Dan River cost-cutting could net bigger 4Q loss
December 17, 2001,
Danville, VA — Shutting down two of its home fashions plants in a modernization and cost-cutting move, and at the same time slashing capacity and idling 140 looms in its hard-hit apparel fabrics business, Dan River Inc. will record a fourth-quarter charge of $4.5 million to $5.0 million, a move likely to generate a widening loss for the diversified textiles producer following a prior-year deficit of $2.2 million.
As it reconfigures production in its core home fashions business — "without any substantial change to capacity," the company said — Dan River said it will shut down its Greenville, SC, sheet weaving plant No. 1, moving production to Danville, VA, in addition to shuttering its Newnan, GA, cut and sew plant.
Like the rest of the American apparel and apparel fabrics industry, Dan River has been hit hard by the double-whammy of a slowdown in U.S. consumer spending and a steep increase of low-cost imports triggered by a long-lasting recession in Southeast Asian economies. During the recent third quarter, Dan River's apparel fabrics business recorded a $2.4 million loss and a deep 26.7 percent decline in sales. For the nine months year-to-date, the apparel fabrics business has generated a $4.6 million deficit, compared with a year-before profit of $9.5 million.
Reconfiguring apparel fabrics production, Dan River said it will shut down 140 looms in its Danville, VA, plant, and move another 120 looms from Danville to its Sevierville, TN, plant. The space freed up in Danville will house new high-speed airjet sheeting looms for the home fashions business, replacing older, less efficient projectile looms at the Greenville, SC, plant, which will be taken out of service.
At the same time, the company will close the Newnan, GA, cut and sew facility, shifting production to sewing plants in Brookneal and Danville, VA, eliminating costs at Brookneal and improving the flow of work and goods.
The company said it has already begun to work on the changes, and expects the consolidation to be completed "within 120 days." All 274 employees of the Newnan facility and 122 workers at the Greenville plant will be affected. But with new jobs added at Sevierville and the Virginia locations, the net job loss will total about 190, leaving the company with about 6,800 U.S. employees.
Easing some of its fiscal pressures, and buying a little breathing space, Dan River said it also has cut a deal with senior lenders amending its credit agreement and waiving financial covenant defaults. "We are pleased that we have been able to reach an agreement with our senior lenders in these difficult times," said Lanier. "The amendment establishes a borrowing base, new covenant levels and interest rates, and provides the company additional liquidity in 2002 to fund expected working capital needs as the economy improves."
The company said it "currently has cash on hand and availability under its revolving credit agreement in excess of $55 million."
In its most recent fiscal quarter, Dan River generated earnings of $1.8 million, but only because of a $6.1 million one-time tax benefit. Without the big tax break, the company actually posted a loss of $4.3 million, on a 9.2 percent drop-off in sales, to $159.4 million from $175.5 million last year.