<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No
Number of shares of common stock outstanding as of July 27, 1999:
Class A: 21,327,126 Shares
Class B: 2,062,070 Shares
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<PAGE> 2
Forward Looking Statements.
- --------------------------
This Quarterly Report contains forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities and Exchange Act of 1934.
These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those included in such forward
looking statements. The words "believes," "expects," "intends," "estimates"
or "anticipates" and similar expressions, as well as future or conditional
verbs such as "will," "should," "would," and "could", are intended to
identify forward-looking statements. Specific forward looking statements
contained in this Quarterly Report include, among others, statements
regarding adequacy of the Company's liquidity and capital resources and the
anticipated impact and cost of remediating Year 2000 problems. These forward
looking statements are found in Part I, Item 2. There can be no assurance
that the assumptions made by management are correct.
The forward looking statements in this Quarterly Report are also subject to
certain risks and uncertainties including, among others, that the Company's
performance in future periods may be adversely impacted by the cyclical
nature of the textile industry, intense competition within the textile
industry, fluctuations in the price and availability of cotton and other raw
materials, the inability of the Company to make capital improvements
necessary to maintain competitiveness, possible adverse changes in
governmental regulation regarding the import of cotton and textile products,
difficulties in integrating acquired businesses and achieving cost savings,
changes in environmental regulations, deterioration of relationships with or
the loss of material customers and adverse changes in general market and
industry conditions.
Management believes that the forward looking statements in this Quarterly
Report are reasonable; however, such statements are based on current
expectations and undue reliance should not be placed on such statements. The
Company undertakes no obligation to update publicly any forward-looking
statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
See Following Pages.
<PAGE> 3
DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
----------- -----------
<S> <C> <C>
(in thousands, except share
and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 4,935 $ 3,356
Accounts receivable, net 82,580 94,374
Inventories 168,161 175,045
Prepaid expenses and other current assets 3,586 11,283
Deferred income taxes 20,411 20,653
----------- -----------
Total current assets 279,673 304,711
Property, plant and equipment 453,859 437,771
Less accumulated depreciation and amortization (160,366) (141,131)
----------- -----------
Net property, plant and equipment 293,493 296,640
Goodwill, net 109,508 110,727
Other assets 8,814 8,132
----------- -----------
$ 691,488 $ 720,210
=========== ===========
</TABLE>
<PAGE> 4
DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
------------ ------------
<S> <C> <C>
(in thousands, except share
and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 12,345 $ 2,329
Accounts payable 29,480 33,825
Accrued compensation and related benefits 25,394 27,219
Other accrued expenses 17,373 19,484
------------ ------------
Total current liabilities 84,592 82,857
Other liabilities:
Long-term debt 311,684 351,939
Deferred income taxes 17,118 15,126
Other liabilities 12,766 11,514
Shareholders' equity:
Preferred stock, $.01 par value; authorized
50,000 shares; no shares issued -- --
Common stock, Class A, $.01 par value;
authorized 175,000,000 shares; issued
and outstanding 21,307,275 shares
(21,157,198 shares at January 2, 1999) 213 212
Common stock, Class B, $.01 par value;
authorized 35,000,000 shares; issued
and outstanding 2,062,070 shares 21 21
Common stock, Class C, $.01 par value;
authorized 5,000,000 shares; no shares
outstanding -- --
Additional paid-in capital 218,213 215,906
Retained earnings 46,881 42,635
------------ ------------
Total shareholders' equity 265,328 258,774
------------ ------------
$ 691,488 $ 720,210
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net sales $ 154,104 $ 118,596 $ 323,640 $ 239,539
Costs and expenses:
Cost of sales 125,257 91,459 266,899 186,356
Selling, general
and administrative
expenses 16,034 13,285 33,395 27,187
Amortization of
goodwill 696 -- 1,392 --
Other operating
costs, net -- (400) -- (400)
--------- --------- --------- ---------
Operating income 12,117 14,252 21,954 26,396
Other income 69 138 358 417
Interest expense (6,985) (3,852) (14,329) (7,671)
--------- --------- --------- ---------
Income before
income taxes 5,201 10,538 7,983 19,142
Provision for
income taxes 2,274 4,060 3,507 7,262
--------- --------- --------- ---------
Net income $ 2,927 $ 6,478 $ 4,476 $ 11,880
========= ========= ========= =========
Earnings per share:
Basic $ 0.13 $ 0.34 $ 0.19 $ 0.63
========= ========= ========= =========
Diluted $ 0.12 $ 0.34 $ 0.19 $ 0.62
========= ========= ========= =========
</TABLE>
See accompanying notes
<PAGE>6
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
July 3, July 4,
1999 1998
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,476 $ 11,880
Adjustments to reconcile net income to net
cash provided by operating activities:
Noncash interest expense 376 417
Depreciation and amortization of
property, plant and equipment 19,530 15,048
Amortization of goodwill 1,392 --
Deferred income taxes 2,234 1,712
Writedown/disposal of assets (48) (351)
Changes in operating assets and liabilities
Accounts receivable 12,058 9,842
Inventories 6,793 (15,271)
Prepaid expenses and other assets (469) (1,461)
Accounts payable and accrued expenses (6,665) (11,337)
Other liabilities 1,989 973
---------- ----------
Net cash provided by operating
activities 41,666 11,452
---------- ----------
Cash flows from investing activities:
Capital expenditures (18,352) (21,254)
Proceeds from sale of assets 7,391 2,140
---------- ----------
Net cash used by investing activities (10,961) (19,114)
---------- ----------
Cash flows from financing activities:
Payments of long-term debt (1,081) (500)
Net borrowings (payments) - working
capital facility (29,000) 8,500
Proceeds from exercise of stock options 955 --
---------- ----------
Net cash provided (used) by
financing activities (29,126) 8,000
---------- ----------
Net increase in cash and cash equivalents 1,579 338
Cash and cash equivalents at beginning of period 3,356 1,759
---------- ----------
Cash and cash equivalents at end of period $ 4,935 $ 2,097
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 7
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Dan River Inc. and its wholly-owned
subsidiaries, (collectively, the "Company"). In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of results for the interim
periods presented have been included. Interim results are not
necessarily indicative of results for a full year. For further
information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended January 2, 1999.
2. Inventories
The components of inventory are as follows:
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
------------ ------------
(in thousands)
<S> <C> <C>
Finished goods $ 67,662 $ 60,914
Work in process 83,972 96,534
Raw materials 3,759 4,007
Supplies 12,768 13,590
-------- --------
Total Inventories $168,161 $175,045
======== ========
</TABLE>
<PAGE> 8
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Shareholders' Equity
Activity in Shareholders' Equity is as follows:
<TABLE>
<CAPTION>
Total
Additional Share-
Common Stock Paid-In Retained holders'
Class A Class B Capital Earnings Equity
------- -------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Janu-
ary 2, 1999 $ 212 $ 21 $215,906 $42,635 $258,774
Net income -- -- -- 4,476 4,476
Exercise of stock
options 1 -- 1,691 -- 1,692
Tax effect of stock
options exercised -- -- 616 -- 616
Retirement of
Common Stock -- -- -- (230) (230)
------ ------ -------- ------- --------
Balance at July
3, 1999 $ 213 $ 21 $218,213 $46,881 $265,328
======= ====== ======== ======= ========
</TABLE>
<PAGE>9
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
--------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator for basic
and diluted earnings
per share -- net
income $ 2,927 $ 6,478 $ 4,476 $ 11,880
========= ========= ========= =========
Denominator:
Denominator for
basic earnings
per share--
weighted-average
shares 23,368 18,833 23,362 18,835
Effect of dilutive
securities:
Employee stock
options 162 303 165 269
--------- --------- --------- ---------
Denominator for
diluted earnings
per share--weighted
average shares
adjusted for
dilutive securities 23,530 19,136 23,527 19,104
========= ========= ========= =========
Earnings per share:
Basic $ 0.13 $ 0.34 $ 0.19 $ 0.63
========= ========= ========= =========
Diluted $ 0.12 $ 0.34 $ 0.19 $ 0.62
========= ========= ========= =========
</TABLE>
<PAGE> 10
5. Segment Information
Summarized information by reportable segment is shown in the following
tables:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
--------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net sales:
Home Fashions $ 103,379 $ 70,098 $ 220,769 $ 139,685
Apparel Fabrics 39,395 48,498 79,623 99,854
Engineered Products 11,330 -- 23,248 --
--------- --------- --------- ---------
Consolidated net
sales $ 154,104 $ 118,596 $ 323,640 $ 239,539
========= ========= ========= =========
Operating income:
Home Fashions $ 12,203 $ 8,319 $ 23,965 $ 14,516
Apparel Fabrics 1,300 6,629 1,174 14,075
Engineered Products 1,035 -- 1,572 --
Corporate items not
allocated to
segments:
Amortization of
goodwill (696) -- (1,392) --
Other operating
costs, net -- 400 -- 400
Depreciation (1,326) (1,051) (2,735) (2,421)
Other (399) (45) (630) (174)
--------- --------- --------- ---------
Consolidated
operating income $ 12,117 $ 14,252 $ 21,954 $ 26,396
========= ========= ========= ==========
</TABLE>
6. Recent Accounting Pronouncements
Effective January 3, 1999, the Company prospectively adopted Statement
of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP No. 98-1 requires
that certain costs incurred in connection with developing or obtaining
software for internal use be capitalized and amortized over the
estimated useful life of the software. The effect of adopting SOP was
to increase net income for the six months ended July 3, 1999 by
$366,000.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Comparison of Three Months Ended July 3, 1999 and July 4, 1998
NET SALES
Net sales for the second quarter of fiscal 1999 were $154.1 million, an
increase of $35.5 million or 29.9% from net sales of $118.6 million in the
second quarter of fiscal 1998.
Net sales of Home Fashions Products for the second quarter of fiscal 1999
were $103.4 million, up $33.3 million or 47.5% from the second quarter of
fiscal 1998. The increase was attributable to incremental sales from the
acquisition of The Bibb Company ("Bibb") in October 1998, offset by lower
sales of bed ensembles.
Net sales of Apparel Fabrics for the second quarter of fiscal 1999 were $39.4
million, down $9.1 million or 18.8% from the second quarter of fiscal 1998.
The decrease was due to lower sales of shirting fabric, the segment's largest
product category, for which both unit volumes and average pricing decreased
from the second quarter of the prior year.
Net sales of Engineered Products were $11.3 million in the second quarter of
fiscal 1999. The Company began operating in this segment in October 1998
with the acquisition of Bibb.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses were $16.0 million in the second
quarter of fiscal 1999 or 10.4% of net sales, an increase of $2.7 million or
20.7% from the second quarter of fiscal 1998, during which they represented
11.2 of net sales. Substantially all of the increase can be attributed to
incremental expenses resulting from the acquisition of Bibb.
OPERATING INCOME
Consolidated operating income for the second quarter of fiscal 1999 was $12.1
million (7.9% of net sales) compared to $14.3 million (12.0% of net sales)
for the second quarter of fiscal 1998.
Operating income for the Home Fashions segment was $12.2 million for the
second quarter of fiscal 1999, compared to $8.3 million for the second
quarter of fiscal 1998. The increase in operating income generally parallels
the increase in sales. Operating income was favorably impacted by lower raw
material costs as well as cost savings from the integration of Bibb. This
was offset by the sale of a less favorable mix of products in the second
quarter of fiscal 1999 compared to the second quarter of fiscal 1998.
Operating income for the Apparel Fabrics segment decreased to $1.3 million in
the second quarter of fiscal 1999 from $6.6 million in the second quarter of
fiscal 1998. The decrease in operating income reflects lower sales volume, a
<PAGE> 12
very competitive pricing environment, and higher per unit manufacturing costs
resulting from reduced capacity utilization, offset somewhat by favorable raw
material costs. Cost savings associated with the closure of the Spindale
greige mill in the first quarter of fiscal 1999 partially mitigated the
under-absorption of fixed costs.
The Engineered Products segment generated $1.0 million in operating income
for the second quarter of fiscal 1999.
Corporate items not allocated to segments consisted of $2.4 million in
expenses for the second quarter of fiscal 1999. Corporate items for the
second quarter of fiscal 1998 consisted of $1.1 million in expenses, offset
by a $0.4 million gain on the termination of a lease. The increase in
expenses was caused mostly by amortization of goodwill resulting from the
Bibb acquisition, higher costs of maintaining idle facilities and higher
depreciation.
INTEREST EXPENSE
Interest expense for the second quarter of fiscal 1999 was $7.0 million, up
$3.1 million or 81.3% from the second quarter of fiscal 1998. The increase
in interest expense was due to higher debt levels as a result of the
acquisition of Bibb, offset somewhat by lower average interest rates.
INCOME TAX PROVISION
The income tax provision was $2.3 million in the second quarter of fiscal
1999 (43.7% of pre-tax income) compared to $4.1 million (38.5% of pre-tax
income) in the second quarter of fiscal 1998. The higher effective tax rate
in the second quarter of fiscal 1999 was caused by nondeductible goodwill
amortization.
NET INCOME AND EARNINGS PER SHARE
Net income for the second quarter of fiscal 1999 was $2.9 million or $0.12
per share (diluted), compared to $6.5 million or $0.34 per share (diluted)
for the second quarter of fiscal 1998. Weighted average shares outstanding
increased from 19.1 million in the second quarter of fiscal 1998 to 23.5
million in the second quarter of fiscal 1999, primarily as a result of shares
issued in connection with the acquisition of Bibb.
Comparison of Six Months Ended July 3, 1999 and July 4, 1998
NET SALES
Net sales for the first six months of fiscal 1999 were $323.6 million, an
increase of $84.1 million or 35.1% from net sales of $239.5 million in the
first six months of fiscal 1998.
Net sales of Home Fashions Products for the first six months of fiscal 1999
were $220.8 million, up $81.1 million or 58.0% from the first six months of
fiscal 1998. The increase was attributable to incremental sales from the
acquisition of The Bibb Company.
<PAGE> 13
Net sales of Apparel Fabrics for the first six months of fiscal 1999 were
$79.6 million, down $20.2 million or 20.3% from the first six months of
fiscal 1998. The decrease was due to lower sales of shirting fabric, the
segment's largest product category, for which both unit volumes and average
pricing decreased from the prior year.
Net sales of Engineered Products were $23.2 million in the first six months
of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses were $33.4 million in the first
six months of fiscal 1999 or 10.3% of net sales, an increase of $6.2 million
or 22.8% from the first six months of fiscal 1998, during which they
represented 11.3 of net sales. Substantially all of the increase can be
attributed to incremental expenses resulting from the acquisition of Bibb.
OPERATING INCOME
Consolidated operating income for the first six months of fiscal 1999 was
$22.0 million (6.8% of net sales) compared to $26.4 million (11.0% of net
sales) for the first six months of fiscal 1998.
Operating income for the Home Fashions segment was $24.0 million for the
first six months of fiscal 1999, compared to $14.5 million for the first six
months of fiscal 1998. The increase in operating income generally parallels
the increase in sales. Operating income was favorably impacted by lower raw
material costs as well as cost savings from the integration of Bibb. This
was offset by the sale of a less favorable mix of products in the first six
months of fiscal 1999 compared to the first six months of fiscal 1998.
Operating income for the Apparel Fabrics segment decreased to $1.2 million in
the first six months of fiscal 1999 from $14.1 million in the first six
months of fiscal 1998. The decrease in operating income reflects lower sales
volume, a very competitive pricing environment, and higher per unit
manufacturing costs resulting from reduced capacity utilization, offset
somewhat by favorable raw material costs. Cost savings associated with the
closure of the Spindale greige mill in the first quarter of fiscal 1999
partially mitigated the under-absorption of fixed costs.
The Engineered Products segment generated $1.6 million in operating income
for the first six months of fiscal 1999.
Corporate items not allocated to segments consisted of $4.8 million in
expenses for the first six months of fiscal 1999. Corporate items for the
first six months of fiscal 1998 consisted of $2.6 million in expenses, offset
by a $0.4 million gain on the termination of a lease. The increase in
expenses was caused mostly by amortization of goodwill resulting from the
Bibb acquisition, higher costs of maintaining idle facilities and higher
depreciation.
INTEREST EXPENSE
Interest expense for the first six months of fiscal 1999 was $14.3 million,
up $6.7 million or 86.8% from the first six months of fiscal 1998. The
increase in interest expense was due to higher debt levels as a result of the
acquisition of Bibb, offset somewhat by lower average interest rates.
<PAGE> 14
INCOME TAX PROVISION
The income tax provision was $3.5 million in the first six months of fiscal
1999 (43.9% of pre-tax income) compared to $7.3 million (37.9% of pre-tax
income) in the first six months of fiscal 1998. The higher effective tax
rate in the first six months of fiscal 1999 was caused by nondeductible
goodwill amortization. Both the first six months of fiscal 1999 and the
first six months of fiscal 1998 reflect small tax-free gains on insurance
claims reflected under Other Income.
NET INCOME AND EARNINGS PER SHARE
Net income for the first six months of fiscal 1999 was $4.5 million or $0.19
per share (diluted), compared to $11.9 million or $0.62 per share (diluted)
for the first six months of fiscal 1998. Weighted average shares outstanding
increased from 19.1 million in the first six months of fiscal 1998 to 23.5
million in the first six months of fiscal 1999, primarily as a result of
shares issued in connection with the acquisition of Bibb.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company believes that internally generated cash flow, supplemented by
borrowings under its working capital line of credit, will be sufficient to
meet its foreseeable debt service requirements, capital expenditures, and
working capital needs. The Company had a debt to total capital ratio of
55.0% at July 3, 1999.
Credit Facilities and Vendor Financing
The Company maintains a $150 million secured working capital line of credit.
The working capital line of credit is secured by the Company's accounts
receivable and inventories. As of July 3, 1999, $64.8 million was used and
$85.2 million was unused and available for borrowing.
The working capital line of credit bears interest at the Base Rate plus
applicable percentage, as defined (8.13% as of July 29, 1999) or LIBOR plus
applicable percentage (6.69% as of July 29, 1999), for periods of one, two,
three or six months, at the Company's option. The working capital line is
non-amortizing and any amounts outstanding are due at the final maturity of
September 30, 2003.
The working capital line of credit is provided pursuant to a loan agreement
which contains certain covenants, including the maintenance of a certain
interest coverage ratio and maximum debt levels, and limitations on mergers
and consolidations, affiliated transactions, incurring liens, disposing of
assets and limitations on investments. An event of default under the loan
agreement includes Change of Control (as defined) as well as non-compliance
with certain other provisions.
Working Capital
Net cash generated from operating activities was $41.7 million in the six
months ended July 3, 1999. Included in that amount is a source of cash for
<PAGE> 15
operating assets and liabilities of $13.7 million, primarily comprised of a
$12.2 million source for operating working capital (accounts receivable -
$12.1 million source, inventories - $6.8 million source, and accounts payable
and accrued expenses - $6.7 million use) and a $1.5 million source of cash
for prepaid expenses and other assets and other liabilities.
During the comparable six month period ended July 4, 1998, net cash generated
from operating activities was $11.5 million. Included in that amount is a
use of cash for operating assets and liabilities of $17.3 million, primarily
comprised of a $16.8 million use for operating working capital (accounts
receivable - $9.8 million source, inventories - $15.3 million use, and
accounts payable and accrued expenses - $11.3 million use) and a $0.5 million
use of cash for prepaid expenses and other assets and other liabilities.
Capital Improvements
During the first six months of 1999, the Company purchased $18.4 million in
equipment and manufacturing improvements.
Impact of Year 2000
Much attention has been given to a serious problem that exists in many
computer programs in use today, a problem that arose from the earliest days
of computing when systems had very limited memory storage capacities. To
save space and data entry time, only the last two digits of a year were used
when performing date calculations and, consequently, these systems may not be
able to properly recognize dates beginning with the Year 2000. The failure
of a computer system to accurately recognize the Year 2000 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.
Like most owners of computer software, the Company is replacing or modifying
a significant portion of its computer software to handle the Year 2000
problem. This includes business applications and embedded systems such as
manufacturing equipment, voice and data communications and Enterprise
Resource Planning ("ERP") systems. Through fiscal 1998, the Company had
spent approximately $7.0 million, and expects to spend approximately $10
million in fiscal 1999, in connection with modifying its computer information
systems to ensure the proper processing of transactions relating to Year 2000
and beyond. Most of these amounts are expenditures to implement certain new
or improved systems which not only achieve Year 2000 compliance, but
significantly improve and expand operational capabilities of certain of the
Company's computer systems and, therefore, are being capitalized. Costs
associated strictly with the Company's Year 2000 remediation program
(excluding costs relating to capital improvements to systems that are not
directly related to remediating Year 2000 problems in such systems) are being
expensed as incurred. All amounts are being funded with cash from operations
or borrowings under the Company's working capital line of credit. There can
be no assurance that the cost of the Company's Year 2000 program will not
materially exceed expectations.
Specifically, the Company has successfully implemented SAP R.3 for corporate
financial and material management systems which are warranted by the vendor
to be Year 2000 compliant and are operational. It has successfully
<PAGE> 16
implemented the SAP R.3 Enterprise Resource Planning (ERP) System for its
Home Fashions operations for customer order management, inventory management
and distribution. Required modifications of the Apparel Fabrics ERP system
(Datatex) for Year 2000 compliance were completed in December 1998 with
integrated testing planned for the third quarter of fiscal 1999. Also,
Bibb's systems are being converted to the Company's systems. The corporate
systems of Bibb, i.e., financial, material management, etc., were converted
to SAP R.3 during the beginning of the second quarter of fiscal 1999, and
Bibb's Home Fashions and Engineered Products businesses are expected to be
converted to SAP R.3 ERP by the end of November 1999.
The Company is dependent upon the successful efforts of its customers and
suppliers of goods, services and essential utilities to identify and
remediate their Year 2000 problems and could be materially and adversely
affected by the failure of one or more of these efforts. The Company has
communicated with its major suppliers and customers. Efforts include the
collection and evaluation of voluntary representations made or provided by
those parties. Although the Company will continue to take reasonable care to
gather information about external parties, such information is not always
provided voluntarily, is not otherwise available, or may not be reliable.
While the Company obtains its goods (including raw materials) and services
from a number of suppliers and sells its products to a large number of
customers, if a sufficient number of these suppliers or customers experience
Year 2000 problems that prevent or substantially impair their ability to
continue to transact business with the Company as they currently do, the
Company would be required to find alternative suppliers and/or customers for
its products. Any delay or inability in finding such alternatives could have
a material adverse effect on the Company's results of operations, financial
condition and cash flow.
Based on analysis of its own systems and discussions with and surveys of its
key vendors and customers, management currently believes that Company
information systems affected by Year 2000 issues have been or will be timely
identified and that its implementation plans will render all material systems
Year 2000 compliant on a timely basis; however, should other entities upon
whose systems the Company relies fail to properly address Year 2000
compliance issues, or should key resources required to achieve the
initiatives described herein become unavailable or prove to be unreliable,
the Company's effectiveness in achieving Year 2000 compliance could be
delayed, which could have a material adverse effect on the Company's results
of operations, financial condition and cash flow.
The Company has developed and continues to refine a draft contingency plan
and recovery procedures to deal with potential problems ranging from
inoperable systems to failure of a critical utility or a supplier. The
contingency plan reflects the Company's best efforts to identify mission
critical elements of its operations and provide for alternatives that would
be expected to minimize Year 2000-related disruptions to those operations.
Areas of particular attention include, for example, appropriate inventory
levels of critical raw materials, supplies and work in process, alternative
sources of supply, and action plans in the event of the failure of certain
systems. Notwithstanding these efforts, there are certain systems, for
example, certain distribution and warehouse systems, for which there exists
in the Company's judgment no feasible alternative, and the Company believes
that failure of these systems would, if not promptly remedied, have a
material adverse effect on the Company's results of operations. Accordingly,
<PAGE> 17
the Company is focusing on identifying these critical systems, insuring that
they are thoroughly tested for Year 2000 compliance, and being prepared to
address any Year 2000 failure in a manner so as to minimize disruption of the
Company's operations. There can be no assurance that these efforts will be
successful, or that notwithstanding these efforts, the Company will not
experience a Year 2000-related disruption which has a material adverse effect
on its financial condition, and results of operations and cash flow.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's Annual Meeting of Shareholders was held on April
23, 1999. The following is a brief description of each matter
voted upon at the meeting and the number of votes cast for, against
or withheld, as well as the number of abstentions and broker non-
votes, as to each such matter.
1. Election of Directors
Election of Richard L. Williams to hold office until the Annual
Meeting of Shareholders in 2002, or until his successor is elected
and qualified:
For: 26,690,170 Withheld: 28,193
Continuing directors are Donald J. Keller, Joseph L. Lanier, Jr.,
Edward J. Lill and John F. Maypole.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the registrant for fiscal 1999.
For: 26,713,758 Against: 2,401 Abstained: 2,204
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(The exhibits to this Form 10-Q are listed in the accompanying
index to Exhibits.)
(b) Reports on Form 8-K:
1. On April 9, 1999 Registrant filed a Current Report on Form 8-K,
dated April 9, 1999, providing the Unaudited Pro forma Combined
Statement of Income of Dan River Inc. for the fiscal year ended
January 2, 1999.
2. On April 9, 1999, Registrant filed Amendment No. 1 to Current
Report on Form 8-K dated October 14, 1998, amending certain
financial statements, proforma financial information and exhibits
previously filed.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAN RIVER INC.
<TABLE>
<S> <C>
Date: August 6, 1999 /s/ Barry F. Shea
-----------------------------------
Barry F. Shea
Executive Vice President-Chief
Financial Officer
(Authorized Signing Officer and
Principal Financial Officer)
</TABLE>
<PAGE> 20
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
No.
- ----------- ---------------------- -------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation
of Dan River Inc. (incorporated by reference
to Exhibit 3.1 in Amendment No. 1 to
Registration Statement on Form S-1 (File
No. 333-36479)).
3.2 Bylaws of Dan River Inc. (incorporated by
reference to Exhibit 3.2 in Amendment No. 1
to Registration Statement on Form S-1 (File
No. 333-36479)).
10* First Amendment to Credit Agreement dated
as of May 21, 1999, amending Credit Agreement
dated as of October 14, 1998, among Dan River
Inc. and certain of its subsidiaries, the
several lenders parties thereto and First Union
National Bank as Agent.
11 Statement regarding Computation of
Earnings per share (incorporated by
reference to Note 4 to the Unaudited
Condensed Consolidated Financial
Statements included in this Quarterly
Report on Form 10-Q)
27* Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
- ------------------
*Filed herewith.
</TABLE>
<PAGE> 1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") dated
as of May 21, 1999, is to that Credit Agreement dated as of October 14, 1998
(as amended and modified from time to time, the "Credit Agreement"; terms
used but not otherwise defined herein shall have the meanings provided in the
Credit Agreement), by and among DAN RIVER INC., a Georgia corporation (the
"Borrower"), the Guarantors identified therein, the several banks and other
financial institutions identified therein (the "Lenders"), FIRST UNION
NATIONAL BANK, as administrative agent for the Lenders thereunder (in such
capacity, the "Administrative Agent"), THE FIRST NATIONAL BANK OF CHICAGO, as
syndication agent for the Lenders thereunder (in such capacity, the
"Syndication Agent"), and WACHOVIA BANK, N.A., as documentation agent for the
Lenders thereunder (in such capacity, the "Documentation Agent").
W I T N E S S E T H:
WHEREAS, the Lenders have established a $275,000,000 secured credit
facility for the benefit of the Borrower pursuant to the terms of the Credit
Agreement;
WHEREAS, the Borrower wishes to amend the Credit Agreement to modify
certain provisions contained therein;
WHEREAS, the Required Lenders have agreed to the requested amendment on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
A. The definition of "Specified Sales" appearing in Section 1.1 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
"Specified Sales" shall mean (a) the sale, transfer, lease or other
disposition of inventory and materials in the ordinary course of
business, (b) the sale, transfer or other disposition of Permitted
Investments described in clause (i) of the definition thereof and (c)
the sale of accounts receivable due from Montgomery Ward for the purpose
of managing credit risk.
B. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
C. The Borrower hereby represents and warrants that (a) the
representations and warranties contained in Article III of the Credit
Agreement, as amended hereby are correct in all material respects on and as
of the date hereof as though made on and as of such date and after giving
effect to the amendments contained herein and (b) no Default or Event of
Default exists under the Credit Agreement on and as of the date hereof and
after giving effect to the amendments contained herein.
<PAGE> 2
D. This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and
it shall not be necessary in making proof of this First Amendment to produce
or account for more than one such counterpart.
E. This First Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of North Carolina.
[Remainder of page intentionally left blank]
<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this First Amendment to be duly executed and delivered as of the date and
year first above written.
BORROWER: DAN RIVER INC.,
a Georgia corporation
By:_________________________
Name:_______________________
Title:_______________________
GUARANTORS: THE BIBB COMPANY,
a Delaware corporation
By:_________________________
Name:_______________________
Title:_______________________
DAN RIVER FACTORY STORES, INC.,
a Georgia corporation
By:_________________________
Name:_______________________
Title:_______________________
<PAGE> 4
AGENTS AND LENDERS: FIRST UNION NATIONAL BANK,
as Administrative Agent and as a Lender
By:_________________________
Name:_______________________
Title:_______________________
THE FIRST NATIONAL BANK OF CHICAGO,
as Syndication Agent and as a Lender
By:_________________________
Name:_______________________
Title:_______________________
WACHOVIA BANK, N.A.,
as Documentation Agent and as a Lender
By:__________________________
Name:________________________
Title:________________________
LENDERS: SUNTRUST BANK, N.A.
By:__________________________
Name:________________________
Title:________________________
THE BANK OF NOVA SCOTIA
By:___________________________
Name:_________________________
Title:_________________________
COMERICA BANK
By:___________________________
Name:_________________________
Title:_________________________
<PAGE> 5
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:___________________________
Name:_________________________
Title:_________________________
PNC BANK, N.A.
By:___________________________
Name:_________________________
Title:_________________________
CENTURA BANK
By:___________________________
Name:_________________________
Title:_________________________
CREDIT LYONNAIS ATLANTA AGENCY
By:___________________________
Name:_________________________
Title:_________________________
FLEET BANK, N.A.
By:___________________________
Name:_________________________
Title:_________________________
ABN AMRO BANK N.V.
By:___________________________
Name:_________________________
Title:_________________________
<PAGE> 6
By:___________________________
Name:_________________________
Title:_________________________
THE BANK OF NEW YORK
By:___________________________
Name:_________________________
Title:_________________________
NATIONAL BANK OF CANADA
By:___________________________
Name:_________________________
Title:_________________________
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By:____________________________
Name:__________________________
Title:__________________________
SOUTHTRUST BANK, N.A.
By:____________________________
Name:__________________________
Title:__________________________
NATIONAL CITY BANK OF KENTUCKY
By:____________________________
Name:__________________________
Title:__________________________
<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 JULY 3, 1999 AND
THE RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED JULY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 4,935
<SECURITIES> 0
<RECEIVABLES> 82,580
<ALLOWANCES> 0
<INVENTORY> 168,161
<CURRENT-ASSETS> 279,673
<PP&E> 453,859
<DEPRECIATION> 160,366
<TOTAL-ASSETS> 691,488
<CURRENT-LIABILITIES> 84,592
<BONDS> 311,684
0
0
<COMMON> 234
<OTHER-SE> 265,094
<TOTAL-LIABILITY-AND-EQUITY> 691,488
<SALES> 323,640
<TOTAL-REVENUES> 323,640
<CGS> 266,899
<TOTAL-COSTS> 266,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,329
<INCOME-PRETAX> 7,983
<INCOME-TAX> 3,507
<INCOME-CONTINUING> 4,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,476
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
