and Dan River Inc.<F5>
11.1 Statement regarding Computation of
Earnings per share. See Financial
Statements and Schedules and Notes
thereto included in this Annual
Report on Form 10-K.
13 Portions of 1997 Annual Report to
Shareholders incorporated by reference
in this Annual Report on Form 10-K.
21 List of Subsidiaries<F5>
23 Consent of Ernst & Young, LLP
</TABLE>
<PAGE> 18
27.1 Financial Data Schedule for 1997 Fiscal Year
27.2 Restated Financial Data Schedule for 1996 Fiscal Year
- -------------------
[FN]
*Management contract, compensatory plan or arrangement.
<F1>
Exhibit Nos. 2.1 and 2.2 incorporated by reference to Exhibit Nos. 2.1 and
2.2 in Dan River's Current Report on Form 8-K (No. 33-70442) dated February
3, 1997.
<F2>
Exhibits Nos. 3.1 and 3.2 incorporated by reference to Exhibits 3.1 and 3.2
in Amendment No. 1 to Registration Statement on Form S-1 (No. 333-36479)
filed on November 4, 1997.
<F3>
Exhibit 4.1 incorporated by reference to exhibit number 4 in Dan River's
Report on Form 10-K (No. 33-70442) for the fiscal year ended January 1, 1994.
<F4>
Exhibit 10.1 incorporated by reference to corresponding exhibit number in Dan
River's Report on Form 10-K (No. 33-70442) for the fiscal year ended Decem-
ber 28, 1996.
<F5>
Incorporated by reference to corresponding exhibit number in Dan River's
Registration Statement on Form S-1 (No. 33-70442) filed on October 15, 1993.
<F6>
Incorporated by reference to corresponding Exhibit number in Amendment No. 2
dated November 17, 1997 to Dan River's Registration Statement on Form S-1
(No. 333-36479).
<F7>
Exhibit Nos. 10.12 and 10.14.1 incorporated by reference to corresponding
exhibit numbers in Dan River's Report on Form 10-K (No. 33-70442) for the
fiscal year ended December 31, 1994.
<F8>
Exhibit No. 10.13 incorporated by reference to exhibit number 10.12 in the
Registration Statement on Form S-1 (No. 33-70442) filed on October 15, 1993.
<F9>
Incorporated by reference to corresponding exhibit numbers in Dan River's
Registration Statement on Form S-1 (No. 333-36479) dated September 26, 1997.
</FN>
<PAGE> 19
Schedule II
DAN RIVER INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended January 3, 1998, December 28, 1996 and December 30, 1995
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Balance at
Beginning Costs and End
Description of Year Expenses Other Deductions (B) of Year
----------- ------- -------- ----- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible
accounts, discounts and
claims (deducted from
accounts receivable):
Year ended January 3, 1998 $ 4,631 8,096 1,200 (A) 7,697 $ 6,230
------- ----- ----- ----- -------
Year ended December 28, 1996 $ 5,140 6,937 -- 7,446 $ 4,631
------- ----- ----- ----- -------
Year ended December 30, 1995 $ 5,892 7,060 -- 7,812 $ 5,140
------- ----- ----- ----- -------
</TABLE>
Notes:
(A) Allowance related to receivables acquired through business combination.
(B) Includes writeoff of receivables (net of recoveries) and claims allowed.
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated this 22nd day of December, 1997, is made by and among
DAN RIVER INC., a Georgia corporation (the "Borrower");
The lenders and other financial institutions that are parties to the Loan
Agreement hereinafter described (the "Lenders");
FLEET CAPITAL CORPORATION, a Rhode Island corporation, as agent for the
Lenders under the Loan Agreement (in such capacity, the "Agent"); and
DAN RIVER FACTORY STORES, INC. a Georgia corporation (the "Guarantor"),
to the Loan and Security Agreement, dated February 3, 1997 (as amended,
modified, restated or supplemented from time to time, the "Loan Agreement").
All capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Loan Agreement.
RECITALS
A. Pursuant to the Loan Agreement, each Lender has severally agreed to
make Revolver Loans to the Borrower up to an amount of such Lender's Revolver
Commitment and to make its Term Loan Advance in an amount equal to such
Lender's Term Loan Commitment.
B. The Term Loan and each Lender's Term Loan Advance has been paid in
full and, pursuant to Section 6.5 of the Loan Agreement, the Agent has
released its Liens in the Equipment Collateral and the Owned Real Property.
C. The Borrower has sold, or will shortly close the sale of, its
Wetumpka Plant and all of the Inventory located therein and has requested that
the Agent release its Lien in such Inventory, and the Lenders have granted
such request and have authorized and instructed the Agent to release its Lien
in such Inventory on behalf of the Lenders.
D. The Borrower, the Guarantor, the Agent and the Lenders wish to enter
into this Amendment for the purposes of making certain changes to the Loan
Agreement and consenting to the Agent's release of its Lien in the Inventory
located at the Wetumpka Plant, all as more particularly set forth herein.
<PAGE> 2
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Borrower, the Guarantor, the Lenders and the
Agent hereby agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1 Revolver Loans. Section 1.1.1 is amended in its entirety to read as
follows:
1.1.1 Revolver Loans. Each Lender agrees, severally to the
extent of its Revolver Commitment and not jointly with the other
Lenders, upon the terms and subject to the conditions set forth herein, to
make Revolver Loans to Borrower on any Business Day during the period from
the date hereof through the day before the Commitment Termination Date, not
to exceed in aggregate principal amount outstanding at any time such
Lender's Revolver Commitment at such time, which Revolver Loans may be
repaid and reborrowed in accordance with the provisions of this Agreement;
provided, however, that Lenders shall have no obligation to Borrower
whatsoever to make any Revolver Loan if at the time of the proposed funding
thereof the aggregate principal amount of all of the Revolver Loans and
Swingline Loans then outstanding exceeds, or would exceed after the funding
of such Revolver Loan, either the Borrowing Base or the aggregate amount of
the Revolver Commitments then in effect. Each Borrowing of Revolver Loans
shall be funded by Lenders on a Pro Rata basis in accordance with their
respective Revolver Commitments. The Revolver Loans shall bear interest as
set forth in Section 2.1 hereof. Each Revolver Loan shall, at the option
of Borrower, be made or continued as, or converted into, part of one or
more Borrowings that, unless specifically provided herein, shall consist
entirely of Base Rate Loans or LIBOR Loans."
1.2 Term Loan Facility. Section 1.2 is deleted and in lieu thereof is
substituted the phrase "RESERVED".
1.3 Use of Proceeds. Section 1.4 is amended by deleting the word "and"
at the end of Section 1.4(i), deleting the period at the end of Section 1.4(ii)
and substituting a semi-colon therefor, and adding a new Section 1.4(iii) as
follows:
"(iii) All Swingline Loans made after the effective date of Amendment No.
1 to this Agreement shall be used solely for Borrower's general working
capital needs in a manner consistent with the provisions of this Agreement
and Applicable Law and for any other purposes not inconsistent with this
Agreement."
1.4 Swingline Facility. A new Section 1.5 is added as follows:
<PAGE> 3
1.5 Swingline Subfacility.
1.5.1 Swingline Loans. Swingline Lender agrees, upon the terms and
subject to the conditions set forth herein, to make Swingline Loans to
Borrower on any Business Day during the period from the date hereof through
the day before the Commitment Termination Date, not to exceed in aggregate
principal amount outstanding at any time the Swingline Commitment at such
time, which Swingline Loans may be repaid and reborrowed in accordance with
the provisions of this Agreement; provided, however, that Swingline Lender
shall have no obligation to Borrower whatsoever to make any Swingline Loan
if at the time of the proposed funding thereof the aggregate principal
amount of all of the Revolver Loans and Swingline Loans then outstanding
exceeds, or would exceed after the funding of such Swingline Loan, either
the Borrowing Base or the aggregate amount of the Revolver Commitments then
in effect. All Swingline Loans shall be Base Rate Loans and shall bear
interest from the date advanced until paid (whether at stated maturity, on
acceleration, or otherwise) at the interest rate that is applicable to
Revolver Loans outstanding that are Base Rate Loans as set forth in Section
2.1(i) hereof. There shall be no minimum amount for Borrowings of
Swingline Loans hereunder.
1.5.2 Swingline Note. Borrower shall execute and deliver to
Swingline Lender, on the effective date of Amendment No. 1 to this
Agreement, a promissory note substantially in the form of Exhibit A-3
attached hereto and made a part hereof (such promissory note, being
hereinafter referred to as the "Swingline Note"), to evidence the Swingline
Loans to Borrower, in an original principal amount equal to the amount of
the Swingline Commitment. The Swingline Note shall provide for payment of
the Swingline Loans evidenced thereby as specified in Section 4 hereof."
1.5 Interest Rate. Section 2.1.1, Rates of Interest - Revolver Loans,
is amended in its entirety to read as follows:
"2.1.1 Rates of Interest - Revolver Loans. Subject to the
provisions of Sections 2.1.8 and 2.1.9 of this Agreement, Borrower agrees
to pay interest on the unpaid principal amount of the Revolver Loans
outstanding from the respective dates such principal amounts are advanced
until paid (whether at stated maturity, on acceleration, or otherwise) at a
variable rate per annum equal to the applicable rate indicated below:
(i) For Revolver Loans made or outstanding as Base Rate
Loans, the Base Rate in effect from time to time; or
(ii) For Revolver Loans made or outstanding as LIBOR Rate
Loans, the relevant Adjusted LIBOR Rate for the applicable Interest Period
selected by Borrower in conformity with this Agreement plus the Applicable
Percentage."
1.6 Rates of Interest - Term Loan. Section 2.1.2 is deleted and in lieu
thereof is substituted the phrase "RESERVED".
<PAGE> 4
1.7 Adjustment in Rates of Interest. Section 2.1.7 is deleted and in
lieu thereof is substituted the phrase "RESERVED".
1.8 Manner of Borrowing and Funding Revolver Loans and Swingline Loans.
Section 3.1 is amended in its entirety to read as follow:
"3.1 Manner of Borrowing and Funding Revolver Loans and Swingline
Loans. Borrowings under the Commitments established pursuant to Sections
1.1 and 1.5 hereof shall be made and funded as follows:
3.1.1 Notice of Borrowing.
(i) Whenever Borrower desires to make a Borrowing under
this Agreement (other than a Borrowing resulting from a
conversion or continuation pursuant to Section 2.1.4), Borrower
shall give Agent prior written notice (or telephonic notice
promptly confirmed in writing) of such Borrowing request (a "Notice
of Borrowing"), which shall be in the form of Exhibit C annexed
hereto and signed by an authorized officer of Borrower. Such
Notice of Borrowing shall be given by Borrower no later than 11:00
a.m., Charlotte, North Carolina time, at the office of Agent
designated by Agent from time to time (a) on the Business Day of
the requested funding date of such Borrowing, in the case of Base
Rate Loans, and (b) at least two (2) Business Days prior to the
requested funding date of such Borrowing, in the case of LIBOR Rate
Loans. Notices received after 11:00 a.m., Charlotte, North
Carolina time, shall be deemed received on the next Business Day.
Notice of Borrowing (or telephonic notice thereof) shall be
irrevocable and shall specify (a) the principal amount of the
Borrowing, (b) the date of Borrowing (which shall be a Business
Day), (c) what portion of any requested Loans are to be Base Rate
Loans or LIBOR Rate Loans, (d) in the case of LIBOR Rate Loans, the
duration of the Interest Period to be applicable thereto, and (e)
the account of Borrower to which the proceeds of such Borrowing are
to be disbursed. Borrower may not request any LIBOR Rate Loans if a
Default or Event of Default exists.
(ii) Unless payment is otherwise timely made by Borrower,
the becoming due of any amount required to be paid under this
Agreement or any of the other Loan Documents as principal
(including the repayment to Agent of any drawings under a Letter of
Credit or Letter of Credit Guaranty or any other Letter of Credit
Obligations or to Swingline Lender of any Swingline Loans), accrued
interest, fees or other charges shall be deemed irrevocably to be a
request for a Swingline Loan or a Revolver Loan, as determined by
Agent, each on the due date of, and in an aggregate amount required
to pay, such principal, accrued interest, fees or other charges,
and the proceeds of such Revolver Loan or Swingline Loan may be
disbursed by way of direct payment of the relevant Obligation and
shall bear interest as Base Rate Loans. Neither Agent nor any
Lender shall have any obligation to Borrower to honor any deemed
request for a Revolver Loan or a Swingline Loan, but may do so in
their discretion and without regard to the existence of, and
without being deemed to have waived, any Default or Event of
Default or Overadvance Condition.
<PAGE> 5
(iii) As an accommodation to Borrower, Agent and Lenders
may permit telephonic requests for Borrowings and electronic
transmittal of instructions, authorizations, agreements or reports
to Agent by Borrower; provided, however, that Borrower shall
confirm each such telephonic request for a Borrowing of LIBOR Rate
Loans by delivery of the required Notice of Borrowing to Agent by
facsimile transmission promptly, but in no event later than 5:00
p.m., Charlotte, North Carolina time, on the same day. Unless
Borrower specifically directs Agent and Lenders in writing not to
accept or act upon telephonic or electronic communications from
Borrower, neither Agent nor any Lender shall have any liability to
Borrower for any loss or damage suffered by Borrower as a result of
Agent's or any Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any
reports communicated to it telephonically or electronically and
purporting to have been sent to Agent or Lenders by Borrower
(except to the extent that such loss or damage results as a
consequence of the gross negligence or willful misconduct of Agent
or any Lender) and neither Agent nor any Lender shall have any duty
to verify the origin of any such communication or the identity or
authority of the Person sending it.
(iv) Any Notice of Borrowing for a Base Rate Loan received
by Agent from Borrower pursuant to this Section 3.1 shall be deemed
a request for (a) a Swingline Loan if and to the extent that the
aggregate amount of the Swingline Loans then outstanding are less
than $10,000,000, and (b) a Revolver Loan for the balance of the
Base Rate Loan requested in such Notice of Borrowing.
3.1.2 Fundings By Lenders of Revolver Loans. Subject to its receipt
of notice from Agent of a Notice of Borrowing as provided in Section 3.1.1,
each Lender shall timely honor its Revolver Commitment by funding its Pro
Rata share of each Borrowing of Revolver Loans that is properly requested
or deemed requested by Borrower and that Borrower is entitled to receive
under this Agreement. Agent shall notify Lenders of each Notice of
Borrowing of Revolver Loans by 12:00 noon, Charlotte, North Carolina time,
on the proposed funding date in the case of Revolver Loans that are Base
Rate Loans or by 12:00 noon, Charlotte, North Carolina time, at least two
(2) Business Days before the proposed funding date in the case of Revolver
Loans that are LIBOR Rate Loans. Each Lender shall deposit with Agent an
amount equal to its Pro Rata share of the Borrowing of Revolver Loans
requested by Borrower at Agent's designated bank in immediately available
funds not later than 2:00 p.m., Charlotte, North Carolina time, on the date
of funding of such Borrowing, unless Agent's notice to Lenders is received
after 12:00 noon, Charlotte, North Carolina time, on the proposed funding
date of a Revolver Loan that is a Base Rate Loan, in which event Lenders
shall deposit with Agent their respective Pro Rata shares of the requested
Borrowing on or before 11:00 a.m., Charlotte, North Carolina time, of the
next Business Day. Subject to its receipt of such amounts from Lenders and
provided each of the applicable conditions set forth in Section 10 is
satisfied, Agent shall make the proceeds of the Revolver Loans received by
it available to Borrower by disbursing such proceeds in accordance with
Borrower's disbursement instructions set forth in the applicable Notice of
Borrowing. Unless Agent shall have been notified in writing by a Lender
<PAGE> 6
prior to the proposed time of funding that such Lender does not intend to
deposit with Agent an amount equal to such Lender's Pro Rata share of the
requested Borrowing of Revolver Loans, Agent may assume that such Lender
has deposited or promptly will deposit its share with Agent and Agent may
in its discretion disburse a corresponding amount to Borrower on the
applicable funding date. If a Lender's Pro Rata share of such Borrowing is
not in fact deposited with Agent, then, if Agent has disbursed to Borrower
an amount corresponding to such share, such Lender agrees to pay, and in
addition Borrower agrees to repay, to Agent forthwith on demand such
corresponding amount, together with interest thereon, for each day from the
date such amount is disbursed by Agent to or for the benefit of Borrower
until the date such amount is paid or repaid to Agent, (a) in the case of
Borrower, at the interest rate applicable to such Borrowing and (b) in the
case of such Lender, at the Federal Funds Rate. If such Lender repays to
Agent such corresponding amount, such amount so repaid shall constitute a
Revolver Loan, and if both such Lender and Borrower shall have repaid such
corresponding amount, Agent shall promptly return corresponding amount in
same day funds.
3.1.3 Fundings By Swingline Lender of Swingline Loans: Repayment of
Swingline Loans.
(i) Subject to its receipt of notice from Agent of a
Notice of Borrowing as provided in Section 3.1.1, Swingline
Lender shall timely honor its Swingline Commitment by funding a
Borrowing of Swingline Loans that is properly requested or deemed
requested by Borrower and that Borrower is entitled to receive
under this Agreement. Agent shall notify Swingline Lender of each
Notice of Borrowing of Swingline Loans by 12:00 noon, Charlotte,
North Carolina time, on the proposed funding date. Swingline
Lender shall deposit with Agent an amount equal to the Borrowing of
Swingline Loans requested by Borrower at Agent's designated bank in
immediately available funds not later than 2:00 p.m., Charlotte,
North Carolina time, on the date of funding such Borrowing, unless
Agent's notice to Swingline Lender is received after 12:00 noon,
Charlotte, North Carolina time, on the proposed funding date of a
Swingline Loan, in which event Swingline Lender shall deposit with
Agent the requested Borrowing on or before 11:00 a.m., Charlotte,
North Carolina time, of the next Business Day. Subject to its
receipt of such amount from Swingline Lender and provided each of
the applicable conditions set forth in Section 10 is satisfied,
Agent shall make the proceeds of the Swingline Loan received by it
available to Borrower by disbursing such proceeds in accordance
with Borrower's disbursement instructions set forth in the
applicable Notice of Borrowing. Agent shall not request Swingline
Lender to make any Swingline Loan (a) Agent shall have received
written notice from any Lender that one or more of the applicable
conditions precedent set forth in Section 10 hereof will not be
satisfied on the requested funding date for the applicable
Borrowing or (b) the requested Borrowing would exceed the amount of
availability on the funding date. Swingline Lender shall not
otherwise be required to determine whether the applicable
conditions precedent set forth in Section 10 hereof have been
satisfied or the requested Borrowing would exceed the amount of
Availability on the funding date applicable thereto prior to making
any Swingline Loan.
<PAGE> 7
(ii) Each Borrowing of a Swingline Loan shall be due and
payable on the earlier to occur of (a) the Commitment Termination
Date, or (b) effective immediately upon Agent's giving of a Payment
Direction Notice, the receipt by Agent or Borrower of any proceeds
of any of the Collateral, to the extent of such proceeds.
Swingline Lender may, at any time, in its sole discretion by
written notice to Borrower and Agent, demand repayment of its
outstanding Swingline Loans by way of a Borrowing of Revolver
Loans, in which case Borrower shall be deemed to have requested a
Borrowing of Revolver Loans comprised entirely of Base Rate Loans
in the amount of such outstanding Swingline Loans. Each Lender
hereby irrevocably agrees to make its Pro Rata share of such
Revolver Loans immediately upon any such request or deemed request
in the amount and in the manner specified in the preceding sentence
and on the same such date notwithstanding (i) the amount of the
requested Revolver Loans may not comply with any of the conditions
to a Borrowing specified in Section 10 or any other provision of
this Agreement,
(ii) whether a Default, Event of Default or Overadvance Condition
then exists, (iii) failure of any such request or deemed request
for Revolver Loans to be made by the time otherwise required in
Section 3.1.2 hereof, (iv) the date of the Borrowing, or (v) any
reduction in the Revolver Commitments or termination of the
Commitments relating thereto immediately prior to such Borrowing or
contemporaneous therewith. In the event that any such Borrowing
cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of
a proceeding under the Bankruptcy Code with respect to Borrower),
then each Lender hereby agrees that it shall forthwith fund (as of
the date such Borrowing would otherwise have occurred, but adjusted
for any payments received from Borrower on or after such date and
prior to such purchase) from Swingline Lender such participations
in the outstanding Swingline Loans as shall be necessary to cause
each such Lender to share in such Swingline Loans ratably based
upon its respective Revolver Commitment (determined before giving
effect to any termination of the Commitments pursuant to the terms
hereof); provided, however, (i) all interest payable on the
Swingline Loans shall be for the account of Swingline Lender until
the date as of which the respective participation is purchased, and
(ii) at the time any purchase of participations pursuant to this
sentence is actually made, the purchasing Lender shall be required
to pay to Swingline Lender interest on the principal amount of such
participation purchased for each day from and including the day
upon which the Borrowing would otherwise have occurred to but
excluding the date of payment for such participation, at the rate
equal to, if paid within two (2) Business Days of the date of such
Borrowing, the Federal Funds Rate, and thereafter at a rate equal
to the Base Rate.
(iii) If any amounts received by Swingline Lender in
respect of any Swingline Loans are later required to be returned
or repaid by Swingline Lender to Borrower or any other Obligor or
their respective representatives or successors-in-interest, whether
by court order, settlement or otherwise, the other Lenders shall,
upon
<PAGE> 8
demand by Swingline Lender with notice to Agent, pay to Agent
for the account of Swingline Lender, an amount equal to each other
Lender's Pro Rata share of all such amounts required to be returned
by Swingline Lender.
3.1.4 Disbursement Authorization. Borrower hereby irrevocably
authorizes Agent to disburse the proceeds of each Revolver Loan and
Swingline Loan requested, or deemed to be requested pursuant to Section
3.1.1, as follows: (i) the proceeds of each Revolver Loan and Swingline
Loan requested under Section 3.1.1(i) shall be disbursed by Agent in
accordance with the terms of the written disbursement letter from Borrower
in the case of the initial Borrowing, and, in the case of each subsequent
Borrowing, by wire transfer to such bank account as may be agreed upon by
Borrower and Agent from time to time or elsewhere if pursuant to a written
direction from Borrower; and (ii) the proceeds of each Revolver Loan and
Swingline Loan requested under Section 3.1.1 (ii) shall be disbursed by
Agent by way of direct payment of the relevant interest or other
Obligation. "
1.9 Number of LIBOR Rate Loans. Section 3.3.1 is amended in its
entirety to read as follows:
"3.3.1 Number of LIBOR Rate Loans. In no event may the number of
LIBOR Rate Loans outstanding in respect of the Revolver Loans at any time
exceed six (6)."
1.10 Repayment of Revolver Loans. Section 4.2.1(i) is amended in its
entirety to read as follows:
"(i) Any portion of the Revolver Loans consisting of the principal
amount of Base Rate Loans shall be paid by Borrower to Agent, for the Pro
Rata benefit of Lenders, unless converted to a LIBOR Rate Loan in
accordance with this Agreement, immediately upon the earlier of (a)
effective immediately upon Agent's giving of a Payment Direction Notice,
the receipt by Agent or Borrower of any proceeds of any of the Collateral,
to the extent that such proceeds are not used to repay any Swingline Loans
then outstanding as required by Section 3.1.3(ii) hereof, or (b) the
Commitment Termination Date."
1.11 Repayment of Swingline Loans. A new Section 4.2.3 is added as
follows:
"4.2.3 Repayment of Swingline Loans. The outstanding principal
amounts of the Swingline Loans shall be due and payable in accordance with
the provisions of Section 3.1.3(ii) hereof."
1.12 Lien on Owned Real Property. Section 6.4 is deleted in its entirety
and in lieu thereof is substituted the phrase "RESERVED".
1.13 Release of Liens in Equipment Collateral and Owned Real Property.
Section 6.5 is deleted in its entirety and in lieu thereof is substituted the
phrase "RESERVED", all parties hereto hereby acknowledging that the Liens of
the Agent in the Equipment Collateral and the Owned Real Property have been
released by the Agent in accordance with the provisions of such Section.
1.14 Administration of Equipment Collateral. Section 7.4 is deleted in
its entirety and in lieu thereof is substituted the phrase "RESERVED".
<PAGE> 9
1.15 Environmental Matters. Section 9.1.14 is deleted in its entirety
and in lieu thereof is substituted the phrase "RESERVED".
1.16 Consolidated Net Worth. Section 9.3.2 is amended in its entirety to
read as follows:
"9.3.2 Consolidated Net Worth. Borrower shall maintain at all
times a Consolidated Net Worth equal to the sum of (i) $131,964,000, plus
(ii) one hundred percent (100%) of the net income after taxes of Borrower
and its Subsidiaries for the fiscal year ending January 3, 1998 and each
fiscal year thereafter (but shall not decrease by any net losses)."
1.17 Project Loan Documents. Section 11.1.9 is deleted in its entirety
and in lieu thereof is substituted the phrase "RESERVED".
1.18 Definitions. Appendix A is amended as follows:
(i) New definitions are added in the proper alphabetical order
as follows:
"Applicable Percentage - for any day and for any LIBOR Rate Loan,
the rate per annum set forth below opposite the applicable Level then in
effect:
<TABLE>
<CAPTION>
Applicable
Percentage for
Level LIBOR Rate Loan
----- ---------------
<S> <C>
Level I 1.50%
Level II 1.24%
Level III 1.0%
Level IV 0.75%
Level V 0.50%
</TABLE>
The Applicable Percentage shall, in each case, be determined after receipt
by Agent of the financial statements as of the end of each fiscal quarter of
Borrower and its Subsidiaries and for that portion of the fiscal year of
Borrower and its Subsidiaries then ended which are required to be delivered
to Agent in accordance with the provisions of Section 9.1.3 (ii) of the
Agreement, and shall be adjusted effective on the first day of the fiscal
quarter following the receipt by Agent of such financial statements (each, an
"Adjustment Date"). Such Applicable Percentage shall be effective from such
Adjustment Date until the next such Adjustment Date. Commencing upon the
effectiveness of Amendment No. 1 to this Agreement, the initial Applicable
Percentage shall be based on Level IV until the first Adjustment Date
occurring thereafter.
Level - as at the determination thereof at the end of each fiscal quarter
of Borrower and its Subsidiaries, the level set forth below corresponding to
the Funded Indebtedness for Money Borrowed/Consolidated EBITDA Ratio as of
the end of such fiscal quarter:
<PAGE> 10
<TABLE>
<CAPTION>
Level Ratio
----- -----
<S> <C>
Level I greater than or equal to 3.0
Level II greater than or equal to 2.50 but <3.0
Level III greater than or equal to 2.0 but <2.50
Level IV greater than or equal to 1.3 but <2.0
Level V <1.3
</TABLE>
Funded Indebtedness for Money Borrowed - that portion of Indebtedness for
Money Borrowed of Borrower and its Subsidiaries consisting of the Loans
outstanding under this Agreement and all Subordinated Debt.
Funded Indebtedness for Money Borrowed/Consolidated EBITDA Ratio - on the
determination thereof as of the end of any fiscal quarter, the ratio of (i)
the aggregate principal balance of all Funded Indebtedness for Money Borrowed
outstanding as of the end of such fiscal quarter to (ii) Consolidated EBITDA
of Borrower and its Subsidiaries for the four (4) fiscal quarters then
ending.
Swingline Lender - Fleet, in its capacity as Swingline Lender under the
Agreement, and its successors and assigns.
Swingline Commitment - the sum of Ten Million Dollars ($10,000,000)."
(ii) The definition of "Borrowing" is amended in its entirety to read as
follows:
"Borrowing - a borrowing of a Revolver Loan made on the same day by Lenders
or a Swingline Loan made by Swingline Lender."
(iii) The definition of "Borrowing Base" is amended in its entirety to read
as follows:
"Borrowing Base - at any date of the determination thereof, an
amount equal to the sum of (a) the Accounts Borrowing Base, plus (b) the
Inventory Borrowing Base, less (c) 100% of the undrawn face amount of any
Letters of Credit and Letter of Credit Guaranties outstanding on such date,
less (d) the sum of the following (without duplication) not to exceed,
however, in the aggregate at any one time the sum of One Million Dollars
($1,000,000), unless an Event of Default exists, (i) all amounts or other
charges which are then due and payable by Borrower to any landlord of any
premises where any Collateral is located or to any processor, finisher or
other Person which may have a claim against any Collateral, if and to
the extent such landlord, processor, finisher or other Person has not
executed in favor of Agent a waiver of its claims in respect of such
Collateral provided such amounts are net of any reserves imposed with
respect to Eligible Inventory with respect to such matters, (ii) any taxes
assessed upon the Collateral which are then due and payable by Borrower and
which are not being contested in accordance with Section 9.1.1 of the
Agreement, and (iii) the costs of any casualty
<PAGE> 11
insurance which is required to be maintained by Borrower pursuant to
Section 7.1.2 of the Agreement which are then due and payable by Borrower,
provided that Agent shall first have given Borrower at least ten (10) days
written notice of such amounts prior to the imposition of such reserves
pursuant to this clause (d), and less (e) any amounts which Agent or
Lenders may pay pursuant to any of the Loan Documents for the account of
Borrower and its Subsidiaries and which have not been reimbursed by
Borrower."
(iv) The definition of "Commitment" is amended in its entirety to read as
follows:
"Commitment - at any date for any Lender, including Swingline
Lender, such Lender's Revolver Commitment and Swingline Commitment and
"Commitments" means all Revolver Commitments and the Swingline Commitment."
(v) The definition of "Inventory Borrowing Base" is amended by deleting
the classification of Inventory called the "Wetumpka Plant Inventory".
(vi) The definition of "Loan" is amended in its entirety to read as
follows:
"Loan - a Revolver Loan or a Swingline Loan or all or any of them as
the context may require."
(vii) The definition of "Notes" is amended in its entirety to read as
follows:
"Notes - the Revolver Notes and the Swingline Note or all or any of
them as the context may require."
(viii) The definitions of "Overadvance" and "Overadvance Condition" are
amended in their entirety to read as follows:
"Overadvance - a Revolver Loan made by Lenders, or a Swingline Loan
made by Swingline Lender, when an Overadvance Condition exists or would
result from the making of such Revolver Loan or Swingline Loan.
Overadvance Condition - at any date, a condition such that the
principal amount of the Revolver Loans and Swingline Loans outstanding to
Borrower on such date exceeds the Borrowing Base on such date."
(ix) The definition of "Required Lenders" is amended in its entirety to
read as follows:
"Required Lenders - at any date of determination thereof, Lenders
having Revolver Commitments representing at least 66-2/3 % of the aggregate
Revolver Commitments at such time; provided, however, that if any Lender
shall have failed to fund its Pro Rata share of any Borrowing of Revolver
Loans in accordance with the terms of the Agreement, then, for so long as
such failure continues, the term "Required Lenders" shall mean Lenders
(excluding such Lender whose failure to fund its Pro Rata share of any
Borrowing of Revolver Loans has not been cured) having Revolver Commitments
<PAGE> 12
representing at least 66 2/3 % of the aggregate Revolver Commitments at
such time; provided, further, however, that if the Revolver Commitments
have been terminated, the term "Required Lenders" shall mean Lenders
(excluding each Lender whose failure to fund its Pro Rata share of any
Borrowing of Revolver Loans has not been cured) holding Revolver Loans
representing at least 66-2/3 % of the aggregate principal amount of
Revolver Loans outstanding at such time."
(x) The definitions of "Pending Revolver Loans", "Settlement Date",
"Settlement Loan" and "Settlement Report" are deleted.
1.19 Term Loan References. All references to the Term Loans and the Term
Notes in the Loan Agreement are deleted and shall be disregarded.
1.20 Exhibit A-3. Exhibit A-3 attached hereto is made Exhibit A-3 to the
Loan Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Agent and each Lender
that:
2.1 Compliance with the Loan Agreement. As of the execution of this
Amendment, the Borrower and each of its Subsidiaries are in compliance with
all of the terms and provisions set forth in the Loan Agreement and the other
Loan Documents to be observed or performed by the Borrower and each of its
Subsidiaries, except where the failure of the Borrower and its Subsidiaries
has been waived in writing by the Required Lenders or, with the written
consent of the Required Lenders, the Agent.
2.2 Representations in Loan Agreement. The representations and
warranties of the Borrower set forth in the Loan Agreement are true and
correct in all material respects as of the date of this Amendment except to the
extent that such representations and warranties relate solely to or are
specifically expressed as of a particular date or period which is past or
expired.
2.3 No Event of Default. No Default or Event of Default exists.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS; RELEASE OF INVENTORY
COLLATERAL AT WETUMPKA PLANT
3.1 Loan Documents. The Loan Agreement and each of the other Loan
Documents are amended to provide that any reference to the Loan Agreement in
the Loan Agreement or any of the other Loan Documents shall mean the Loan
Agreement as amended by this Amendment, and as it is further amended,
modified, restated or supplemented from time to time.
<PAGE> 13
3.2 Consent by the Guarantor. The Guarantor hereby consents to, and
agrees to be bound by, the Agent's release of its Lien in the Inventory
located at the Wetumpka Plant and each of the amendments to the Loan
Agreement set forth herein, and confirms that the Guaranty Agreement and the
Guarantor Security Agreement to which the Guarantor is a party each remains
in full force and effect, enforceable against the Guarantor in accordance
with its respective terms.
3.3 Release of Inventory Collateral at Wetumpka Plant. The Lenders
hereby consent to the release of the Lien of the Agent for the benefit of the
Lenders in all Inventory located at the Wetumpka Plant and hereby authorize and
instruct the Agent to execute, deliver and record such documents as shall be
necessary to release and terminate of record the Agent's Lien in such
Inventory.
ARTICLE IV
GENERAL
4.1 Full Force and Effect. As expressly amended hereby, the Loan
Agreement shall continue in full force and effect in accordance with the
provisions thereof. As used in the Loan Agreement, "hereinafter", "hereto",
"hereof" or words of similar import, shall, unless the context otherwise
requires, mean the Loan Agreement as amended by this Amendment.
4.2 Applicable Law. This Amendment shall be governed by and construed
in accordance with the internal laws and judicial decisions of the State of
North Carolina.
4.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one and the same instrument.
4.4 Expenses. The Borrower shall reimburse the Agent for all reasonable
legal fees and expenses incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment and the release of the
Agent's lien in the Inventory located at the Wetumpka Plant authorized
hereby.
4.5 Headings. The headings in this Amendment are for the purpose of
reference only and shall not affect the construction of this Amendment.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first above written.
BORROWER:
DAN RIVER INC.
By:---------------------------
Title:------------------------
GUARANTOR:
Dan River Factory Stores, Inc.
By:---------------------------
Title:------------------------
AGENT:
FLEET CAPITAL CORPORATION, as Agent
By:---------------------------
Title:------------------------
LENDERS:
FLEET CAPITAL CORPORATION
By:---------------------------
Title:------------------------
<PAGE> 15
WACHOVIA BANK, N.A. (formerly known as
WACHOVIA Bank of Georgia, N.A.)
By:---------------------------
Title:------------------------
NATIONSBANK, N.A.
By:---------------------------
Title:------------------------
FIRST UNION COMMERCIAL
CORPORATION
By:---------------------------
Title:------------------------
THE FIRST NATIONAL BANK OF
CHICAGO
By:---------------------------
Title:------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:---------------------------
Title:------------------------
BANKBOSTON, N.A. (f/k/a First
National Bank of Boston)
By:---------------------------
Title:------------------------
<PAGE> 16
EXHIBIT A-3
SWINGLINE NOTE
$10,000,000 December 22, 1997
Charlotte, North Carolina
FOR VALUE RECEIVED, the undersigned, DAN RIVER INC., a Georgia corporation
(hereinafter "Borrower"), hereby promises to pay to the order of FLEET
CAPITAL CORPORATION, a Rhode Island corporation (hereinafter "Swingline
Lender"), in such coin or currency of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, the principal sum of Ten Million Dollars ($10,000,000), or such
lesser sum as may constitute the outstanding principal amount of all
Swingline Loans made pursuant to the terms of the Loan Agreement (as such
term is defined below), together with interest from and after the date hereof
on the unpaid principal balance outstanding, and, to the extent permitted by
Applicable Law, accrued interest at the rates of interest in effect from time
to time and on the dates as set forth in the Loan Agreement.
This Swingline Note (the "Note") is the Swingline Note referred to in, and
is issued pursuant to, that certain Loan and Security Agreement, dated
February 3, 1997, by and among Borrower, Fleet Capital Corporation, as agent
(in such capacity, the "Agent") for Swingline Lender and the other financial
institutions from time to time parties thereto ("Lenders"), and the Lenders
(hereinafter, as amended from time to time, the "Loan Agreement "), and is
entitled to all of the benefits and security of the Loan Agreement and the
Loan Documents executed and delivered in connection therewith. All of the
terms, covenants and conditions of the Loan Agreement and the other Loan
Documents are hereby made a part of this Note and are deemed incorporated
herein in full. All capitalized terms used herein, unless otherwise
specifically defined in this Note, shall have the meanings ascribed to them
in the Loan Agreement.
Upon the occurrence of an Event of Default and for so long as such Event of
Default shall exist, the principal balance of, all accrued and unpaid
interest on, and all other amounts owing under, this Note shall become, or
may be declared to be, immediately due and payable in the manner and with the
effect as provided in the Loan Agreement. In the event that this Note is not
paid when due, whether at the stated maturity date, by acceleration or
otherwise, Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees and expenses.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and all other notices of any kind.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of North Carolina and is intended to take effect
as an instrument under seal.
<PAGE> 17
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered in Charlotte, North Carolina, on the date first above written.
ATTEST: DAN RIVER INC.
("Borrower")
- -------------------------- By:--------------------
Secretary Title:-----------------------
[CORPORATE SEAL]
<PAGE> 1
EXHIBIT 10.4.1
AMENDMENT
Dated as of October 27, 1997
to
REGISTRATION RIGHTS AGREEMENT
Dated as of September 3, 1991
by and among
DAN RIVER INC.,
THE SENIOR MANAGEMENT INVESTORS
REFERRED TO THEREIN
AND
THE HOLDERS REFERRED TO THEREIN
<PAGE> 2
This AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Amendment") is dated
as of October 27, 1997, by and among DAN RIVER INC., a Georgia corporation
(the "Company"), and each of the parties set forth under the caption
"Holders" on the signature page hereto (the "Holders").
WHEREAS, the Company, the Holders and certain other shareholders of the
Company have entered into that certain Registration Rights Agreement, dated
as of September 3, 1991 (the "Agreement"); and
WHEREAS, the Company proposes to consummate an initial public offering of
shares of its Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), pursuant to a Registration Statement on Form S-1 filed by the
Company with the Securities and Exchange Commission (File No. 333-36479) (the
"Offering"); and
WHEREAS, the parties hereto desire to amend the Agreement in connection
with the Offering;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
Section 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof," "hereunder," "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall, upon consummation of the Offering,
refer to the Agreement as amended by this Amendment.
Section 2. Amendments to Agreement.
(a) Definitions. Effective upon consummation of the Offering, Section
1. l(b) of the Agreement shall be amended by deleting the definitions of
"Go-Along Securities" and "Preemptive Securities" in their entirety and by
deleting any and all references to such defined terms throughout the
Agreement.
(b) Go-Along. Effective upon consummation of the Offering, Section 2.4 of
the Agreement shall be deleted in its entirety and any and all references to
such Section 2.4 shall be deleted throughout the Agreement.
(c) Preemptive Rights. Effective upon consummation of the Offering,
Section 2.5 of the Agreement shall be deleted in its entirety and any and all
references to such Section 2.5 shall be deleted throughout the Agreement.
Section 3. Termination. If the Offering is not consummated on or before
January 31, 1998, this Agreement shall terminate and be of no further force
or effect, and the Agreement shall not be amended or modified by this
Amendment and shall remain in full force and effect.
<PAGE> 3
Section 4. The Agreement. Except as expressly amended and modified upon
consummation of the Offering as set forth herein, the Agreement shall not
otherwise be amended or modified and shall remain in full force and effect.
Section 5. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
such counterparts shall together constitute one and the same agreement.
lN WITNESS WHEREOF, this Amendment has been executed by the Company and
each Holder set forth below as of the date first above written.
The Company:
DAN RIVER INC.
By:------------------------
Name:
Title:
Holders:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:------------------------
Name:
Title:
CRESTAR BANK
By:------------------------
Name:
Title:
NATIONSBANK, N.A.
By:------------------------
Name:
Title:
<PAGE> 4
PILGRIM PRIME RATE TRUST
By:------------------------
Name:
Title:
SOCIETE GENERALE
By:------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRINCIPAL INCOME TRUST
By:------------------------
Name:
Title:
MEZZANINE INVESTMENT LIMITED
PARTNERSHIP-BDR
By:------------------------
Name:
Title:
FIRST CHICAGO INVESTMENT
CORPORATION
By:------------------------
Name:
Title:
MADISON DEARBORN PARTNERS V
By:------------------------
Name:
Title:
MADISON DEARBORN PARTNERS VI
By:------------------------
Name:
Title:
<PAGE> 5
---------------------------
David K. Beecken
---------------------------
Frederic D. Floberg
---------------------------
Susan M. Hawkins
---------------------------
Susan C. Lecraw
---------------------------
Susan W. Mathis
---------------------------
Camille T. McDuffie
---------------------------
John A. Morgan
---------------------------
Harry M. Philpott
---------------------------
William C. Steinmetz
---------------------------
Charles Mackenzie Taylor
<PAGE> 1
EXHIBIT 10.15
DAN RIVER INC.
MANAGEMENT INCENTIVE PLAN
Revised Effective January 1, 1998
<PAGE> 2
OBJECTIVES OF THE PLAN
To provide a compensation element which will act as a powerful stimulus to
maximize operating income for Dan River Inc. (the "Company") and its
divisions while encouraging prudent management of working capital.
To promote the interest of the Company by increasing its ability to attract
and retain management talent.
ELIGIBILITY FOR PARTICIPATION
Participation in the Management Incentive Plan will be restricted to
executives in key positions having a continuing and substantial influence on
financial results.
The following factors will serve as criteria for selecting performance
award participants:
Latitude to act - The degree of freedom to exercise initiative and
judgment in making independent decisions and taking action.
Impact - The degree to which decisions and actions have a direct bearing
on Company or division results.
Magnitude - The size or amount of a position's contribution to Company
or division results.
Positions shall be approved for participation by the Compensation Committee
(the "Committee") of the Board of Directors. The Committee will further
approve the assignment of each position to one of three levels of
participation as described below.
As changes in organization occur in the future, revisions to the list may
be required, and will be subject to approval of the Committee. The Committee
has final authority regarding participation.
PERFORMANCE AWARD LEVELS
Positions approved for participation will be assigned to one of three
levels for which target awards are as follows:
<TABLE>
<CAPTION>
Target Award As
Level % of Base Salary
----- ----------------
<S> <C>
A 40%
B 30%
C 20%
</TABLE>
The target award shall be applied to individual participant base salaries
for the fiscal year to determine the total target award funds available to
corporate and division levels. For corporate participants, the actual award
fund available will be based on consolidated results for the fiscal year.
For division participants, the division award funds will be based on division
performance for the fiscal year.
<PAGE> 3
Individual participants will be eligible for maximum awards as follows:
<TABLE>
<CAPTION>
Maximum Awards As
% of Base Salary
----------------
<S> <C>
A (40% target award) 100%
B (30% target award) 75%
C (20% target award) 50%
</TABLE>
DIVISION PERFORMANCE AWARDS
Division participants' awards will be determined at year-end and will be
based upon the division's operating income, (before the Amortization of
Acquisition Asset and after pay out under this plan), subject to reduction
based upon failure to meet certain working capital management goals. Awards
will be determined based upon a schedule to be recommended by the Committee
and approved by the Board of Directors. The schedule shall denote:
- the target operating income level required for
target award funding for the year (40% - 30% - 20%)
- the operating income level required for maximum
award funding for the year (100% - 75% - 50%)
- operating income levels which will result in awards
based upon a percentage (above or below) the target
award level
- criteria for reduction of awards based upon failure
to meet working capital management goals
CORPORATE PERFORMANCE AWARDS
Performance awards for corporate participants will be determined at year-
end and will be based on the operating income of the divisions of the Company
(before the Amortization of Acquisition Asset and after pay out under this
plan), subject to reduction based upon failure to meet consolidated working
capital management goals. Awards will be determined based upon a schedule to
be recommended by the Committee and approved by the Board of Directors. The
schedule shall denote:
- the target operating income level required for
target award funding for the year (40% - 30% - 20%)
- the operating income level required for maximum
award funding for the year (100% - 75% - 50%)
- operating income levels which will result in awards
based upon a percentage (above or below) the target
award level
- criteria for reduction of awards based upon failure
to meet working capital management goals
<PAGE> 4
CEO'S DISCRETIONARY FUND
The Committee may establish a fund during each fiscal year, to be utilized
at the discretion of the Chief Executive Officer of the Company to further
reward extraordinary performance, to balance awards to individual
participants whose contributions cross divisional/corporate lines, or to
address other unique circumstances.
ADMINISTRATIVE PROVISIONS
1. Performance awards are limited to executives whose positions are
approved for participation by the Committee upon recommendation of the Chief
Executive Officer of the Company.
2. Participants who terminate their employment for any reason other
than retirement or death, prior to the end of a fiscal year, shall not be
eligible for an award for the year of termination, except upon recommendation
of the Chief Executive Officer and approval of the Committee.
3. No awards shall be made to anyone who has less than three months'
participation during the fiscal year.
4. Participants who retire (i.e., normal, early, delayed or disability
retirement under a Company pension plan) during a fiscal year and have
completed at least three months' participation in the same year shall be
eligible for an award based upon base salary during the period of active
employment.
5. In the event of the death of a participant, if participation has
equaled at least three months during the fiscal year in which death occurred,
an award shall be permitted based upon base salary during the period of
participation. Any such award shall be payable to the estate of the
participant.
6. Participants transferred from one division to another, from a
divisional to a corporate position (or vice versa), or who are promoted or
transferred from one position to another, will be eligible for awards pro-
rated on the basis of the number of months assigned during the fiscal year to
each position.
7. Awards will be paid in cash, except for any portion properly
deferred under any deferred compensation plan then in effect.
8. The overall administration of this plan will be the responsibility
of the Vice President-Industrial Relations.
9. All awards under this plan are subject to compliance with pertinent
federal regulations, notwithstanding any provision of this plan to the
contrary.
10. Each participant shall be provided with a copy of this plan and any
amendments thereto.
11. All determinations of the Committee relating to interpretation,
administration or participation in this Plan shall be final and binding on
all participants, their heirs, executors and administrators. Participants'
rights under this plan are non-assignable and non-transferable.
<PAGE> 5
NO CONTRACT OF EMPLOYMENT
This plan does not and shall not be construed to create a contract of
employment between any participant and the Company and confers no rights
whatsoever, except as expressly set forth herein.
RESTRICTION OF PAYMENTS
1. No individual performance award may exceed the maximum percentage
award for the applicable award level (i.e., 100%, 75% or 50%) to which the
participant is assigned.
2. No provision of this plan is intended to alter or amend existing
discretionary powers and authorities of the Committee, which may authorize
payments in amounts and form in addition to the specific text of this plan.
AMENDMENTS AND TERMINATION
This plan may be amended, altered, or terminated at any time by action of
the Board of Directors.
<PAGE> 1
EXHIBIT 13
Management's Discussion and Analysis
Revenues By Line of Business
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Home fashions . . . . . . . . . . . $ 255.8 $ 243.2 $ 231.8
Apparel fabrics . . . . . . . . . . 220.6 136.4 153.0
------- ------- -------
Total net sales . . . . . . . . . . $ 476.4 $ 379.6 $ 384.8
======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Comparison of 53 Weeks Ended January 3, 1998 ("fiscal 1997") to 52 Weeks Ended
December 28, 1996, ("fiscal 1996")
Net sales for the 53 weeks in fiscal 1997 were $476.4 million, an
increase of $96.9 million or 25.5% compared to $379.6 million for the 52 weeks
in fiscal 1996. Net sales of home fashion products in fiscal 1997 were $255.8
million, an increase of $12.6 million or 5.2% compared to $243.2 million in
fiscal 1996. Net sales of apparel fabrics in fiscal 1997 were $220.6 million,
an increase of $84.3 million or 61.8% compared to $136.4 million in fiscal
1996. The increase in net sales of home fashion 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 The New Cherokee Corporation ("Cherokee"), which was
consummated on February 3, 1997. Apparel fabrics unit volumes were up
significantly as a result of the acquisition, 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 in fiscal 1997 was $104.3 million (21.9% of net sales),
an increase of $32.1 million or 44.5% from gross profit of $72.2 million (19.0%
of net sales) for 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 were increased activity levels and reduced costs
as a result of the acquisition of Cherokee.
Selling, general and administrative expenses for fiscal 1997 were
$54.2 million (11.4% of net sales) an increase of $8.6 million or 18.7% from
$45.7 million (12.0% of net sales) for fiscal 1996. The increase was caused by
increased selling and administrative expenses as a result of the acquisition of
Cherokee, increased product design and roll-out costs associated with the
introduction of the "Nautica" brand of home fashions products, and higher
incentive compensation expense.
The Company incurred a one-time charge in fiscal 1997 as a result of
its decision to close its Riverside apparel fabrics weaving operations in
Danville, Virginia, and a one-time gain as a result of its sale of the Wetumpka
yarn operation in Wetumpka, Alabama. The net charge for the closure of
Riverside was $7.6 million ($4.7 million after tax; $0.32 per share); it
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. This was offset
by a gain of $583,000 ($358,000 after tax; $0.02 per share) on the sale of the
Company's Wetumpka yarn operation in December 1997. These items are reflected
under "Other Operating Costs, Net".
For the reasons described above, operating income for fiscal 1997 was
$43.0 million (9.0% of net sales), an increase of $16.1 million or 59.8% from
$26.9 million for fiscal 1996. Excluding the Other Operating Costs, Net,
operating income would have been $50.1 million (10.5% of net sales), an
increase of $23.5 million or 88.8% compared to fiscal 1996.
1
<PAGE> 2
Other income (expense), net for 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 $21.1 million for fiscal 1997, an increase of
$3.0 million or 16.3% from $18.2 million for fiscal 1996. The increase in
interest expense was due to higher debt levels for most of the year arising
from the acquisition of Cherokee, offset somewhat by lower average interest
rates. The Company completed an initial public offering of its stock on
November 20, 1997, (the "Offering"), raising $64.5 million in net proceeds for
the Company, all of which was used to reduce outstanding debt. Included in the
amounts paid off was the Company's outstanding Term Loan of $34.1 million. As
a result of the Term Loan being prepaid and the writeoff of the associated debt
issuance costs, the Company recognized an extraordinary loss of $243,000 after
tax ($0.01 per share).
The income tax provision was $8.4 million (38.6% of pre-tax income)
for fiscal 1997, an increase of $4.8 million compared to an income tax
provision of $3.6 million (38.6% of pre-tax income) recorded for fiscal 1996.
Accordingly, net income for fiscal 1997 was $13.0 million or $0.89 per
basic share on 14.7 million shares outstanding compared to $5.7 million or
$0.40 per basic share for fiscal 1996 on 14.2 million shares outstanding.
Comparison of 52 Weeks Ended December 28, 1996 ("fiscal 1996") to 52 Weeks
Ended December 30, 1995, ("fiscal 1995")
Net sales for the 52 weeks in fiscal 1996 were $379.6 million, a
decrease of $5.2 million or 1.4% compared to $384.8 million for the 52 weeks in
fiscal 1995. Net sales of home fashions products were $243.2 million in fiscal
1996, an increase of $11.3 million or 4.9% when compared to $231.8 million for
fiscal 1995. Net sales of apparel fabrics were $136.4 million, a decrease of
$16.6 million or 10.8% compared to $153.0 million in fiscal 1995. The increase
in sales of home fashions products was due to higher unit volume partially
offset by lower average pricing reflecting a competitive pricing environment.
The decrease in sales of apparel fabrics reflects lower unit volume of shirting
fabrics, particularly commodity white and blue oxfords, due to a sluggish
retail environment for these products during the first half of the year.
Gross profit for fiscal 1996 was $72.2 million or 19.0% of sales, a
decrease of $5.7 million or 7.4% from gross profit of $77.9 million (20.2% of
sales) for fiscal 1995. The decrease in gross profit was due to lower sales of
apparel fabrics, higher cotton costs and poor manufacturing performance
associated with abbreviated running schedules during the first half of the year
because of the weak order position for apparel fabrics during that period.
Selling, general and administrative expenses for fiscal 1996 were
$45.7 million (12.0% of sales) an increase of $0.8 million or 1.8% from $44.9
million (11.7% of net sales) in fiscal 1995. The increase in these expenses
relates primarily to higher rent expense for the Company's New York office and
showrooms and higher incentive compensation, offset by lower costs from the
operation of fewer factory stores and lower general and administrative expense
for the year.
Other Operating Costs, Net, reflects a net credit of $0.4 million in
fiscal 1996, compared to $9.0 million of net charges in fiscal 1995. Fiscal
1995 charges include $4.4 million in writedowns of fixed assets relating to the
Company's ongoing modernization program, $3.0 million of costs associated with
the Company's decision to discontinue manufacturing and marketing a line of
apparel fabrics, and $1.6 million of costs associated with relocation of the
Company's design, merchandising and marketing staff from office space at 111
West 40th Street to new offices at 1325 Avenue of the Americas in New York
City. Fiscal 1996 reflects the reversal of a portion of the 1995 charges
principally relating to the discontinued line of apparel fabrics ($0.9 million)
offset by $0.5 million of net charges for equipment writedowns associated with
the Company's modernization program.
Operating income for fiscal 1996 was $26.9 million (7.1% of net
sales), an increase of $2.8 million or 11.8% from $24.1 million (6.3% of net
sales), in fiscal 1995. The increase was caused by the favorable
2
<PAGE> 3
comparison created by the absence in fiscal 1996 of the one-time charges that
were taken in fiscal 1995 and which are described above. Excluding these
charges, operating income for fiscal 1996 would have been lower than fiscal
1995 by $6.6 million or 19.8% due to the lower sales of apparel fabrics, higher
cotton costs, and poor manufacturing performance associated with abbreviated
running schedules during the first half of the year because of the weak order
position for apparel fabrics during that period.
Interest expense was $18.2 million for fiscal 1996, a decrease of $3.8
million or 17.2% from $21.9 million in fiscal 1995. The reduction in interest
expense was due primarily to the conversion of the Company's 16.35% Convertible
Subordinated Junior Notes (the "Junior Notes") into shares of Class A common
stock in September 1995 and to a lesser extent because of lower rates and
levels for the Company's remaining debt. The decrease in those debt levels was
due to lower levels of working capital during the year.
The income tax provision was $3.6 million for fiscal 1996, or 38.6% of
pre-tax income, an increase of $1.4 million or 67.4% from the $2.1 million
(89.2% of pre-tax income) recorded for fiscal 1995. The high effective tax
rate for fiscal 1995 reflects the nondeductibility of interest on the Junior
Notes that were outstanding during the first eight months of 1995.
For the reasons described above, net income in fiscal 1996 was $5.7
million or $0.40 per basic share, an increase of $5.4 million from $0.3 million
or $0.02 per basic share for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company relies on internally generated cash flow, supplemented by
borrowings under its Working Capital Facility to meet its working capital
needs, capital improvements and debt service requirements. In the past, the
Company has maintained substantial levels of leverage. However, the Offering
resulted in a substantial reduction in that leverage. The Company's total debt
to total capital ratio at January 3, 1998 was 46.4%.
Working Capital
The Company's operations are working capital intensive. The Company's
operating working capital (accounts receivable and inventories less accounts
payable and accrued expenses) typically increases or decreases in relation to
sales and operating activity levels.
Excluding the effect of the Cherokee acquisition, operating working
capital increased $3.7 million (4.2%) during fiscal 1997 reflecting increased
sales activity. Net income plus noncash expense items (net) provided $49.4
million in cash during the year, which provided funding for $4.7 million used
by changes in operating assets and liabilities. Those changes were a $2.7
million increase in prepaid expenses and other assets, a $1.6 million decrease
in other liabilities, as well as the $3.7 million increase in operating working
capital mentioned above. As a result, net cash of $44.6 million was provided
by operating activities in fiscal 1997.
Operating working capital decreased $17.3 million (16.7%) during
fiscal 1996 reflecting improved inventory management and to a lesser extent the
1.4% decrease in net sales from fiscal 1995. Net income plus noncash expense
items (net) provided $28.4 million in cash during the year. Additionally, cash
was provided by a $16.7 million reduction in operating assets and liabilities,
principally from the reduction in operating working capital mentioned here.
Accordingly, net cash of $45.1 million was generated from operating activities
in fiscal 1996.
Operating working capital increased $5.7 million (5.8%) in fiscal 1995
reflecting the 3.6% increase in net sales from fiscal 1994. Net income plus
noncash expense items (net) provided $29.6 million in cash during the year,
which provided funding for $7.0 million used by changes in operating assets and
liabilities. As a result, $22.5 million in net cash was provided by operating
activities in fiscal 1995.
3
<PAGE> 4
In connection with the purchasing of cotton for anticipated
manufacturing requirements, the Company may enter into cotton futures and
option contracts in order to reduce the risk associated with future price
fluctuations. The Company generally covers open order requirements, which
average approximately three months of production, through direct purchase and
hedging transactions, and it may shorten or lengthen that period in accordance
with its perception of the direction of cotton prices. Futures and option
contracts are accounted for as hedges and, accordingly, gains or losses are
deferred and reflected in cost of sales as an element of the cost of the
finished product. Gains and losses related to hedging activity during the
three year period ended January 3, 1998 were not material to the Company's
results of operations. There were no material cotton futures or options
contracts outstanding at January 3, 1998 or December 28, 1996.
Credit Facilities and Vendor Financing
On February 3, 1997, in order to finance the Cherokee acquisition, the
Company replaced its $60.0 million revolving credit facility with a new
revolving credit facility (the "Working Capital Facility"), under which the
Company has $90.0 million aggregate borrowing availability, subject to a
borrowing base limitation, and a Term Loan Facility, under which the Company
had $35.0 million of aggregate borrowing availability, (together, the "Credit
Facilities"). The Working Capital Facility is secured by the Company's
accounts receivable and inventories.
Following the completion of the Offering in November 1997 the net
proceeds to the Company from the Offering (approximately $64.5 million) were
used to retire various debt obligations of the Company and the Credit
Facilities were amended. This resulted in the prepayment and termination of
the Term Loan Facility and a reduction in the interest rates applicable to
borrowings under the Working Capital Facility, as well as the prepayment and
termination of other obligations.
As amended, the Working Capital Facility bears interest at the Base
Rate, as defined (8.50% as of February 23, 1998) or LIBOR plus .75% (6.38% as
of February 23, 1998) for periods of one, two, three or six months, at the
Company's option. The Working Capital Facility is nonamortizing and any
amounts outstanding are due at the final maturity of February 28, 2001. At
January 3, 1998, the Company had an aggregate of $18.5 million of borrowings
and $0.2 million in letters of credit outstanding under the Working Capital
Facility and had $61.4 million in unused and available borrowings under the
Working Capital Facility.
The Working Capital Facility 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 Working Capital
Facility 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.
Capital Improvements
The Company's capital improvements have been financed through a
variety of sources, including (i) internally generated funds and borrowings
under existing credit facilities, (ii) vendor financing and (iii) operating
leases.
During fiscal 1997, the Company made capital improvements aggregating
$24.2 million. The Company anticipates capital improvements in the range of
$30 million to $35 million in fiscal 1998, which will be used primarily for new
looms, air conditioning and other facility modernizations.
4
<PAGE> 5
Rental expense for fiscal 1997, 1996 and 1995 was approximately $7.4
million, $10.3 million and $13.0 million, respectively, net of rental income on
noncancellable leases and subleases of approximately $34,000, $76,000 and $1.5
million, respectively. At January 3, 1998, the Company's future minimum lease
payments due under operating leases with noncancellable terms in excess of one
year were as follows: 1998, $4.6 million; 1999, $3.1 million; 2000, $2.3
million; 2001 and later, $18.5 million. Approximately 5% of future rental
payments relate to operating leases for machinery and equipment used to produce
the Company's products.
The table below sets forth the amount of capital improvements made
through specified financing sources during the past three fiscal years:
<TABLE>
<CAPTION>
Fiscal Year
1997 1996 1995
------- ------ -------
(in millions)
<S> <C> <C> <C>
Source of Financing:
Internal generated funds and borrowings . . . . . . . . $ 24.2 $ 28.5 $ 20.8
Vendor financings(1) . . . . . . . . . . . . . . . . . -- 6.0 7.2
Operating leases(2) . . . . . . . . . . . . . . . . . . -- 0.9 1.3
------ ------ ------
Total capital improvements . . . . . . . . . . . . . . . $ 24.2 $ 35.4 $ 29.3
====== ====== ======
</TABLE>
- ------------------
(1) The financings provided by vendors for machinery and equipment typically
have maturities ranging from three to seven years and carry floating rates of
interest similar to the Company's Credit Facilities. The 1996 and 1995 amounts
also include $3.6 million and $1.0 million, respectively, of financing from an
Industrial Development Authority for a home fashions accessory sewing plant and
a warehouse and distribution center.
(2) Amounts reflect the fair market value of machinery and equipment which was
leased during the applicable period.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed a business system assessment and will have
to modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
assessment included not only a review for year 2000 compliance, but whether
existing systems were sufficient to serve as the base for the Company's future
operations. As a result of the review, the Company decided to install a new
Enterprise Resource Planning (ERP) System which is year 2000 compliant and
which would provide significant business improvements. The cost to implement
the ERP system is approximately $6 million of which $5 million is considered a
capital expenditure. In addition, the Company plans to expense as incurred
approximately $1-2 million on modifying other systems to cause them to become
year 2000 compliant.
The Company's target for completion of the ERP system installations
and modifications to other systems is December 31, 1998, which is prior to any
anticipated impact on its operating systems. The Company believes that with
modifications to existing software and conversions to new software, the year
2000 issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are
not completed in a timely manner, the year 2000 issue could have a material
impact on the operations of the Company.
5
<PAGE> 6
The Company has initiated formal communications with key suppliers and
large customers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to address their own
year 2000 issues. There is no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
The costs outlined above and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions about future
events, including the continued availability of certain resources and other
factors. There can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of trained personnel, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements.
MARKET AND DIVIDEND DATA
The Company was privately held until the Offering was completed on
November 20, 1997, at which time its Class A Common Stock was listed on the New
York Stock Exchange, which is the principal United States market where the
stock is traded. The initial public offering price of the Class A Common Stock
was $15 per share, and the price on January 2, 1998, the last trading date of
the Company's fiscal year, was $16.375. There is no established trading market
for the Class B Common Stock. On February 19, 1998, there were 63 holders of
record of the Company's Class A Common Stock and eight holders of record of the
Company's Class B Common Stock.
The Company has paid no cash dividends during its two most recent
fiscal years and has no present intention to commence paying such dividends.
6
<PAGE> 7
DAN RIVER INC.
CONSOLIDATED BALANCE SHEETS
January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands, except
share and per share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,759 $ 5,042
Accounts receivable (less allowance of $6,230 and $4,631) . . . . . . . . . . . 70,676 55,782
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,376 72,493
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . 5,112 1,275
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,628 5,643
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177,551 140,235
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,296 6,526
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,382 43,363
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,849 209,568
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,467 15,241
-------- --------
321,994 274,698
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . 113,866 99,348
-------- --------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 208,128 175,350
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,616 5,465
-------- --------
$392,295 $321,050
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . $ 301 $ 6,990
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,933 21,531
Accrued compensation and related benefits . . . . . . . . . . . . . . . . . . . 16,661 13,652
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,052 4,771
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 53,947 46,944
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,455 162,478
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,182 17,857
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,881 6,147
Common stock subject to put rights . . . . . . . . . . . . . . . . . . . . . . . . -- 9,726
Shareholders' equity:
Preferred stock, $.01 par value; authorized 50,000,000 shares; no shares issued -- --
Common stock, Class A, $.01 par value; authorized 175,000,000 shares; issued and
outstanding 16,778,472 shares (12,712,945 shares at December 28, 1996) . . . . 168 127
Common stock, Class B, $.01 par value; authorized 35,000,000 shares; issued and
outstanding 2,062,070 shares (none at December 28, 1996) . . . . . . . . . . . 21 --
Common stock, Class C, $.01 par value; authorized 5,000,000 shares; no shares
outstanding (1,442,220 shares outstanding at December 28, 1996) . . . . . . . -- 14
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,140 64,668
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,501 13,698
Pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . -- (609)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 165,830 77,898
-------- --------
$392,295 $321,050
======== ========
</TABLE>
See accompanying notes.
7
<PAGE> 8
DAN RIVER INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended January 3, 1998, December 28, 1996 and December 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 476,448 $ 379,567 $ 384,801
Costs and expenses:
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . 372,165 307,383 306,879
Selling, general and administrative expenses . . . . . . . . . 54,231 45,673 44,860
Other operating costs, net . . . . . . . . . . . . . . . . . . 7,012 (428) 8,972
--------- ---------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . 43,040 26,939 24,090
Other income (expense), net . . . . . . . . . . . . . . . . . . . (290) 485 241
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (21,135) (18,168) (21,941)
--------- ---------- ---------
Income before income taxes and extraordinary item . . . . . . . . 21,615 9,256 2,390
Provision for income taxes . . . . . . . . . . . . . . . . . . . 8,351 3,570 2,132
--------- ---------- ---------
Income before extraordinary item . . . . . . . . . . . . . . . . 13,264 5,686 258
Extraordinary item, net of income taxes:
Loss on early extinguishment of debt . . . . . . . . . . . . . (243) -- --
--------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,021 $ 5,686 $ 258
========= ========== =========
Earnings per share--basic:
Income before extraordinary item . . . . . . . . . . . . . . . $ 0.90 $ 0.40 $ 0.02
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . (0.01) -- --
--------- ---------- ---------
Net income per share--basic . . . . . . . . . . . . . . . . . $ 0.89 $ 0.40 $ 0.02
========= ========== =========
Earnings per share--diluted:
Income before extraordinary item . . . . . . . . . . . . . . . $ 0.89 $ 0.40 $ 0.02
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . (0.01) -- --
--------- ---------- ---------
Net income per share--diluted . . . . . . . . . . . . . . . . $ 0.88 $ 0.40 $ 0.02
========= ========== =========
</TABLE>
See accompanying notes.
8
<PAGE> 9
DAN RIVER INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended January 3, 1998, December 28, 1996
and December 30, 1995
<TABLE>
<CAPTION>
Class A Class B Class C Additional Pension
Common Common Common Paid-In Retained Liability
Stock Stock Stock Capital Earnings Adjustment Total
------ ------ ------ ------- -------- ---------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 99 $ -- $ 14 $ 38,943 $ 7,754 $ -- $ 46,810
Net income . . . . . . -- -- -- -- 258 -- 258
Pension liability adjustment -- -- -- -- -- (1,845) (1,845)
Conversion of junior subordinated
notes . . . . . . . . 28 -- -- 28,451 -- -- 28,479
------- ------- -------- -------- -------- --------- --------
Balance at December 30, 1995 127 -- 14 67,394 8,012 (1,845) 73,702
Net income . . . . . . -- -- -- -- 5,686 -- 5,686
Pension liability adjustment -- -- -- -- -- 1,236 1,236
Change in common stock subject to put
rights . . . . . . . -- -- -- (2,726) -- -- (2,726)
------- ------- -------- -------- ------- --------- --------
Balance at December 28, 1996 127 - 14 64,668 13,698 (609) 77,898
Net income . . . . . . -- -- -- -- 13,021 -- 13,021
Pension liability adjustment -- -- -- -- -- 609 609
Initial public offering 41 21 (14) 64,436 -- -- 64,484
Termination of put rights -- -- -- 9,726 -- -- 9,726
Tax effect of stock options
exercised . . . . . . -- -- -- 310 -- -- 310
Retirement of common stock -- -- -- -- (218) -- (218)
------- ------- -------- -------- -------- -------- ---------
Balance at January 3, 1998 $ 168 $ 21 $ -- $139,140 $ 26,501 $ -- $ 165,830
======= ======= ======== ======== ======== ======== =========
</TABLE>
See accompanying notes.
9
<PAGE> 10
DAN RIVER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 3, 1998, December 28, 1996
and December 30, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 13,021 $ 5,686 $ 258
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash interest expense . . . . . . . . . . . . . 1,359 1,166 4,110
Depreciation and amortization . . . . . . . . . . 27,508 20,795 19,537
Deferred income taxes . . . . . . . . . . . . . . (59) 1,842 (1,379)
Writedown/disposal of assets . . . . . . . . . . . 7,161 (1,129) 7,045
Extraordinary loss on extinguishment of debt . . . 397 -- --
Changes in operating assets and liabilities,
excluding effects of business acquired:
Accounts receivable . . . . . . . . . . . . . 473 (691) 6,578
Inventories . . . . . . . . . . . . . . . . . (8,790) 24,554 (8,423)
Prepaid expenses and other assets . . . . . . (2,701) (396) 512
Accounts payable and accrued expenses . . . . 4,646 (6,555) (3,904)
Other liabilities . . . . . . . . . . . . . . 1,632 (194) (1,796)
------- ------- --------
Net cash provided by operating activities . . . . . . . . . 44,647 45,078 22,538
------- ------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . (24,231) (27,582) (24,316)
Proceeds from sale of assets . . . . . . . . . . . . 4,005 2,385 322
Acquisition of business . . . . . . . . . . . . . . . (64,583) -- --
-------- -------- --------
Net cash used by investing activities . . . . . . . . . . . (84,809) (25,197) (23,994)
------- ------- --------
Cash flows from financing activities:
Payments of long-term debt . . . . . . . . . . . . . . (89,177) (18,566) (8,453)
Net proceeds from issuance of long-term debt . . . . . 62,972 25,187 700
Net borrowings (payments)--working capital facility . (1,400) (23,000) 9,000
Net proceeds from issuance of common stock . . . . . . 64,484 -- --
------- ------- -------
Net cash provided (used) by financing activities . . . . . 36,879 (16,379) 1,247
------- ------- -------
Net increase (decrease) in cash and cash equivalents . . . (3,283) 3,502 (209)
Cash and cash equivalents at beginning of year . . . . . . 5,042 1,540 1,749
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . $ 1,759 $ 5,042 $ 1,540
======= ======= =======
</TABLE>
See accompanying notes.
10
<PAGE> 11
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
1. DESCRIPTION OF BUSINESS
Dan River Inc. and its former parent and sole shareholder,
Braelan Corp. ("Braelan"), were organized in 1989 to acquire and
operate Dan River Holding Company and its subsidiaries. Dan River
Inc. is a manufacturer and marketer of a variety of textile products,
primarily home fashions and apparel fabrics. Home fashions products
consist mostly of packaged bedroom furnishings which are sold to
domestic retailers. Apparel products, which include a broad range of
woven cotton and cotton-blend fabrics, are distributed primarily to
domestic clothing manufacturers.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of presentation
On December 29, 1995, Braelan was merged with and into Dan
River Inc. The consolidated balance sheets as of January 3, 1998 and
December 28, 1996, and the consolidated statements of income,
shareholders' equity and cash flows for each of the two fiscal years
in the period ended January 3, 1998, represent the consolidated
financial position, results of operations and cash flows of Dan River
Inc. and its wholly-owned subsidiary, Dan River Factory Stores, Inc.
The consolidated statements of income, shareholders' equity and cash
flows for the year ended December 30, 1995, represent the consolidated
results of operations and cash flows of Braelan and its subsidiaries.
All significant intercompany balances have been eliminated. Braelan
and its subsidiaries, and Dan River Inc. and its subsidiary are
collectively referred to as the Company.
Fiscal year
The Company's fiscal year ends on the Saturday nearest to
December 31. All references to 1997 mean the 53-week fiscal year
ended January 3, 1998, and all references to 1996, and 1995 mean the
52-week fiscal years ended December 28, 1996 and December 30, 1995,
respectively.
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 amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash equivalents
All highly liquid cash investments purchased with an initial
maturity of three months or less are considered to be cash
equivalents.
11
<PAGE> 12
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--(CONTINUED)
Inventories
Inventories are stated at the lower of cost or market, with
cost determined under the first-in, first-out method. Inventories at
January 3, 1998 and December 28, 1996 respectively, by component are
as follows:
<TABLE>
<CAPTION>
1997 1996
------- --------
(in thousands)
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . $25,401 $24,558
Work in process . . . . . . . . . . . . . . . 56,156 38,274
Raw materials . . . . . . . . . . . . . . . . 2,429 2,679
Supplies . . . . . . . . . . . . . . . . . . . 8,390 6,982
------- -------
Total inventories . . . . . . . . . . . . $92,376 $72,493
======= =======
</TABLE>
Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets, ranging from 10 to 35 years for
buildings and improvements, and 3 to 14 years for machinery and
equipment. Leasehold improvements are amortized on a straight-line
basis over the lease term or estimated useful life, whichever is less.
Deferred financing fees
Debt financing fees are amortized over the term of the related
debt.
Revenue recognition
The Company generally recognizes revenues from product sales
when goods are shipped.
Stock-based compensation
The Company continues to follow the accounting method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and has presented the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Income taxes
Deferred income taxes are accounted for under the liability
method. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
12
<PAGE> 13
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--(CONTINUED)
Cotton futures contracts
In connection with the purchasing of cotton for anticipated
manufacturing requirements, the Company may enter into cotton futures
and option contracts in order to reduce the risk associated with
future price fluctuations. These contracts are accounted for as
hedges and, accordingly, gains or losses are deferred and reflected in
cost of sales as an element of the cost of the finished product.
Transactions related to cotton futures and option contracts during the
three year period ended January 3, 1998 were not material.
Earnings per share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of stock options. Diluted earnings per share is similar to
fully diluted earnings per share except that the antidilutive effect
of the Company's convertible junior subordinated notes, which was
taken into consideration for purposes of calculating fully diluted
earnings per share in 1995, is not included in the calculation of
diluted earnings per share. All earnings per share amounts have been
restated to conform to the SFAS 128 requirements.
Recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"),
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 those of Statement of Financial Accounting
Standards No. 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.
3. PUBLIC OFFERING AND CAPITALIZATION
On November 20, 1997 the Company completed an initial public
offering of its Class A common stock to the public (the "Offering"),
which included the sale of 4,700,000 shares by the Company and
2,619,200 shares by certain selling shareholders. The Company used
the net proceeds from the Offering, $64,484,000, to retire
indebtedness.
13
<PAGE> 14
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995, DECEMBER 28, 1996
AND JANUARY 3, 1998
3. PUBLIC OFFERING AND CAPITALIZATION--(CONTINUED)
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), and
1,500,000 authorized shares of nonvoting common stock, par value $.01
per share ("Old Nonvoting Stock") (82,413 shares of which were
outstanding).
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"). 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. Shares of
Class C Common automatically converted into shares of Class A Common
on a share-for-share basis upon consummation of the Offering.
Upon consummation of the Offering, the Company completed 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 exchanged 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.
The Company has the option until September 2001 to purchase
the common shares held prior to the Offering by certain shareholders
at a price equal to the fair market value at the date the option is
exercised. The Company's call option may only be exercised once
during any 12-month period. Mr. Joseph L. Lanier, Jr., Chairman and
Chief Executive Officer, has a similar call option on certain issued
and outstanding common shares, which has priority to the Company's
call option. In addition, certain shareholders have the right to
require the Company to register, at its expense, their shares under
the Securities Act of 1933. Prior to the Offering, certain
shareholders had the right to require the Company to repurchase
annually a portion of their shares at the then fair market value, as
defined. As a result of certain financial covenants and other
restrictions contained in the put agreement and the Company's debt
agreements, the Company was not required to repurchase any securities.
Upon consummation of the Offering the put agreement terminated.
On September 3, 1995 the Company's convertible junior
subordinated notes (the "Junior Notes") with an outstanding balance of
$28,479,000 were converted into 2,780,173 shares of Class A Common
stock. The Junior Notes were non-amortizing, and bore interest at
16.35%, which accrued quarterly and was automatically capitalized and
added to principal.
14
<PAGE> 15
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
4. ACQUISITION
On February 3, 1997, the Company acquired substantially all
the assets of The New Cherokee Corporation ("Cherokee"), a
manufacturer of yarn-dyed shirting and sportswear fabrics, for
$64,583,000 in cash, including transaction costs, and the assumption
of approximately $6,600,000 in operating liabilities. In addition,
liabilities aggregating $2,000,000 were recorded, primarily for
severance arrangements and the closure of Cherokee's marketing
headquarters. The majority of these liabilities were paid in 1997.
The acquisition was funded at closing with $12,100,00 of cash on hand,
and borrowings under a working capital line of credit and term loan.
The acquisition has been accounted for as a purchase and did not
result in the recording of goodwill.
The results of Cherokee's operations are reflected in the
Company's financial statements from the date of acquisition. The
following summarized, unaudited pro forma results of operations assume
the acquisition had occurred at the beginning of each year presented:
<TABLE>
<CAPTION>
1997 1996
------- -------
(in thousands, except per share data)
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . $485,658 $480,639
Income before extraordinary item . . . . . . . 13,735 3,306
Net income . . . . . . . . . . . . . . . . . . 13,492 3,306
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . 0.92 0.23
Diluted . . . . . . . . . . . . . . . . . 0.91 0.23
</TABLE>
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.
5. LONG-TERM DEBT
Long-term debt at January 3, 1998 and December 28, 1996, consists of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Senior subordinated notes . . . . . . . . . . $120,000 $120,000
Working capital facility . . . . . . . . . . . 18,500 --
Other borrowings with various rates
and maturities . . . . . . . . . . . . . . . 5,256 49,468
-------- --------
143,756 169,468
Less current maturities . . . . . . . . . . . 301 6,990
-------- --------
Total long-term debt . . . . . . . . . . . . . $143,455 $162,478
======== ========
</TABLE>
15
<PAGE> 16
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
5. LONG-TERM DEBT--(CONTINUED)
The senior subordinated notes (the "Notes") consist of
$120,000,000 in nonamortizing ten-year notes issued pursuant to an
indenture dated December 15, 1993, bearing interest at 10 1/8%,
payable semi-annually.
The working capital facility as established February 3, 1997
consists of a long-term $90 million working capital line of credit,
the availability of which is tied to a defined borrowing base formula.
At January 3, 1998, $18,500,000 was outstanding under the working
capital line of credit, and $61,372,000 was available. All borrowings
under the working capital facility are nonamortizing, and are due
February 28, 2001. The borrowings bear interest at a Base Rate, as
defined, or LIBOR plus .75%, as defined, at the option of the Company.
The weighted average interest rate of the borrowings outstanding at
January 3, 1998 was 6.72%. The Company pays a commitment fee of 1/4%
per annum on the unused portion of the $90,000,000 working capital
line of credit. The working capital facility also provides for the
issuance of letters of credit up to $7,500,000 outstanding, of which
$150,000 was outstanding at January 3, 1998. The obligations of the
Company under the working capital facility are secured by a lien on
substantially all accounts receivable and inventory. This working
capital facility was established on February 3, 1997 and replaced a
$60,000,000 working capital facility terminated on that date.
The working capital facility and the Notes contain certain
restrictive covenants which, among other things, require the Company
to meet minimum net worth and earnings ratios, impose limitations on
debt incurrence and restrict certain payments, including dividends and
payments for the repurchase of capital stock. At January 3, 1998,
$6,501,000 of the Company's retained earnings was so restricted.
Other borrowings consist primarily of various industrial
development revenue and pollution control obligations as of January 3,
1998. As of December 28, 1996, it also included various notes secured
by machinery and equipment of the Company which were prepaid in
November and December 1997 with the proceeds of the Offering.
The repayment of debt obligations with the proceeds of the
Company's Offering resulted in an extraordinary loss of $396,000, less
related income taxes of $153,000.
The aggregate annual scheduled principal repayments of
long-term debt for 1998, 1999, 2000, 2001 and 2002 are $301,000,
$315,000, $324,000, $18,839,000 (including $18,500,000 under the
working capital facility) and $312,000, respectively.
Plant and equipment acquired in exchange for debt,
substantially all of which was repaid out of the proceeds from the
Offering, was $0, $5,951,000 and $7,203,000 for 1997, 1996 and 1995,
respectively.
Cash payments of interest on debt were $19,791,000,
$17,854,000 and $17,742,000 for 1997, 1996 and 1995, respectively.
16
<PAGE> 17
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
6. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . $ 7,395 $ 1,645 $ 3,123
State . . . . . . . . . . . . . . . . . . . 1,011 83 388
------- ------- -------
8,406 1,728 3,511
======= ======= =======
Deferred:
Federal . . . . . . . . . . . . . . . . . . (267) 1,278 (1,365)
State . . . . . . . . . . . . . . . . . . . 212 564 (14)
------- ------- -------
(55) 1,842 (1,379)
------- ------- -------
Provision for income taxes . . . . . . . . . . . $ 8,351 $ 3,570 $ 2,132
======= ======= =======
</TABLE>
A reconciliation of the differences between the provision for
income taxes and income taxes computed using the statutory federal
income tax rate of 35% follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
(in thousands)
<S> <C> <C> <C>
Amount computed using the statutory rate . . . . $ 7,565 $ 3,240 $ 837
Increase (decrease) in taxes resulting from:
State taxes . . . . . . . . . . . . . . . . 795 421 243
Nondeductible interest . . . . . . . . . . 82 80 1,018
Other, net . . . . . . . . . . . . . . . . (91) (171) 34
-------- ------- -------
Provision for income taxes . . . . . . . . . . . $ 8,351 $ 3,570 $ 2,132
======== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets at January 3, 1998 and December 28, 1996 are as
follows:
17
<PAGE> 18
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
6. INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Book carrying value in excess of tax
basis of property, plant and equipment $29,728 $29,389
Other . . . . . . . . . . . . . . . . . . 2,971 1,376
------- -------
Total deferred tax liabilities . . . 32,699 30,765
Deferred tax assets:
Net operating loss and credit carryforwards 11,075 13,712
Nondeductible reserves and accruals . . . 10,335 8,437
Minimum pension liability adjustment . . -- 399
Other . . . . . . . . . . . . . . . . . . 1,130 770
------- -------
Total deferred tax assets . . . . . 22,540 23,318
Valuation allowance for deferred tax assets (2,395) (4,767)
------- -------
Net deferred tax assets . . . . . . 20,145 18,551
------- -------
Net deferred tax liabilities . . . . $12,554 $12,214
======= =======
</TABLE>
At January 3, 1998 the Company had available a minimum tax
credit carryforward of $8,100,000, and investment credit and other
general business credit carryforwards of $2,900,000. If not used, the
majority of investment credit and other general business credit
carryforwards will expire in the years 1998 through 2000.
The federal income tax returns of the Company for fiscal 1993
and prior years are closed to assessment by the Internal Revenue
Service. However, the net operating loss and credit carryforwards that
existed at the end of 1993 remain open to adjustment. The Company
believes that it has adequately provided for income taxes, and that
any potential adjustments or assessments that might be made by the
Internal Revenue Service or other taxing authorities would not have a
material impact on the Company's financial position or results of
operations.
The Company made income tax payments of $4,815,000,
$1,180,000, and $3,625,000 during 1997, 1996 and 1995, respectively.
7. BENEFIT PLANS
Retirement plans
The Company sponsors the Dan River Inc. Hourly Retirement Plan
(the "Hourly Plan") and the Dan River Inc. Salary Retirement Plan (the
"Salary Plan"). These plans are qualified noncontributory defined
benefit plans and cover substantially all of the Company's full-time
employees, other than hourly paid employees at its North Carolina and
Tennessee manufacturing facilities. Funding for the Hourly and Salary
Plans is through employer cash contributions.
18
<PAGE> 19
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
7. BENEFIT PLANS--(CONTINUED)
Participants are generally eligible for full benefits at age
65 or upon completion of five years of vesting service, if later.
Vesting service is defined generally as years of service from hire.
Benefits of the Hourly Plan are determined based upon years of service
while benefits of the Salary Plan are determined based upon years of
service and career average earnings.
The following table sets forth the funded status of the plans
at January 3, 1998 and December 28, 1996:
<TABLE>
<CAPTION>
Hourly Plan Salary Plan
---------------------- -------------------------
1997 1996 1997 1996
--------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ (10,528) $ (8,551) $ (9,064) $ (7,258)
Accumulated benefit obligation $ (10,719) $ (8,708) $ (9,966) $ (8,361)
--------- --------- --------- ---------
Projected benefit obligation $ (10,719) $ (8,708) $ (11,390) $ (9,883)
Plan assets at fair value 11,601 7,697 10,340 8,521
--------- --------- --------- ---------
Projected benefit obligation less than (in excess)
of plan assets 882 (1,011) (1,050) (1,362)
Unrecognized net loss 1,202 1,008 548 888
Minimum liability adjustment -- (1,008) -- --
--------- --------- -------- ---------
Prepaid (accrued) pension cost $ 2,084 $ (1,011) $ (502) $ (474)
========= ========= ======== =========
</TABLE>
The Company's practice is to fund amounts which are required by
statute and applicable regulations and which are tax deductible. The
minimum liability adjustment at December 28, 1996, represents the
excess of unfunded accumulated benefit obligations over previously
recorded liabilities. A corresponding reduction is reflected in
shareholders' equity at December 28, 1996, net of the related income
tax effect of $399,000.
Net pension cost for the plans included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . $ 1,501 $ 1,728 $ 1,452
Interest cost . . . . . . . . . . . . . . . . . 1,541 1,401 1,181
Actual return on assets . . . . . . . . . . . . (2,780) (1,919) (2,193)
Other, net . . . . . . . . . . . . . . . . . . . 1,216 951 1,204
------- ------- -------
Net periodic pension cost . . . . . . . . . . . $ 1,478 $ 2,161 $ 1,644
======= ======= =======
</TABLE>
19
<PAGE> 20
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
7. BENEFIT PLANS--(CONTINUED)
The projected benefit obligations were determined using an
assumed discount rate of 7.4% at January 3, 1998 and 7.9% at December
28, 1996. An assumed long-term rate of increase in compensation of
4.4% was used at January 3, 1998 and 4.9% at December 28, 1996. The
assumed long-term rate of return on plan assets was 9.5% at January 3,
1998, December 28, 1996 and December 30, 1995. Assets of the plans
consist of various institutional investment funds and money market
accounts.
The Company also sponsors a 401(k) plan which covers hourly
paid employees at its North Carolina and Tennessee manufacturing
facilities. Generally, all full-time hourly employees with one year
of service are eligible to participate. Participants make mandatory
salary reduction contributions to the plan and are also permitted to
make elective contributions. The plan also provides for matching
contributions by the Company, beginning in 1998.
Supplemental retirement plan
The Company sponsors an unfunded supplemental retirement plan
for certain former employees that provides for payments upon
retirement, death or disability over the longer of the employee's life
or ten years. The projected benefit obligations of $3,076,000 and
$2,960,000 at January 3, 1998 and December 28, 1996, respectively, are
accrued in the accompanying consolidated balance sheets. The Company
is a beneficiary of life insurance policies on certain participants in
this plan.
Stock option plans
In October 1997, the Company adopted stock incentive plans
(the "1997 Plans") for key employees and directors that allow for the
grant of stock options, restricted stock, stock appreciation rights
("SARs") and stock. There are 1,925,000 shares of Class A common
stock reserved for issuance under these plans. Options and SARs
granted under the 1997 Plans will expire no later than 10 years after
the date of grant, and the exercise prices of options and grant values
for SARs will be no less than 100% of the fair market value of the
Class A common stock on the date of grant. Effective with the
completion of the Offering on November 20, 1997, nonqualified options
to purchase 589,000 shares were granted to employees at an exercise
price equal to the Offering price of $15 per share. These options
vest in one-third increments annually, beginning on December 31, 1999,
and expire ten years from the date of the Offering. Directors were
granted options to purchase 10,000 shares on identical terms, except
the options vest in one-third increments annually, beginning December
31, 1997.
The Company also maintains a nonqualified stock option plan
pursuant to which options to purchase Class A common stock were
granted prior to 1997. Effective with establishment of the 1997
Plans, options are no longer granted under this plan. All options to
purchase unissued shares granted under this plan have an exercise
price of $6.85 per share, generally vest on December 31, 1999, and
expire on December 31, 2001. Prior to December 30, 1994, the plan
also provided for the granting of options to purchase shares of the
Company's Class A common stock from a certain principal shareholder at
an exercise price of $0.57 per share. All of these options were
exercisable at January 3, 1998 and expire on December 31, 1999.
20
<PAGE> 21
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
7. BENEFIT PANS--(CONTINUED)
The Company has applied APB 25 in accounting for stock options
and, accordingly, no compensation expense has been recorded in 1997,
1996 or 1995. If the Company had determined compensation expense
based on the fair value at the grant date for its stock options under
SFAS 123, net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported . . . . . . . . . . . . . . . . . $ 13,021 $ 5,686 $ 258
Pro forma . . . . . . . . . . . . . . . . . . 12,949 5,683 258
Per share:
As reported --
Basic . . . . . . . . . . . . . . . . . . . 0.89 0.40 0.02
Diluted . . . . . . . . . . . . . . . . . . 0.88 0.40 0.02
Pro forma --
Basic . . . . . . . . . . . . . . . . . . . 0.88 0.40 0.02
Diluted . . . . . . . . . . . . . . . . . . 0.87 0.40 0.02
</TABLE>
The pro forma results reflect amortization of the fair value
of stock options over the vesting period, and only take into
consideration options granted after 1994. The weighted average fair
value of options granted in 1997, 1996 and 1995, was estimated to be
$6.63, $1.60 and $0.45, respectively. The fair value of each option
grant was estimated on the date of grant using a Black-Scholes option
pricing model, assuming a dividend yield of 0% for all years and
weighted average risk-free interest rates of 5.89%, 5.30% and 6.26%
for 1997, 1996 and 1995, respectively. A 34% volatility factor was
assumed for 1997 grants, whereas the 1996 and 1995 grants, which were
made before the Company's equity was publicly traded, were valued
assuming zero volatility.
21
<PAGE> 22
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
7. BENEFIT PLANS--(CONTINUED)
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Options Exercisable Options Exercisable
Against Unissued Shares Against Principal Shareholder
----------------------- -----------------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 603,750 $ 6.85 524,300 $ 0.57
Granted 20,125 6.85
Forfeited (28,875) 6.85 (10,500) 0.57
-------- ------- -------- --------
Outstanding at December 30, 1995 595,000 6.85 513,800 0.57
Granted 13,125 6.85
Exercised (51,800) 0.57
Forfeited (13,300) 6.85 (5,250) 0.57
-------- ------- -------- --------
Outstanding at December 28, 1996 594,825 6.85 456,750 0.57
Granted 599,000 15.00
Exercised (57,250) 0.57
Forfeited (11,375) 6.85
----------- -------- ------- --------
Outstanding at January 3, 1998 1,182,450 $ 10.98 399,500 $ 0.57
=========== ======= ======= ========
</TABLE>
Exercise prices and remaining weighted average contractural
lives for options outstanding at January 3, 1998 against unissued
shares were: $6.85 per share (583,450 shares)--4 years; and $15.00
per share (599,000 shares) - 9.9 years. At January 3, 1998, 3,333 of
these shares were exercisable at a price of $15.00 per share. All
options against shares held by the principal shareholder have been
exercisable since June 30, 1995 at a price of $0.57 per share, and had
a remaining contractural life of 2 years as of January 3, 1998.
8. OTHER OPERATING COSTS, NET
During the second quarter of 1997 the Company recorded a
charge of $7,875,000 as a result of its decision to close its
Riverside apparel fabrics weaving facilities in Danville, Virginia.
The charge included $4,194,000 for asset writedowns and $373,000 for
severance and other benefits associated with the termination of
approximately 200 employees. The remainder of the charge related
principally to estimated costs associated with the demolition and
divestitures of two mill buildings and related land. As of January 3,
1998, operations at the facilities has ceased, the termination of
affected employees was complete, and most salvageable equipment had
either been sold or was in the process of being moved to other
facilities. The Company anticipates that the demolition and
divestitures of the real estate will be completed within two years.
However, the actual timing of the disposition of these properties may
vary due to their locations and market conditions.
22
<PAGE> 23
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
8. OTHER OPERATING COSTS, NET--(CONTINUED)
As a result of the completion of the first phase of the
Riverside facility closures, the Company reversed $281,000 of the
charge in the fourth quarter of 1997. Also in the fourth quarter of
1997, the Company sold its yarn mill in Wetumpka, Alabama, resulting
in a gain of $583,000. At January 3, 1998 the carrying value of
assets held for sale, consisting mostly of Riverside assets, was
$1,853,000.
In 1996, the Company reversed $849,000 of the prior year
charge relating to a discounted product line due to better than
anticipated recovery value of assets previously written down. In
addition, the Company reversed $84,000 of the prior year charge
relating to the relocation of its marketing headquarters, primarily
due to the early buyout of the existing lease. These reversals were
offset in part by net charges of $505,000 for writedowns and disposals
of obsolete equipment.
During 1995 charges totaling $4,391,000 were recognized for
writedowns and disposals of equipment rendered obsolete by the
Company's modernization program. Also in 1995, the Company recorded a
$1,576,000 loss for the writedown of a leasehold and other costs
related to the relocation of the Company's marketing headquarters in
New York, and a $3,005,000 charge for the writedown of assets
associated with the Company's decision to discontinue one of its
apparel fabrics product lines.
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share --
income before extraordinary item (in thousands) $ $13,264 $ 5,686 $ 258
============= ============= =============
Denominator:
Denominator for basic earnings per share --
weighted-average shares 14,710,843 14,155,165 12,283,900
Effect of dilutive securities:
Employee stock options 127,943 24,889 --
------------- ------------- -------------
Denominator for diluted earnings per share --
weighted-average shares adjusted for
dilutive securities 14,838,786 14,180,054 12,283,900
============= ============= =============
Basic earnings per share $ 0.90 $ 0.40 $ 0.02
============= ============= =============
Diluted earnings per share $ 0.89 $ 0.40 $ 0.02
============= ============= =============
</TABLE>
23
<PAGE> 24
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing equipment, warehouses
and office facilities under operating leases that expire at various
dates through 2011. Rental expense for 1997, 1996 and 1995 amounted
to approximately $7,421,547, $10,296,000 and $13,032,000,
respectively, net of rental income on noncancelable leases and
subleases of approximately $34,000, $76,000 and $1,544,000,
respectively.
The future minimum lease payments at January 3, 1998 due under
operating leases with noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1998 $ 4,602
1999 3,132
2000 2,282
2001 2,128
2002 2,026
Later 14,296
---------
$ 28,466
=========
</TABLE>
Commitments for additions to plant and equipment amounted to
approximately $13,700,000 at January 3, 1998. Certain manufacturing
and warehouse leases contain renewal options at their fair rental
values.
The Company is subject to various legal proceedings and claims
which have arisen in the ordinary course of its business and have not
been finally adjudicated. It is impossible at this time for the
Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion, based upon information
presently available, that it is unlikely that any such liability, to
the extent not provided for through insurance or otherwise, would be
material in relation to the Company's consolidated financial position
or results of operations.
11. FINANCIAL INSTRUMENTS
Off balance sheet risk
In connection with the purchase of cotton for anticipated
manufacturing requirements, the Company enters into cotton forward
purchase commitments, futures and option contracts in order to reduce
the risk associated with future price fluctuations. The Company does
not engage in speculation. There were no material cotton futures or
options contracts outstanding at January 3, 1998 or December 28, 1996.
See Note 2 for information on the Company's accounting policy with
respect to cotton futures and option contracts.
24
<PAGE> 25
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
11. FINANCIAL INSTRUMENTS--(CONTINUED)
Concentrations of credit risk
Financial instruments that potentially subject the Company to
a concentration of credit risk consist principally of temporary cash
investments and trade accounts receivable. The Company places its
temporary cash investments with high credit quality financial
institutions. Concentration of credit risk with respect to trade
accounts receivable is managed by an in-house professional credit
staff. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require
collateral.
Fair values
The carrying values of cash and cash equivalents, accounts
receivable and accounts payable approximate fair values due to the
short-term nature of these instruments. The fair value of the
Company's senior subordinated notes, based on quoted market prices,
was $127,800,000 and $120,600,000 at January 3, 1998 and December 28,
1996, respectively, compared to a carrying value of $120,000,000.
Based on rates available for similar types of borrowings, the carrying
values of the Company's other debt approximated fair value at January
3, 1998 and December 28, 1996.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited consolidated results of operations are
presented below (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Year ended January 3, 1998: Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $105,736 $122,199 $116,254 $132,259
Gross Profit . . . . . . . . . . . . . . . 20,149 27,066 28,235 28,833
Income before extraordinary item . . . . . 1,993 321 5,009 5,941
Net income . . . . . . . . . . . . . . . . 1,993 321 5,009 5,698
Per share:
Income before extraordinary item--
Basic . . . . . . . . . . . . . . . 0.14 0.02 0.35 0.37
Diluted . . . . . . . . . . . . . . 0.14 0.02 0.35 0.36
Net income --
Basic . . . . . . . . . . . . . . . 0.14 0.02 0.35 0.35
Diluted . . . . . . . . . . . . . . 0.14 0.02 0.35 0.35
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Year ended December 28, 1996: Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $83,738 $93,203 $95,090 $107,536
Gross Profit . . . . . . . . . . . . . . . 13,604 18,263 19,189 21,128
Net income (loss) . . . . . . . . . . . . . (1,428) 1,336 2,305 3,473
Per share --
Basic . . . . . . . . . . . . . . . . 0.10 0.09 0.16 0.25
Diluted . . . . . . . . . . . . . . . 0.10 0.09 0.16 0.24
</TABLE>
25
<PAGE> 26
DAN RIVER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996
AND DECEMBER 30, 1995
12. QUARTERLY FINANCIAL DATA (UNAUDITED)--CONTINUED
The fourth quarter of the year ended January 3, 1998
represents a 14-week period. All other quarters presented consist of
13 weeks.
The interim earnings (loss) per share amounts were computed as
if each quarter was a discrete period. As a result, the sum of the
earnings (loss) per share by quarter will not necessarily total the
annual earnings per share.
Results for the second quarter of 1997 include a pre-tax
charge of $7,875,000 ($4,839,000 net of tax benefits, or $0.34 per
share) relating to the closure of the Company's Riverside apparel
fabrics weaving facilities. The fourth quarter results include a
pre-tax gain of $583,000 from the sale of a yarn operation, and a
reversal of $281,000 of the pre-tax charge recorded in the second
quarter. Together these items increased net income for the fourth
quarter by $531,000, or $0.03 per share. Also in the fourth quarter
of 1997, an extraordinary loss associated with the early retirement of
debt was recorded, which decreased net income by $243,000, or $0.01
per share. Results for the fourth quarter of 1996 include the
reversal of $441,000 in pre-tax charges that had been recorded in
1995, primarily relating to fixed asset writedowns. After taxes, the
reversal increased net income by $271,000, or $0.02 per share. See
Notes 5 and 8.
26
<PAGE> 27
Report of Independent Auditors
The Board of Directors and Shareholders
Dan River Inc.
We have audited the accompanying consolidated balance sheets
of Dan River Inc. as of January 3, 1998 and December 28, 1996, and the
related consolidated statements of income, shareholders' equity, and
cash flows for the each of the three fiscal years in the period ended
January 3, 1998. 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 consolidated financial
position of Dan River Inc. at January 3, 1998 and December 28, 1996,
and the consolidated results of its operations and its cash flows for
each of the three fiscal years in the period ended January 3, 1998 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 4, 1998
27
<PAGE> 28
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
(in thousands except per share data) 1997(1) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $476,448 $379,567 $384,801 $371,534 $317,566
Cost of sales 372,165 307,383 306,879 297,460 259,148
Gross profit 104,283 72,184 77,922 74,074 58,418
Selling, general and administrative
expenses 54,231 45,673 44,860 43,908 38,550
Other operating costs, net(2) 7,012 (428) 8,972 1,534 3,039
Operating income 43,040 26,939 24,090 28,632 16,829
Other income (expense), net (290) 485 241 144 505
Interest expense 21,135 18,168 21,941 20,419 12,691
Income before extraordinary item 13,264 5,686 258 3,525 2,171
Extraordinary item (243) - - - 348
Net income 13,021 5,686 258 3,525 2,519
Redeemable preferred stock
dividends - - - - 2,091
Net income applicable to common
stock 13,021 5,686 258 3,525 428
Earnings per share--basic:
Income before extraordinary
item 0.90 0.40 0.02 0.31 0.01
Net income per share--basic 0.89 0.40 0.02 0.31 0.04
Earnings per share--diluted:
Income before extraordinary
item 0.89 0.40 0.02 0.31 0.01
Net income per share--diluted 0.88 0.40 0.02 0.31 0.04
=================================================================================================================================
Balance Sheet Data (at end of fiscal year):
Working capital $123,604 $93,291 $109,763 $103,973 $ 94,040
Total assets 392,295 321,050 330,944 329,902 289,384
Convertible junior subordinated
notes - - - 25,220 21,485
Total debt, including current
maturities 143,756 169,468 179,703 196,436 170,066
Common stock subject to put
rights - 9,726 7,000 7,000 7,000
Shareholders' equity 165,830 77,898 73,702 46,810 42,493
Common shares outstanding 18,841 14,155 14,155 11,375 11,375
=================================================================================================================================
Other Financial Data:
EBITDA(3) $77,560 $47,306 $52,599 $48,353 $36,314
Depreciation and amortization of property,
plant and equipment 27,508 20,795 19,537 18,187 16,446
Capital expenditures in cash 24,231 27,582 24,316 24,793 12,839
=================================================================================================================================
</TABLE>
28
<PAGE> 29
(1) Fiscal year 1997 represents a 53-week period. All other fiscal years
presented represent a 52-week period.
(2) Other Operating Costs, Net includes various non-recurring charges and
credits, the most significant of which relate to fixed asset
writedowns, plant closure costs and a discontinued product line. See
Note 8 to the Consolidated Financial Statements.
(3) EBITDA represents operating income before depreciation and
amortization, adjusted to excluded Other Operating Costs, Net. EBITDA
is presented to provide information related to the Company's ability
to service debt, and should not be considered as an alternative
measure of operating results or cash flow as determined in accordance
with generally accepted accounting principles.
29
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Dan River Inc. of our report dated February 4, 1998, included in the 1997
Annual Report to Shareholders of Dan River Inc.
Our audits also included the financial statement schedule of Dan River Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF DAN RIVER INC. AS OF JANUARY 3, 1998
AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 1,759
<SECURITIES> 0
<RECEIVABLES> 70,676
<ALLOWANCES> 0
<INVENTORY> 92,376
<CURRENT-ASSETS> 177,551
<PP&E> 321,994
<DEPRECIATION> 113,866
<TOTAL-ASSETS> 392,295
<CURRENT-LIABILITIES> 53,947
<BONDS> 143,455
0
0
<COMMON> 189
<OTHER-SE> 165,641
<TOTAL-LIABILITY-AND-EQUITY> 392,295
<SALES> 476,448
<TOTAL-REVENUES> 476,448
<CGS> 372,165
<TOTAL-COSTS> 372,165
<OTHER-EXPENSES> 7,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,135
<INCOME-PRETAX> 21,615
<INCOME-TAX> 8,381
<INCOME-CONTINUING> 13,264
<DISCONTINUED> 0
<EXTRAORDINARY> (243)
<CHANGES> 0
<NET-INCOME> 13,021
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.88
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF DAN RIVER INC. AS OF DECEMBER 28, 1996 (RESTATED)
AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 28, 1996 (RESTATED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 5,042
<SECURITIES> 0
<RECEIVABLES> 55,782
<ALLOWANCES> 0
<INVENTORY> 72,493
<CURRENT-ASSETS> 140,235
<PP&E> 274,698
<DEPRECIATION> 99,348
<TOTAL-ASSETS> 321,050
<CURRENT-LIABILITIES> 46,944
<BONDS> 162,478
9,726
0
<COMMON> 141
<OTHER-SE> 77,757
<TOTAL-LIABILITY-AND-EQUITY> 321,050
<SALES> 379,567
<TOTAL-REVENUES> 379,567
<CGS> 307,383
<TOTAL-COSTS> 307,383
<OTHER-EXPENSES> (428)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,168
<INCOME-PRETAX> 9,256
<INCOME-TAX> 3,570
<INCOME-CONTINUING> 5,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,686
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
