UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File number 1-10095
___________DELTA WOODSIDE INDUSTRIES, INC.___________
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0535180
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
233 North Main Street
Hammond Square, Suite 200
Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
803/232-8301
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.01 Par Value 24,240,058 shares as of
February 7, 1994.
f:\delta\cindy\secfile\10qjan94\2/15/94,10:35a.m.
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INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
January 1, 1994 and July 3, 1993 3-4
Condensed consolidated statements of income --
Three and six months ended January 1, 1994 and
December 26, 1992 5
Condensed consolidated statements of cash
flows-- Six months ended January 1, 1994
and December 26, 1992 6
Notes to condensed consolidated financial
statements--January 1, 1994 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14-15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 1, July 3,
1994 1993
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,172 $ 3,730
Accounts receivable:
Factor 41,367 70,985
Trade 67,895 74,491
109,262 145,476
Less allowances for doubtful
accounts and returns 6,246 5,537
103,016 139,939
Inventories
Finished goods 118,681 111,372
Work in process 64,803 63,027
Raw materials and supplies 25,349 23,865
208,833 198,264
Prepaid and other current assets 9,463 3,615
Deferred income taxes 17,973 713
TOTAL CURRENT ASSETS 340,457 346,261
PROPERTY, PLANT AND EQUIPMENT
Cost 267,817 254,115
Less accumulated depreciation 82,341 68,969
185,476 185,146
INTANGIBLE ASSETS 39,941 41,085
OTHER ASSETS 1,658 1,454
$567,532 $573,946
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
January 1, July 3,
1994 1993
(Unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Note Payable to bank $ 15,317
Trade accounts payable 42,720 $ 62,374
Accrued and sundry liabilities 56,324 21,776
TOTAL CURRENT LIABILITIES 114,36 84,150
LONG-TERM DEBT, less current portion 151,822 130,464
OTHER LIABILITIES AND DEFERRED CREDITS 24,838 23,083
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--
authorized 50,000,000 shares, issued
and outstanding 24,230,708 shares
at January 1, 1994 and 26,400,371
shares at July 3, 1993 242 264
Additional paid-in capital 161,803 186,381
Retained earnings 114,466 149,604
276,511 336,249
$567,532 $573,946
See notes to condensed consolidated financial statements
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
January 1, December 26, January 1, December 26,
1994 1992 1994 1992
(In thousands, except shares and per share data)
Net sales $ 149,344 $ 162,716 $ 295,770 $ 315,600
Cost of goods sold 131,355 136,093 253,412 259,105
Gross profit on sales 17,989 26,623 42,358 56,495
Selling, general and
administrative expenses 22,836 14,872 42,633 31,472
Litigation charge 33,000 33,000
Restructuring charge 12,660 12,660
(50,507) 11,751 (45,935) 25,023
Other expense (income):
Interest expense 1,978 1,992 3,849 3,914
Interest income
and other (878) (11) (1,072) (361)
1,100 1,981 2,777 3,553
INCOME (LOSS) BEFORE
INCOME TAXES (51,607) 9,770 (48,712) 21,470
Income taxes (benefit) (19,612) 3,670 (18,511 8,065
Income (loss) before
cumulative effect of
accounting change (31,995) 6,100 (30,201) 13,405
Cumulative effect of change
in the method of accounting
for income taxes (875)
NET INCOME (LOSS)$ (31,995)$ 6,100 $ (30,201) $ 12,530
Income per share before
cumulative effect of
accounting change$ (1.31)$ .23 $ (1.21) $ .51
Cumulative effect adjustment (.04)
Net income per share $ (1.31)$ .23 $ (1.21) $ .47
Dividends per share of
common stock $ .10 $ .10 $ .20 $ .20
Weighted average shares
outstanding 24,498,000 26,408,000 24,857,000 26,405,000
See notes to condensed consolidated financial statements
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
January 1, December 26,
1994 1992
(In thousands)
OPERATING ACTIVITIES
Net income (loss) $ (30,201) $ 12,530
Depreciation 11,077 7,932
Amortization 2,371 754
Other (11,672) 3,796
Changes in operating assets and
liabilities 37,163 (16,287)
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,738 8,725
INVESTING ACTIVITIES
Acquisition of business net
of cash acquired (1,565)
Property, plant and equipment
purchases (15,684) (20,119)
Other (151) 110
NET CASH (USED) BY INVESTING ACTIVITIES (17,400) (20,009)
FINANCING ACTIVITIES
Net proceeds from short-term line
of credit 15,317
Proceeds from revolving line of credit 33,000 134,000
Principal payments on revolving line
of credit (11,000) (116,500)
Scheduled principal payments of long-term
debt and capital lease obligations (1,060) (952)
Repurchase of Common Stock (25,312)
Dividends paid (4,937) (5,281)
Other 96 99
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,104 11,366
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,558) 82
Cash and cash equivalents at beginning
of period 3,730 850
CASH AND CASH EQUIVALENTS AT END
OF PERIODS $ 1,172 $ 932
See notes to condensed consolidated financial statements
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DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 1, 1994
NOTE--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Delta Woodside Industries, Inc. ("the Company")
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three and six months ended January 1, 1994 are not
necessarily indicative of the results that may be expected for
the year ending July 2, 1994. For further information, refer
to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the
year ended July 3, 1993.
NOTE B--INCOME TAXES
Income tax expense for the prior year includes a cumulative
effect adjustment of $875,000 related to the adoption in
fiscal 1993 of a new standard of accounting for income taxes.
Reserves for litigation and restructuring have resulted in an
increase since July 3, 1993 of approximately $17 million in
current deferred income taxes.
NOTE C--REPURCHASE OF COMMON STOCK
During the first six months of fiscal 1994 the Company
repurchased 2.3 million shares of its Common Stock for $25.3
million.
NOTE D--NOTE PAYABLE
On October 6, 1993 the Company increased a short-term line of
credit with a bank from $15 million to $50 million, and on
October 19, 1993 obtained an additional short-term line of
credit for $25 million.
NOTE E--LITIGATION AND RESTRUCTURING CHARGES
Losses in the quarter ended January 1, 1994 included a charge
to income of $33.0 million to establish a reserve in
connection with an Alabama jury award on November 24, 1993 to
a former Duck Head Apparel Company sales representative and
two of his associates on their claims against Duck Head
regarding disputes as to commissions paid. The jury award was
for approximately $29.1 million and included approximately
$852,000 for contractual compensatory damages (which was
trebled under an Alabama statute to approximately $2,556,000),
$7.0 million for mental anguish, and $19.5 million as punitive
damages. The Company is in the process of seeking reversal or
reduction of this jury award. However, there is no assurance
that these challenges will be successful, and the Company has
established the litigation reserve noted above for this
judgment and costs associated with the post judgment and
appeal process.
In addition to this litigation reserve, the Company also
recorded a restructuring charge to income of approximately
$12.7 million during the latest quarter to account for asset
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NOTE E--LITIGATION AND RESTRUCTURING CHARGES--Continued
writedowns and future costs expected to result from decisions
made in light of current market conditions and the performance
of certain of the Company's operating units. These decisions
include plans to sell the Company's Harper Brothers office
products business, the continued consolidation of Stevcoknit's
plant facilities, and consolidation of Duck Head Apparel
Company's warehouse and distribution operations. The $12.7
million restructuring charge includes approximately $6.3
million for writedown of assets and approximately $6.4 million
for expenditures to be made during the next 18 months.
NOTE F--CONTINGENT LIABILITIES
The Company's Nautilus business has been named as a
"potentially responsible party" ("PRP") under the
Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") with respect to three sites in North
Carolina, South Carolina, and Mississippi. To the Company's
knowledge, all of the transactions with these sites were
conducted by a corporation (the "Selling Corporation") whose
assets were acquired in 1990 pursuant to the terms of an order
of the United States Bankruptcy Court by another corporation,
the stock of which was subsequently acquired by the Company in
January 1993.
At the North Carolina sites, the Company's information is that
there are over 500 PRPs, and the Nautilus business is listed
as a "de minimis" party. The Company currently does not have
information respecting the costs that may be incurred with
respect to this site.
At the South Carolina site, there are over 700 PRPs and the
Company expects that the Selling Corporation will be listed as
a "de minimis" party. The site's PRP Group has completed a
surface removal action (the removal of drums, equipment and
materials), the Selling Corporation's share of the cost of
which is immaterial. The PRP Group is investigating soil
and groundwater contamination at the site, but there is
currently insufficient information available to estimate the
cost of remediating that contamination.
At the Mississippi site, the PRP group is in the process of
performing a surface removal action and is investigating soil
and groundwater contamination, both at the site and in the
surrounding area. Based on its current information, the
Company does not believe that the Selling Corporation's share
of the cost of the surface removal action will be material,
but there is currently insufficient information available to
estimate the cost of remediation of the soil and groundwater
contamination at the site and in the surrounding area.
According to a tentative ranking of the PRPs' respective
contributions of material to the site, the Nautilus business
is ranked 9th out of a total of approximately 35 PRPs.
Trichloroethane, one of the substances delivered by the
Selling Corporation to the site, has been found in the site's
groundwater and at nearby residential drinking water wells.
Although there is uncertainty as to several legal issues, the
Company believes that it has certain defenses to liability at
these sites. The Company, therefore, has denied any
responsibility at the sites and has declined to participate as
a member of the respective PRP groups.
Two other lawsuits have been brought by individuals who
previously served as salesmen for the Duck Head division,
which suits make allegations similar to those in the Hoots
Suit. One of the suits was settled during January 1994 with a
payment by Duck Head to the plaintiff of $350,000 and each
party giving general release to the other. The other suit is
pending in the United States District Court for the Western
District of Kentucky at Owensboro, Kentucky.
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The amount of damages claimed in this suit has not yet been
determined, and the ultimate impact of this suit on the
Company is as yet unknown.
From time to time, the Company and its subsidiaries are
defendants in other legal actions involving claims arising in
the normal course of business, including product liability
claims. The Company believes that, as a result of its legal
defenses, insurance arrangements, reserves and indemnification
provisions with financially capable parties, none of these
other actions should have a material adverse effect on its
operations or financial condition.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales for the fiscal quarter ended January 1, 1994 were
$149,344,000, a decrease of 8% from the same quarter last
year. The Company's fitness equipment division, which was
purchased in January 1993, accounted for approximately $7.3
million in sales for the latest fiscal quarter. Net losses,
inclusive of certain reserves established during the quarter
ended January 1, 1994 as discussed below, were $31,995,000 as
compared to net income of $6,100,000 in the quarter ended
December 26, 1992. Losses in the most recent quarter were
$1.31 per share on the 24,498,000 average shares outstanding
as compared to net come per share of $.23 on the 26,408,000
average shares outstanding during the comparable quarter of
fiscal 1993. Shares outstanding decreased due to the
Company's repurchase of approximately 1.5 million shares in
the first quarter of fiscal 1994 and an additional .8 million
shares during the most recent quarter at a total cost during
the first six months of fiscal 1994 of approximately $25.3
million.
Net sales for the six months ended January 1, 1994, were
$295,770,000 compared to $315,600,000 for the six months ended
December 26, 1992, a decrease of 6%. The fitness equipment
division accounted for approximately $13.5 million of sales in
the first six months of the current fiscal year. Net losses
for the six months ended January 1, 1994, were $30,201,000
compared to net income of $12,530,000 in the six months ended
December 26, 1992. On a per share basis, losses were $1.21
per share on the 24,857,000 average shares outstanding in the
six months ended January 1, 1994, compared to earnings per
share of $.47 per share on the 26,405,000 average shares
outstanding in the six months ended December 26, 1992.
Losses in the quarter ended January 1, 1994 included a charge
to income of $33 million to establish a reserve in connection
with an Alabama jury award on November 24, 1993 to a former
Duck Head Apparel Company sales representative and two of his
associates on their claims against Duck Head regarding
disputes as to commissions paid. The jury award was for
approximately $29.1 million and included approximately
$852,000 for contractual compensatory damages (which was
trebled under an Alabama statute to approximately $2,556,000),
$7.0 million for mental anguish, and $19.5 million as punitive
damages. The Company is in the process of seeking reversal or
reduction of this jury award. However, there is no assurance
that these challenges will be successful, and the Company has
established the litigation reserve noted above for this
judgment and costs, including interest, associated with the
post judgment and appeal process.
In addition to this litigation reserve, the Company also
recorded a restructuring charge to income of approximately
$12.7 million during the latest quarter to account for asset
writedowns and future costs expected to result from decisions
made in light of current market conditions and the performance
of certain of the Company's operating units. These decisions
include plans to sell the Company's Harper Brothers office
products business, the continued consolidation of Stevcoknit's
plant facilities, and consolidation of Duck Head Apparel
Company's warehouse and distribution operations. The $12.7
million restructuring charge includes approximately $6.3
million for writedown of assets and approximately $6.4 million
for expenditures to be made during the next 18 months. The
Company believes that these restructuring decisions will
enable it to better focus on its core businesses and result in
lower operating costs.
The $45.7 million of pre-tax charges to establish the
litigation and restructuring reserves described above were
equivalent on an after tax basis to approximately $28.3
million or $1.16 per share after taxes on the average number
of shares outstanding during the latest quarter ended January
1, 1994.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Consolidated gross profit margin was 12% of sales in the
latest fiscal quarter as compared to 16% in the same quarter
of fiscal 1993.
Sales in the textile segment were 14% lower and gross profits
were 33% lower in the quarter ended January 1, 1994 than in
the same quarter a year ago. Sales of both woven and knitted
textiles were lower than in the previous year, due principally
to weakness in women's wear and unfinished fabric sales of
woven textiles, and to continued disruption in knit fabric
operations caused by the consolidation of the Company's knit
finishing facilities. Gross profit margins of woven textiles
were slightly lower than those in corresponding quarter of the
prior year. Gross profit margins of knitted textiles were
substantially lower than in the second fiscal quarter of last
year, due both to disruption costs and to lower sales prices
obtained in a continuing weak knit fabrics market. The
textile segment accounted for 64% of consolidated sales and
59% of consolidated gross profit in the latest quarter
compared to 68% and 60%, respectively, in the same quarter of
fiscal 1993.
In the apparel segment, sales were 10% lower and gross profits
were 79% lower in the second quarter of fiscal 1994 than in
the second quarter of last year. Increases in sales by the
Company's retail outlet stores were more than offset by
decreases in sales of knit apparel to screen printers and
private label customers and in sales of Duck Head branded
woven and knit apparel. Gross profit margins were lower in
knit apparel due principally to lower sale prices caused by
continuing oversupply of T-shirts in the national market.
Gross profit margins were substantially lower in branded
apparel due principally to sales of seasonal closeout
inventory. During the quarter, the Company charged income in
the apparel segment by approximately $3.6 million to increase
reserves for inventory markdowns. The apparel segment
accounted for 27% and 10% of the consolidated sales and gross
profit for the current fiscal quarter as compared to 28% and
33%, respectively, for the same period a year ago.
In the quarter ended January 1, 1994, the contribution by the
Company's other businesses--office products and fitness
equipment--to consolidated sales and gross profit was 9% and
31%, respectively. In the same quarter last year, this
segment consisted only of office products and contributed 4%
of consolidated sales and 7% of gross profits.
Selling, general and administrative expenses increased by
approximately $8 million in the quarter just ended over the
same period last year. Expenses related to Nautilus
International which was not acquired until January 1993,
increased expenses caused by the expansion of the number of
Duck Head Retail Outlet stores, and charges related to
increased reserves for bad debts accounted for the major
portion of these increased expenses.
The Company's estimated effective tax rate for fiscal 1994 is
approximately 38%. The increased federal statutory rate from
34% to 35% was offset by a reduction in the provision for
state income tax expense.
The total order backlog at January 1, 1994 was $139,640,000
compared with the order backlog of $203,879,000 at December
26, 1992. Order backlogs at both dates include those of
Nautilus International. Backlogs in both the textile and
apparel segments are lower than at the same time last year.
The current backlog of textile segment orders is also lower
than at the beginning of the current fiscal year, but apparel
segment backlogs are higher than at the beginning of this
fiscal year.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Inventory levels increased from $198.3 million at July 3, 1993
to $208.8 million at January 1, 1994. Inventories in the
textile segment increased as a result of lower order activity
over the past six months as compared to the same period in the
prior fiscal year. Inventories in the apparel segment
decreased slightly, and inventories in the office supply and
fitness equipment businesses increased slightly, during the
same period of the current fiscal year. Although inventories
in the apparel segment have decreased slightly since the
beginning of the current fiscal year, they remain at a level
that management considers too high. To address this, the
inventory acquisition policies and procedures in the apparel
segment have been improved, and reserves for closeout
inventories have been increased.
During the latest quarter, the Company did not run full
manufacturing schedules in its textile and apparel operations
as it continued to adjust to the current industry inventory
cycle. The Company does not expect any major production
curtailments in the quarter ending in March 1994.
If apparel sales at retail continue to improve, the Company
believes that its apparel segment's performance will be better
in the third fiscal quarter of the current year than it was
during the first two quarters. However, the Company believes
that, except for sales of woven wrinkle resistant fabrics, its
textile segment will still face reduced demand for its
products until at least April of 1994.
Cotton fiber prices can significantly affect the Company's
costs. Cotton prices have increased about 32% since January
1, 1994. About 82% of the Company's intake of cotton through
the rest of the current fiscal year has been fixed as to
price, at prices approximately 17% lower than current market
but at prices approximately 15% higher than those of cotton
purchased during the first half of the current fiscal year.
The Company believes that cotton prices will continue to
increase over the short term. There is no assurance that the
Company's textile segment will be able to recover these
additional costs in its prices to customers.
During the six months ended January 1, 1994, the Company's
"Accrued and sundry liabilities" increased by approximately
$34.5 million and its "Prepaid and other current assets" and
"Deferred income taxes" (current) increased by approximately
$23.1 million. These balance sheet changes are related
principally to the litigation and restructuring charges
discussed above and related deferred tax benefits.
The Company's Nautilus business has been named as a
"potentially responsible party" ("PRP") under the
Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") with respect to three sites in North
Carolina, South Carolina, and Mississippi. To the Company's
knowledge, all of the transactions with these sites were
conducted by a corporation (the "Selling Corporation") whose
assets were acquired in 1990 pursuant to the terms of an order
of the United States Bankruptcy Court by another corporation,
the stock of which was subsequently acquired by the Company in
January 1993.
At the North Carolina site, the Company's information is that
there are over 500 PRPs and the Nautilus business is listed as
a "de minimis" party. The Company currently does not have
information respecting the costs that may be incurred with
respect to this site.
At the South Carolina site, there are over 700 PRPs and the
Company expects that the Selling Corporation will be listed as
a "de minimis" party. The site's PRP Group has completed a
surface removal action (the removal of drums, equipment and
materials), the
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Selling Corporation's share of the cost of which is
immaterial. The PRP Group is investigating soil and
groundwater contamination at the site, but there is currently
insufficient information available to estimate the cost of
remediating that contamination.
At the Mississippi site, the PRP group is in the process of
performing a surface removal action and is investigating soil
and groundwater contamination, both at the site and in the
surrounding area. Based on its current information, the
Company does not believe that the Selling Corporation's share
of the cost of the surface removal action will be material,
but there is currently insufficient information available to
estimate the cost of remediation of the soil and groundwater
contamination at the site and in the surrounding area.
According to a tentative ranking of the PRPs' respective
contributions of material to the site, the Nautilus business
is ranked 9th out of a total of approximately 35 PRPs.
Trichloroethane, one of the substances delivered by the
Selling Corporation to the site, has been found in the site's
groundwater and at nearby residential drinking water wells.
Although there is uncertainty as to several legal issues, the
Company believes that it has certain defenses to liability at
these sites. The Company, therefore, has denied any
responsibility at the sites and has declined to participate as
a member of the respective PRP groups.
Two other lawsuits have been brought by individuals who
previously served as salesmen for the Duck Head division,
which suits make allegations similar to those in the Hoots
Suit. One of the suits was settled during January 1994 with a
payment by Duck Head to the plaintiff of $350,000 and each
party giving a general release to the other. The other suit
is pending in the United States District Court for the Western
District of Kentucky at Owensboro, Kentucky. The amount of
damages claimed in this suit has not yet been determined, and
the ultimate impact of this suit on the Company is as yet
unknown.
On February 11, 1994, the Company obtained an amendment of the
Credit Agreement with its principal lenders that among other
matters, lowered to $255 million the amount of Tangible Net
Worth (defined to exclude the effect of the Hoots Suit
described above) that the Company is required currently to
maintain, and obtained a waiver from these lenders respecting
the ratio of the second 1994 fiscal quarter's consolidated net
income before interest expense and income taxes to interest
expense being less than 2.5.
As of January 1, 1994, the Company had the $175 million credit
facility provided by the Credit Agreement and two additional
bank credit lines that aggregate $75 million and will reduce
to $15 million in October 1994. As a result of the Credit
Agreement amendment described above, the Company's loan
covenants generally limit the Company's total indebtedness to
$225 million plus any amount required to fund the Hoots Suit
described above. Assuming the Credit Agreement amendment had
been in place on January 1, 1994, the unused amount of the
Company's credit facilities on that date under the limit
described above would have been approximately $46 million.
The amount outstanding under the Company's credit lines
fluctuates from time to time based on, among other factors,
inventory levels and accounts receivable payments. The
Company's ability to borrow under its credit lines is subject
to various conditions.
The Company intends to continue examining near and long-term
alternatives to strengthen its balance sheet. Such
alternatives may include debt financings.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 24, 1993, a jury in the Circuit Court of
Montgomery County, Alabama (the "Circuit Court"),
awarded $29,056,353.60 to a former Duck Head sales
representative (Ken Hoots) and two of his salesmen
(Terry Long and Bill Pace) against a subsidiary of
Delta Woodside Industries, Inc. (the "Company"). The
Circuit Court entered judgment on such award against
the Company's subsidiary on November 24, 1993. The
suit, which is captioned Ken Hoots, Terry Long and Bill
Pace v. Duck Head Apparel Company, Inc., et.al. (the
"Hoots Suit"), was commenced by the filing of a
Complaint in the Circuit Court on March 17, 1992.
The Hoots Suit concerns a dispute over sales
commissions that the plaintiffs claim are owed them by
the subsidiary. The Circuit Court jury found in favor
of the plaintiffs against the subsidiary, awarding:
(a) $2,556,353.60 to the plaintiffs on their claim
of breach of contract under an Alabama treble
damage statute (which amount represents three
times the actual damages found by the jury),
(b) $4,000,000 to Ken Hoots,$2,000,000 to Terry
Long and $1,000,000 to Bill Pace for mental
anguish on their claim for fraud, and
(c) $19,500,000 to the plaintiffs as punitive
damages on their claim of fraud.
The Company believes that the verdict is
fundamentally unjust and intends vigorously to seek its
reversal or reduction, first by making appropriate
motions before the Circuit Court judge and then, if
necessary, appealing the matter to the Alabama Supreme
Court.
The Company is seeking recovery of a portion of the
award under certain of its insurance policies. At this
time, however, there is no assurance that any portion
of the award will be recovered by the Company through
insurance.
Alabama law permits the plaintiffs to recover
interest at the rate of 12% per annum on the amount of
the final adjudicated award from the date the original
judgment was entered (November 24, 1993) until the date
that any final adjudicated award is paid to the
plaintiffs.
In order to prevent execution of the judgment during
the post-trial stage, the Company has guaranteed
payment of the final adjudicated award and may, during
the post-trial or appellate level stages, be required
to post bond or other security in the amount of 125% of
the amount of the jury award after any adjustments that
may be made by the trial court. The plaintiffs in the
Hoots Suit have agreed that execution on the judgment
in the case shall be stayed until ten days after the
deadline for filing any appeal has passed and, subject
to the posting of a bond in the amount of 125% of the
judgment, shall be further stayed pending any appeal.
Two other lawsuits have been brought by individuals
who previously served as salesmen for the Duck Head
division, which suits make allegations similar to those
in the Hoots Suit. One of the suits was settled during
January 1994 with a
14
<PAGE>
PART II. OTHER INFORMATION--Continued
payment by Duck Head to the plaintiff of $350,000
and each party giving a general release to the other.
The other suit is pending in the United States District
Court for the Western District of Kentucky at
Owensboro, Kentucky. The amount of damages claimed in
this suit has not yet been determined, and the ultimate
impact of this suit on the Company is as yet unknown.
Item 2. Changes in Securities*
Item 3. Defaults upon Senior Securities*
Item 4. Submission of Matters to a Vote of Security
Holders
The following summarizes the votes at the Annual
Meeting of the
Company's shareholders held on November 11, 1993:
Election of
Directors For Against Withheld Abstentions Nonvotes
C. C. Guy 22,800,358 0 24,497 N/A N/A
J. F. Kane 22,798,729 0 26,126 N/A N/A
M. Lennon 22,798,795 0 26,060 N/A N/A
E. E. Maddrey, II 22,797,253 0 27,602 N/A N/A
B. Mickel 22,798,105 0 26,750 N/A N/A
B. A. Mickel 22,798,371 0 26,484 N/A N/A
B. C. Rainsford 22,797,253 0 27,602 N/A N/A
Ratification of
Appointment of
Ernst & Young as
Independent
Auditors
For Fiscal 1994 22,795,805 16,535 N/A 12,515 N/A
Item 5. Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
4.2.4 Waiver and Amendment No. 2 to credit
agreement dated as of
June 24, 1992 (excluding Annex 1 and
Annex 2). The Company
agrees to furnish supplementally to
the Securities and Exchange
Commission a copy of any omitted
Annex upon request.
(b) The Company filed Form 8-K dated January 11,
1994 and reported:
Item 5. Other Events
The jury award in the Hoots Suit described
above in Part II, Item 1, and certain related matters.
* Items 2, 3, and 5 are not applicable
15
<PAGE>
SIGNATURES
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.
Delta Woodside Industries, Inc.
(Registrant)
Date February 15, 1994 /s/ E. Erwin Maddrey, II
E. Erwin Maddrey, II
President and
Chief Executive Officer
Date February 15, 1994 /s/ Douglas J. Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
16
<PAGE>
[Execution Copy]
WAIVER AND AMENDMENT NO. 2
to
Credit Agreement
dated as of June 24, 1992
WAIVER AND AMENDMENT NO. 2 entered into as of February
11, 1994 among DELTA WOODSIDE INDUSTRIES, INC., a South Carolina
corporation (the "Borrower"), the Lenders (as defined in the
Credit Agreement as hereinafter defined), and THE FIRST NATIONAL
BANK OF BOSTON, a national banking association, as agent (the
"Agent") for the Lenders.
Preliminary Statement
The Borrower, the Lenders and the Agent are parties to
a Credit Agreement dated as of June 24, 1992 as amended by
Amendment No. 1 dated as of September 23, 1993 (said Agreement,
as so amended, the "Credit Agreement"; terms defined therein,
unless otherwise defined herein, being used herein as therein
defined).
As a result of the entry by the Circuit Court of
Montgomery County, Alabama of a judgment against Alchem Capital
Corporation (as successor to Duck Head Apparel Company, Inc., a
North Carolina corporation) in the case styled Hoots v. Duck Head
Apparel Company, Inc., the Borrower has, in accordance with GAAP,
established certain reserves in respect of such judgment. The
Borrower has also established reserves in respect of other
matters. The Borrower has requested that the Agent and the
Lenders agree to grant certain waivers and effect certain
amendments to the Credit Agreement to reflect the effect of such
reserves and of certain other circumstances related to said
litigation, and the Agent and the Lenders have, subject to the
terms, conditions and provisions of this Amendment, agreed to
grant such waivers and effect such amendments, all as more fully
set forth herein.
NOW, THEREFORE, in consideration of the Credit
Agreement, the mutual covenants set forth therein and herein and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Amendments to Credit Agreement. Subject to
the provisions of Section 3, the Credit Agreement is hereby
amended as follows:
(a) Section 1.1 Definitions is amended by (i)
adding in the appropriate alphabetical order the following
definitions:
"Alabama Judgment" means the judgment entered on
November 24, 1993 by the Circuit Court of Montgomery County,
Alabama in the total amount of approximately $29.1 million
in the Alabama Litigation.
"Alabama Litigation" means the case styled Hoots v.
Duck Head Apparel Company, Inc., Case No. CV-92-561-PR filed
in the Circuit Court of Montgomery County, Alabama on March
17, 1992, and all appeals therefrom and retrials or new
trials thereof.
"Final Disposition" means the final disposition of the
Alabama Litigation, whether by entry of a final and non-
appealable judgment or order or lapse, without the filing of
an appeal, of any period for bringing an appeal from any
judgment or order in either case that disposes of all issues
affecting the liability of Alchem or the Borrower in respect
of the Alabama Judgment, or by settlement or other
consensual agreement of the litigants.
and (ii) amending the definition "Permitted Liens" by
inserting before the period at the end thereof the phrase
", and Liens otherwise expressly permitted pursuant to other
provisions of this Agreement, subject to any and all
conditions and limitations set forth herein in connection
therewith";
(b) Section 9.1(a) Minimum Tangible Net Worth is
hereby amended in its entirety to read as follows:
(a) Minimum Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth of the Borrower and its
Consolidated Subsidiaries at any time (i) as of and after
July 4, 1993 (the first day of the first Fiscal Quarter of
the 1994 Fiscal Year of the Borrower), to be less than
$255,000,000, or (ii) as of and after July 2, 1994 (the last
day of the 1994 Fiscal Year of the Borrower) to be less than
$265,000,000 or (iii) as of and after July 1, 1995 (the last
day of the 1995 Fiscal Year of the Borrower) to be less than
$280,000,000 or (iv) as of and after the last day of each
succeeding Fiscal Year of the Borrower ending thereafter, to
be less than $10,000,000 greater than the amount required
pursuant to this Section 9.1(a) during (but not including
the last day of) the Fiscal Year of the Borrower ending on
such last day; provided that (1) prior to Final Disposition,
there shall be disregarded (or added back to Consolidated
Tangible Net Worth) for the purpose of computing compliance
with this Section 9.1(a), the after-tax effect on
Consolidated Tangible Net Worth of the Borrower and its
Consolidated Subsidiaries of reserves established and
maintained in an amount not exceeding $36.4 million solely
in connection with the Alabama Judgment and (2) from and
after Final Disposition, there shall be disregarded (or
added back to Consolidated Tangible Net Worth) for the
purpose of computing compliance with this Section 9.1(a),
the after-tax effect on Consolidated Tangible Net Worth of
the Borrower and its Consolidated Subsidiaries of any
payments made by the Borrower or any Subsidiary in
settlement of or to satisfy and discharge a final judgment
in respect of the Alabama Litigation and/or to pay
associated costs, fees and expenses in any event, in an
aggregate amount not to exceed $36.4 million .
(c) amending Section 9.2 Indebtedness for Money
Borrowed by (i) deleting the word "and" at the end of clause (c)
thereof, (ii) redesignating clause (d) thereof as clause (e),
(iii) inserting therein a new clause (d) to read as follows:
(d) Indebtedness for Money Borrowed of the Borrower or
any Consolidated Subsidiary not exceeding $36.4 million in
principal amount in the aggregate for the Borrower and all
Consolidated Subsidiaries under any reimbursement or similar
obligation in respect of any letter of credit, bond or note
or other similar instrument that may be issued by or for the
account of the Borrower or one or more Consolidated
Subsidiaries and deposited with the applicable court as
security for the Alabama Judgment, and
and (iv) amending redesignated clause (e) thereof by inserting
immediately before the period at the end thereof the phrase "plus
any amount contemplated pursuant to the foregoing clause (d)";
(d) amending Section 9.3 Guaranties by inserting
therein after the phrase "in the case of the Borrower," the
phrase "(a) a Guaranty of the obligations of Alchem in respect of
the Alabama Judgment, provided that the liability of the Borrower
thereunder shall not exceed an amount equal to the sum of $36.4
million plus the expenses, if any, of enforcement of such
Guaranty and (b)";
(e) amending Section 9.9 Liens by inserting
immediately before the period at the end thereof a new phrase to
read as follows:
; except that this Section 9.9 shall not apply, prior to
Final Disposition, to any Lien affecting property of the
Borrower or any of its Subsidiaries created solely by the
filing or recording of the Alabama Judgment in public
records or an attempt to execute on the Alabama Judgment, in
either case so long as execution of the Alabama Judgment is
effectively stayed
(f) further amending the Credit Agreement by deleting
therefrom Schedule 6.1(j) Litigation thereto and substituting
therefor as such Schedule 6.1(j), Annex 2 attached hereto.
Section 2. Waiver. Subject to the provisions of
Section 3, the Agent and the Lenders hereby waive compliance and
the effects of non-compliance by the Borrower and its
Consolidated Subsidiaries with the provisions of Section 9.1(d)
of the Credit Agreement for the Fiscal Quarter of the Borrower
ended January 1, 1994 to the extent of the Consolidated net loss
of approximately $51 million (before taxes) reported by the
Borrower and its Consolidated Subsidiaries for such Fiscal
Quarter.
Section 3. Effectiveness. The provisions of Sections
1 and 2 hereof shall become effective as of the date hereof on
the date (the "Amendment Effective Date") on which (a)
counterparts of this Amendment duly executed by the Borrower and
the Majority Lenders, and of the Consent attached to this
Amendment duly executed by each of the Subsidiary Guarantors,
shall have been received by the Agent and (b) the Agent shall
have received, in sufficient copies for all the Lenders, a
certificate of a duly authorized officer of the Borrower, dated
the Amendment Effective Date, in the form of Annex 2 attached
hereto and the statements therein shall be true and correct as of
the Amendment Effective Date.
Section 4. Effect of Amendment. This Amendment
supersedes the letter waiver dated December 30, 1993 delivered by
the Lenders and the Agent to the Borrower and from and after the
Amendment Effective Date such letter waiver shall be of no
further force or effect. This Amendment shall be limited
precisely as written and shall not be deemed to (i) be a consent
to the modification or waiver of any term or condition of the
Credit Agreement not modified or waived herein or of any of the
instruments or agreements referred to therein, or (ii) prejudice
any right or rights which the Lenders or the Agent may now have
under or in connection with the Credit Agreement, as amended by
this Amendment. Except as expressly modified hereby, all of the
terms and provisions of the Credit Agreement, including, without
being limited to, the provisions of Sections 10.1(j) and 10.1(k),
shall continue in full force and effect and the Borrower hereby
confirms each and every one of its obligations under the Credit
Agreement, as amended by this Amendment. On and after the
effective date of this Amendment, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof" or words of
like import referring to the Credit Agreement, and each reference
in the Notes and the other Loan Documents to "the Credit
Agreement," "thereunder," "thereof" or words of like import
referring to the Credit Agreement, shall mean and be a reference
to the Credit Agreement as amended by this Amendment.
Section 5. General Provisions.
(a) This Amendment shall be governed by and construed
in accordance with the laws of the State of Georgia.
(b) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and shall be binding upon all parties, their
successors and assigns, and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, each of the undersigned has caused this
Amendment to be executed and delivered by its duly authorized
officer as of the date first above written.
DELTA WOODSIDE INDUSTRIES, INC.
By: /s/Bettis C. Rainsford
Title:Executive Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as Agent and as a Lender
By:/s/William C. Purinton
Title: Vice President
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:/s/E. Phifer Helms
Title: Senior Vice President
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By:/s/Jo Zalon Meer
Title: Vice President
THE BANK OF NEW YORK
By:/s/Ian K. Stewart
Title: Vice President
NATIONAL WESTMINSTER BANK USA
By:/s/Kurt S. Pohmer
Title:Assistant Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:/s/Wayne H. Riess
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:/s/James A. Fink
Title: Vice President
THE SOUTH CAROLINA NATIONAL BANK
By:/s/Thomas F. Snider
Title: Vice President
CONSENT
Each of the undersigned, each a Subsidiary Guarantor
under a Subsidiary Guaranty (each, a "Guaranty") with respect to
the Borrower's Obligations under the Credit Agreement referred to
in the foregoing Waiver and Amendment No. 2, hereby consents to
the said Waiver and Amendment No. 2 and hereby confirms and
agrees that the Guaranty made by it is, and shall continue to be,
in full force and effect and is hereby ratified and confirmed in
all respects except that, on and after the effective date of the
said Waiver and Amendment No. 2, each reference in such Guaranty
to "the Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement shall mean and be a
reference to the Credit Agreement as amended by the said Waiver
and Amendment No. 2.
ALCHEM CAPITAL CORPORATION
(successor by merger to Duck Head
Apparel Company, Inc. (NC) and
Alchem Capital Corporation (SC))
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
CARGUD, SOCIEDAD ANONIMA
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
DELTA CONSOLIDATED CORPORATION
(f/k/a Carwood Sales Corporation)
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
DELTA MERCHANDISING, INC.
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
DELTA MILLS, INC. (f/k/a Delta
Holding, Inc., successor by merger
to Stevcoknit Acquisition Company,
Inc. and Delta Mills, Inc.)
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
DUCK HEAD APPAREL COMPANY, INC.
(f/k/a Delta Apparel, Inc.)
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
NAUTILUS INTERNATIONAL, INC.
By:/s/Bettis C. Rainsford
Name:Bettis C. Rainsford
Title:Executive Vice President
