-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYLzqQUcOfrnRnN+5uy9giS13P5dEHDmilWkYzLWYVBSx/hlfeNUFCPRe7xU/iOx /hYKLOr/2GswabCtDJiLvg== 0000950144-98-011708.txt : 19981028 0000950144-98-011708.hdr.sgml : 19981028 ACCESSION NUMBER: 0000950144-98-011708 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981014 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981027 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAN RIVER INC /GA/ CENTRAL INDEX KEY: 0000914384 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 581854637 STATE OF INCORPORATION: GA FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13421 FILM NUMBER: 98731599 BUSINESS ADDRESS: STREET 1: 2291 MEMORIAL DRIVE CITY: DANVILLE STATE: VA ZIP: 24541 BUSINESS PHONE: 8047997000 8-K 1 DAN RIVER INC 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------- Form 8-K 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 =============================================================================== 2 Item 2. Acquisition or Disposition of Assets On October 14, 1998, DR Acquisition Corp., a Delaware corporation ("DRAC"), and a wholly-owned subsidiary of Dan River Inc., a Georgia corporation ("Dan River"), was merged (the "Merger") with and into The Bibb Company, a Delaware corporation ("Bibb"). Bibb was the surviving corporation in the Merger and is now a wholly-owned subsidiary of Dan River. Bibb is a manufacturer and marketer of (i) consumer textile products for the home, primarily sheets and other bedding products; (ii) textile products for the hospitality and healthcare industries; and (iii) specialty engineered textile products used in making high-pressure hoses and other industrial products. Bibb operates manufacturing facilities in Georgia, South Carolina and Virginia and has principal marketing and sales offices located in New York and Atlanta. Dan River presently expects to continue operating these businesses. The terms of the Merger are summarized in the Joint Proxy Statement dated August 19, 1998, as supplemented by a Supplement to Joint Proxy Statement dated September 23, 1998 (together, the "Proxy Statement"). The Joint Proxy Statement and the Supplement to Joint Proxy Statement are Exhibits 20.1 and 20.2 hereto. The Merger was consummated in accordance with the Agreement and Plan of Merger dated June 28, 1998, as amended on August 14, 1998 and on September 23, 1998 (the "Merger Agreement"), among Dan River, DRAC and Bibb. The text of the Merger Agreement is included in the Proxy Statement. The Proxy Statement was included in Dan River's Registration Statement on Form S-4 (File No. 333-58855) filed with the Securities and Exchange Commission in accordance with the Securities Act of 1933, and the Merger Agreement was filed in exhibits thereto. Pursuant to the Merger, Dan River acquired all of the outstanding capital stock of Bibb. The description of the Merger in the Proxy Statement (which has been previously reported as defined under Rule 12b-2 under the Securities Exchange Act of 1934) includes the nature and the amount of consideration given, the principle followed in determining the amount of such consideration, the identity of the persons from whom the capital stock was acquired, and the nature of any material relationships between such persons and Dan River or any of its affiliates, any director or officer of Dan River, or any associate of any such director or officer. Immediately prior to the Merger, there were 10,061,576 outstanding shares of common stock, par value $.01, of Bibb ("Bibb Common Stock") held by approximately 15 record holders. Upon consummation of the Merger, each share of Bibb Common Stock was converted into the right to receive (i) 0.84615 shares of Dan River Class A Common Stock, par value $.01 per share ("Dan River Class A Common Stock"), (ii) $16.50 in cash, without interest, or (iii) a combination of shares of Dan River Class A Common Stock and cash, depending upon the election (or non-election) of the holder of such share. Approximately 50% of the shares of Bibb Common Stock outstanding prior to the Merger were converted into the right to receive cash in the Merger, and approximately 50% of such shares were converted into the right to receive Dan River Class A Common Stock. Dan River paid approximately $83 million in cash and will issue approximately 4,257,000 shares of Dan River Class A Common Stock in consideration for all of the outstanding Bibb Common Stock. In addition to the consideration described above, Dan River assumed or refinanced approximately $95 million of Bibb's debt. (See the Joint Proxy Statement for a more detailed discussion of consideration paid and expenses incurred or to be incurred in connection with the Merger.) 2 3 In order to finance the cash portion of the merger consideration and repay approximately $37 million in borrowings outstanding under Dan River's previous line of credit, Dan River entered into a new credit agreement dated as of October 14, 1998 with First Union National Bank acting as Administrative Agent (the "Credit Agreement"). The Credit Agreement has a five year term, is secured by Dan River's and its subsidiaries' inventories and accounts receivable, and provides for a $275 million line of credit, consisting of a $125 million amortizing term loan and a $150 million revolving line of credit. As of October 22, 1998, Dan River had borrowed $209 million under the Credit Agreement and had $66 million available for borrowing. 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 4 (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)). 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 5 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: October 27, 1998 /S/ Harry L. Goodrich Harry L. Goodrich Vice President 5 6 EXHIBIT INDEX
Exhibit No. Description of Exhibit Page 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 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)). 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.
6 7 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.
7 EX-99.1 2 PRESS RELEASE DATED OCTOBER 14, 1998 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. 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 - EX-99.2 3 AUDITED FINANCIAL STATEMENTS OF THE BIBB COMPANY 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. 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 3 THE BIBB COMPANY BALANCE SHEETS JANUARY 3, 1998 AND DECEMBER 28, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY DECEMBER 28, 3, 1998 1996 -------- ------------ ASSETS 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 ======== ========
The accompanying notes are an integral part of these balance sheets. 3 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)
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 ---------- ------------ ------------- ------------ 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 - -------------------------------------------------- ========== ========= ======== =========
- -------------- (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 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)
COMMON COMMON MINIMUM STOCK STOCK ADDITIONAL PENSION ($.01 PAR ($.10 PAR PAID-IN ACCUMULATED LIABILITY VALUE) VALUE) CAPITAL DEFICIT ADJUSTMENT TOTAL --------- --------- ---------- ----------- ---------- -------- PRE-REORGANIZATION 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
- --------------------------------------------------------------------------------
POST-REORGANIZATION 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 ==== === ======= ======== ===== ========
The accompanying notes are an integral part of these statements. 5 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)
POST-REORGANIZATION PRE-REORGANIZATION ----------------------- -------------------------- THREE MONTHS NINE MONTHS YEAR ENDED ENDED ENDED JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30, 1998 1996 1996 1995 ---------- ------------ ------------- ------------ 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 - -------------------------------------------------- ======== ======= ========= ========
The accompanying notes are an integral part of these statements. 6 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 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):
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 ------------- ------------ -------- ----------- ------------- 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
- ----------------- (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 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 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 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 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):
FOR THE YEAR FOR THE THREE ENDED JANUARY 3, MONTHS ENDED 1998 DECEMBER 28, 1996 ----------------- ----------------- NAPERY APPAREL NAPERY APPAREL BUSINESS BUSINESS BUSINESS BUSINESS -------- -------- -------- -------- Net sales................................ $7,545 $23,731 $2,766 $7,471 Income (loss)............................ (2,494) (4,422) 17 (396)
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):
NAPERY APPAREL TOTAL ------- ------- ------- 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 ======= ======= =======
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):
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ======= =======
Substantially all inventories are pledged as collateral under the Loan and Security Agreement (Note 6). 12 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):
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ======= =======
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):
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ======= =======
Annual maturities of long-term debt and capital lease obligations are as follows (in thousands): 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 =======
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 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 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):
THREE MONTHS YEAR ENDED ENDED JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ======== =====
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):
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ======= =======
15 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):
THREE MONTHS YEAR ENDED ENDED JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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)
16 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):
THREE MONTHS NINE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30, 1998 1996 1996 1995 ---------- ------------ ------------- ------------ 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 -------------------------------------------------- ==== === ====== ====
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 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):
THREE MONTHS NINE MONTHS YEAR YEAR ENDED ENDED ENDED ENDED JANUARY 3, DECEMBER 28, SEPTEMBER 28, DECEMBER 30, 1998 1996 1996 1995 ---------- ------------ ------------- ------------ 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 -------------------------------------------------- ==== ==== ====== ======
The plan's funded status and amounts recognized in the accompanying balance sheets are as follows (in thousands):
JANUARY 3, DECEMBER 28, 1998 1996 ---------- ------------ 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 ====== ======
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 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):
1998.................................................................. $3,088 1999.................................................................. 2,214 2000.................................................................. 1,341 2001.................................................................. 306 2002.................................................................. 176 ------ $7,125 ======
19 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. 20 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) ADDITIONS ------------------------ BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS* OF PERIOD ----------- ---------- --------- ----------- ---------- 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
- -------- * 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 EX-99.3 4 UNAUDITED FINANCIAL STATEMENTS OF THE BIBB COMPANY 1 EXHIBIT 99.3 THE BIBB COMPANY CONDENSED BALANCE SHEETS JULY 4, 1998 AND JANUARY 3, 1998 (In thousands, except share data) (unaudited)
July 4, January 3, 1998 1998 --------- ----------- 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 ======== ========
The accompanying notes are an integral part of these condensed balance sheets (unaudited). 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)
Three Months Ended Six Months Ended ----------------------------- ------------------------------ July 4, June 28, July 4, June 28, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial statements (unaudited). 2 3 THE BIBB COMPANY CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JULY 4, 1998 (In thousands) (unaudited)
Common Stock Additional ($.01 Paid-in Accumulated Par Value) Capital Deficit Total ---------------- ----------------- ----------------- ------------------ 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 ================= ================= ================= ==================
The accompanying notes are an integral part of these financial statements (unaudited). 3 4 THE BIBB COMPANY CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 4, 1998 AND JUNE 28, 1997 (In thousands) (unaudited)
Six Months Ended ----------------------------- July 4, June 28, 1998 1997 ---------- ----------- 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 ======== =========
The accompanying notes are an integral part of these condensed financial statements (unaudited). 4 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 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):
For the three months ended For the three months ended July 4, 1998 June 28, 1997 ---------------------------------- ---------------------------------------- Apparel Napery Apparel Napery Business Business Business Business -------------- --------------- ---------------- ------------------ 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)
Net assets of discontinued operations at July 4, 1998 and January 3, 1998 are set forth below (in thousands):
July 4, January 3, 1998 1998 ------------------ --------------------- 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 ================== =====================
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 7 3. INVENTORIES The major classes of inventories, exclusive of inventory related to the discontinued apparel and napery businesses, were as follows (in thousands):
July 4, January 3, 1998 1998 -------- ---------- 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 ======== =========
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):
July 4, January 3, 1998 1998 ---------- ------------ 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 ======== ========
5. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
July 4, January 3, 1998 1998 ---------- ------------ 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 ======== =========
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 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 EX-99.4 5 UNAUDITED PRO FORMA COMBINATION FINANCIAL INFO 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. 2 UNAUDITED PRO FORMA COMBINED BALANCE SHEET JULY 4, 1998
HISTORICAL PRO FORMA -------------------- ------------------------ DAN RIVER BIBB ADJUSTMENTS COMBINED --------- -------- ----------- -------- (IN THOUSANDS) 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 ======== ======== ======== ========
1 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. 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 ================
2 4 NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- (CONTINUED) EXCESS OF COST OVER FAIR MARKET VALUE OF NET ASSETS ACQUIRED: (IN THOUSANDS) 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 ========
----------------------- (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 5 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (PRE-MERGER) YEAR ENDED JANUARY 3, 1998
PRO FORMA ADJUSTMENTS HISTORICAL ----------------------- DAN RIVER ----------------------- CHEROKEE PRO FORMA DAN RIVER CHEROKEE(1) ACQUISITION OFFERING (PRE-MERGER) --------- ----------- ----------- -------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ========
- --------------- (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 6 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (MERGER) YEAR ENDED JANUARY 3, 1998
DAN RIVER DAN RIVER PRO FORMA BIBB PRO FORMA PRO FORMA (PRE-MERGER) HISTORICAL ADJUSTMENTS(7) FOR MERGER ------------ ---------- -------------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ========
- --------------- (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: 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 =======
(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 7 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SIX MONTHS ENDED JULY 4, 1998
HISTORICAL PRO FORMA -------------------- --------------------------- DAN RIVER BIBB ADJUSTMENTS(7) COMBINED --------- -------- -------------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ========
- --------------- (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: 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 ======
(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 -----END PRIVACY-ENHANCED MESSAGE-----