<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
Form 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 14, 1998
DAN RIVER INC.
(Exact name of registrant as specified in its charter)
Commission file number 1-13421
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
===============================================================================
<PAGE> 2
The undersigned registrant hereby amends the following item of its
Current Report on Form 8-K filed on October 27, 1998 as set forth in the pages
attached hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The following audited financial statements of The
Bibb Company, together with a manually signed
independent auditors report thereon and the notes
thereto, are included in Exhibit 99.2 and are
incorporated into this Item 7 by this reference:
(i) Report of Independent Public Accountants;
(ii) Balance Sheets as of January 3, 1998 and
December 28, 1996;
(iii) Statements of Operations for the year ended
January 3, 1998; for the three months ended
December 28, 1996; for the nine months
ended September 28, 1996; and for the year
ended December 30, 1995;
(iv) Statements of Changes in Stockholders'
Equity (Deficit) for the year ended January
3, 1998; for the three months ended
December 28, 1996; for the nine months
ended September 28, 1996; and for the year
ended December 30, 1995;
(v) Statements of Cash Flows for the year ended
January 3, 1998; for the three months ended
December 28, 1996; for the nine months
ended September 28, 1996; and for the year
ended December 30, 1995; and
(vi) Notes to Financial Statements.
The following unaudited interim financial statements
of The Bibb Company and the notes thereto are
included in Exhibit 99.3 and are incorporated into
this Item 7 by this reference:
(i) Condensed Balance Sheets as of July 4, 1998
and January 3, 1998;
(ii) Condensed Statements of Operations for the
three and six months ended July 4, 1998 and
June 28, 1997;
(iii) Condensed Statement of Changes in
Stockholders' Equity for the six months
ended July 4, 1998;
3
<PAGE> 3
(iv) Condensed Statement of Cash Flows for the
six months ended July 4, 1998 and June 28,
1997; and
(v) Notes to Condensed Financial Statements.
(b) Pro Forma Financial Information.
The following unaudited pro forma combined financial
information of Dan River is included in Exhibit 99.4
and is incorporated into this Item 7 by this
reference:
(i) Unaudited Pro Forma Combined Balance Sheet
as of July 4, 1998;
(ii) Notes to Unaudited Pro Forma Combined
Balance Sheet;
(iii) Unaudited Pro Forma Combined Statement of
Income (Pre-Merger) for the year ended
January 3, 1998;
(iv) Unaudited Pro Forma Combined Statement of
Income (Merger) for the year ended January 3,
1998; and
(v) Unaudited Pro Forma Combined Statement of
Income for the six months ended July 4, 1998.
(c) Exhibits.
Exhibit No.
2.1 Agreement and Plan of Merger, dated as of June 28, 1998, as
amended August 14, 1998, by and between Dan River Inc. and The Bibb Company
(incorporated by reference to Annex A to the Joint Proxy Statement of Dan River
and Bibb included in Dan River's Registration Statement on Form S-4 (File No.
333-58855)). Disclosure letters and exhibits referenced in the Agreement and
Plan of Merger are hereby incorporated by reference. Such disclosure letters and
exhibits have been omitted for purposes of this filing, but will be furnished to
the Commission supplementally upon request.
2.2 Second Amendment to Agreement and Plan of Merger, dated as of
September 23, 1998, among Dan River Inc., DR Acquisition Corp. and The Bibb
Company (incorporated by reference to Annex S-A to the Supplement to Joint Proxy
Statement of Dan River and Bibb included in Post-Effective Amendment No. 1 to
Dan River's Registration Statement on Form S-4 (File No. 333-58855)).
20.1 Joint Proxy Statement of Dan River and Bibb dated August 19,
1998 (incorporated by reference to pages 1 through 63 of Dan River's
Registration Statement on Form S-4 (File No. 333-58855)).
20.2 Supplement to Joint Proxy Statement (incorporated by reference
to pages S-1 through S-6 of Post-Effective Amendment No. 1 to Dan River's
Registration Statement on Form S-4 (File No. 333-58855)).
23.1 Consent of Arthur Anderson, LLP.
99.1 Press Release, dated October 14, 1998, issued by Dan River
Inc.
99.2 Audited Financial Statements of The Bibb Company, as described
in Item 7(a) of this Form 8-K.
99.3 Unaudited Financial Statements of The Bibb Company, as
described in Item 7(a) of this Form 8-K.
99.4 Unaudited Pro Forma Combined Financial Information of Dan
River, as described in Item 7(b) of this Form 8-K.
4
<PAGE> 4
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 hereunto duly authorized.
DAN RIVER INC. (Registrant)
Date: April 9, 1999 /S/ Harry L. Goodrich
Harry L. Goodrich
Vice President
5
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of June 28,
1998, as amended August 14, 1998, by and between Dan
River Inc. and The Bibb Company (incorporated by
reference to Annex A to the Joint Proxy Statement of
Dan River and Bibb included in Dan River's
Registration Statement on Form S-4 (File No.
333-58855)). Disclosure letters and exhibits
referenced in the Agreement and Plan of Merger are
hereby incorporated by reference. Such disclosure
letters and exhibits have been omitted for purposes of
this filing, but will be furnished to the Commission
supplementally upon request.
2.2 Second Amendment to Agreement and Plan of Merger,
dated as of September 23, 1998, among Dan River Inc.,
DR Acquisition Corp. and The Bibb Company
(incorporated by reference to Annex S-A to the
Supplement to Joint Proxy Statement of Dan River and
Bibb included in Post-Effective Amendment No. 1 to Dan
River's Registration Statement On Form S-4 (File No.
333-58855)).
20.1 Joint Proxy Statement of Dan River and Bibb dated
August 19, 1998 (incorporated by reference to pages 1
through 63 to Dan River's Registration Statement on
Form S-4 (File No. 333-58855)).
20.2 Supplement to Joint Proxy Statement (incorporated by
reference to pages S-1 through S-6 of Post-Effective
Amendment No. 1 to Dan River's Registration Statement
on Form S-4 (File No. 333-58855)).
23.1 Consent of Arthur Anderson, LLP
99.1 Press Release, dated October 14, 1998, issued by Dan
River Inc.
99.2 Audited Financial Statements and Schedule of The Bibb
Company, as described in Item 7(a) of this Form 8-K.
</TABLE>
6
<PAGE> 6
<TABLE>
<S> <C>
99.3 Unaudited Financial Statements of The Bibb Company, as
described in Item 7(a) of this Form 8-K.
99.4 Unaudited Pro Forma Combined Financial Information of
Dan River, as described in Item 7(b) of this Form 8-K.
</TABLE>
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 9, 1998 for the financial statements of The Bibb Company
included in this Current Report on Form 8-K/A Amendment No. 1, into Dan River
Inc.'s previously filed registration statement (No. 333-67083).
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 9, 1999
<PAGE> 1
EXHIBIT 99.1
Dan River Inc.
P.O. Box 261 NEWS RELEASE
Danville, Virginia 24543
For Immediate Release: October 14, 1998
Contact:
Scott D. Batson-Vice President-Finance
(804)799-4113
DAN RIVER INC. ACQUIRES THE BIBB COMPANY
Today, Dan River Inc. (NYSE:DRF) and The Bibb Company (AMEX:BIB) announced that
their shareholders have approved the acquisition of Bibb by Dan River,
headquartered in Danville, Virginia, in a transaction valued at approximately
$250 million. Preliminary results indicate that holders of 9,853,182 shares of
the 10,061,576 Bibb shares outstanding elected to receive their merger
consideration in cash and holders of 6,207 shares elected to receive stock. In
accordance with the merger agreement, the cash elections will be prorated to
result in a 50% cash/50% stock transaction.
Following this transaction Dan River Inc. will have annual sales of
approximately $750 million and approximately 8,000 associates. The combination
makes Dan River one of the largest vertical manufacturers and marketers of bed
products in the United States.
Joseph L. Lanier, Jr., Chairman and Chief Executive Officer of Dan River said,
"The acquisition of Bibb permits us to continue growing our home fashions
business while enhancing our market position by adding three new bedding
segments; the juvenile, health care and hospitality markets. This creates a
stronger more competitive home fashions company. "
Mr. Lanier further stated, "Now that the acquisition has taken place we can get
about the business of putting these two fine companies together. We will be
rationalizing the administrative functions and aligning the manufacturing
operations very quickly, as well as embarking on an expanded modernization
program. The results of these actions should provide significant cost
reductions to be realized over the next year. We are excited by the opportunity
to create this stronger, more competitive company and the benefits it will
bring to our shareholders, associates and customers."
Dan River Inc. 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. These home
fashions products are sold under the Dan River trade name as well as Alexander
Julian, D. Porthault, John Wilman, and Nautica licenses. Dan River also
manufactures and markets a broad range of high quality woven cotton and cotton
blend fabrics for apparel and is the leading supplier of men's dress shirting
fabrics in North America. Dan River operates manufacturing facilities in
Virginia, North Carolina, and Tennessee.
<PAGE> 2
Bibb is a manufacturer and marketer of consumer products for the home,
principally sheets, bedding and bath accessories; textile products for the
hospitality and healthcare industries; and specialty engineered textile
products used in making high-pressure hoses and other industrial products. Bibb
operates manufacturing facilities in Georgia, South Carolina, and Virginia.
Note: This press release contains statements regarding the expectations of Bibb
and Dan River concerning future events and future performance of the combined
companies. These statements constitute forward-looking statements under
applicable securities laws. Dan River's performance after the consummation of
the merger could be materially and adversely affected by, among other things,
its inability to achieve cost savings or other anticipated benefits from the
Bibb acquisition as planned, decreases in demand for Dan River's products, the
failure to remain competitive with respect to factors such as price, product
styling and customer service, fluctuations in the price and availability of
cotton, deterioration of relationships with material customers, and adverse
changes in general market and industry conditions. Management believes these
forward looking statements are reasonable; however, undue reliance should not
be placed on such statements, which are based on current expectations. For a
more detailed discussion of risks associated with Dan River's business, see Dan
River's Current Report on Form 8-K which was filed with the Securities and
Exchange Commission on September 28, 1998.
- End -
<PAGE> 1
EXHIBIT 99.2
THE BIBB COMPANY
FINANCIAL STATEMENTS AND SCHEDULE
AS OF JANUARY 3, 1998, DECEMBER 28, 1996,
AND DECEMBER 30, 1995
TOGETHER WITH AUDITORS' REPORT
THE BIBB COMPANY
FINANCIAL STATEMENTS AND SCHEDULE
JANUARY 3, 1998, DECEMBER 28, 1996,
AND DECEMBER 30, 1995
TABLE OF CONTENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Balance Sheets--January 3, 1998 and December 28, 1996
Statements of Operations for the Year Ended January 3, 1998, the Three Months
Ended December 28, 1996, the Nine Months Ended September 28, 1996, and the
Year Ended December 30, 1995
Statements of Changes in Stockholders' Equity (Deficit) for the Year Ended
January 3, 1998, the Three Months Ended December 28, 1996, the Nine Months
Ended September 28, 1996, and the Year Ended December 30, 1995
Statements of Cash Flows for the Year Ended January 3, 1998, the Three Months
Ended December 28, 1996, the Nine Months Ended September 28, 1996, and the
Year Ended December 30, 1995
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULE
Schedule II: Valuation and Qualifying Accounts for the Year Ended January 3,
1998, the Three Months Ended December 28, 1996, the Nine Months
Ended September 28, 1996, and the Year Ended December 30, 1995
Supplemental schedules other than that listed above are omitted because they
are not required or are not applicable, or the information is included in the
notes to financial statements.
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Bibb Company:
We have audited the accompanying balance sheets of THE BIBB COMPANY (a
Delaware corporation) as of January 3, 1998 and December 28, 1996 and the
related statements of operations, changes in stockholders' equity (deficit),
and cash flows for the year ended January 3, 1998, the three months ended
December 28, 1996, the nine months ended September 28, 1996, and the year ended
December 30, 1995. These financial statements and the schedule referred to
below, are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the schedule
referred to below, based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bibb Company as of January
3, 1998 and December 28, 1996 and the results of its operations and its cash
flows for the year ended January 3, 1998, the three months ended December 28,
1996, the nine months ended September 28, 1996, and the year ended December 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company's reorganization plan was confirmed by
the U.S. Bankruptcy Court on September 12, 1996 and became effective September
27, 1996 (effective September 28, 1996 for financial reporting purposes). In
accordance with Statement of Position 90-7 of the American Institute of
Certified Public Accountants, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company was required to account
for the reorganization using fresh start reporting. Accordingly, all financial
statements prior to September 28, 1996 are not comparable to the financial
statements for periods after the implementation of fresh start reporting.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule included in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 9, 1998
2
<PAGE> 3
THE BIBB COMPANY
BALANCE SHEETS
JANUARY 3, 1998 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY DECEMBER 28,
3, 1998 1996
-------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 114 $ 3,206
Accounts receivable, net of allowances for doubtful
accounts, discounts, and claims of $2,686 and $1,588
as of January 3, 1998 and December 28, 1996,
respectively.......................................... 34,761 55,128
Inventories............................................ 54,305 72,282
Assets held for sale................................... 0 37,012
Net assets of discontinued operations.................. 12,025 0
Prepaid expenses and other current assets.............. 3,019 2,033
-------- --------
Total current assets................................ 104,224 169,661
PROPERTY, PLANT, AND EQUIPMENT, NET..................... 62,829 58,642
OTHER ASSETS............................................ 2,298 4,397
-------- --------
$169,351 $232,700
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt................... $ 3,617 $ 5,237
Accounts payable....................................... 17,830 36,466
Accrued payroll and other compensation................. 5,806 14,607
Accrued interest....................................... 54 681
Other accrued liabilities.............................. 9,049 5,768
-------- --------
Total current liabilities........................... 36,356 62,759
-------- --------
LONG-TERM DEBT, less current maturities................. 74,898 84,093
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding........... 0 0
Common stock, $.01 par value; 25,000,000 shares
authorized; 10,061,576 and 9,986,413 shares issued and
outstanding as of January 3, 1998 and December 28,
1996, respectively.................................... 101 100
Additional paid-in capital............................. 88,882 88,348
Accumulated deficit.................................... (30,886) (2,540)
Minimum pension liability adjustment................... 0 (60)
-------- --------
Total stockholders' equity.......................... 58,097 85,848
-------- --------
$169,351 $232,700
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
THE BIBB COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998,
THE THREE MONTHS ENDED DECEMBER 28, 1996,
THE NINE MONTHS ENDED SEPTEMBER 28, 1996,
AND THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
POST-REORGANIZATION PRE-REORGANIZATION
------------------------ --------------------------
THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30,
1998 1996 1996 1995
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES................................................................ $ 248,836 $ 63,937 $262,392 $ 389,998
COST OF SALES............................................................ 222,620 57,252 239,724 366,040
---------- --------- -------- ---------
Gross profit.......................................................... 26,216 6,685 22,668 23,958
SELLING AND ADMINISTRATIVE EXPENSES...................................... 23,306 7,428 26,002 36,130
NONRECURRING CHARGES..................................................... 4,133 0 0 0
MANAGEMENT FEES TO AFFILIATE............................................. 0 0 1,993 3,368
---------- --------- -------- ---------
Operating loss........................................................ (1,223) (743) (5,327) (15,540)
---------- --------- -------- ---------
OTHER (EXPENSE) INCOME:
Interest expense:
Senior and other debt................................................... (4,743) (1,074) (4,850) (5,627)
Subordinated bonds...................................................... 0 0 (11,151) (22,299)
---------- --------- -------- ---------
(4,743) (1,074) (16,001) (27,926)
Interest income from T.B. Wood's Corporation............................ 0 0 659 1,172
Loan fee amortization and related expenses.............................. (1,270) (235) (1,928) (2,486)
Other, net.............................................................. (162) (109) 2,660 (2,811)
---------- --------- -------- ---------
(6,175) (1,418) (14,610) (32,051)
---------- --------- -------- ---------
LOSS BEFORE DISCONTINUED OPERATIONS, REORGANIZATION ITEMS, AND
EXTRAORDINARY ITEM...................................................... (7,398) (2,161) (19,937) (47,591)
DISCONTINUED OPERATIONS (NET OF TAXES):
Income (loss) from discontinued napery business......................... (2,494) 17 N/A N/A
Loss from disposal of discontinued napery business...................... (2,832) 0 N/A N/A
Loss from discontinued apparel business................................. (4,422) (396) N/A N/A
Loss from disposal of discontinued apparel business..................... (11,200) 0 N/A N/A
REORGANIZATION ITEMS:
Professional fees and other expenses.................................... 0 0 (1,423) 0
Adjust accounts to fair value........................................... 0 0 7,921 0
EXTRAORDINARY ITEM, gain on discharge of debt.. 0 0 111,650 0
---------- --------- -------- ---------
NET (LOSS) INCOME........................................................ $ (28,346) $ (2,540) $ 98,211 $ (47,591)
========== ========= ======== =========
PER SHARE INFORMATION (1):
Net loss from continuing operations:
Basic and diluted....................................................... $ (0.74) $ (0.22) N/A N/A
========== ========= ======== =========
Net loss of discontinued operations:
Basic and diluted....................................................... $ (0.69) $ (0.04) N/A N/A
========== ========= ======== =========
Loss from disposal of discontinued operations:
Basic and diluted....................................................... $ (1.39) $ 0.00 N/A N/A
========== ========= ======== =========
Net loss:
Basic and diluted....................................................... $ (2.82) $ (0.25) N/A N/A
========== ========= ======== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted....................................................... 10,061,576 9,986,413 N/A N/A
- -------------------------------------------------- ========== ========= ======== =========
</TABLE>
- --------------
(1) Share and per share amounts for the nine months ended September 28, 1996
and the year ended December 30, 1995 have not been presented because they
are not meaningful due to the implementation of fresh start reporting and
the substantial change in the number of shares outstanding subsequent to
the consummation of the Plan (Note 1).
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE BIBB COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED JANUARY 3, 1998,
THE THREE MONTHS ENDED DECEMBER 28, 1996,
THE NINE MONTHS ENDED SEPTEMBER 28, 1996,
AND THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON COMMON MINIMUM
STOCK STOCK ADDITIONAL PENSION
($.01 PAR ($.10 PAR PAID-IN ACCUMULATED LIABILITY
VALUE) VALUE) CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- --------- ---------- ----------- ---------- --------
PRE-REORGANIZATION
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995.................... $ 0 $ 1 $ 3,427 $(45,514) $ (39) $(42,125)
Net loss................ 0 0 0 (47,591) 0 (47,591)
Net pension liability
adjustment............. 0 0 0 0 (911) (911)
---- --- ------- -------- ----- --------
BALANCE, December 30,
1995.................... 0 1 3,427 (93,105) (950) (90,627)
Net income.............. 0 0 0 98,211 0 98,211
Exercise of options..... 0 0 24 0 0 24
Loss on related party
transaction (Note 9)... 0 0 (5,016) 0 0 (5,016)
Consummation of the re-
structuring............ 100 (1) 85,757 0 0 85,856
Fresh start equity re-
classifications........ 0 0 4,156 (5,106) 950 0
---- --- ------- -------- ----- --------
BALANCE, September 28,
1996.................... 100 0 88,348 0 0 88,448
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POST-REORGANIZATION
<S> <C> <C> <C> <C> <C> <C>
Net loss................ 0 0 0 (2,540) 0 (2,540)
Net pension liability
adjustment............. 0 0 0 0 (60) (60)
---- --- ------- -------- ----- --------
BALANCE, December 28,
1996.................... 100 0 88,348 (2,540) (60) 85,848
Stock issuance.......... 1 0 534 0 0 535
Net loss................ 0 0 0 (28,346) 0 (28,346)
Net pension liability
adjustment............. 0 0 0 0 60 60
---- --- ------- -------- ----- --------
BALANCE, January 3,
1998.................... $101 $ 0 $88,882 $(30,886) $ 0 $ 58,097
==== === ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
THE BIBB COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 3, 1998,
THE THREE MONTHS ENDED DECEMBER 28, 1996,
THE NINE MONTHS ENDED SEPTEMBER 28, 1996,
AND THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
POST-REORGANIZATION PRE-REORGANIZATION
----------------------- --------------------------
THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30,
1998 1996 1996 1995
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................................ $(28,346) $(2,540) $ 98,211 $(47,591)
Adjustments to reconcile net (loss) income to net cash provided by (used
in) operating activities:
Depreciation and amortization........................................... 6,937 2,610 9,582 15,644
Loan fee amortization and related expenses.............................. 1,270 235 1,928 2,486
Net gain on sale and retirement of assets............................... (810) (42) (377) (50)
Net gain on sale of investment.......................................... 0 0 (3,949) 0
Fixed asset valuation adjustments....................................... 4,950 0 0 0
Interest receivable on note receivable from T.B. Wood's Corporation..... 0 0 (659) (1,172)
Changes in operating assets and liabilities, net of reorganization items:
Restricted cash....................................................... 0 0 7,966 (1,064)
Accounts receivable................................................... 15,252 5,906 (53,108) 17,148
Inventories........................................................... 10,491 2,621 (5,252) 6,512
Assets held for sale.................................................. 37,012 (1,383) 0 0
2
Prepaid expenses and other current assets............................. (2,343) 129 (255) (1,772)
Other noncurrent assets............................................... 735 0 0 0
Accounts payable and accrued liabilities.............................. (15,283) (2,491) 16,952 17,215
Reorganization items:
Professional fees and other expenses................................... 0 0 1,423 0
Adjust accounts to fair value.......................................... 0 0 (7,921) 0
Extraordinary gain on discharge of debt................................ 0 0 (111,650) 0
-------- ------- --------- --------
Net cash provided by (used in) operating activities.................. 29,865 5,045 (47,109) 7,356
-------- ------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (28,233) (1,658) (2,940) (5,489)
Proceeds from sale of fixed assets....................................... 5,556 583 865 249
Proceeds from the sale of investment..................................... 0 0 4,185 0
Repayment of note receivable from T.B. Wood's Corporation, net........... 0 0 10,677 0
Other, net............................................................... 0 (804) (4,493) (2,922)
-------- ------- --------- --------
Net cash (used in) provided by investing activities.................. (22,677) (1,879) 8,294 (8,162)
-------- ------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital lease obligations............... $ (3,581) $(8,035) $ (60) $ (64)
Net (repayments) borrowings of senior debt............................... (14,873) 7,750 40,485 907
Borrowings under capital lease obligations............................... 7,639 0 0 0
Stock issuance........................................................... 535 0 0 0
Proceeds from exercise of stock options.................................. 0 0 24 0
Loan fees................................................................ 0 0 (1,459) 0
-------- ------- --------- --------
Net cash (used in) provided by financing activities.................. (10,280) (285) 38,990 843
-------- ------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................... (3,092) 2,881 175 37
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 3,206 325 150 113
-------- ------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 114 $ 3,206 $ 325 $ 150
======== ======= ========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid............................................................ $ 6,459 $ 1,497 $ 4,624 $ 10,538
- -------------------------------------------------- ======== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
THE BIBB COMPANY
NOTES TO FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Bibb Company (the "Company") is engaged in the manufacturing and
marketing of consumer products for the home, principally sheets, pillowcases,
and other bedding accessories, as well as apparel fabrics and other specialty
engineered textile products used in making high-pressure hoses and other
industrial products. The Company operates manufacturing plants in Georgia,
South Carolina, and Virginia and has been engaged in the manufacturing and
marketing of textile products since 1876. The Company's major customers are
primarily retailers and hose manufacturers located throughout the United
States.
In 1993, the Company entered into an agreement of limited partnership with an
affiliate whereby the Company agreed to contribute receivables to BF Funding,
L.P. ("BF Funding" or the "Partnership"), a Georgia limited partnership, in
exchange for limited partnership interests representing 98.5% of the total
capital of BF Funding. The primary purpose of BF Funding was to acquire
receivables of the Company which were transferred to a trust and sold to
third-party investors. Under the agreement, the profits and losses of BF
Funding were allocated in proportion to each partner's share of capital
contributions. On July 5, 1996, the Company repurchased the receivables from BF
Funding for par plus accrued interest, in the total amount of $50,155,000. The
repurchase liquidated the limited partnership interests. The financial
statements for the year ended December 30, 1995 include the accounts of the
Company and the Partnership.
CONSUMMATION OF THE RESTRUCTURING
On July 3, 1996, the Company filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Court.
On September 12, 1996, the United States Bankruptcy Court for the District of
Delaware issued an order confirming the reorganization plan (the "Plan"). The
Plan was consummated on September 27, 1996 (the "Effective Date") (effective
September 28, 1996 for financial reporting purposes).
The consummation of the Plan resulted in, among other things, (i) the
discharge of approximately $197 million in long-term debt, including accrued
interest, and (ii) the issuance of 9,500,000 shares of common stock to the
holders of the 14% and 13 7/8% senior subordinated notes and 500,000 shares to
the holders of old common stock. The Plan did not alter, adjust, or reduce the
Company's obligations to its other creditors.
Upon consummation of the Plan, the Company recognized an extraordinary gain
on the discharge of debt of approximately $112 million, which represented
forgiveness of debt principal and interest, reduced by the estimated fair value
of common stock issued to the holders of the 14% and 13 7/8% senior
subordinated notes.
Pursuant to the Plan, the Company obtained financing from lending
institutions to repay its senior revolving credit facility (Note 6) and finance
additional capital expenditures (the "Loan and Security Agreement"). Under the
Loan and Security Agreement, the Company is entitled to make borrowings in the
form of a term loan and revolving loans available to the extent that a
sufficient borrowing base, calculated based on eligible receivables and
inventory, exists.
As of the Effective Date, in accordance with the American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," the Company adopted
fresh start reporting (see discussion below).
7
<PAGE> 8
SALE OF THE TERRY PRODUCTS BUSINESS
In connection with the restructuring, management approved a plan to sell the
Company's terry products business (the "Terry Sale"), which designs and
manufactures bath towels and other terry products sold primarily to retail
chains, specialty chains, and mass merchants, as well as to hotels, hospitals,
and others serving the hospitality market.
On February 21, 1997, the Company sold the business to WestPoint Stevens,
Inc. for approximately $38.8 million.
Assets included in the Terry Sale are recorded in the balance sheet as of
December 28, 1996 as "assets held for sale" based on the net proceeds of the
sale, including losses related to the terry products business from December 29,
1996 through February 21, 1997. Terry products business losses for this period
have been eliminated from the statement of operations.
Net sales of the terry products business for the three months ended December
28, 1996 were approximately $20 million. Net losses of the terry products
business for the three months ended December 28, 1996 were approximately $1.8
million.
FRESH START REPORTING
For accounting purposes, the Company assumed that the Plan was consummated on
September 28, 1996. Under the principles of fresh start reporting, the
Company's reorganization value was allocated to identifiable assets on the
basis of their estimated fair values. The total reorganization value assigned
to the Company's assets was estimated by calculating projected cash flows
before debt service requirements for a four-year period, plus an estimated
terminal value of the Company (calculated using a multiple of approximately six
on projected earnings before interest, taxes, depreciation, and amortization
("EBITDA")), each discounted back to its present value using a discount rate of
14% (representing the estimated after-tax weighted cost of capital). The above
calculations resulted in an estimated reorganization value of approximately
$238 million and a resulting $88.4 million of stockholders' equity after
deducting current liabilities of approximately $60 million and long-term debt
of approximately $90 million.
As a result of the implementation of fresh start reporting, the financial
statements of the Company after the consummation of the Plan are not comparable
to the Company's financial statements of prior periods. The effect of the Plan,
the reclassification of assets associated with the Terry Sale, and the
implementation of fresh start reporting on the Company's balance sheet as of
September 28, 1996 was as follows (in thousands) (unaudited):
<TABLE>
<CAPTION>
PRE-FRESH ADJUSTMENTS
START TO RECORD ASSETS FRESH START
BALANCE SHEET PLAN HELD FAIR VALUE BALANCE SHEET
SEPTEMBER 28, CONFIRMATION FOR SALE ADJUSTMENTS SEPTEMBER 28,
1996 (A) (B) (C) 1996
------------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Cash..................... $ 325 $ 0 $ 0 $ 0 $ 325
Other current assets..... 148,633 0 (18,646) 8,112 138,099
Assets held for sale..... 0 0 27,574 8,055 35,629
Property, plant, and
equipment............... 72,129 0 (8,928) (3,577) 59,624
Other long-term assets... 9,915 (1,628) 0 (3,888) 4,399
Current liabilities,
excluding current
maturities of long-term
debt.................... 58,829 403 0 781 60,013
Long-term debt,
including current
maturities.............. 286,919 (197,304) 0 0 89,615
Stockholders' equity
(deficit)............... (114,746) 195,273 0 7,921 88,448
</TABLE>
- -----------------
(a) To record the forgiveness of debt, the exchange of old subordinated notes,
and the issuance of common stock pursuant to the Plan.
(b) To reclassify assets associated with the Terry Sale.
(c) To record the adjustments to state assets and liabilities at their
estimated fair value.
8
<PAGE> 9
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's annual reporting period is the 52 or 53-week period ending on
the Saturday nearest December 31. The Company's results of operations and cash
flows are presented for the year ended January 3, 1998 (53 weeks), the three
months ended December 28, 1996 (13 weeks), the nine months ended September 28,
1996 (39 weeks), and the year ended December 30, 1995 (52 weeks).
For accounting purposes, the Company treated the consummation of the Plan as
if it occurred on September 28, 1996. The financial statements as of and for
the three months ended December 28, 1996 and the year ended January 3, 1998 are
presented for the Company after the consummation of the Plan. As discussed
previously, these statements were prepared under the principles of fresh start
reporting and are not comparable to the statements of prior periods.
Accordingly, a line has been used to separate the financial statements of the
Company after the consummation of the Plan from those of the Company prior to
the consummation of the Plan.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits with an original maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method except for certain supplies, for
which cost is determined using the first-in, first-out ("FIFO") method. Market
is defined as net realizable value. Cost includes raw materials, direct labor,
and manufacturing overhead. Approximately 96% of total inventories were valued
using the LIFO method at January 3, 1998 and December 28, 1996.
PROPERTY, PLANT, AND EQUIPMENT
As a result of the adoption of fresh start reporting, property, plant, and
equipment were adjusted to their estimated fair values as of September 28, 1996
and historical accumulated depreciation was eliminated. Depreciation is
provided using the straight-line method over the estimated useful asset lives.
Upon implementation of fresh start reporting, existing buildings and
improvements are depreciated over a remaining life of 20 years, and existing
machinery and equipment is depreciated over a remaining life of 5 years.
Buildings and machinery and equipment placed in service subsequent to the
implementation of fresh start reporting are depreciated over estimated useful
lives of 30 and 15 years, respectively. Leasehold improvements are depreciated
over the shorter of the estimated useful asset life or the term of the related
lease.
During 1997, the Company entered into three equipment leases which qualify as
capital leases under Statement of Financial Accounting Standards ("SFAS") No.
13, "Accounting for Leases." Accordingly, the equipment under capital lease
obligations has been recorded at the net present value of the estimated minimum
required lease payments at the inception of the lease using the Company's
incremental borrowing rate.
9
<PAGE> 10
Maintenance and repair costs are expensed as incurred, and major renewals and
betterments are capitalized. Construction in progress is transferred to
machinery and equipment when the asset is complete and placed in service. When
property or equipment is retired or otherwise disposed of, the related carrying
value and accumulated depreciation are removed from the accounts and any
resulting gain or loss is recorded in the statement of operations.
IMPAIRMENT OF LONG-LIVED ASSETS
SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," requires that long-lived assets and certain
identifiable intangibles held and used by a Company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also requires
that long-lived assets and certain identifiable assets held for sale, be
reported at the lower of carrying amount or fair value, less cost to sell. The
Company adopted SFAS No. 121 during 1996. Impairment losses of $750 were
recorded in 1997 related to closed facilities, and no impairment losses were
recorded in 1996 (See Note 3).
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
SFAS No. 87, "Employers' Accounting for Pensions," requires that a company
record an additional minimum pension liability to the extent that a company's
accumulated pension benefit obligation exceeds the fair value of pension plan
assets and accrued pension liabilities. This additional minimum pension
liability is offset by an intangible asset, not to exceed prior service costs
of the pension plan. Amounts in excess of prior service costs are reflected as
a reduction in stockholders' equity. As a result of the adoption of fresh start
reporting, all previously unrecognized amounts relating to the projected
benefit obligation as of September 28, 1996 were recognized in the nine months
ended September 28, 1996.
Prior to 1993, the Company accounted for retiree health care and life
insurance benefits on a pay-as-you-go basis. Effective January 2, 1993, the
Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." As a result of the adoption of fresh start
reporting, all previously unrecognized amounts relating to the projected
benefit obligation as of September 28, 1996 were recognized in the nine months
ended September 28, 1996.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This new standard defines a
fair value-based method of accounting for an employee stock option or similar
equity instrument. This statement gives entities a choice of recognizing
related compensation expense by adopting the new fair value method or to
continue to measure compensation using the intrinsic value approach under
Accounting Principles Board ("APB") Opinion No. 25. Although Opinion No. 25 has
been elected for measurement purposes, SFAS No. 123 requires supplemental
disclosure to show the effects of using the new measurement criteria (See Note
8).
EXTRAORDINARY ITEM
In connection with the restructuring, as described in Note 1, during the nine
months ended September 28, 1996, the Company recorded an extraordinary gain of
approximately $111,650,000 on the discharge of debt.
NET LOSS PER SHARE
Basic loss per share is based on the weighted average number of shares of
common stock outstanding, which was 10,061,576 and 9,986,413 for the year ended
January 3, 1998 and the three months ended December 28, 1996, respectively.
Diluted loss per share is calculated treating all potentially dilutive
securities such as stock options as outstanding during the entire period, or
from grant date if granted during the period. All such options (744,000 at
January 3, 1998 and 200,000 at December 28, 1996) were anti-dilutive for the
year ended January 3, 1998, and for the three months ended December 28, 1996,
and therefore, were excluded from the earnings per share calculation for such
periods.
10
<PAGE> 11
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the major methods and assumptions used in estimating
the fair values of financial instruments:
CASH, CASH EQUIVALENTS, AND ACCOUNTS RECEIVABLE
The carrying amounts approximate fair value due to the short maturity
period of these instruments.
DEBT
The carrying amounts of the debt under the Loan and Security Agreement and
the industrial development revenue bonds approximate fair value based on
current interest rates for similar financial instruments.
CERTAIN RISKS
The Company is subject to certain risks in the ordinary course of business.
Among those is the risk of an increase in cotton prices that significantly
affects the cost of production and cash flows. Historically, the Company has
been able to pass on a portion of any such price increases to its customers.
The Company is self-insured for worker's compensation liability in the state
of Georgia, and was previously self-insured in North Carolina, through November
1997. Provisions for losses expected under these self-insurance programs are
recorded based on the Company's estimates of the aggregate liability for claims
incurred. These estimates utilize the Company's prior experience. The total
estimated liability for these losses at January 3, 1998 and December 28, 1996
was approximately $1,646,000 and $2,300,000, respectively, and is included in
other accrued liabilities in the accompanying balance sheets.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income ("SFAS No. 130"), which establishes
standards for reporting and display of "comprehensive income," which is the
total of net income and all other non-owner changes in stockholder's equity,
and its components. The Company is in the process of evaluating SFAS No. 130
and its impact and will adopt the standard in the first quarter of its 1998
fiscal year.
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131, which
supersedes SFAS No. 14, 18, 24, and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. The Company is in the
process of evaluating SFAS No. 131 and its impact and will adopt the standard
for its 1998 fiscal year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified in order to conform to the
current year presentation.
3. DISCONTINUED OPERATIONS
In December 1997, the Company sold its napery business, which consisted of
the manufacturing and marketing of damask table linen products serving the
hospitality market (the "Napery Business"), and related inventory, to Mount
Vernon Mills, Inc. In connection therewith, the Company has closed its Roanoke
Rapids, North Carolina napery manufacturing plant and will actively seek a
buyer. The Company classified the assets of the Napery Business as of January
3, 1998 as net assets of discontinued operations, and the results of operations
of the Napery Business are excluded from the Company's continuing operations.
11
<PAGE> 12
In December 1997, the Company announced that it intends to exit the apparel
business, which consisted of the manufacturing and marketing of apparel
fabrics, principally chambray, sold primarily to converters (the "Apparel
Business") during the first quarter of 1998. As a result, the Company announced
that its Columbus, Georgia apparel manufacturing facility will be closed during
the first quarter of 1998. The assets of the Apparel Business will be
liquidated subsequent to cessation of operations. The Company classified the
assets, except for real estate, of the Apparel Business as net current assets
of discontinued operations, and the results of operations for the Apparel
Business are excluded from the Company's continuing operations.
The table below sets forth net sales and income (loss) of the discontinued
Apparel Business and the discontinued Napery Business (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE
ENDED JANUARY 3, MONTHS ENDED
1998 DECEMBER 28, 1996
----------------- -----------------
NAPERY APPAREL NAPERY APPAREL
BUSINESS BUSINESS BUSINESS BUSINESS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................ $7,545 $23,731 $2,766 $7,471
Income (loss)............................ (2,494) (4,422) 17 (396)
</TABLE>
Income (loss) reflected above includes interest expense of $320 and $704 for
Napery and Apparel, respectively, for the year ended January 3, 1998, and $75
and $170 for Napery and Apparel, respectively, for the three months ended
December 28, 1996. Such interest expense has been allocated based on the net
assets of the respective discontinued businesses, applying the Company's
incremental borrowing rate. Estimated losses on disposal of discontinued
businesses exclude an interest allocation.
Net assets of discontinued operations at January 3, 1998 are set forth below
(in thousands):
<TABLE>
<CAPTION>
NAPERY APPAREL TOTAL
------- ------- -------
<S> <C> <C> <C>
Accounts receivable, net.......................... $ 815 $ 4,300 $ 5,115
Inventory......................................... 0 7,486 7,486
Property, plant and equipment, net................ 2,237 6,627 8,864
Accounts payable and accrued liabilities.......... (1,684) (4,700) (6,384)
Reserve for future claims......................... (100) (225) (325)
Reserve for future severance...................... (1,031) (1,150) (2,181)
Reserve for future overhead costs................. (200) (350) (550)
------- ------- -------
$ 37 $11,988 $12,025
======= ======= =======
</TABLE>
Upon the discontinuation of the Napery Business, the Company recorded a
reserve for future claims of $100,000 related to inventory which remained
subject to inspection by the buyer. Through the sale agreement with the buyer
of the Napery inventory, the buyer had the ability to reject a portion of the
inventory purchased, which at the time of purchase had not been woven from
greige cloth into napery. The reserve recorded approximates the book value of
this greige cloth which could be rejected by the buyer.
In addition, the Company recorded a reserve for future severance of the
Napery Business employees in the amount of $1,031,000. This accrual
was calculated based on the union contract in place at the Roanoke Rapids,
North Carolina facility, which was closed as a result of the discontinuance of
the Napery Business. The contract required severance ranging from two weeks to
three months, depending on employee classifications. The Company also recorded
a reserve for future overhead costs of $200,000 representing estimated fixed
overhead costs at the closed facility, primarily consisting of property taxes
and security, between the measurement date and the estimated disposal date.
With respect to the announcement of the Company's exiting of the Apparel
Business, the Company recorded a reserve for future claims of $225,000. This
reserve represents an estimate of future quality claims of specific products
that had been sold prior to January 3, 1998.
In addition, the Company recorded a reserve for future severance of its
Columbus, Georgia apparel manufacturing facility employees of $1,150,000. This
accrual was calculated based on the Company's normal severance policy. The
policy required severance pay of approximately five weeks, depending on
employee classification. In addition, to the extent that salaried personnel
were due severance, such amounts were included in the reserve recorded. The
Company also recorded a reserve for future overhead costs of $350,000,
representing estimated fixed overhead costs at the closed facility, primarily
property taxes, electricity and security between the measurement date and the
estimated disposal date.
4. INVENTORIES
The major categories of inventories, exclusive of apparel inventory discussed
above, as of January 3, 1998 and December 28, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Raw materials and supplies........................... $ 7,713 $ 9,018
Work in process...................................... 24,308 33,463
Finished goods....................................... 22,238 29,517
------- -------
Total at FIFO cost............................... 54,259 71,998
Excess of LIFO cost over FIFO cost................... 46 284
------- -------
Total at LIFO cost............................... $54,305 $72,282
======= =======
</TABLE>
Substantially all inventories are pledged as collateral under the Loan and
Security Agreement (Note 6).
12
<PAGE> 13
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, exclusive of items related to the
discontinued apparel and napery businesses discussed above, as of January 3,
1998 and December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Machinery and equipment.............................. $27,853 $33,987
Land, buildings, and improvements.................... 22,348 24,316
Construction in progress............................. 18,609 2,438
------- -------
68,810 60,741
Less accumulated depreciation........................ 5,981 2,099
------- -------
$62,829 $58,642
======= =======
</TABLE>
Substantially all property, plant, and equipment are pledged as collateral
under the Loan and Security Agreement (Note 6).
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations as of January 3, 1998 and
December 28, 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Line of credit under Loan and Security Agreement.... $58,615 $71,154
Term loan under Loan and Security Agreement......... 12,308 14,644
Capital lease obligations........................... 7,162 0
Industrial development revenue bonds................ 0 3,000
Other............................................... 430 532
------- -------
78,515 89,330
Less current maturities............................. 3,617 5,237
------- -------
$74,898 $84,093
======= =======
</TABLE>
Annual maturities of long-term debt and capital lease obligations are as
follows (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 3,617
1999................................................................ 70,509
2000................................................................ 1,867
2001................................................................ 2,070
Thereafter.......................................................... 2,086
-------
80,149
Less amounts representing interest.................................. (1,634)
-------
Total........................................................... $78,515
=======
</TABLE>
LOAN AND SECURITY AGREEMENT
As part of the Plan, the Company obtained financing from lending institutions
to repay the old senior revolving credit facility and finance additional
capital expenditures. Under the Loan and Security Agreement, as amended, the
Company is entitled to borrow up to a maximum of $75 million. Borrowings in the
form of a term loan of $25 million and in the form of revolving loans are only
available to the extent that a sufficient borrowing base, calculated on
eligible receivables and inventory, exists. Borrowings under this credit
facility bear interest at prime rate, as defined, (8.5% at January 3, 1998)
plus 1%, or, at the Company's option, the Adjusted Eurodollar Rate, as defined,
(5.9% at January 3, 1998) plus 3%. This credit agreement is for a minimum of
three years, subject to one-year extensions unless terminated by the lenders or
the Company. Substantially all of the Company's assets are pledged as
collateral under the Loan and Security Agreement.
13
<PAGE> 14
The agreement contains restrictive financial and other covenants,
including maintaining certain levels of tangible net worth and working capital,
as defined, as well as restrictions on the incurrence of indebtedness, liens,
mergers, acquisitions, asset sales, capital expenditures, and dividends, among
others. The annual interest rate will be reduced by up to a maximum of one-half
of 1% if certain financial performance requirements in the Loan and Security
Agreement are met. In addition, the Company pays an annual service fee of
$100,000, a monthly facility fee of one-half of 1% per annum of the average
daily unused portion of the facility and a monthly letter of credit fee of 2.5%
per annum of the daily outstanding balance of each letter of credit.
Financing fees incurred associated with the Loan and Security
Agreement, as amended, were approximately $3,668,000, and are being amortized
over the term of the agreement.
AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT
Effective March 6, 1998, the Company entered into a new amendment to
the Loan and Security Agreement, significant provisions of the new amendment are
as follows:
(i) increase of the term loan to $21.3 million, (ii) extension of the
renewal date from September 16, 1999 to November 1, 2000, (iii) reduction of the
tangible net worth covenant from a minimum of $70 million to a minimum of $50
million, (iv) reduction of the prepayment fees for replacing the credit
agreement after September 16, 1998, from $575,000 to $300,000, and (v) reduction
of the revolving loan limit to $60 million.
As of March 9, 1998, the Company had the ability to borrow an
additional $6 million under the revolver associated with the Loan and Security
Agreement, as amended.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
Industrial development revenue bonds were issued and sold to refinance
the purchase of certain plants from WestPoint Stevens, Inc. These bonds were
backed by letters of credit issued under the old senior revolving credit
facility in the amount of approximately $11,141,000, including interest. The
bonds' maturity dates were December 2003 and October 2004.
In January 1996, the Company closed the plants that were purchased in
connection with the issuance of the industrial development revenue bonds. On
December 10, 1996 and February 3, 1997, the Company redeemed the bonds for
$8,000,000 and $3,000,000, respectively.
7. INCOME TAXES
Prior to September 28, 1996, the Company was an S corporation and was
generally not subject to corporate-level taxes on its net income because such
income was attributed to the Company's stockholders and taxes on such income was
directly payable by them. Effective and pursuant to the Plan, the Company became
a C corporation for income tax purposes.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method in
accounting for income taxes. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
income taxes also reflect the value of net operating losses and an offsetting
valuation allowance. There was no net income tax expense or benefit recorded in
the year ended January 3, 1998 or the three months ended December 28, 1996.
14
<PAGE> 15
A reconciliation of differences between the statutory U.S. federal
income tax rate and the Company's effective tax rate for the year ended January
3, 1998 and the three months ended December 28, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Income tax benefit at federal statutory income tax
rate.............................................. $ 9,638 $ 864
State income taxes, net of federal income tax bene-
fit............................................... 1,134 101
Other, net......................................... 0 2
Change in valuation allowance...................... (10,772) (967)
-------- -----
Income tax benefit................................. $ 0 $ 0
======== =====
</TABLE>
Under federal income tax laws, the Company was not required to include
in its federal taxable income any gain on the discharge of debt pursuant to the
Plan. Accordingly, no income taxes have been provided on the $112 million
extraordinary gain on discharge of debt in the statement of operations for the
nine months ended September 28, 1996.
SFAS No. 109 requires that a valuation allowance be recorded against
deferred tax assets which are not likely to be realized. The Company's
utilization of net operating losses carried forward may be limited to specific
amounts each year. However, due to the uncertain nature of their ultimate
realization based upon past performance, the Company has established a valuation
allowance against these carryforward benefits and will recognize the benefits
only when a reassessment demonstrates they are realizable. Realization is
entirely dependent upon future earnings. While the need for this valuation
allowance is subject to periodic review, if the allowance is reduced, the tax
benefits of the carryforwards will be recorded in future operations as a
reduction of the Company's income tax expense.
Components of the net deferred income tax asset at January 3, 1998 and
December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Property and depreciation........................... $ 0 $ 927
Inventory valuation................................. 2,367 1,808
Other............................................... 2,126 495
------- -------
Total deferred tax liabilities................... 4,493 3,230
------- -------
Deferred tax assets:
Property and depreciation........................... 9,089 0
Operating loss carryforwards........................ 4,825 2,222
Allowance for doubtful accounts..................... 1,545 3,109
Self-insurance reserves............................. 3,734 1,820
Salary-related accruals............................. 1,447 2,003
Other............................................... 0 2,542
------- -------
Total deferred tax assets........................ 20,640 11,696
------- -------
Net deferred tax asset............................... 16,147 8,466
Less valuation allowance............................. 16,147 8,466
------- -------
$ 0 $ 0
======= =======
</TABLE>
15
<PAGE> 16
8. BENEFIT PLANS
Pursuant to the Plan, all stock option agreements related to the old
common stock of the Company were effectively terminated.
The Company maintains an incentive compensation plan for its salaried
employees, which provides for incentive awards based on certain levels of
earnings. The amounts awarded under the plan and charged to expense in the
accompanying statements of operations were $350,000 for the year ended January
3, 1998 and $0 for the three months ended December 28, 1996, the nine months
ended September 28, 1996 and the year ended December 30, 1995.
The Company maintains a separate defined contribution 401(k)
profit-sharing plan covering substantially all hourly and salaried employees.
Under this plan, the Company contributes a specified percentage of each eligible
employee's contributions. Amounts contributed under the plan were approximately
$586,000 for the year ended January 3, 1998, $196,000 for the three months ended
December 28, 1996, $506,000 for the nine months ended September 28, 1996, and
$786,000 for the year ended December 30, 1995.
The Company also maintains an executive deferred compensation plan
under which eligible executives may elect to defer up to 50% of their
compensation. Amounts deferred are paid to the executives or their beneficiaries
following retirement, termination, or death. A liability for amounts deferred
under this plan of approximately $2,395,000 and $2,814,000 at January 3, 1998
and December 28, 1996, respectively, is included in accrued payroll and other
compensation in the accompanying balance sheets.
On September 27, 1996, September 30, 1997, and December 8, 1997, the
Company granted 200,000, 404,000, and 20,000 stock options, respectively,
related to the new common stock to employees of the Company. The option prices
of $7.10, $7.25, and $6.81 per share represented the Board's estimates of the
approximate fair values of the common stock at these times. The shares are
exercisable beginning one year after the date granted.
On September 30, 1997, the Company granted 120,000 stock options
related to the new common stock to nonemployee directors of the Company at an
option price of $7.25 per share. The shares are exercisable beginning one year
after the date granted.
During 1996 and 1997, no options related to the new common stock were
exercised, cancelled, or forfeited.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock options
granted. Had compensation cost for the Company's stock options granted been
determined consistent with the provisions of SFAS No. 123, the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below for the year ended January 3, 1998, and the three months ended
December 28, 1996 (in thousands, except share data):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Net loss, as reported................................ $(28,346) $(2,540)
Net loss, pro forma.................................. (28,737) (2,608)
Net loss per share, as reported:
Basic and diluted................................... $ (2.82) $ (0.25)
Net loss per share, pro forma:
Basic and diluted................................... (2.86) (0.26)
</TABLE>
16
<PAGE> 17
The assumption for the stock options issued to employees on September
27, 1996 and December 8, 1997 was that 33% of the options vested each year over
a three-year period from the dates of the grants. The assumption for the stock
options issued on September 30, 1997 was that 33% of the options vested over the
first nine months from the date of grant, and 33% each year thereafter. The fair
values of options granted are estimated on the dates of the grants using the
Black-Scholes option-pricing model with the following assumptions for 1997 and
1996: dividend yield and forfeiture rate of 0%; expected volatility of 30% and
35%, respectively; risk free interest rate of 5.88% and 6.58%, respectively; and
expected life of three years and five years, respectively.
POSTRETIREMENT BENEFITS
The Company provides reduced life insurance benefits to retired
employees who were employed prior to January 1, 1974. On January 3, 1993, the
Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This standard requires that the expected cost of these
benefits be charged to expense during the years that the employees render
service. This was a change from the Company's prior policy of recognizing
postretirement benefits on a cash basis. Based on actuarial estimates using
currently available data, the postretirement benefit obligation at January 3,
1993, measured in accordance with SFAS No. 106, was approximately $2,400,000.
The Company elected to amortize the obligation over a 10.5-year period, the
average remaining life expectancy of the participants, beginning January 3,
1993. The Company recognized the unamortized transition obligation associated
with the adoption of SFAS No. 106 in the nine months ended September 28, 1996 as
a result of the implementation of fresh start reporting.
Components of the net periodic postretirement benefit cost for the year
ended January 3, 1998, the three months ended December 28, 1996, the nine months
ended September 28, 1996, and the year ended December 30, 1995, are as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30,
1998 1996 1996 1995
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest cost on accumulated postretirement benefit obligation......... $109 $32 $ 96 $146
Amortization of transition benefit..................................... 0 0 172 229
Recognition of transition obligation................................... 0 0 1,543 0
---- --- ------ ----
$109 $32 $1,811 $375
--------------------------------------------------
==== === ====== ====
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.5%.
PENSION PLAN
The Company maintains a noncontributory defined benefit pension plan
covering substantially all of its hourly employees. The benefits under the plan
are based on years of service during which the employees participate in the
plan. The Company's funding policy is to contribute an amount based on
actuarially determined values required to sustain the plan on a sound financial
basis.
The Company recognized previously unrecognized and deferred items such
as the net transition obligation, prior service cost, and (gains) losses in the
nine months ended September 28, 1996 as a result of the implementation of fresh
start reporting.
17
<PAGE> 18
Components of the net periodic pension cost for the year ended January
3, 1998, the three months ended December 28, 1996, the nine months ended
September 28, 1996, and the year ended December 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS YEAR
YEAR ENDED ENDED ENDED ENDED
JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30,
1998 1996 1996 1995
---------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the period........................ $856 $284 $ 853 $1,358
Actual return on plan assets........................................... (720) (66) (200) (423)
Interest cost on projected benefit obligation.......................... 721 156 468 419
Net amortization and deferral.......................................... 0 0 17 73
Recognition of deferred items.......................................... 0 0 985 0
---- ---- ------ ------
Net periodic pension cost.............................................. $857 $374 $2,123 $1,427
--------------------------------------------------
==== ==== ====== ======
</TABLE>
The plan's funded status and amounts recognized in the accompanying
balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Accrued pension cost:
Accumulated and projected benefit obligation, in-
cluding vested benefits of $9,071 and $7,323 for
fiscal years 1997 and 1996, respectively.......... $9,767 $7,969
Less plan assets at fair value................... (9,781) (7,015)
------ ------
Projected benefit obligation (less than) in excess
of plan assets..................................... (14) 954
Unrecognized net loss............................... (714) (60)
Adjustment required to recognize minimum liability.. 0 60
------ ------
(Prepaid) accrued pension........................... $ (728) $ 954
====== ======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation in fiscal years 1997 and 1996
was 7.5% and 8.25%, respectively. The expected long-term rate of return on
assets used for the year ended January 3, 1998, the three months ended December
28, 1996, the nine months ended September 28, 1996, and the year ended December
30, 1995 was 9%.
9. TRANSACTIONS WITH AFFILIATES
In 1996, the Company received approximately $10,700,000 in
consideration for a related party subordinated promissory note and recorded a
loss, reflected in additional paid-in capital, of $5,016,000.
Pursuant to a management services agreement dated April 1, 1989, The
NTC Group, Inc. ("NTC") provided certain management, corporate development, and
financial consulting services to the Company. The management services agreement
provided that NTC receive a management fee equal to the lesser of 2% of the
Company's average equity book value plus interest-bearing debt, as defined, or
$4,000,000. The Company incurred expenses of $1,993,000 and $3,368,000 for the
nine months ended September 28, 1996 and for the year ended December 30, 1995,
respectively, which is shown as management fees to affiliate in the accompanying
statements of operations. Pursuant to the Plan, $1,830,000 of accrued management
fees were forgiven by NTC as of September 28, 1996, and the management services
agreement was terminated.
10. SIGNIFICANT CUSTOMERS
The Company's ten largest customers accounted for less than 40% of net
sales for the year ended January 3, 1998, the three months ended December 28,
1996, the nine months ended September 28, 1996, and the year ended December 30,
1995. Of these, one customer accounted for approximately 12.3% of total net
sales for the three
18
<PAGE> 19
months ended December 28, 1996, 12.3% for the nine months ended September 28,
1996, and 11.5% for the year ended December 30, 1995. For the year ended
January 3, 1998, no single customer accounted for more than 7% of total net
sales.
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to certain legal actions arising in the ordinary
course of its business. In management's opinion, the outcome of these actions
will not have a material adverse effect on the Company's financial position or
results of operations.
ENVIRONMENTAL MATTERS
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by Superfund Amendments and Reauthorization Act of 1986
("CERCLA") (commonly known as Superfund), provides for responses to and
liability for releases of hazardous substances into the environment. These
obligations are imposed on the current owner or operator of a facility, the
owner or operator of a facility at the time of the disposal of hazardous
substances at the facility, on anyone who arranged for the treatment or disposal
of hazardous substances at the facility, and on any person who accepted
hazardous substances for transport to a facility selected by such person.
Generally, liability to the government under CERCLA is joint and several.
The Company has been named as one of approximately 180 third-party
defendants in connection with litigation relating to the Keystone Sanitary
Landfill (located in Adams County, Pennsylvania), a federal Superfund matter.
The Company is alleged to have disposed of 1,800 cubic yards of material at this
site. The United States Environmental Protection Agency reportedly has estimated
the total volume of wastes allegedly disposed of at the site by viable
potentially responsible parties to be in excess of a half a million cubic yards.
The Company disputed its allocated volume, and the toxicity of its waste. On
October 20, 1997, the Company entered into a Consent Decree along with
approximately 140 other defendants. It is anticipated that the Consent Decree
will be entered by the United States District Court for the Middle District of
Pennsylvania. If entered, the Consent Decree should satisfy any liability that
the Company has in this litigation. The Company believes that its maximum
exposure is less than $5,000.
The Company has not accrued for any material environmental liabilities
as of January 3, 1998, due to management's belief that an unfavorable outcome
from the ongoing proceedings would not have a material adverse effect on the
Company's financial position or results of operations. However, the Company has
budgeted and expects to incur approximately $1.2 million in environmental
capital expenditures in fiscal year 1998 for the continued construction of new
wastewater treatment facilities at the Brookneal, Virginia plant to comply with
a Special Order on Consent with the Virginia Water Control Board.
LEASES
The Company leases office space, office equipment, and other items
under noncancelable operating leases. Rental expense under these noncancelable
operating leases was approximately $6,194,000 for the year ended January 3,
1998, $2,426,000 for the three months ended December 28, 1996, $7,279,000 for
the nine months ended September 28, 1996, and $9,407,000 for the year ended
December 30, 1995.
At January 3, 1998, future minimum lease payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998.................................................................. $3,088
1999.................................................................. 2,214
2000.................................................................. 1,341
2001.................................................................. 306
2002.................................................................. 176
------
$7,125
======
</TABLE>
19
<PAGE> 20
OTHER
The Company had contractual commitments to make minimum guaranteed
payments under various product licensing agreements expiring through December
31, 2000 of approximately $2,864,000. These commitments are not expected to
result in future losses.
12. NONRECURRING CHARGES
During 1997, the Company incurred $4.1 million in operating charges of
a nonrecurring nature relating to losses to be incurred under a sublease
agreement, severance, impairment of previously closed manufacturing facilities
(Rockingham, North Carolina and Abbeville, South Carolina) and losses associated
with the Terry Division, subsequent to its sale.
The losses incurred as a result of a New York sublease agreement
approximate $1,050,000. These losses are the result of the Company abandoning
and subleasing, in the fourth quarter of 1997, a portion of the Company's New
York sales office at a rate below the Company's existing lease payment. The
lease and sublease expire in December 2000.
The Company also recorded impairment charges associated with the
closure of its facilities in Rockingham, North Carolina and Abbeville, South
Carolina of approximately $750,000. These properties have been closed for
several years, and as a result of unsuccessful attempts to sell these facilities
during 1997, management concluded that an asset impairment under the provisions
of SFAS No. 121 had occurred, and thus obtained a third party appraisal for the
Abbeville, South Carolina property. The impairment of the Rockingham, North
Carolina property was based on the price arrived at in negotiations for the
sale of the facility subsequent to January 3, 1998.
In addition, corporate severance of approximately $350,000 was
recorded resulting from the termination in late 1997 of a small group of
corporate employees as a result of cost cutting and reduced operations with the
discontinuance of the Napery and Apparel Businesses. As of the end of February
1998, approximately $180,000 of these charges had been paid.
As a part of the Company's reorganization plan effective September
1996, as previously described in Note 1 to the financial statements, the Terry
division was sold to West Point Stevens and closed in February 1997. Assets and
liabilities of the Terry division were classified as "assets held for sale" as
of December 28, 1996 at an amount equal to the price plus the operating results
of the Terry business for the period from December 28, 1996 through the
effective date of the sale, February 21, 1997. Subsequent to February 21, 1997,
$1,983,000 of costs and expenses, such as product returns, warranty claims, and
losses on the sale of products which were not purchased by West Point Stevens,
were included as "nonrecurring charges" in the Company's January 3, 1998
financial statements. There is no expected future cost related to these issues,
as they represent costs already incurred rather than amount accrued in
anticipation of future costs.
20
<PAGE> 21
THE BIBB COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JANUARY 3, 1998,
THE THREE MONTHS ENDED DECEMBER 28, 1996,
THE NINE MONTHS ENDED SEPTEMBER 28, 1996,
AND THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS* OF PERIOD
----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 3,
1998:
Allowance for doubtful
accounts, discounts, and
claims ..................... $1,588 $ 465 $2,288 $ (1,655) $2,686
THREE MONTHS ENDED DECEM-
BER 28, 1996:
Allowance for doubtful
accounts, discounts, and
claims ..................... 0 191 1,397 0 1,588
NINE MONTHS ENDED SEPTEM-
BER 28, 1996:
Allowance for doubtful
accounts, discounts, and
claims ..................... 5,134 2,388 2,785 (10,307) 0
YEAR ENDED DECEMBER 30,
1995:
Allowance for doubtful
accounts, discounts, and
claims ..................... 4,667 491 8,363 (8,387) 5,134
</TABLE>
- --------
* Deductions represent the write-off of uncollectable receivables, net of
recoveries, and for the nine months ended September 28, 1996, the write-off
of the allowance account in order to state accounts receivable at fair value
in accordance with fresh start reporting.
21
<PAGE> 1
EXHIBIT 99.3
THE BIBB COMPANY
CONDENSED BALANCE SHEETS
JULY 4, 1998 AND JANUARY 3, 1998
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 95 $ 114
Accounts receivable, net of allowances for doubtful accounts, discounts, and claims
of $1,676 and $2,686 as of July 4, 1998 and January 3, 1998, respectively 35,686 34,761
Inventories 59,514 54,305
Net assets of discontinued operations 7,193 12,025
Prepaid expenses and other current assets 3,743 3,019
-------- --------
Total current assets 106,231 104,224
PROPERTY, PLANT and EQUIPMENT, net 80,040 62,829
OTHER ASSETS 2,430 2,298
-------- --------
$188,701 $169,351
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,678 $ 3,617
Accounts payable 23,819 17,830
Accrued payroll and other compensation 4,765 5,806
Other accrued liabilities 5,519 9,103
-------- --------
Total current liabilities 40,781 36,356
LONG-TERM DEBT, less current maturities 87,827 74,898
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, 0 shares issued
and outstanding 0 0
Common stock, $.01 par value, 25,000,000 shares authorized;
10,061,576 shares issued and outstanding 101 101
Additional paid-in capital 88,882 88,882
Accumulated deficit (28,890) (30,886)
-------- --------
Total stockholders' equity 60,093 58,097
-------- --------
$188,701 $169,351
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets
(unaudited).
<PAGE> 2
THE BIBB COMPANY
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AND THE SIX MONTHS ENDED
JULY 4, 1998 AND JUNE 28, 1997
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ------------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 59,515 $ 63,299 $ 116,340 $ 122,231
COST OF SALES 50,629 56,311 99,587 110,569
----------- ----------- ----------- -----------
Gross Profit 8,886 6,988 16,753 11,662
SELLING AND ADMINISTRATIVE
EXPENSES 5,284 5,391 10,966 10,844
----------- ----------- ----------- -----------
Operating Profit 3,602 1,597 5,787 818
OTHER EXPENSES:
Interest expense (1,395) (1,060) (3,135) (2,034)
Loan fee amortization and related
expenses (322) (312) (656) (586)
Other, net 0 (6) 0 (101)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ 1,885 $ 219 $ 1,996 $ (1,903)
----------- ----------- ----------- -----------
NET LOSS OF DISCONTINUED
OPERATIONS, net of taxes:
Apparel business 0 (1,305) 0 (1,604)
Napery business 0 (324) 0 (94)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 1,885 $ (1,410) $ 1,996 $ (3,601)
=========== =========== =========== ===========
PER SHARE INFORMATION:
Net loss from continuing operations:
Basic $ 0.19 $ 0.02 $ 0.20 $ (0.19)
=========== =========== =========== ===========
Diluted $ 0.18 $ 0.02 $ 0.19 $ (0.19)
=========== =========== =========== ===========
Net loss of discontinued operations:
Basic 0.00 (0.16) 0.00 (0.17)
=========== =========== =========== ===========
Diluted 0.00 (0.16) 0.00 (0.17)
=========== =========== =========== ===========
Net loss:
Basic $ 0.19 $ (0.14) $ 0.20 $ (0.36)
=========== =========== =========== ===========
Diluted $ 0.18 $ (0.14) $ 0.19 $ (0.36)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 10,061,576 10,061,576 10,061,576 10,061,576
=========== =========== =========== ===========
Diluted 10,327,287 10,061,576 10,257,465 10,061,576
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements (unaudited).
2
<PAGE> 3
THE BIBB COMPANY
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 4, 1998
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Common
Stock Additional
($.01 Paid-in Accumulated
Par Value) Capital Deficit Total
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ 101 $88,882 $(30,886) $58,097
Net Income 0 0 1,996 1,996
---------------- ----------------- ----------------- ------------------
Balance, July 4, 1998 $ 101 $88,882 $(28,890) $60,093
================= ================= ================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
(unaudited).
3
<PAGE> 4
THE BIBB COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 4, 1998 AND JUNE 28, 1997
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
July 4, June 28,
1998 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,996 $ (3,601)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,361 3,625
Loan fee amortization and related expenses 656 586
Net loss on sales and retirement of assets 0 13
Changes in operating assets and liabilities:
Assets held for sale 0 37,012
Net assets of discontinued operations 4,832 0
Other working capital accounts (6,069) 816
-------- ---------
Net cash provided by operating activities 4,776 38,451
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,245) (5,814)
Proceeds from sale of fixed assets 0 2,565
Other, net (694) (304)
-------- ---------
Net cash used in investing activities (10,939) (3,553)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital lease obligation (1,040) (3,046)
Proceeds from sale/leaseback transaction 1,933 0
Net borrowings (repayments) of senior debt 5,973 (34,920)
Loan fees (722) 0
-------- ---------
Net cash provided by (used in) financing activities 6,144 (37,966)
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19) (3,068)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 114 3,206
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 95 $ 138
======== =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 3,979 $ 3,205
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements (unaudited).
4
<PAGE> 5
THE BIBB COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF INTERIM PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the Company's financial position as of
July 4, 1998, the results of its operations for three month periods ended and
the six month periods ended July 4, 1998 and June 28, 1997 and cash flows for
the six month periods ended July 4, 1998 and June 28, 1997, have been included.
Operating results for the three month and six month periods ended July 4, 1998
are not necessarily indicative of the results that may be expected for the year
ending January 2, 1999. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. The condensed
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended January 3, 1998. The
condensed balance sheet at January 3, 1998, has been derived from these
statements.
Unless the context otherwise requires, the "Company" means The Bibb
Company, a Delaware corporation.
Certain prior period amounts have been reclassified in order to conform
to current period presentation.
On June 29, 1998, the Company and Dan River Inc., a leading manufacturer and
marketer of textile products for the home fashions and apparel fabrics markets,
("Dan River"), announced a definitive merger agreement, as subsequently amended,
under which Dan River will acquire the Company for a combination of cash and Dan
River stock in a tax-free transaction valued in excess of $250 million,
including assumed debt (the "Merger"). Each of the Company's shareholders will
be entitled to elect whether to receive $16.50 in cash, .84615 shares of Dan
River Class A common stock, or a combination thereof, for each of the Company's
shares held, subject to proration. The closing of the Merger is expected to
occur in the third quarter of 1998, subject to the fulfillment of certain
customary closing conditions.
2. SIGNIFICANT ACCOUNTING POLICIES
Discontinued Operations
In December 1997, the Company sold its napery business, which consisted
of the manufacture and marketing of damask table linen products serving the
hospitality market (the "Napery Business"), and related inventory, to Mount
Vernon Mills, Inc. In connection therewith, the Company closed its Roanoke
Rapids, North Carolina manufacturing plant during the three month period ended
April 4, 1998 and is actively seeking a buyer for the property. As the assets of
the Napery Business are currently being liquidated, they have been classified,
as of July 4, 1998 and January 3, 1998, as net assets of discontinued
operations, and the results of operations of the Napery Business are excluded
from the Company's continuing operations.
During the three month period ended April 4, 1998, the Company exited
the apparel business, which consisted of the manufacture and marketing of
apparel fabrics, principally chambray, which is sold primarily to garment
manufacturers (the "Apparel Business"). As a result, the Company discontinued
its manufacturing operations at the Company's Columbus, Georgia facility. The
assets
5
<PAGE> 6
of the Apparel Business are currently being liquidated. As a result, the Company
classified the assets, except for real estate, of the Apparel Business as net
assets of discontinued operations, and the results of operations for the Apparel
Business are excluded from the Company's continuing operations. The table below
sets forth net sales, net losses, and net loss per common share for the
discontinued Apparel Business and Napery Business for the three months ended
July 4, 1998 and June 28, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
For the three months ended For the three months ended
July 4, 1998 June 28, 1997
---------------------------------- ----------------------------------------
Apparel Napery Apparel Napery
Business Business Business Business
-------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $1,229 $ 0 $ 6,223 $2,389
Net loss $ 0 $ 0 $(1,305) $ (324)
Net loss per common share,
basic and diluted $ 0.00 $0.00 $ (0.13) $(0.03)
</TABLE>
Net assets of discontinued operations at July 4, 1998 and January 3,
1998 are set forth below (in thousands):
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------------ ---------------------
<S> <C> <C>
Accounts receivable, net $1,268 $ 5,115
Inventory 0 7,486
Property, plant & equipment 6,698 8,864
Accounts payable and accrued liabilities (773) (9,440)
------------------ ---------------------
$7,193 $12,025
================== =====================
</TABLE>
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits -an amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132"), and
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective January 4, 1998.
SFAS 130 establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net income and all other nonowner changes
in equity. SFAS 131 introduces a new segment reporting model called the
"management approach." The management approach is based on the manner in which
management organizes segments within a company for making operating decisions
and assessing performance. The management approach replaces the notion of
industry and geographic segments. SFAS 132 revises disclosures about pension and
other postretirement benefit plans, yet it does not change the measurement or
recognition of those plans. SFAS 133 establishes accounting standards for
derivative instruments and hedging activities. The Company does not currently
engage in hedging activities or utilize derivative instruments. The disclosures
relative to SFAS's 130, 131, 132 and 133 do not significantly affect the
Company's current disclosures.
6
<PAGE> 7
3. INVENTORIES
The major classes of inventories, exclusive of inventory related to the
discontinued apparel and napery businesses, were as follows (in thousands):
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
-------- ----------
<S> <C> <C>
Raw materials and supplies $ 8,545 $ 7,713
Work-in-process 25,981 24,308
Finished goods 23,541 22,238
-------- ---------
Total at FIFO cost 58,067 54,259
Excess of LIFO cost over FIFO cost 1,447 46
-------- ---------
Total at LIFO cost $ 59,514 $ 54,305
======== =========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment, exclusive of items related to the
discontinued apparel and napery businesses were as follows (in thousands):
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
---------- ------------
<S> <C> <C>
Machinery and equipment $ 35,334 $ 27,853
Land, buildings, and improvements 22,348 22,348
Construction in progress 31,125 18,609
-------- --------
88,807 68,810
Less accumulated depreciation 8,767 5,981
-------- --------
$ 80,040 $ 62,829
======== ========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
---------- ------------
<S> <C> <C>
Line of credit under New Credit Agreement $ 57,253 $ 58,615
Term loan under New Credit Agreement 19,643 12,308
Capital lease obligations 17,247 7,162
Other 362 430
-------- ---------
$ 94,505 $ 78,515
Less current maturities 6,678 3,617
-------- ---------
$ 87,827 $ 74,898
======== =========
</TABLE>
Effective March 6, 1998, the Company entered into an amendment to the
Loan and Security Agreement dated as of September 12, 1996, by and among
Congress Financial Corporation, as agent, and the lenders party thereto and the
Company (the "New Credit Agreement"). Significant provisions of the new
amendment are as follows:
7
<PAGE> 8
(i) increase of the term loan to $21.3 million, (ii) extension of the
renewal date from September 16, 1999 to November 1, 2000, (iii)
reduction of the tangible net worth covenant from a minimum of $70
million to a minimum of $50 million, (iv) reduction of the prepayment
fees for replacing the credit agreement after September 16, 1998, from
$575,000 to $300,000, and (v) reduction of the revolving loan limit to
$60 million.
6. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method in
accounting for income taxes. Under SFAS No. 109, deferred tax assets and
liabilities are determined based on the difference between the financial
reporting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
income taxes also reflect the value of net operating losses and an offsetting
valuation allowance. There was no net income tax expense or benefit recorded in
the three months ended and the six months ended July 4, 1998 or the three months
ended and the six months ended June 28, 1997.
7. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128") during 1997. SFAS 128 replaces primary
earnings per share with basic earnings per share. Basic earnings per share
excludes the effect of any potentially dilutive common equivalent shares. Basic
earnings per share is calculated based on weighted average number of shares of
common stock outstanding, which was 10,061,576 for all periods presented herein.
Fully diluted earnings per share, now called diluted earnings per share, is
still required. Diluted earnings per share is calculated treating all
potentially dilutive securities such as stock options as outstanding during the
entire period, or from grant date if granted during the period. For the three
months ended and the six months ended July 4, 1998, 697,000 options were
included in the calculation. For the three months ended and the six months ended
June 28, 1997, all options (200,000) were anti-dilutive and thus were not
included in the calculation.
8
<PAGE> 1
EXHIBIT 99.4
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF DAN RIVER
On February 3, 1997 Dan River acquired substantially all of the assets of
Cherokee for $65 million in cash, subject to a working capital adjustment, and
the assumption of certain operating liabilities. On November 20, 1997 Dan River
completed an initial public offering of the Dan River Class A Common Stock.
The Unaudited Pro Forma Combined Statement of Income (Pre-Merger) for the
fiscal year ended January 3, 1998 gives effect to the acquisition of Cherokee
and the initial public offering of Dan River Class A Common Stock, as if each
had occurred on the first day of the 1997 fiscal year. The Unaudited Pro Forma
Combined Statement of Income (Merger) for the fiscal year ended January 3, 1998
is based upon the Unaudited Pro Forma Combined Statement of Income (Pre-Merger)
for the same period and gives effect to the Merger and financing thereof as if
they had also occurred on the first day of the 1997 fiscal year.
The Unaudited Pro Forma Combined Balance Sheet as of July 4, 1998 gives
effect to the Merger and financing thereof as if they had occurred at July 4,
1998. The Unaudited Pro Forma Combined Statement of Income for the six months
ended July 4, 1998 gives effect to the Merger and financing thereof as if they
had occurred on the first day of the period presented.
The Merger has been accounted for under the purchase method of accounting.
The total cost of the Merger has been preliminarily allocated to the assets
acquired and liabilities assumed based upon their respective fair values as
determined through internal estimates that Dan River believes are reasonable.
The actual allocation of purchase cost, however, and the resulting effect on
income may differ from the pro forma amounts included herein.
The following unaudited pro forma combined financial information does not
purport to reflect the financial position or results of operations that actually
would have resulted had the above transactions occurred as of the dates
indicated or to project the results of operations for any future period. The
unaudited pro forma combined financial information should be read in conjunction
with the historical financial statements of Dan River, Cherokee and Bibb and in
each case the notes thereto which are incorporated herein by reference.
<PAGE> 2
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JULY 4, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ------------------------
DAN RIVER BIBB ADJUSTMENTS COMBINED
--------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 2,097 $ 95 $ -- $ 2,192
Accounts receivable, net........................ 60,814 35,686 -- 96,500
Inventories..................................... 107,648 59,514 (270)(1) 166,892
Net assets of discontinued operations........... -- 7,193 -- 7,193
Prepaid expenses and other current assets....... 3,840 3,743 (714)(1) 6,869
Deferred income taxes........................... 7,518 -- -- 7,518
-------- -------- -------- --------
Total current assets.................... 181,917 106,231 (984) 287,164
Property, plant and equipment, net................ 213,931 80,040 -- 293,971
Goodwill, net..................................... -- -- 94,143(1) 94,143
Other assets...................................... 7,195 2,430 (2,430)(1) 7,987
1,450(2)
(658)(3)
-------- -------- -------- --------
Total assets............................ $403,043 $188,701 $ 91,521 $683,265
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............ $ 199 $ 6,678 $ (6,678)(2) $ 199
Accounts payable................................ 23,430 23,819 -- 47,249
Accrued compensation and related benefits....... 10,790 4,765 1,000(1) 16,555
Other accrued expenses.......................... 7,666 5,519 (254)(3) 12,931
-------- -------- -------- --------
Total current liabilities............... 42,085 40,781 (5,932) 76,934
Other liabilities:
Long-term debt.................................. 151,557 87,827 96,461(2) 335,845
Deferred income taxes........................... 21,784 -- (16,384)(1) 5,400
Other liabilities............................... 9,854 -- 2,433(1) 12,287
Shareholders' equity:
Preferred stock................................. -- -- -- --
Common stock.................................... 189 101 (57)(4) 233
Additional paid-in capital...................... 139,417 88,882 (13,486)(4) 214,813
Retained earnings (deficit)..................... 38,157 (28,890) 28,890(4) 37,753
(404)(3)
-------- -------- -------- --------
Total shareholders' equity.............. 177,763 60,093 14,943 252,799
-------- -------- -------- --------
Total liabilities and shareholders'
equity................................ $403,043 $188,701 $ 91,521 $683,265
======== ======== ======== ========
</TABLE>
1
<PAGE> 3
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) In connection with the Merger, each outstanding share of Bibb Common
Stock will be converted into the right to receive, at the holder's election,
0.84615 shares of Dan River Class A Common Stock or $16.50 in cash. As
necessary, holders' elections will be prorated such that the total number of
stock election shares equals 50% of the total outstanding shares of Bibb Common
Stock. For purposes of the Unaudited Pro Forma Combined Balance Sheet, the fair
market value of Dan River Common Stock is assumed to be $17.30 per share, which
approximates the average closing market price of the stock for the 10 business
days surrounding June 29, 1998, the date the Merger Agreement was announced to
the public.
Also in connection with the Merger, certain nonqualified options to
purchase Bibb Common Stock held by employees and directors of Bibb will be
cancelled, and the holders will receive 50% of the value of their options in
cash, and the remainder in Dan River Class A Common Stock. For purposes of the
options buyout, (i) the value of each option is measured as the difference
between $16.50 and the exercise price and (ii) the value of Dan River Class A
Common Stock is assumed to be $19.50 per share.
<TABLE>
<S> <C>
ISSUANCE OF DAN RIVER CLASS A COMMON STOCK:
Shares of Bibb Common Stock assumed to be
outstanding........................................... 10,061,576
Percentage of stock election shares (after
proration)............................................ X 50%
----------------
5,030,788
Conversion ratio....................................... X 0.84615
----------------
Total shares of Dan River Class A Common Stock to be
issued to holders of Bibb Common Stock.............. 4,256,801
----------------
Value of outstanding Bibb stock options to be
cancelled............................................. $ 4,049,893
Percentage of value to be paid out in Dan River Class A
Common Stock.......................................... X 50%
----------------
$ 2,024,947
Value of Dan River Class A Common Stock for purposes of
option buyout......................................... $19.50 per share
----------------
Total shares of Dan River Class A Common Stock to be
issued to holders of Bibb options................... 103,844
----------------
Grand total -- Dan River Class A Common Stock assumed
to be issued in connection with the Merger.......... 4,360,645
================
AGGREGATE PURCHASE PRICE: (IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
Amount paid for outstanding Bibb Common Stock:
Cash portion (5,030,788 shares at $16.50 per
share).............................................. $ 83,008
Issuance of Dan River Class A Common Stock (4,256,801
shares at $17.30 per share)......................... 73,643
Buyout of options to purchase Bibb Common Stock:
Cash portion......................................... 2,025
Issuance of Dan River Class A Common Stock (103,844
shares at $17.30 per share)......................... 1,797
Assumed fair value of Bibb incentive stock options that
will be converted to options to acquire Dan River
Class A Common Stock.................................. 2,433
Payments to be made to certain executive officers of
Bibb concurrent with the closing of the Merger
pursuant to the Executive Officer Policy.............. 1,800
Professional fees and other transaction costs.......... 1,500
----------------
Aggregate purchase price............................... $ 166,206
================
</TABLE>
2
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED)
EXCESS OF COST OVER FAIR MARKET VALUE OF NET ASSETS ACQUIRED: (IN
THOUSANDS)
<TABLE>
<S> <C> <C>
Aggregate purchase price................................. $166,206
Less net book value of assets acquired................... 60,093
--------
Excess of cost over net book value of assets acquired.... 106,113
Less adjustments to recorded assets and liabilities
acquired at fair market value:
Inventory.............................................. (270)(a)
Prepaid expenses and other current assets.............. (714)(b)
Other assets........................................... (2,430)(c)
Accrued compensation and related benefits.............. (1,000)(d)
Deferred income taxes.................................. 16,384(e) 11,970
------ --------
Excess of cost over fair market value of net assets
acquired (goodwill).................................... $ 94,143
========
</TABLE>
-----------------------
(a) Reflects the adjustments necessary to state inventory at fair market
value.
(b) Reflects the preliminary fair value remeasurement of the pension
asset.
(c) Reflects the write-off of unamortized debt issuance costs related to
Bibb indebtedness that will be refinanced in connection with the
Merger.
(d) Reflects a preliminary estimate of severance costs to be incurred in
connection with the merger pursuant to the Key Management Policy.
(e) Reflects (i) the elimination of the valuation allowance against
deferred tax assets ($16.0 million), which Dan River management
believes will not be needed after the Merger, and (ii) a $0.4
million increase in deferred tax assets related to the differences
between the tax basis and adjusted financial statement values of
Bibb assets at an assumed income tax rate of 39%.
(2) Reflects (i) the refinancing of all Bibb outstanding indebtedness, (ii) the
refinancing of Dan River's existing working capital facility, (iii)
additional financing to fund the cash portion of the buyout of Bibb
outstanding Common Stock and stock options, and other transaction costs, and
(iv) the incurrence of related debt issuance costs of $1.5 million. The new
debt is expected to consist of a term loan and a revolving line of credit.
(3) Reflects the adjustment to write off $0.7 million in unamortized debt
issuance costs related to Dan River's existing working capital facility, the
related tax benefit of $0.3 million, and the net reduction in retained
earnings of $0.4 million.
(4) Reflects (i) the elimination of Bibb's equity as a result of the Merger,
(ii) the issuance of 4,360,645 shares of Dan River Class A Common Stock in
connection with the Merger, and (iii) the related additional paid-in capital
of $75.4 million.
3
<PAGE> 5
UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (PRE-MERGER)
YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL ----------------------- DAN RIVER
----------------------- CHEROKEE PRO FORMA
DAN RIVER CHEROKEE(1) ACQUISITION OFFERING (PRE-MERGER)
--------- ----------- ----------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $476,448 $9,210 $ -- $ -- $485,658
Costs and expenses:
Cost of sales........................ 372,165 7,208 (83)(2) -- 379,321
31(3)
Selling, general and administrative
expenses.......................... 54,231 1,085 (344)(4) -- 54,980
8(3)
Other operating costs, net........... 7,012 302 (302)(5) -- 7,012
-------- ------ ----- ------ --------
Operating income....................... 43,040 615 690 44,345
Other income (expense)................. (290) 7 -- -- (283)
Interest expense....................... (21,135) (318) (224)(6) 4,862(7) (16,815)
-------- ------ ----- ------ --------
Income before income taxes and
extraordinary item................... 21,615 304 466 4,862 27,247
Provision for income taxes............. 8,351 -- 299(8) 1,877(6) 10,527
-------- ------ ----- ------ --------
Income before extraordinary item....... $ 13,264 $ 304 $ 167 $2,985 $ 16,720
======== ====== ===== ====== ========
Earnings per share before extraordinary
item:
Basic................................ $ 0.90 $ 0.89
======== ========
Diluted.............................. $ 0.89 $ 0.88
======== ========
Weighted average shares outstanding:
Basic................................ 14,711 18,841
======== ========
Diluted.............................. 14,839 18,968
======== ========
</TABLE>
- ---------------
(1) Reflects the operating results of Cherokee for the portion of 1997 prior to
its acquisition on February 3, 1997.
(2) Decrease in depreciation expense based on adjusted fixed asset values and
related estimated remaining useful lives.
(3) Additional costs associated with providing a pension benefit to Cherokee
employees hired by Dan River.
(4) Elimination of certain selling, general and administrative expenses,
including salaries and benefits of certain officers and other employees of
Cherokee who were not employed by Dan River after the acquisition of
Cherokee, and costs associated with Cherokee's marketing offices, which Dan
River vacated shortly after the acquisition of Cherokee.
(5) Elimination of expenses associated with Cherokee's Employee Stock Ownership
Plan, the obligations which were not assumed in connection with the
acquisition of Cherokee.
(6) Net increase in interest expense resulting from the acquisition of Cherokee
(representing the five week period prior to the consummation of the
acquisition of Cherokee on February 3, 1997).
(7) Decrease in interest expense attributable to the assumed repayment of $65
million in borrowings related to the acquisition of Cherokee out of the net
proceeds from the Offering.
(8) Adjustment of pro forma income tax expense to reflect an assumed effective
tax rate of 38.6% of pre-tax income.
4
<PAGE> 6
UNAUDITED PRO FORMA COMBINED
STATEMENT OF INCOME (MERGER)
YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
DAN RIVER DAN RIVER
PRO FORMA BIBB PRO FORMA PRO FORMA
(PRE-MERGER) HISTORICAL ADJUSTMENTS(7) FOR MERGER
------------ ---------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................... $485,658 $248,836 $ -- $734,494
Costs and expenses:
Cost of sales............................. 379,321 222,620 (238)(1) 601,703
Selling, general and administrative
expenses............................... 54,980 23,306 (2,500)(2) 75,786
Amortization of goodwill.................. -- -- 2,354(3) 2,354
Other operating costs, net................ 7,012 4,133 -- 11,145
-------- -------- ------- --------
Operating income (loss)..................... 44,345 (1,223) 384 43,506
Other income (expense), net................. (283) (162) -- (445)
Interest expense............................ (16,815) (6,013)(4) (3,905)(5) (26,733)
-------- -------- ------- --------
Income before income taxes and extraordinary
item...................................... 27,247 (7,398) (3,521) 16,328
Provision for income taxes.................. 10,527 -- (3,306)(6) 7,221
-------- -------- ------- --------
Income (loss) before discontinued operations
and extraordinary item.................... $ 16,720 $ (7,398) $ (215) $ 9,107
======== ======== ======= ========
Earnings per share from continuing
operations:
Basic..................................... $ 0.89 $ 0.39
======== ========
Diluted................................... $ 0.88 $ 0.39
======== ========
Weighted average shares outstanding:
Basic..................................... 18,841 23,201
======== ========
Diluted................................... 18,968 23,379
======== ========
</TABLE>
- ---------------
(1) Reflects the decrease in cost of sales attributable to the assumed
adjustments necessary to state Bibb's inventories at fair market value as of
the beginning of 1997, principally the elimination of the last-in, first-out
reserve.
(2) Reflects the elimination of duplicative administrative expenses, principally
management compensation and related fringe benefits.
(3) Reflects amortization of goodwill based on an estimated life of 40 years.
(4) Includes interest expense and loan fee amortization and related expense.
(5) Reflects additional interest expense, consisting of the following:
<TABLE>
<S> <C>
Interest expense on new floating rate bank debt incurred in
connection with (i) the refinancing of all Bibb
outstanding indebtedness, (ii) the refinancing of Dan
River's existing working capital facility, and (iii) the
funding of the cash portion of the buyout of Bibb
outstanding Common Stock and stock options, and other
transaction costs. For each 1/8% change in the assumed
interest rate on new floating rate bank debt, interest
would change by $217...................................... $12,278
Amortization of debt issuance costs on the above............ 290
Less: historical interest on debt refinanced, including
amortization of debt issuance costs and related
expenses.................................................. (8,663)
-------
$ 3,905
=======
</TABLE>
(6) Adjustment of pro forma income tax expense to reflect an assumed effective
tax rate of 38.6%.
(7) The pro forma adjustments do not include the impact of certain
merger-related cost savings initiatives that Dan River intends to implement.
The additional cost savings, which are expected to total $15.5 million
(pre-tax) on an annual basis, include:
- reduced selling, general and administrative expense, principally from the
elimination of overlapping administrative functions;
- manufacturing cost savings from certain plant alignment and capacity
utilization synergies, and manufacturing practices expected to result in
improved operating efficiencies;
- cost savings relating to manufacturing techniques and specifications; and
- savings expected to be realized through volume purchasing of certain raw
materials, such as polyester and packaging materials.
The projected cost savings are based on estimates and assumptions believed
to be reasonable by management. Due to the inherent uncertainty associated
with such estimates and assumptions, there can be no assurance that these
cost savings will actually be realized.
5
<PAGE> 7
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JULY 4, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ---------------------------
DAN RIVER BIBB ADJUSTMENTS(7) COMBINED
--------- -------- -------------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................... $239,539 $116,340 $ -- $355,879
Costs and expenses:
Cost of sales......................................... 186,356 99,587 1,401(1) 287,344
Selling, general and administrative expenses.......... 27,187 10,966 (1,250)(2) 36,903
Amortization of goodwill.............................. -- -- 1,177(3) 1,177
Other operating costs, net............................ (400) -- -- (400)
-------- -------- ------- --------
Operating income........................................ 26,396 5,787 (1,328) 30,855
Other income (expense), net............................. 417 -- -- 417
Interest expense........................................ (7,671) (3,791)(4) (2,236)(5) (13,698)
-------- -------- ------- --------
Income before income taxes and discontinued
operations............................................ 19,142 1,996 (3,564) 17,574
Provision for income taxes.............................. 7,262 -- (151)(6) 7,111
-------- -------- ------- --------
Income from continuing operations....................... $ 11,880 $ 1,996 $(3,413) $ 10,463
======== ======== ======= ========
Earnings per share from continuing operations:
Basic................................................. $ 0.63 $ 0.45
======== ========
Diluted............................................... $ 0.62 $ 0.44
======== ========
Weighted average shares outstanding:
Basic................................................. 18,835 23,196
======== ========
Diluted............................................... 19,104 23,580
======== ========
</TABLE>
- ---------------
(1) Reflects the increase in cost of sales attributable to the assumed
adjustments necessary to state Bibb's inventories at fair market value as of
the beginning of 1998, principally the elimination of the last-in, first-out
reserve.
(2) Reflects the elimination of duplicate administrative expenses, principally
management compensation and related fringe benefits.
(3) Reflects amortization of goodwill based on an estimated life of 40 years.
(4) Includes interest expense and loan fee amortization and related expense.
(5) Reflects additional interest expense, consisting of the following:
<TABLE>
<S> <C>
Interest expense on new floating rate bank debt incurred in
connection with (i) the refinancing of all Bibb
outstanding indebtedness, (ii) the refinancing of Dan
River's existing working capital facility, and (iii) the
funding of the cash portion of the buyout of Bibb
outstanding Common Stock and stock options, and other
transaction costs. For each 1/8% change in the assumed
interest rate on new floating rate bank debt, interest
would change by $116...................................... $6,570
Amortization of debt issuance costs on the above............ 145
Less: historical interest on debt refinanced, including
amortization of debt issuance costs and related
expenses.................................................. (4,479)
------
$2,236
======
</TABLE>
(6) Adjustment of pro forma income tax expense to reflect an assumed effective
tax rate of 38.6%.
(7) The pro forma adjustments do not include the impact of certain
merger-related cost savings initiatives that Dan River intends to implement.
The additional cost savings, which are expected to total $15.5 million
(pre-tax) on an annual basis, include:
- reduced selling, general and administrative expense, principally from the
elimination of overlapping administrative functions;
- manufacturing cost savings from certain plant alignment and capacity
utilization synergies, and manufacturing practices expected to result in
improved operating efficiencies;
- cost savings relating to manufacturing techniques and specifications; and
- savings expected to be realized through volume purchasing of certain raw
materials, such as polyester and packaging materials.
The projected cost savings are based on estimates and assumptions believed
to be reasonable by management. Due to the inherent uncertainty associated
with such estimates and assumptions, there can be no assurance that these
cost savings will actually be realized.
6
