Company Name: DANIEL GREEN COMPANY Ticker Symbol: DAGR
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 2001 Commission File No. 0-774
DANIEL GREEN COMPANY
(Name of Small Business Issuer in its Charter)
MASSACHUSETTS 15-0327010
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
OLD TOWN, MAINE 04468
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (207) 827-4431
Former name, former address and former fiscal year, if changed since last
report: None.
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days. YES [X] NO [_]
CLASS OUTSTANDING AT SEPTEMBER 30, 2001
Common Stock $2.50 par value 1,946,849
Transitional Small Business Disclosure Format (Check One) Yes [_] No [X]
1
DANIEL GREEN COMPANY
INDEX
Page
Number
Index .............................................................. 1
PART I - Financial Information
Consolidated Balance Sheets, Assets
September 30, 2001 and December 31, 2000 .................. 2
Consolidated Balance Sheets, Liabilities & Stockholders' Equity
September 30, 2001 and December 31, 2000 .................. 3
Consolidated Statements of Operations for the three months and nine
months ended September 30, 2001 and September 30, 2000 ... 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and September 30, 2000 ................. 5
Notes to Consolidated Financial Statements ......................... 6
Management Discussion & Analysis of Financial Condition and Results
of Operations ............................................. 9
PART II - Other Information ........................................ 11
2
DANIEL GREEN COMPANY
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2001 2000
(Unaudited) (*)
----------- -----------
Current Assets:
Cash $ 504,508 $ 1,395
Accounts Receivable, trade
less allowances of $1,646,163 in 2001
and $2,249,000 in 1999 9,601,332 14,601,499
Deferred Income Tax Asset 584,234 654,491
Finished Goods Inventories, at lower of
cost (FIFO) or market: 19,208,643 14,758,949
Other Current Assets 159,226 193,757
----------- -----------
Total Current Assets 30,057,943 30,210,091
Property, plant & equipment:
Real Estate and Water Power, at cost 1,698,581 1,698,581
Machinery & Equipment at cost 734,330 734,330
----------- -----------
2,432,911 2,432,911
Less: Accumulated Depreciation 529,106 378,333
----------- -----------
Property, plant & equipment, net 1,903,805 2,054,578
Other Assets:
Deferred Income Tax Asset 0 795,038
Prepaid Pension Cost 0 3,610,518
Other Assets, net 2,866,771 1,754,176
----------- -----------
Total Other Assets 2,866,771 6,159,732
----------- -----------
Total Assets $34,828,519 $38,424,401
=========== ===========
(*) Derived from audited consolidated financial statements. See notes to
consolidated financial statements.
3
DANIEL GREEN COMPANY
Consolidated Balance Sheets
LIABILITIES & STOCKHOLDERS' EQUITY
September 30, December 31,
2001 2000
(Unaudited) (*)
------------ ------------
Current Liabilities:
Notes Payable, line of credit $ 10,100,365 $ 12,500,000
Notes Payable, current 7,293,488 6,416,743
Accounts Payable, trade 7,111,010 9,158,314
Liability to former stockholder 1,805,951 1,805,951
Income Tax Payable 19,078 898,364
Other Accrued Liabilities 756,385 1,038,078
------------ ------------
Total Current Liabilities 27,086,277 31,817,450
Deferred Income Taxes 225,760 0
Notes Payable, non-current 1,008,333 9,320
Other Liability 700,000 700,000
------------ ------------
Total Other Liabilities 1,934,093 709,320
Total Liabilities 29,020,370 32,526,770
Stockholders' Equity:
Common Stock 5,224,065 4,245,823
Paid-in-excess of par value 2,000,067 815,940
Retained Earnings 1,120,549 1,305,759
------------ ------------
8,344,681 6,367,522
Less: Treasury Stock (2,536,532) (469,891)
------------ ------------
Total Stockholders' Equity 5,808,149 5,897,631
------------ ------------
Total Liabilities & Stockholders'
Equity $ 34,828,519 $ 38,424,101
============ ============
(*) Derived from audited consolidated financial statements.
See notes to consolidated financial statements.
4
DANIEL GREEN COMPANY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $12,925,823 $11,192,226 $ 32,243,138 $ 18,746,232
Costs and Expenses
Cost of Goods Sold 8,953,625 7,170,100 21,259,221 12,721,761
Selling, General &
Administrative 2,848,179 2,948,765 8,457,298 7,664,505
Other Expense-Pension 0 0 1,713,710 0
Interest Expense 297,910 451,430 1,307,644 520,712
----------- ----------- ------------ ------------
Total Costs and Expenses 12,099,714 10,570,295 32,737,873 20,906,978
Income (loss) before Income
Tax Expense (Credit) 826,109 621,931 (494,735) (2,160,746)
Income Taxes (Credit) 8,398 186,579 (309,525) (564,327)
----------- ----------- ------------ ------------
Net Income (Loss) $ 817,711 $ 435,352 $ (185,210) $ (1,596,419)
=========== =========== ============ ============
Net Income (Loss) per Share:
Basic $ 0.52 $ 0.27 $ (0.12) $ (1.02)
Diluted $ 0.49 $ 0.27 $ (0.12) $ (1.02)
Shares Outstanding:
Basic 1,568,173 1,588,640 1,570,658 1,571,320
Diluted 1,725,697 1,588,640 1,570,658 1,571,320
See notes to consolidated financial statements.
5
DANIEL GREEN COMPANY
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30, September 30,
2001 2000
----------- ------------
Operating Activities:
Net Loss $ (185,210) $ (1,596,419)
Adjustments to reconcile net (loss) to cash
(used)/provided by operating activities:
Depreciation and amortization 611,378 167,280
Changes in assets & liabilities:
(Increases) decreases in:
Accounts Receivable, trade 5,000,167 (1,808,784)
Finished Goods Inventories (4,449,694) (1,744,240)
Deferred Income Tax Asset 70,257
Other Current Assets 34,531 (59,469)
Other Assets (17,909) (359,569)
Increases (decreases) in:
Accounts Payable, trade (2,047,304) 2,470,128
Accrued Salaries & Commissions 0 (85,886)
Other Accrued Liabilities (281,693) (283,502)
Income Taxes Payable (879,286) 0
Deferred Income Taxes (387,304)
Prepaid Pension 3,610,518 0
----------- ------------
Net cash provided/(used) by Operating Activities 1,078,451 (3,300,461)
Investing Activities:
Acquisition of business less cash acquired 0 (11,485,900)
Sale of Marketable Securities 0 718,000
Purchase of property & equipment 0 (281,834)
----------- ------------
Net cash used in Investing Activities 0 (11,049,734)
Financing Activities:
Net Borrowing/(Payment) on Line of Credit (2,399,635) 9,916,152
Net Borrowing of Notes Payable 1,875,758 5,033,050
Purchase of Treasury Stock (51,461) 135,785
Other Refinancing Expenses 0 (649,875)
----------- ------------
Net Cash Provided/(Used) in Financing (575,338) 14,435,112
----------- ------------
Net Increase in Cash 503,113 84,917
Cash at Beginning of Period 1,395 225,079
----------- ------------
Cash at End of Period $ 504,508 $ 309,996
=========== ============
6
DANIEL GREEN COMPANY
Notes to Consolidated Financial Statements
Note 1.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain adjustments, all of which are of a normal and
recurring nature, necessary to present fairly the financial position as of
September 30, 2001 and the results of operations and cash flows for the three
and nine months then ended. The results of operations for the nine months ended
September 30, 2001 are not necessarily indicative of the results to be expected
for the full year.
Note 2.
The accounting policies used in preparing these statements are the same as
those used in preparing the Company's consolidated financial statements for the
year ended December 31, 2000. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report to stockholders for the
year ended December 31, 2000.
Note 3.
Due to severe global competition, the Company ceased domestic manufacturing
and transitioned to a fully sourced importer during 1999. At the same time,
several acquisition opportunities were aggressively evaluated and pursued. This
activity resulted in acquiring certain assets of one of the Company's largest
competitors, L. B. Evans and Son Company Limited Partnership ("Evans") on
February 3, 2000. In addition, the Company purchased all of the outstanding
shares of Penobscot Shoe Company ("Penobscot") from Riedman Corporation on March
30, 2000. Penobscot Shoe Company has been making women's footwear for over 60
years and is based in Old Town, Maine. Since a significantly more modern
distribution facility, with excess capacity came with the Penobscot acquisition,
it was decided that relocating the Daniel Green operation to Maine would provide
the most efficient and effective platform for optimizing the synergies from the
three businesses. During May 2000, and pursuant to a public announcement made by
the Company on March 30, 2000, the Company's headquarters and distribution
operation previously located in Dolgeville, New York were relocated to, and
consolidated with, the newly acquired operations in Old Town, Maine.
The acquisition of Penobscot has been accounted for under the purchase
method of accounting and, accordingly, the operation results of Penobscot have
been included in the Company's consolidated financial statements since the date
of acquisition.
7
The following summary presents unaudited proforma consolidated results of
operations as if the acquisition had occurred at the beginning of 2000, and
includes adjustments for estimated amounts of goodwill amortization,
depreciation of fixed assets acquired based on their estimated fair values, and
increased interest expense assuming the purchase consideration had resulted in
additional borrowing during the period presented. The pro forma results are for
illustrative purposes only, and do not purport to be indicative of the actual
results which would have occurred had the transaction been consummated as of the
earlier dates, nor are they indicative of results of operations which may occur
in the future. The results do not reflect synergies.
Nine Months Ended September 30, 2000
---------------------------------------------------------------------
In thousands, except per share amounts (unaudited)
Net Sales $25,260
Net Loss $ 1,648
Net Loss per Common Share $ 1.05
Note 4.
Effective January 1, 2001, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for
Derivative Instruments and Certain Hedging Activities." These standards require
the Company to recognize all derivatives as either assets or liabilities at fair
value in its balance sheet. The accounting changes in the fair value of a
derivative depends on the use of the derivative. To the extent that a derivative
is effective as a hedge of a future exposure to changes in value, the fair value
of the derivative is deferred in other comprehensive income. Any portion
considered to be ineffective is reported in the statement of operations
immediately.
The adoption of these standards did not have a material impact on the
Company's financial statements and therefore, a transition adjustment is not
separately presented.
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". These
statements make significant changes to the accounting for business combinations,
goodwill and intangible assets. SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations with limited exceptions for
combinations initiated prior to July 1, 2001. In addition, it further clarifies
the criteria for recognition of intangible assets separately from goodwill. This
statement is effective for business combinations completed after June 30, 2001.
8
SFAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Impairment would be examined more frequently if certain indicators
are encountered. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. SFAS No. 142 applies to goodwill and
intangible assets acquired after June 30, 2001. Goodwill and intangible assets
existing prior to July 1, 2001 will be affected when the Company adopts the
statement. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. The Company is evaluating the impact of the adoption of these
standards and has not yet determined the effect of adoption on its financial
position and results of operations.
Note 5.
During the quarter ended June 30, 2001, the Company completed the
termination of its defined benefit pension plan. On the date of the termination,
the Company received cash totaling $2,377,600, which was less than the carrying
value of the prepaid pension cost asset of $3,734,670, resulting in a loss of
$1,357,070. This loss was increased by an excise tax totaling $356,640, which
resulted in a total loss on this transaction totaling $1,713,710. This amount is
included in other expense in the 2001 statement of operations.
During the second quarter ended June 30, 2001 and the third quarter ended
September 30, 2001, following the termination of its defined benefit pension
plan, the Company contributed cash of $2,015,000 to the Company's 401(k) savings
plan ("the Plan"). Subsequently, in June 2001 the Plan acquired 391,297 shares
of the Company's common stock at a price per share of $5.15, which was based on
an independent appraisal. There were no allocated shares as of September 30,
2001. The unallocated shares in the Plan have been classified as treasury stock
in stockholders' equity. Compensation expense will be recognized as the shares
are allocated to the participants, which is expected to occur over a seven-year
period.
9
DANIEL GREEN COMPANY
Management Discussion & Analysis of Financial Condition
and Results of Operations
1. Liquidity and Capital Resources
At September 30, 2001 the Daniel Green Company had working capital of
$2,971,666 vs. a working capital deficiency of ($1,607,359) at December 31,
2000.
The consolidated statement of cash flows for the nine months ended
September 30, 2001 shows an increase of cash of approximately $503,113
since December 31, 2000. Net cash provided from operations was $1,078,451,
primarily due to the reduction in accounts receivable from December 31,
2000. During the nine months ended September 30, 2001 accounts payable
trade was reduced by $2,047,304.
At the end of the third quarter of 2001, total indebtedness was $20,208,137
which consisted of: line of credit balance, current of $10,100,365, notes
payable, current, of $7,293,488 (which includes $750,000 due to a major
stockholder), notes payable noncurrent of $1,008,333, and a liability
relating to the dissenting shareholders of Penobscot of $1,805,951.
The Company has a revolving line of credit ("revolver"), an additional term
loan facility in the amount of $6,000,000, a supplemental loan facility in
the amount of $2,800,000, and an additional bridge loan (amendment to the
revolver) of $2,000,000. The borrowing base for the revolver is based on
certain balances of accounts receivable and inventory, as defined in the
agreement. The maximum credit amount under the revolver is $12,500,000, and
the interest rate is prime plus .75% (the prime rate was 6.0% at September
30, 2001) and the revolver expires on April 1, 2003. The revolver is
secured by accounts receivable, inventory, and equipment. The term loan is
payable through April 1, 2003 and is also secured by accounts receivable,
inventory and equipment. The supplemental loan facility is available
through April 1, 2003. The bridge loan has an expiration date of May 30,
2002. A major stockholder of the Company guarantees these facilities.
The revolver and the term loan agreements contain covenants relative to
average borrowed funds to earnings ratio, net income, current ratio, and
cash flow coverage. In addition, the payment or declaration of dividends
and distributions is prohibited unless a written consent form from the
lender is received. On May 31, 2001, the bridge loan was executed, and upon
the effective date of this amendment to the revolver, the Bank waived the
Company's failure to comply with certain covenants, subject to complying
with newly stated covenants.
10
Management is not aware of any known demands, commitments, or events that
would materially effect its liquidity. There are no material expenditures
or commitments, which would affect capital resources in a significant way.
Cash generated by operations, supplemented by borrowings, should cover
planned requirements.
2. Results of Operations
Net Sales for the third quarter of 2001 were $12.9 million compared to
$11.2 million for the same period last year. This year's results represent
a 15% increase over the results for last year. The net sales increase is
primarily attributable to the Trotters and Softwalk brands, which were part
of the Penobscot Shoe Company acquisition, which took place in 2000.
The gross margin in the current quarter was approximately 31%, compared to
36% in the same quarter last year. This reduction is attributable to the
increased costs associated with returns and allowances in 2001 over 2000,
as well as procurement costs associated with product receipts in the third
quarter of 2001, greater than 2000.
Selling, general and administrative expenses as a percentage of net sales
were 22% or $2.8 million for the third quarter of 2001 as compared to 26.3%
or $2.9 million for the same quarter in 2000. The results in 2000 include
amounts associated with closing and securing the Company's Dolgeville
location and terminated employees' severance packages.
For the nine months ended September 30, 2001, income before taxes and
before other expenses associated with the pension termination referred to
in Note 5 was $1,218,975 as compared to a loss of ($2,160,746) for the same
period in the prior year.
During the third quarter of 2001, interest expense amounted to $297,910 as
compared to $451,430 for the third quarter of 2000. For the nine months
ended September 30, 2001, interest expense amounted to $1,307,644 compared
to $520,712 for the same period last year.
Given the challenging retail environment and the recent events of the
terrorists' attacks on the country, which has had a negative impact on the
overall economy, management is pleased with the performance and results
primarily as they relate to the Trotters and Softwalk brands. Our order
backlog position continues to run ahead of last year's results.
11
Part II - Other Information
1. Legal Proceedings - None.
2. Changes in Securities - None.
3. Default upon Senior Securities - None.
4. Submission of matters to a vote of security holders - None.
5. Other information - None.
6. Exhibits and Reports on Form 8K - Exhibit index appearing after signature
page is hereby incorporated by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto, duly authorized.
DANIEL GREEN COMPANY
Registrant
Date:
------------------ -------------------------
Robert M. Weedon
Chief Financial Officer
/s/ James R. Riedman
-------------------------
James R. Reidman
Chief Executive Officer