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Dan River profits evaporate into air

Hammered by a trifecta of sharply falling sales, the cost of shutting down plants and laying off workers, and margins at the vanishing point; Dan River Inc. recorded a fourth quarter deficit of $32.8 million, swinging to a loss from a year-before profit of $4.2 million.

Sales at the diversified textiles supplier, which last month filed for Chapter 11 bankruptcy protection from its creditors, tumbled 28.2 percent, to $110 million from $153 million the year before, a daunting shortfall of $43 million.

Hard hit was the company's core home fashions business, where sales fell 28.7 percent, to $79.9 million from $112.1 million last year. Operating profits in the big home business swung to a loss of $9.3 million from a year-before profit of $12.5 million.

Sales of apparel fabrics dropped 29.4 percent, to $22.1 million from $31.3 million, and the unit recorded a loss of $4.6 million, compared with a small year-before profit of $731,000. Sales in the engineered products unit declined 18.1 percent, to $8 million from $9.8 million, with the business posting a loss of $891,000, more than twice the year-before loss of $333,000.

Acting as a drag on the bottom line, in addition to plunging sales, was $15.4 million in costs tied to plant closing and layoffs. Adding one more layer of pressure, with its plants running slow as sales skidded down, margins thinned out to the point of disappearing. Average gross margin measured just 0.4 percent, compared with 19.5 percent the preceding year when the company's plants were running fuller.

Responding fast to falling sales, the company kept hacking away at costs, reducing expenses 4.5 percent from year-before levels, to $16.6 million from $17.4 million, generating a cash savings of $785,000. Measured as a percentage of falling sales, costs climbed 370 basis points, or 3.7 percentage points.

For all of 2003, Dan River recorded a loss of $153 million, compared with a year-ago loss of $13.3 million. In addition to $28 million in plant closing and termination costs, the company recorded a one-time charge of $91.7 million for the impairment of goodwill. Sales for all of last year fell 22.1 percent, to $477.4 million from $612.9 million, a drop of more than $135 million.

Fourth quarter segment results

Home Fashions
Sales $79,913 $112,098 -28.7
Operating Income (9,276) 12,477
Apparel Fabrics
Sales 22,104 31,328 -29.4
Operating Income (4,590) 731
Engineered Products
Sales 7,983 9,752 -18.1
Operating Income (891) (333)


Dan River Inc.

Qtr. 1/3 (x000) 2003 2002 % chg
Sales $110,000 $153,178 -28.2
Oper. income (EBIT) (16,131) 12,438
Net income (32,838)a 4,158a
Per share (diluted) (1.49) 0.19
Average gross margin 0.4% 19.5%
SG&A expenses 15.1% 11.4%
12 months 2003 2002 % chg
Sale 477,448 612,949 -22.1
Oper. income (EBIT) (12,028) 43,793
Net income (153,028)b (13,321)b
Per share (diluted) (6.96) (0.60)
Average gross margin 10.8% 18.4%
SG&A expenses 13.3% 11.2%
(loss)
a-Fourth-quarter results include miscellaneous operating costs of $15.4 million, compared with miscellaneous operating income of $240,000 last year; miscellaneous income of $637,000, compared with $350,000 in 2002; and an income-tax benefit of $5.6 million vs. a tax provision of $3 million last year.
b-12-month results include a $91.7 million goodwill impairment charge; miscellaneous operating costs of $28 million, compared with other operating income of $550,000 last year; miscellaneous income of $1.6 million vs. $455,000 in 2003; and a $5.8 million income tax benefit vs. a tax provision of $10.5 million last year. 2003 results include a $20.7 million charge stemming from a change in accounting.


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