Dan River Inc. Business Information, Profile, and History

Company Perspectives:

Let's not mince words. Dan River is a great company because it has great people who make great products for the people of America and a good part of the rest of the world. It has been a great company for 100 years. It had to be or it could not have survived floods, fires, strikes, depressions, financial panics, import crises and fashion and style revolutions. Always it has been the people of Dan River who have made the company successful, interesting, unique and strong. Founders, presidents, managers, salesmen, stylists, weavers, spinners, doffers, secretaries, clerks, everybody on every job--in their time and in their place, their contributions together have brought Dan River to that rare pinnacle where it can celebrate a century of progress.

History of Dan River Inc.

Dan River Inc. manufactures apparel fabrics and home fashion products, such as bedding. Based in Danville, Virginia, the company is the leading U.S. producer of lightweight yarn-dyed fabrics, including oxford cloth, denims, and broadcloth. Dan River's apparel fabric is sold to clothing manufacturers and made into items with brand names including Brooks Brothers, Liz Claiborne, L.L. Bean, and Arrow. The company's home fashions products are sold under the Dan River brand as well as licensed names, ranging from 'Colours by Alexander Julian' to 'Barbie.' The goods are sold to high-volume retail chains and department stores, including Wal-Mart Stores, Inc., which accounted for 12 percent of home fashions sales in 1999. Dan River also makes engineered products, such as high-pressure hoses and conveyer belts, for industrial applications.

Early Years as a Cotton Mill: 1880s-1940s

The erection of a cotton mill was an unusual choice for the six men who together founded the Riverside Cotton Mills. Tobacco, not cotton, was the mainstay of industry in the South. The group of businessmen, however--none of whom had previous experience in textiles--believed textile manufacturing could flourish in the region. In 1882 they started the Riverside Cotton Mills, located in Danville, Virginia, on the banks of the Dan River, and began manufacturing fabric and yarn.

Success was rapid, and by 1888 Riverside had built two additional cotton mills. The company made its first acquisition in 1890 when it purchased Morotock Mill, a local producer of sheetings. Riverside continued to expand by building four more mills between 1893 and 1898, and in 1895 a group that included five of the original six founders established the Dan River Power and Manufacturing Company, which also manufactured cotton. Just over a decade later, in 1909, Riverside and Dan River merged to form the Riverside and Dan River Cotton Mills, Incorporated.

Success and growth continued in the early 1900s as the company turned out sheetings, ginghams, and chambrays, but expansion ceased in the mid-1920s when difficult times hit the textile industry. Riverside and Dan River reported a loss for the first time in history in 1924, and the company struggled through the Great Depression of the 1930s with no growth. The advent of World War II changed the course of the company, however, and high demand for fabrics spurred productivity at the Riverside and Dan River mills. The company that had suffered through the 1920s and 1930s with no innovations or expansion suddenly found itself with an abundance of orders and staff positions to fill.

Changes to enhance productivity, such as the formation of a quality control department and new equipment and manufacturing systems, were implemented. In 1942, the company began a research and development department. Four years later, the company name was shortened to Dan River Mills, Incorporated, and strong performance continued through the 1950s as the nation enjoyed the years following the war. At that time, Dan River was able to make capital improvements to strengthen operations and become more competitive in the textile industry.

Explosive Expansion and Growth: 1950s-1960s

After Dan River integrated new machinery and modern procedures into its operations, it adopted an ambitious expansion strategy during the 1950s and 1960s in order to diversify its product lines. In 1956 the company bought Iselin-Jefferson Company, Inc., a textile sales firm headquartered in New York. The acquisition included several companies run by Iselin-Jefferson, including cloth manufacturer Woodside Mills, based in Greenville, South Carolina; Iselin-Jefferson Financial Company, Inc., located in New York; and fabric producer Alabama Mills, Inc., which operated a number of factories in Alabama and Georgia. The purchase marked Dan River's first foray beyond the Danville, Virginia area and boosted its personnel by nearly 7,000 workers.

The mid-1960s marked a time of aggressive expansion and diversification through acquisitions. In 1964, Dan River entered a new industry when it acquired Kingston Mills, a carpet manufacturing firm. The following year, the company purchased another carpet company--Wunda Weve Carpet Co., located in Greenville, South Carolina. It also entered the knitted fabrics industry with the acquisition of Marco Fabric Manufacturing, Inc., which made velour fabrics, and added to its knitted fabrics operations in 1965 by purchasing Webco Mills, Inc., a maker of knit fabrics used to produce lingerie. Finally, the company also bought Clifton Manufacturing Co., Inc., a maker of greige fabrics that had six manufacturing plants.

In addition to growth through acquisitions, Dan River constructed several new plants to increase its production capacity and invested in the expansion of its carpet division. The company made several more acquisitions at the end of the decade. Crystal Springs Textiles, Inc., added to the company's finishing capabilities, and Morganton Hosiery Mills, Inc., boosted Dan River's presence in the hosiery product market.

Not only did Dan River focus on expansion, but it also concentrated on innovations in the textile world. In 1956, the same year it had acquired Iselin-Jefferson, Dan River launched its 'Wrinkl-Shed with Dri-Don' fabric finish, an improvement on its 'Wrinkle-Shed' fabric that had been introduced in 1947. 'Wrinkl-Shed with Dri-Don' lent fabric a finish that allowed for washing, drying, and wearing without the need for ironing. In the mid-1960s, with its entrance into the knitted fabrics market, the company began to manufacture double-knit fabrics for clothing. The firm also introduced 'Dan-Press,' which was its own version of permanent press.

Successes and Struggles in the 1970s and 1980s

At the commencement of the 1970s, the company changed its name once again to become Dan River Inc. The climate of the textile industry and the marketplace shifted, and Dan River was forced to alter some of its practices in order to remain competitive. Economic conditions were such that the firm put a halt to its acquisitions program. Many advances had been made in textile equipment, and Dan River realized that if it hoped to remain innovative and on the cutting edge of the industry, it would need to invest significantly in new machinery. In 1973 the company adopted a modernization program to upgrade equipment and increase efficiency, spending more than $200 million between 1973 and 1980 to realize its goals.

The company strived to lead the textile industry in innovations, and in the early 1970s it entered the denim manufacturing market with the construction of a denim plant. In the late 1970s the company introduced its innovative all-cotton fabric that offered the non-wrinkle characteristics of permanent press. Dan River's sales improved through the 1970s, and in 1979 it reported its highest profit to date, with sales of about $580 million.

The 1980s presented many new challenges to Dan River. Entering the decade, the company faced a hostile takeover bid by the Icahn Capital Corp., run by corporate raider and investor Carl C. Icahn. In order to thwart the takeover, in 1983 Dan River became a private, 70-percent employee-owned corporation, with employees voting to give up their pension plans for a stock ownership program. Employees believed jobs would be saved and that they would have more of a say in corporate decisions, but they quickly found this would not be the case.

Over the following two years, about 1,000 employees were laid off and at least five unprofitable plants were closed. Worse still, workers reportedly learned about the plant closings, as well as the return of corporate headquarters from Greenville, South Carolina, to Danville, Virginia, through newspaper reports rather than from management. Management also made the decision to take the company public again without input from employees, but this plan was tabled in 1987, presumably due to the company's poor performance in the mid-1980s. Because Dan River chose not to disclose company earnings after becoming an employee-owned company, employees did not have a solid idea of the company's financial performance, and this left them uninformed about their stock ownership values. Though management contended that the new ownership plan was beneficial to employees, at the time one worker told Business Week, 'Frankly, I wish Icahn would have taken over Dan River.'

Ironically, Dan River began searching for a buyer in the late 1980s and came close to being acquired by Textile Industries Australia. High interest rates in Australia extinguished the deal, however. In 1989, Dan River was purchased by a United States-based investment group for about $268 million. The group was led by Joseph L. Lanier, Jr., who had been the head of WestPoint Pepperell, Inc., a textile manufacturing company in Georgia. WestPoint Pepperell had been founded in 1886 by Lanier's ancestors, and Lanier himself had joined the family business in 1957, serving as chairman until a successful hostile takeover in early 1989 essentially forced him into early retirement. Retirement did not last long, however, as Lanier joined Dan River in late autumn. Though Dan River and WestPoint Pepperell shared some traits, they were very different in terms of size--Dan River had sales of about $400 million in 1988 while WestPoint Pepperell reported sales of about $2.15 billion.

Soon after ownership changed hands, Dan River president Lester A. Hudson resigned, and Richard Williams--a member of the investor group that acquired Dan River--was named president and chief operating officer. Lanier served as chairman and CEO. The new management team wasted no time increasing operating margins and production efficiency. Though Dan River had reportedly invested more than $200 million on capital improvements during the 1980s, the company was still not completely modernized, relying on outdated equipment in several plants. Lanier planned to double or triple capital expenditures to streamline operations.

In addition to updating machinery, Dan River made plans to alter its product lines and to place greater emphasis on home fashions and higher-end products. Even before Lanier's group came on board, Dan River's home fashions division had been focusing on growth, expanding significantly in the mid- to late 1980s. From 1986 to 1989, the home fashions group sales increased from about 18 percent to 40 percent of Dan River's total revenues. For the 1990s, the company hoped to increasingly cater to department stores, catalog companies, and specialty stores rather than concentrating solely on mass-market retailers where price points tended to be lower.

Dan River signed a number of new licensing agreements in the early 1990s, including such designer labels as high-quality French bedding company Porthault, home furnishings brand Lillian August, Jones New York, and Alexander Julian's 'Colours by Alexander Julian' label. The company also acquired children's licenses, including G.I. Joe and Chutes `n' Ladders. Larry Queen, Dan River's president of home fashions, commented on the importance of licensing agreements to growing the home fashions business and told HFD, 'The signing of these new licenses represents our next big move for market share ... We are continuing to upgrade our image, and attempting to capture more business at the upper end. We are looking at niches where we feel we can offer a superior product.'

Strengthening Operations in the 1990s

To streamline operations and focus on growing the profitable home fashions business, Dan River started the decade by selling its Wunda Weve Floor Coverings division to a buyer group that included former president Lester Hudson. Dan River then spent more than $50 million to modernize its plants, installing electronic inventory systems, computer equipment, and modern looms. Production capabilities were increased, and the manufacturing process became more efficient. The company also launched in full scale its innovative Bed-in-a-Bag product, which offered a complete comforter and sheet set in one package for one price. By 1992 the company had reportedly sold more than one million Bed-in-a-Bag sets, and plans to carry the concept further and introduce it into major department stores were set in motion.

In early 1993, Larry Queen, who had been responsible for much of the home fashions division's success, left Dan River. He was replaced by Thomas Muscalino, another former WestPoint Pepperell executive. Muscalino voiced his excitement regarding the company's rapidly growing home fashions business and told HFD, '... the company's gone through a tremendous metamorphosis ... It went from a tired, undercapitalized, inefficient operation to one of the most low-cost, highly efficient, best quality producers in America, and they did it real fast.' Sales of the home fashions division were expected to account for more than half of total 1993 revenues, and in 1995 the group reported record sales of $227 million. Between 1990 and 1996 the company's home fashions business grew more than 60 percent.

The change in emphasis from lower-grade product to higher quality shifted dramatically during the early 1990s, as well. Muslin sheeting accounted for 51 percent of the company's sheeting business in 1990, while 200 thread-count percale--a higher-quality sheeting&mdashcounted for only about 5 percent. In 1995, however, muslin sheeting accounted for less than 15 percent, while luxury percale had increased its production to more than 30 percent of Dan River's sheeting operations.

Emphasis on the home fashions division did not mean Dan River neglected its other operations. Capital improvements were made in the apparel fabrics division as well, and the group focused on upgrading the quality of yarn and yarn dye. Automation and modernization of yarn manufacturing equipment was implemented as well, and the company was the leading U.S. manufacturer of oxford cloth, garnering about half of the market. Dan River sold apparel fabric to such well-known companies and labels as Brooks Brothers, Arrow Shirt, Liz Claiborne, Levi Strauss, and OshKosh. The company also benefited from the popularity of its wrinkle-resistant shirting fabrics, introduced in the mid-1990s; Dan River attributed the 18.8 percent rise in apparel fabric sales in 1994 to increased sales of the shirting fabrics.

Though Dan River seemed to be on track for continued success, the company ran into a few problems in 1995. Sales rose 3.6 percent to reach $384.8 million, but apparel fabric sales declined 3.3 percent. Profits fell 92.7 percent, primarily due to $9 million in restructuring charges, which included a $4.4 million write-off of outmoded assets, $1.6 million to move its New York City offices, and $3 million to terminate its line of velour apparel fabrics. Dan River was not discouraged by the results, however, and planned to continue growing operations and making capital improvements.

In the late 1990s Dan River sought to stave off competition from the Far East, which offered textiles and home fashion goods at much lower costs. The company also strove to maintain its leadership position in the domestic textiles industry. Part of the company's strategy for growth and success included the addition of strategic acquisitions, and in 1997 Dan River purchased The New Cherokee Corp., a maker of woven fabrics for shirting and sportswear manufacturers. Dan River paid about $65 million for Cherokee, which included plants and a finishing facility. Dan River believed the acquisition made it the largest maker of lightweight yarn-dyed woven fabrics in the Western Hemisphere.

The following year Dan River purchased the Bibb Company, a manufacturer of home fashions textiles. The buy, which made Dan River the fourth-largest textile manufacturer in the nation, expanded its juvenile product repertoire by adding several juvenile licenses, including Barbie, Looney Tunes, and Teletubbies. The deal also provided the company access into the hospitality and health care markets, as well as the automotive industry. Bibb's engineered products division produced textiles and hose yarns used for automotive and industrial hoses and conveyor belts. In addition to the Bibb acquisition, Dan River purchased a home fashions sewing plant in North Carolina from Home Innovations Inc.

To raise capital for its expansion program, Dan River finally went public again in 1997, listing its stock on the New York Stock Exchange. Though sales dropped from $384.8 million in 1995 to $379.6 million the following year, they began to climb in subsequent years, reaching $476.5 million in 1997, $517.4 million in 1998, and $628.9 million in 1999. Boosted by the Bibb acquisition, home fashions performed well, with 1999 sales increasing 34 percent over those of 1998. The apparel fabrics division, however, did not fare as well, as competition from Asia put pressure on pricing. To combat this competition, which was anticipated to continue, Dan River entered a joint venture agreement to construct an apparel fabrics manufacturing plant and sportswear manufacturing facility in Mexico. The move, which would result in the transfer of nearly half of the company's apparel fabrics business to Mexico, marked Dan River's first major overseas investment. Dan River's partner in the venture was Grupo Industrial Zaga, S.A. de C.V. Together they formed DanZa Textil S. de R.L. de C.V. and Zadar S. de R.L. de C.V.

Dan River in the New Millennium

As Dan River entered the new millennium, the company hoped to remain a viable force in the U.S. textiles industry. The company began the century with the acquisition of Import Specialists, Inc., an importer of textile products for the home, such as doormats, blankets, rugs, and decorative pillows. The purchase allowed Dan River to diversify its home fashions offerings. Also in early 2000, Dan River announced its intent to purchase WesTek Inc., a manufacturer of specialty adhesive coated yarns and textiles used in automotive and industrial hose products and conveyer belts. The acquisition expanded Dan River's engineered products division.

For the first quarter of 2000, Dan River reported sales of $164.9 million, a 2.7 percent decline compared to the same period in 1999. Net income was up, however, from $1.6 million during the first quarter of 1999 to $4.9 million in 2000. Though sales in home fashions were down 2.6 percent, apparel fabrics sales were up 8.1 percent, and sales of engineered products continued to strengthen, increasing 14.3 percent. After more than a century in the textiles business, Dan River remained confident that its future held many more years of success.

Principal Subsidiaries: Dan River Factory Stores, Inc.; DanZa Textil S. De R.L. de C.V. (Mexico, 50%); Zadar S. de R.L. de C.V. (Mexico, 50%).

Principal Competitors: Pillowtex Corporation; Springs Industries, Inc.; WestPoint Stevens Inc.

Chronology

• Key Dates:

• 1882: The Riverside Cotton Mills is established in Danville, Virginia.
• 1895: Dan River Power & Manufacturing Company forms.
• 1909: Riverside Cotton Mills and Dan River Power & Manufacturing Company merge to form Riverside and Dan River Cotton Mills, Incorporated.
• 1946: Company changes its name to Dan River Mills, Incorporated.
• 1956: Dan River begins an aggressive acquisition program that includes the purchase of Iselin-Jefferson Company, Inc.
• 1970: Company changes name to Dan River Inc.
• 1983: Dan River becomes an employee-owned corporation.
• 1989: Company is acquired by an investment group headed by Joseph Lanier, Jr.
• 1997: Dan River goes public and acquires The New Cherokee Corporation.
• 1998: Company acquires the Bibb Company and enters the engineered products industry.
• 2000: Dan River forms a joint venture with Grupo Industrial Zaga, S.A. de C.V., and makes plans to construct a manufacturing facility in Mexico.