<PAGE> 1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 1-13421
DAN RIVER INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1854637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2291 Memorial Drive 24541
Danville, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (804) 799-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No
Number of shares of common stock outstanding as of September 30, 2000:
Class A: 19,703,439 Shares
Class B: 2,062,070 Shares
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<PAGE> 2
Forward Looking Statements.
--------------------------
This Quarterly Report contains forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities and Exchange Act of 1934.
These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those included in such forward
looking statements. The words "believes," "expects," "intends," "estimates"
or "anticipates" and similar expressions, as well as future or conditional
verbs such as "will," "should," "would," and "could", are intended to
identify forward-looking statements. Specific forward looking statements
contained in this Quarterly Report include, among others, statements
regarding adequacy of the Company's liquidity and capital resources. These
forward looking statements are found in Part I, Item 2. There can be no
assurance that the assumptions made by management are correct.
The forward looking statements in this Quarterly Report are also subject to
certain risks and uncertainties including, among others, that our performance
in future periods may be adversely impacted by the cyclical nature of the
textile industry, intense competition within the textile industry, fluctua-
tions in the price and availability of cotton and other raw materials, our
inability to make capital improvements necessary to maintain competitiveness,
possible adverse changes in governmental regulation regarding the import of
cotton and textile products, difficulties in integrating acquired businesses
and achieving cost savings, changes in environmental regulations, deteriora-
tion of relationships with or the loss of material customers and adverse
changes in general market and industry conditions.
We believe that the forward looking statements in this Quarterly Report are
reasonable; however, such statements are based on current expectations and
undue reliance should not be placed on such statements. We undertake no
obligation to update publicly any forward-looking statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
See Following Pages.
<PAGE>
<PAGE> 3
DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, January 1,
2000 2000
----------- -----------
<S> <C> <C>
(in thousands, except share
and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 3,206 $ 2,084
Accounts receivable, net 100,255 77,009
Inventories 220,601 168,487
Prepaid expenses and other current assets 6,536 2,132
Deferred income taxes 16,843 15,381
----------- -----------
Total current assets 347,441 265,093
Property, plant and equipment 498,924 476,438
Less accumulated depreciation and amortization (207,252) (179,705)
----------- -----------
Net property, plant and equipment 291,672 296,733
Goodwill, net 115,823 110,384
Other assets 21,262 12,372
----------- -----------
$ 776,198 $ 684,582
=========== ===========
</TABLE>
<PAGE>
<PAGE> 4
DAN RIVER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, January 1,
2000 2000
------------ ------------
<S> <C> <C>
(in thousands, except share
and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 31,301 $ 22,368
Accounts payable 30,290 33,464
Accrued compensation and related benefits 19,945 22,411
Other accrued expenses 17,371 12,485
------------ ------------
Total current liabilities 98,907 90,728
Other liabilities:
Long-term debt 358,211 292,416
Deferred income taxes 28,968 19,555
Other liabilities 10,668 10,931
Shareholders' equity:
Preferred stock, $.01 par value; authorized
50,000 shares; no shares issued -- --
Common stock, Class A, $.01 par value;
authorized 175,000,000 shares; issued
and outstanding 19,703,439 shares
(20,574,020 shares at January 1, 2000) 197 206
Common stock, Class B, $.01 par value;
authorized 35,000,000 shares; issued
and outstanding 2,062,070 shares 21 21
Common stock, Class C, $.01 par value;
authorized 5,000,000 shares; no shares
outstanding -- --
Additional paid-in capital 209,096 213,620
Retained earnings 70,130 57,105
------------ ------------
Total shareholders' equity 279,444 270,952
------------ ------------
$ 776,198 $ 684,582
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
Sept. 30, October 2, Sept. 30, October 2,
2000 1999 2000 1999
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net sales $ 175,458 $ 155,766 $ 497,639 $ 479,406
Costs and expenses:
Cost of sales 139,159 123,001 398,589 389,899
Selling, general
and administrative
expenses 16,471 16,071 50,506 49,467
Amortization of
goodwill 803 728 2,325 2,120
Other operating
costs, net -- (2,267) -- (2,267)
--------- --------- --------- ---------
Operating income 19,025 18,233 46,219 40,187
Other income 83 114 434 472
Equity in loss of
joint venture (130) -- (130) --
Interest expense (8,841) (6,981) (24,048) (21,310)
--------- --------- --------- ---------
Income before
income taxes 10,137 11,366 22,475 19,349
Provision for
income taxes 4,144 3,120 9,450 6,627
--------- --------- --------- ---------
Net income $ 5,993 $ 8,246 $ 13,025 $ 12,722
========= ========= ========= =========
Earnings per share:
Basic $ 0.28 $ 0.36 $ 0.59 $ 0.55
========= ========= ========= =========
Diluted $ 0.28 $ 0.36 $ 0.59 $ 0.54
========= ========= ========= =========
</TABLE>
See accompanying notes
<PAGE>
<PAGE>6
DAN RIVER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
Sept. 30, October 2,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,025 $ 12,722
Adjustments to reconcile net income to net
cash provided by operating activities:
Noncash interest expense 592 565
Depreciation and amortization of
property, plant and equipment 28,195 29,669
Amortization of goodwill 2,325 2,120
Deferred income taxes 7,950 6,309
Writedown/disposal of assets (231) (27)
Other operating costs, net -- (2,267)
Changes in operating assets and liabilities
Accounts receivable (26,854) 6,395
Inventories (46,151) 5,318
Prepaid expenses and other assets (7,537) (236)
Accounts payable and accrued expenses 3,122 (9,321)
Other liabilities (231) 1,268
---------- ----------
Net cash provided (used) by operating
activities (25,795) 52,515
---------- ----------
Cash flows from investing activities:
Capital expenditures (27,788) (26,075)
Proceeds from sale of assets 480 7,490
Acquisition of business (15,574) --
---------- ----------
Net cash used by investing activities (42,882) (18,585)
---------- ----------
Cash flows from financing activities:
Payments of long-term debt (16,683) (1,773)
Net proceeds from issuance of long-term debt 16,045 --
Net borrowings (payments) - working
capital facility 75,000 (31,000)
Proceeds from exercise of stock options 36 1,082
Repurchase of common stock (4,599) (4,014)
---------- ----------
Net cash provided (used) by
financing activities 69,799 (35,705)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,122 (1,775)
Cash and cash equivalents at beginning of period 2,084 3,356
---------- ----------
Cash and cash equivalents at end of period $ 3,206 $ 1,581
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 7
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Dan River Inc. and its wholly-owned
subsidiaries, (collectively, the "Company"). In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of results for the interim
periods presented have been included. Interim results are not
necessarily indicative of results for a full year. For further
information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended January 1, 2000.
2. Inventories
The components of inventory are as follows:
<TABLE>
<CAPTION>
Sept. 30, January 1,
2000 2000
------------ ------------
(in thousands)
<S> <C> <C>
Finished goods $ 84,223 $ 55,710
Work in process 118,138 92,707
Raw materials 4,054 8,475
Supplies 14,186 11,595
-------- --------
Total Inventories $220,601 $168,487
======== ========
</TABLE>
<PAGE>
<PAGE> 8
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Shareholders' Equity
Activity in Shareholders' Equity is as follows:
<TABLE>
<CAPTION>
Total
Additional Share-
Common Stock Paid-In Retained holders'
Class A Class B Capital Earnings Equity
------- -------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Janu-
ary 1, 2000 $ 206 $ 21 $213,620 $57,105 $270,952
Net income -- -- -- 13,025 13,025
Stock option
activity, net -- -- 66 -- 66
Repurchase of
common stock (9) -- (4,590) -- (4,599)
------ ------ -------- ------- --------
Balance at Sept-
ember 30, 2000 $ 197 $ 21 $209,096 $70,130 $279,444
======= ====== ======== ======= ========
</TABLE>
4. Other Operating Costs, Net
During 1999 the Company donated its Riverside Long Mill to a local
nonprofit historical organization for future renovation and development
into a multi-use retail and residential facility. The Long Mill is one
of two mill complexes which make up the Company's Riverside apparel
fabrics weaving facilities in Danville, VA, that were shut down in 1997.
At the time of the donation, approximately $1.8 million remained in
reserves established in 1997, principally for demolition of the
Riverside buildings. Due to the donation of the Long Mill, it is no
longer anticipated that the remaining Riverside property will be
demolished. Accordingly, the Company recorded a $1.8 million pre-tax
gain from reversal of the remaining reserves in the third quarter of
1999.
Also in the third quarter of fiscal 1999, the Company recorded a $0.5
million pre-tax gain from reversal of a portion of the loss recorded in
fiscal 1998 for closure of the Company's apparel fabrics weaving
facility in Spindale, North Carolina. Most of this gain was due to
better-than-anticipated proceeds on the sale of equipment.
<PAGE>
<PAGE> 9
DAN RIVER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes
The tax provision for the three and nine month periods ended October 2,
1999 includes a $1.5 million tax benefit from the charitable donation of
the Company's Riverside Long Mill (see Note 4).
6. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
Sept. 30, October 2, Sept. 30, October 2,
2000 1999 2000 1999
--------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator for basic
and diluted earnings
per share--net
income $ 5,993 $ 8,246 $ 13,025 $ 12,722
========= ========= ========= =========
Denominator:
Denominator for
basic earnings
per share--
weighted-average
shares 21,766 23,148 22,110 23,291
Effect of dilutive
securities:
Employee stock
options -- 29 -- 120
--------- --------- --------- ---------
Denominator for
diluted earnings
per share--weighted
average shares
adjusted for
dilutive securities 21,766 23,177 22,110 23,411
========= ========= ========= =========
Earnings per share:
Basic $ 0.28 $ 0.36 $ 0.59 $ 0.55
========= ========= ========= =========
Diluted $ 0.28 $ 0.36 $ 0.59 $ 0.54
========= ========= ========= =========
</TABLE>
<PAGE> 10
7. Segment Information
Summarized information by reportable segment is shown in the following
tables:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ----------------------
Sept. 30, October 2, Sept. 30, October 2,
2000 1999 2000 1999
--------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net sales:
Home Fashions $ 128,840 $ 109,822 $ 348,837 $ 330,592
Apparel Fabrics 34,339 34,410 109,550 114,032
Engineered Products 12,279 11,534 39,252 34,782
--------- --------- --------- ---------
Consolidated net
sales $ 175,458 $ 155,766 $ 497,639 $ 479,406
========= ========= ========= =========
Operating income:
Home Fashions $ 16,457 $ 15,854 $ 38,849 $ 39,818
Apparel Fabrics 3,134 2,063 9,541 3,238
Engineered Products 502 459 2,075 2,031
Corporate items not
allocated to
segments:
Amortization of
goodwill (803) (728) (2,325) (2,120)
Other operating
costs, net -- 2,267 -- 2,267
Other (265) (1,682) (1,921) (5,047)
--------- --------- --------- ---------
Consolidated
operating income $ 19,025 $ 18,233 $ 46,219 $ 40,187
========= ========= ========= =========
</TABLE>
8. Acquisition
On April 3, 2000, the Company acquired substantially all of the assets
of Import Specialists, Inc. ("ISI") for $15.6 million in cash and the
assumption of certain operating liabilities. The assets acquired
consisted principally of receivables and inventory. The acquisition was
funded with borrowings under the Company's working capital line of
credit. ISI is an importer of home textile products, including natural
fiber doormats and bootscrapers, throws, area and accent rugs, and
decorative pillows. The operations have been incorporated into the home
fashions division as the "Import Specialty Products Group." The
<PAGE> 11
acquisition has been accounted for as a purchase and the results of
operations of the acquired business have been included in the
consolidated financial statements since the date of acquisition. The
preliminary allocation of the purchase price of ISI to the assets
acquired resulted in goodwill of $7.8 million being recorded, which is
being amortized over 20 years.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2000 and October 2, 1999
NET SALES
Net sales for the third quarter of fiscal 2000 were $175.5 million, an
increase of $19.7 million or 12.6% over the third quarter of fiscal 1999.
Home Fashions
Net sales of home fashions products were $128.8 million for the third quarter
of fiscal 2000, up $19.0 million or 17.3% from the third quarter of fiscal
1999. Incremental sales from the Import Specialists business we acquired in
April 2000 were $3.4 million. The remainder of the increase is attributable
to the rollout of a significant program with a large mass merchant and the
introduction of some new juvenile programs. These programs more than
compensated for a general softening in demand at retail for our home fashions
products.
Apparel Fabrics
Net sales of apparel fabrics for the third quarter of fiscal 2000 were $34.3
million, compared to $34.4 million for the third quarter of fiscal 1999. The
sales level for both periods is low by historical standards, which we believe
reflects both the decline in dress shirting at retail resulting from the
popularity of business casual dress, and the continued increase in low cost
fabric and garment imports.
Engineered Products
Net sales of engineered products for the third quarter of fiscal 2000 were
$12.3 million, up $0.7 million or 6.5% over the third quarter of fiscal 1999.
The increase reflects a strong market for this segment's products during most
of the current quarter. In September we began to experience a softening in
demand for this segment's products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $16.5 million for the third
quarter of fiscal 2000 (9.4% of net sales), an increase of $0.4 million or
2.5% from $16.1 million (10.3% of net sales) for the third quarter of fiscal
1999. The increase is attributable to incremental expenses from the Import
Specialists business, offset in part by lower incentive compensation expense.
OPERATING INCOME
Consolidated operating income for the third quarter of fiscal 2000 was $19.0
million (10.8% of net sales), compared to $18.2 million (11.7% of net sales)
for the third quarter of fiscal 1999.
<PAGE> 13
Segment Operating Income:
Operating income for the home fashions segment was $16.5 million for the
third quarter of fiscal 2000, including $0.3 million in operating income
contributed by the Import Specialists business that we acquired in April,
2000. This compares to $15.9 million in operating income earned in the third
quarter of fiscal 1999. Although sales of home fashions products increased
in the third quarter of fiscal 2000, operating margins were lower due to less
efficient manufacturing performance and the increased use of outside
contractors.
Operating income for the apparel fabrics segment was $3.1 million for the
third quarter of fiscal 2000, compared to $2.1 million for the third quarter
of fiscal 1999. The higher profitability in the third quarter of fiscal 2000
reflects improved margins due to better capacity utilization and lower cotton
prices.
The engineered products segment generated $0.5 million in operating income in
the third quarter of fiscal 2000, approximately the same as in the third
quarter of fiscal 1999. A modest increase in gross profit associated with
the sales increase in the third quarter of fiscal 2000 was offset by higher
general and administrative expenses.
Corporate Items:
Amortization of goodwill was $0.8 million in the third quarter of fiscal 2000
compared to $0.7 million in the third quarter of fiscal 1999. The increase in
fiscal 2000 is attributable to goodwill resulting from our acquisition of
Import Specialists.
Other operating costs, net for the third quarter of fiscal 1999 included a
$1.8 million pre-tax gain from reversal of reserves established in a prior
year, primarily for demolition of the Company's Riverside apparel fabrics
weaving facilities in Danville, VA. During 1999 the Company donated the
Riverside Long Mill, one of two mill complexes which make up the Riverside
facilities, to a local nonprofit historical organization for future
renovation and development into a multi-use retail and residential facility.
Due to the donation of the Long Mill, it is no longer anticipated that the
remaining Riverside property will be demolished. Also included in Other
operating costs, net for the third quarter of fiscal 1999 is a $0.5 million
pre-tax gain that was realized due to a better-than-anticipated recovery on
equipment that was written down in 1998 in connection with the closure of the
Company's apparel fabrics weaving facility in Spindale, NC.
Other expenses not allocated to segments totaled $0.3 million in the third
quarter of fiscal 2000 compared to $1.9 million in the third quarter of
fiscal 1999. The fiscal 1999 amount includes $1.4 million of depreciation on
the write-up of the Company's fixed assets from its acquisition in 1989. The
vast majority of the write-up was for manufacturing equipment that was fully
depreciated before the second quarter of fiscal 2000.
INTEREST EXPENSE
Interest expense was $8.8 million for the third quarter of fiscal 2000, up
$1.9 million over the third quarter of fiscal 1999. Approximately 75% of the
increase was caused by higher average debt levels, with the remainder
attributable to higher average interest rates.
<PAGE> 14
INCOME TAX PROVISION
The income tax provision was $4.1 million (40.9% of pre-tax income) for the
third quarter of fiscal 2000, compared to $3.1 million (27.5% of pre-tax
income) for the third quarter of fiscal 1999. The effect of nondeductible
goodwill amortization increased the effective tax rate for the third quarter
of fiscal 2000 by 2.7% of pre-tax income. The lower effective tax rate in
the third quarter of fiscal 1999 is mainly attributable to a $1.5 million tax
benefit from the charitable donation of the Company's Riverside Long Mill,
which reduced the tax provision by 13.2% of pre-tax income. This was offset
in part by the effect of nondeductible goodwill amortization, which increased
the effective tax rate by 2.5% of pre-tax income.
NET INCOME AND EARNINGS PER SHARE
Net income for the third quarter of fiscal 2000 was $6.0 million or $0.28 per
share compared to $8.2 million or $0.36 per share for the third quarter of
fiscal 1999. Weighted average diluted shares outstanding decreased to 21.8
million for the third quarter of fiscal 2000 from 23.2 million for the third
quarter of fiscal 1999, due to the repurchase of shares under the Company's
stock repurchase program.
Comparison of Nine Months Ended September 30, 2000 and October 2, 1999
NET SALES
Net sales for the first nine months of fiscal 2000 were $497.6 million, an
increase of $18.2 million or 3.8% over net sales of $479.4 million for the
first nine months of fiscal 1999.
Net sales of home fashions products were $348.8 million for the first nine
months of fiscal 2000, an increase of $18.2 million or 5.5% over the first
nine months of fiscal 1999. Excluding $7.1 million in incremental sales
attributable to the acquisition of Import Specialists, net sales increased by
$11.1 million. All of this increase occurred in the third quarter and was
attributable to the rollout of a significant program with a large mass
merchant and the introduction of some new juvenile programs. These programs
more than offset lower sales early in fiscal 2000 caused by disruptions from
poor weather and a major information systems implementation, and the effects
of a general softening in demand for our home fashions products at retail
that began in the second quarter of 2000.
Net sales of apparel fabrics for the first nine months of fiscal 2000 were
$109.6 million, down $4.5 million or 3.9% from the first nine months of
fiscal 1999. Most of the decrease occurred in the first six months of fiscal
2000, and is attributable to the segment's largest product category, shirting
fabrics. Sales for the first nine months of both fiscal years were low by
historical standards, which we believe reflects both the decline in dress
shirting at retail resulting from the popularity of business casual dress,
and the continued increase in low cost fabric and garment imports.
Net sales of engineered products were $39.3 million for the first nine months
of fiscal 2000, up $4.5 million or 12.9% over the first nine months of fiscal
1999. The increase reflects a strong market for this segment's products
<PAGE> 15
during the current year, and new fabric finishing capabilities, which have
enabled us to better meet the demand for certain of our products. In
September 2000 we began to experience lower demand for this segment's
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $50.5 million for the first
nine months of fiscal 2000 (10.1% of net sales), an increase of $1.0 million
or 2.1% from $49.5 million (10.3% of net sales) for the first nine months of
fiscal 1999. Excluding $1.4 million in incremental expenses attributable to
the Import Specialists business, selling, general and administrative expenses
decreased by $0.4 million in the first nine months of fiscal 2000 compared to
the prior year. The decrease is attributable to lower marketing costs in the
apparel fabrics segment and lower incentive compensation, which were
partially offset by increases in information systems expenses and home
fashions design costs.
OPERATING INCOME
Consolidated operating income for the first nine months of fiscal 2000 was
$46.2 million (9.3% of net sales) compared to $40.2 million (8.4% of net
sales) for the first nine months of fiscal 1999.
Segment Operating Income:
Operating income for the home fashions segment was $38.8 million for the
first nine months of fiscal 2000, including $0.6 million contributed by the
Import Specialists business that we acquired in April 2000. This compares to
$39.8 million in operating income earned in the first nine months of fiscal
1999. The decrease is generally attributable to increases in information
systems expenses and design costs, which were offset in part by lower
incentive compensation. The Import Specialists business contributed $2.0
million in gross profit in fiscal 2000. Otherwise, gross profit was about
equal in the first nine months of fiscal 2000 compared to the first nine
months of fiscal 1999. Although sales of home fashions products increased in
fiscal 2000, operating margins were lower due to less efficient manufacturing
performance and the increased use of outside contractors.
Operating income for the apparel fabrics segment was $9.5 million for the
first nine months of fiscal 2000, compared to $3.2 million for the first nine
months of fiscal 1999. The better operating results were due to improved
margins and lower selling, general and administrative expenses, which more
than offset the effect of the decrease in sales. The improved margins
reflect better capacity utilization and lower raw material costs in fiscal
2000. Per unit costs for goods sold in fiscal 1999, particularly in the
first half of the year, were high due to the under-absorption of fixed costs
resulting from operating on reduced running schedules as we worked off excess
inventories.
The engineered products segment generated $2.1 in operating income for the
first nine months of fiscal 2000 compared to $2.0 million in the first nine
months of fiscal 1999. Although revenues increased by $4.5 million in the
<PAGE> 16
first nine months of fiscal 2000, less efficient manufacturing performance
and higher general and administrative expenses in fiscal 2000 negatively
impacted operating margins.
Corporate Items:
Amortization of goodwill was $2.3 million in the first nine months of fiscal
2000, compared to $2.1 million in the first nine months of fiscal 1999. The
increase in fiscal 2000 is attributable to goodwill resulting from our April
2000 acquisition of Import Specialists.
Other operating costs, net for the first nine months of fiscal 1999 consisted
of the net gains recorded in the third quarter (discussed above) related to
the reversal of the Riverside reserves ($1.8 million pre-tax) and the sale of
equipment that was written down in 1998 ($0.5 million pre-tax).
Other expenses not allocated to segments totaled $1.9 million in the first
nine months of fiscal 2000 compared to $5.0 million in the first nine months
of fiscal 1999. The fiscal 2000 amount includes $1.3 million of depreciation
on the write-up of the Company's fixed assets from its acquisition in 1989,
compared to $4.2 million in the prior year. The vast majority of the write-
up was for manufacturing equipment that was fully depreciated before the
second quarter of fiscal 2000.
INTEREST EXPENSE
Interest expense was $24.0 million for the first nine months of fiscal 2000,
up $2.7 million over the first nine months of fiscal 1999. Higher average
debt levels and higher average interest rates each contributed about equally
to the increase.
INCOME TAX PROVISION
The income tax provision was $9.5 million (42.0% of pre-tax income) for the
first nine months of fiscal 2000, compared to $6.6 million (34.2% of pre-tax
income) for the first nine months of fiscal 1999. The effect of nondeductible
goodwill amortization increased the effective tax rate for the first nine
months of fiscal 2000 by 3.7% of pre-tax income. The lower effective tax
rate in the first nine months of fiscal 1999 is mainly attributable to a $1.5
million tax benefit from the charitable donation of the Company's Riverside
Long Mill, which reduced the tax provision by 7.8% of pre-tax income. This
was offset in part by the effect of nondeductible goodwill amortization,
which increased the effective tax rate by 4.2% of pre-tax income.
NET INCOME AND EARNINGS PER SHARE
Net income for the first nine months of fiscal 2000 was $13.0 million or
$0.59 per share (diluted) compared to $12.7 million or $0.54 per share
(diluted) for the first nine months of fiscal 1999. Weighted average diluted
shares outstanding decreased to 22.1 million for the first nine months of
fiscal 2000 from 23.4 million for the first nine months of fiscal 1999, due
to the repurchase of shares under the Company's stock repurchase program.
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
General
We believe that internally generated cash flow, supplemented by borrowings
under our working capital line of credit, will be sufficient to meet our
foreseeable debt service requirements, capital expenditures, and working
capital needs. We had a debt to total capital ratio of 58.2% at September
30, 2000.
Credit Facilities
We maintain a credit facility comprised of a $122.9 million term loan and a
$150 million secured working capital line of credit. This credit facility is
secured by our accounts receivable and inventories. As of September 30, 2000,
$130.9 million was used and $19.1 million was unused and available for
borrowing under the working capital line of credit.
The credit facility bears interest at the Base Rate plus applicable
percentage, as defined (9.63% as of November 7, 2000) or LIBOR plus
applicable percentage (8.12% as of November 7, 2000), for periods of one,
two, three or six months, at our option. The working capital line is non-
amortizing and any amounts outstanding are due at the final maturity of
September 30, 2003.
The term loan was fully borrowed for $125 million at its inception in October
of 1998 and has scheduled amortization payments which began this fiscal year.
In June, we added $12.9 million of new debt to the term loan. As of
September 30, the outstanding under the term loan is $122.9 million. One
more quarterly payment of $5 million is scheduled for this fiscal year.
The credit facility is provided pursuant to a loan agreement which contains
certain covenants, including the maintenance of certain interest coverage
ratio and maximum debt levels, and limitations on mergers and consolidations,
affiliated transactions, incurring liens, disposing of assets and limitations
on investments. An event of default under the loan agreement includes Change
of Control (as defined) as well as non-compliance with certain other
provisions.
Working Capital
Net cash used by operating activities was $25.8 million in the nine months
ended September 30, 2000. Included in that amount is a use of cash from
operating assets and liabilities of $77.7 million, comprised of a $69.9
million use from operating working capital (accounts receivable - $26.9
million use, inventories - $46.2 million use, and accounts payable and
accrued expenses - $3.1 million source) and a $7.8 million use of cash for
prepaid expenses and other assets and other liabilities.
During the comparable nine month period ended October 2, 1999, net cash
generated from operating activities was $52.5 million, of which $49.1 million
was generated by net income plus noncash items (net). Operating assets and
liabilities generated an additional $3.4 million, primarily comprised of a
$2.4 million source for operating working capital (accounts receivable - $6.4
<PAGE> 18
million source, inventories - $5.3 million source, and accounts payable and
accrued expenses - $9.3 million use) and a $1.0 million net source of cash
for prepaid expenses and other assets, and other liabilities.
Capital Improvements and Acquisitions
During the first nine months of fiscal 2000, we purchased $27.8 million in
equipment and manufacturing improvements. On April 3, 2000, we acquired
substantially all of the assets of Import Specialists, Inc. (ISI) for $15.6
million in cash, and the assumption of certain operating liabilities.
Share Repurchase
At the beginning of this fiscal year, we had $5 million remaining of a $10
million share repurchase program authorized by the Board of Directors in
August 1999. Shares repurchased pursuant to this program are retired and
constitute authorized but unissued shares. During the first nine months of
fiscal 2000 we repurchased 877,225 shares for $4.6 million. We have $0.4
million remaining under the authorization for repurchase of shares. No
shares were repurchased during the third quarter.
<PAGE> 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
<PAGE>
<PAGE> 20
PART II - OTHER INFORMATION
Items 1. Legal Proceedings.
In our Annual Report on Form 10-K for the 1999 fiscal year we reported on
related law suits styled WestPoint Stevens, Inc. and The Bibb Company v.
Panda-Rosemary Corporation and Panda Energy Corporation (filed on June 5,
1998 in the General Court of Justice, Superior Court Division, Halifax
County, North Carolina) and Panda-Rosemary, L.P. and Panda Energy Corporation
v. WestPoint Stevens, Inc., The Bibb Company and Dan River Inc. (filed
October 27, 1998 in the County Court at Law No. 2, Dallas County, Texas).
In July 2000 the parties entered into a "Settlement Agreement and Releases"
fully disposing of these matters, and all lawsuits and related appeals have
been dismissed with prejudice. Neither we nor our Bibb subsidiary were
required to pay any cash consideration in settlement of these matters.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Exhibits listed as applicable on the accompanying Exhibit
Index are filed as part of this Quarterly Report.
(b) Reports on Form 8-K. None.
<PAGE>
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAN RIVER INC.
<TABLE>
<S> <C>
Date: November 10, 2000 /s/ Barry F. Shea
-----------------------------------
Barry F. Shea
Executive Vice President-Chief
Financial Officer
(Authorized Signing Officer and
Principal Financial Officer)
</TABLE>
<PAGE>
<PAGE> 22
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
No.
----------- ---------------------- -------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation
of Dan River Inc. (incorporated by reference
to Exhibit 3.1 in Amendment No. 1 to
Registration Statement on Form S-1 (File
No. 333-36479)).
3.2 Bylaws of Dan River Inc. (incorporated by
reference to Exhibit 3.2 in Amendment No. 1
to Registration Statement on Form S-1 (File
No. 333-36479)).
11 Statement regarding Computation of
Earnings per share (incorporated by
reference to Note 7 to the Unaudited
Condensed Consolidated Financial
Statements included in this Quarterly
Report on Form 10-Q)
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
------------------
</TABLE>
