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 June 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 JUNE 30, 2001
Common Stock $2.50 par value 1,889,027
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
June 30, 2001 and December 31, 2000 .............................. 2
Consolidated Balance Sheets, Liabilities & Stockholders' Equity
June 30, 2001 and December 31, 2000 .............................. 3
Consolidated Statements of Operations for the three months and
six months ended June 30, 2001 and 2000 .......................... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 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
June 30, December 31,
2001 2000
(Unaudited) (*)
----------- -----------
Current Assets:
Cash $ 123,849 $ 1,395
Accounts Receivable, trade
less allowances of $1,305,000 in 2001
and $2,249,000 in 1999 6,868,051 14,601,499
Deferred Income Tax Asset 654,491 654,491
Finished Goods Inventories, at lower of
cost (FIFO) or market: 16,693,038 14,758,949
Other Current Assets 745,975 193,757
----------- -----------
Total Current Assets 25,085,404 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 479,306 378,333
----------- -----------
Property, plant & equipment, net 1,953,605 2,054,578
Other Assets:
Deferred Income Tax Asset 0 795,038
Prepaid Pension Cost 0 3,610,518
Other Assets, net 2,952,847 1,754,176
----------- -----------
Total Other Assets 2,952,847 6,159,732
----------- -----------
Total Assets $29,991,856 $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
June 30, December 31,
2001 2000
(Unaudited) (*)
------------ ------------
Current Liabilities:
Notes Payable, line of credit $ 9,577,181 $ 12,500,000
Notes Payable, current 7,715,425 6,416,743
Accounts Payable, trade 3,045,935 9,158,314
Liability to former stockholder 1,805,951 1,805,951
Income Tax Payable 54,197 898,364
Other Accrued Liabilities 431,196 1,038,078
------------ ------------
Total Current Liabilities 22,629,885 31,817,450
Deferred Income Taxes 613,064 0
Notes Payable, non-current 1,047,619 9,320
Other Liability 700,000 700,000
------------ ------------
Total Other Liabilities 2,360,683 709,320
Total Liabilities 24,990,568 32,526,770
Stockholders' Equity:
Common Stock 5,071,065 4,245,823
Paid-in-excess of par value 1,837,887 815,940
Retained Earnings 302,838 1,305,759
------------ ------------
7,211,790 6,367,522
Less: Treasury Stock (2,210,502) (469,891)
------------ ------------
Total Stockholders' Equity 5,001,288 5,897,631
------------ ------------
Total Liabilities & Stockholders'
Equity $ 29,991,856 $ 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 Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
--------------------------------------------------------------------------------
Net Sales $ 8,399,823 $ 6,398,449 $ 19,317,315 $ 7,554,006
Costs and Expenses
Cost of Goods Sold 5,364,824 4,245,004 12,305,596 5,551,661
Selling, General &
Administrative 2,504,759 2,469,592 5,609,119 4,715,740
Other Expense-Pension 1,713,710 0 1,713,710 0
Interest Expense 517,963 437,282 1,009,734 69,282
--------------------------------------------------------------------------------
Total Costs and Expenses 10,101,256 7,151,878 20,638,159 10,336,683
Loss before Income
Tax Expense (1,701,433) (753,429) (1,320,844) (2,782,677)
Income Tax Credit (474,158) (263,886) (317,923) (750,906)
--------------------------------------------------------------------------------
Net Loss $ (1,227,275) $ (489,543) $ (1,002,921) $ (2,031,771)
================================================================================
Net Loss per Share:
Basic $ (0.78) $ (0.31) $ (0.64) $ (1.30)
Diluted $ (0.78) $ (0.31) $ (0.64) $ (1.30)
Shares Outstanding:
Basic 1,572,486 1,560,789 1,570,549 1,560,789
Diluted 1,572,486 1,560,789 1,570,549 1,560,789
See notes to consolidated financial statements.
5
DANIEL GREEN COMPANY
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended
June 30, June 30,
2001 2000
----------- ------------
Operating Activities:
Net Loss $(1,002,921) $ (2,031,771)
Adjustments to reconcile net income (loss)
to net provided by operating activities:
Depreciation and amortization 408,638 122,758
Changes in assets & liabilities:
(Increases) decreases in:
Accounts Receivable, trade 7,733,448 3,373,461
Finished Goods Inventories (1,934,089) (729,313)
Other Current Assets (552,218) (41,757)
Other Assets 0 (434,515)
Increases (decreases) in:
Accounts Payable, trade (6,112,379) (198,237)
Accrued Salaries & Commissions 0 (34,702)
Other Accrued Liabilities (557,927) 264,664
Income Taxes Payable (844,167) 0
Prepaid Pension 3,610,518 0
----------- ------------
Net cash provided by Operating Activities 748,903 290,588
Investing Activities:
Acquisition of business less cash acquired 0 (11,485,900)
Sale of Marketable Securities 0 718,000
Purchase of property & equipment 0 (204,199)
----------- ------------
Net cash used in Investing Activities 0 (10,972,099)
Financing Activities:
Net Borrowing/(Payment) on Line of Credit (2,922,819) 5,716,152
Net Borrowing of Notes Payable 2,336,981 5,242,378
Purchase of Treasury Stock (40,611) (25,183)
Other Refinancing Expenses 0 (52,727)
----------- ------------
Net Cash Provided/(Used) in Financing Activities (626,449) 10,880,620
----------- ------------
Net Increase in Cash 122,454 199,109
Cash at Beginning of Period 1,395 225,079
----------- ------------
Cash at End of Period $ 123,849 $ 424,188
=========== ============
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 June
30, 2001 and the results of operations and cash flows for the three and six
months then ended. The results of operations for the six months ended June 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
include adjustments for estimated amounts of goodwill amortization, depreciation
of fixed assets acquired based on their estimated fair values, increased
interest expense assuming the purchase consideration had resulted in additional
borrowing during the periods 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.
Six Months Ended June 30, 2000
-------------------------------------------------------------
In thousands, except per share amounts (unaudited)
Net Sales $ 14,068
Net Earnings (Loss) (1,244)
Net Earnings (Loss) per Common Share (0.80)
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, following the termination of
its defined benefit pension plan, the Company contributed cash of $1,700,000 to
the Company's 401(k) savings plan ("the Plan"). Subsequently, in June 2001 the
Plan acquired 330,097 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 June 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 June 30, 2001 the Daniel Green Company had working capital of $2,455,519
vs. a working capital deficiency of ($1,607,359) at December 31, 2000.
The consolidated statement of cash flows for the six months ended June 30,
2001 shows an increase of cash of approximately $123,000 since December 31,
2000. Net cash provided from operations was $748,903, primarily due to the
reduction in accounts receivable from December 31, 2000. During the six months
ended June 30, 2001 accounts payable trade was reduced by $6,112,379.
At the end of the second quarter of 2001, total indebtedness was
$20,146,176 which consisted of: line of credit balance, current of $9,577,181,
notes payable, current, of $7,715,425 (which includes $750,000 due to a major
stockholder), notes payable, noncurrent, of $1,047,619, and a liability related
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, the interest rate is prime plus
.75% (the prime rate was 6.75% at June 30) 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. In
addition, the Company has a loan in the amount of $750,000 outstanding to the
same major stockholder.
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.
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.
10
2. Results of Operations
Net Sales for the second quarter of 2001 were $8.4 million compared to $6.4
million for the same period in the prior year. This year's results represent a
31.2% 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 36.1% compared to
33.7% in the same quarter last year. The increase in gross profit is primarily
due to the positive performance in the Trotters and Softwalk brands.
Selling, general and administrative expenses as a percentage of net sales
were 29.8% or $2.5 million for the second quarter of 2001 as compared to 38.6%
or $2.5 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.
Included in other expenses for the second quarter of 2001 are costs
associated with the termination of the Penobscot Shoe Company Retirement plan,
totaling $1,713,710. 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.
During the second quarter of 2001, interest expense amounted to $517,963 as
compared to $437,282 in the second quarter of 2000. For the six months ended
June 30, 2001 interest expense amounted to $1,009,734 compared to $69,282 for
the same period last year. The reason for the increase is the increase in
outstanding debt vs. last year.
A majority of our products continue to be made of leather. As a result of
the Mad Cow disease epidemics in Europe, the footwear industry continues to be
concerned about rising leather prices in the future and what impact on gross
profits this could have. Year to date we have begun to experience limited price
increases for our cost of goods sold.
During what has been described as a "very tough" Spring season by the
industry, both the Trotters and Softwalk brands of the Company have continued to
perform well at retail. This is a result of our brands maintaining a clean
channel of distribution with a focus on growing the business with
non-promotional retailers. Our order backlog position is currently running 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 - The annual meeting of the stockholders has been
scheduled for Thursday, September 6, 2001 at 10:00 am at the Strathalan
Hotel, 550 East Avenue, Rochester, New York, 14607. Stockholders of record
on June 24, 2001 will receive notice of the meeting.
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 Office