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 April 2, 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-- 24,243,812 shares as of May 3,
1994.
1
<PAGE>
INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
April 2, 1994 and July 3, 1993 3-4
Condensed consolidated statements of income --
Three and nine months ended April 2, 1994 and
March 27, 1993 5
Condensed consolidated statements of cash
flows-- Nine months ended April 2, 1994
and March 27, 1993 6
Notes to condensed consolidated financial
statements--April 2, 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
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, July 3,
1994 1993
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 580 $ 3,730
Accounts receivable:
Factor 47,875 70,985
Trade 75,860 74,491
123,735 145,476
Less allowances for doubtful
accounts and returns 6,019 5,537
117,716 139,939
Inventories
Finished goods 116,688 111,372
Work in process 69,998 63,027
Raw materials and supplies 23,796 23,865
210,482 198,264
Prepaid and other current assets 5,286 3,615
Deferred income taxes 15,879 713
TOTAL CURRENT ASSETS 349,943 346,261
PROPERTY, PLANT AND EQUIPMENT
Cost 274,105 254,115
Less accumulated depreciation 87,918 68,969
186,187 185,146
INTANGIBLE ASSETS 38,619 41,085
OTHER ASSETS 1,778 1,454
$576,527 $573,946
3
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
April 2, July 3,
1994 1993
(Unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Note payable to bank $ 28,688
Trade accounts payable 38,176 $ 62,374
Accrued and sundry liabilities 51,948 21,776
TOTAL CURRENT LIABILITIES 118,812 84,150
LONG-TERM DEBT, less current portion 151,798 130,464
DEFERRED INCOME TAXES AND OTHER
LIABILITIES 25,218 23,083
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--
authorized 50,000,000 shares, issued
and outstanding 24,241,883 shares
at April 2, 1994 and 26,400,371
shares at July 3, 1993 242 264
Additional paid-in capital 161,834 186,381
Retained earnings 118,623 149,604
280,699 336,249
$576,527 $573,946
See notes to condensed consolidated financial statements
4
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
April 2, March 27, April 2, March 27,
1994 1993 1994 1993
(In thousands, except per share data)
Net sales $155,194 $176,412 $450,964 $492,012
Cost of goods sold 127,038 141,911 380,450 401,016
Gross profit on
sales 28,156 34,501 70,514 90,996
Selling, general and
administrative
expenses 20,008 18,586 62,641 50,058
Litigation charge
(credit) (5,904) 27,096
Restructuring
charge (credit) (559) 12,101
14,611 15,915 (31,324) 40,938
Other expense
(income):
Interest expense 2,346 1,556 6,195 5,470
Interest income
and other (1,029) (600) (2,101) (961)
1,317 956 4,094 4,509
INCOME (LOSS)
BEFORE INCOME TAXES 13,294 14,959 (35,418) 36,429
Income taxes
(benefit) 6,713 6,042 (11,798) 13,684
Income (loss) before
cumulative effect
of accounting
change 6,581 8,917 (23,620) 22,745
Cumulative effect of
change in the
method of accounting
for income taxes (875)
NET INCOME
(LOSS) $ 6,581 $ 8,917 $ (23,620)$ 21,870
5
<PAGE>
Income per share
before cumulative
effect of
accounting change $ .27 $ .35 $ (.96)$ .86
Cumulative effect
adjustment (.04)
Net income per share $ .27 $ .35 $ (.96)$ .82
Dividends per share
of common stock $ .10 $ .10 $ .30 $ .30
Weighted average
shares outstanding 24,240 26,435 24,651 26,415
See notes to condensed consolidated financial statements
6
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
April 2, March 27,
1994 1993
(In thousands)
OPERATING ACTIVITIES
Net income (loss) $(23,620) $21,870
Depreciation 13,977 12,042
Amortization 1,282 1,215
Other (548) 4,089
Changes in operating assets and
liabilities 13,115 10,220
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,206 28,996
INVESTING ACTIVITIES
Acquisition of business net
of cash acquired (1,600) (20,153)
Property, plant and equipment
purchases (22,102) (31,532)
Other (355) 560
NET CASH (USED) BY INVESTING ACTIVITIES (24,057) (51,125)
FINANCING ACTIVITIES
Net proceeds from short-term line
of credit 28,688
Proceeds from revolving line of credit 33,000 195,395
Principal payments on revolving line
of credit (11,000) (163,213)
Scheduled principal payments of
long-term debt and capital
lease obligations (1,424) (1,333)
Repurchase of Common Stock (25,312)
Dividends paid (7,361) (7,925)
Other 110 223
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,701 23,147
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,150) 1,018
7
<PAGE>
Cash and cash equivalents at
beginning of period 3,730 850
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 580 $1,868
See notes to condensed consolidated financial statements
8
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 1994
NOTE A--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 nine months ended April 2, 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
During the third quarter the Company changed its estimated
effective tax benefit rate for fiscal 1994 to 33%. The
catchup effect of this change resulted in a tax rate of 50%
for the quarter ended April 2, 1994. The lower tax benefit
rate is generally attributable to a variety of factors
including certain writedowns of goodwill which are not
deductible for income tax purposes. The effect of the change
in estimated tax rate on the quarter ended April 2, 1994 was a
decrease in net income of $2,285,000 or $.09 per share.
Reserves for litigation and restructuring have resulted in an
increase since July 3, 1993 of approximately $13 million in
current deferred 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.
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.
9
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 1994
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 current fiscal year include a charge to income
of $27.1 million for reserves and related expenses 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 reduced jury
award was for approximately $22.9 million and included
approximately $852,000 for contractual compensatory damages,
$7.0 million for mental anguish, and $15 million as punitive
damages. The Company is in the process of seeking reversal or
reduction of thisjury 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.
During the third quarter of fiscal 1994 the amount of the jury
award was reduced by the circuit court judge from $29,056,000 to
$22,852,000. Also during the quarter just ended, the Company
charged income for $300,000 to increase its reserve for legal
costs associated with the Alabama Supreme Court appeal.
During the fiscal quarter ended April 2, 1994, the Securities
and Exchange Commission released guidelines on accounting for
and disclosing restructuring charges. As a result of its
interpretation of these guidelines, the Company has reviewed
its restructuring reserves established in the quarter ended
January 1, 1994. As a result of this review, the
restructuring provision was reduced in the third quarter of
fiscal 1994 by approximately $559,000.
Of the $12.1 million restructuring charge, $8.5 million relate
to asset writedowns, $.6 million has been expended in the
current fiscal year and $3.0 million relate to future
expenditures. These restructuring decisions include plans to
sell the Company's Harper Brothers office products business,
and the consolidation of Duck Head Apparel Company's warehouse
and distribution operations.
10
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 1994
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, one each
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 sold in 1990 pursuant to the terms of an order
of the United States Bankruptcy Court to 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 1,400 PRPs and that the Selling Corporation is
listed as a "de minimis" party. The Company's most recent
information indicates that the Selling Corporation's share of
the costs of the surface removal action (the removal of drums,
equipment and materials) for this site will be immaterial.
The Company does not currently have information respecting the
soil and groundwater cleanup costs that may be incurred with
respect to this site.
At the South Carolina site, there are over 700 PRPs, and the
Selling Corporation has been listed as an "insolvent" party
and would appear to qualify as a "de minimis" party. The
site's PRP group has completed a surface removal action, 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. The Company's latest information is that
the Selling Corporation is ranked 11th out of a total of over
300 PRPs in contributions of material to the site, and, based
on volume, the Selling Corporation contributed approximately
3% of the site's material. To the Company's knowledge, latest
estimates of costs to clean up the site range up to $4
million. 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.
11
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 2, 1994
NOTE F--CONTINGENT LIABILITIES
Although no assurance can be provided, the Company believes
that it is shielded from liability at these three sites by the
order of the United States Bankruptcy Court pursuant to which
the Selling Corporation sold its assets to the corporation
subsequently acquired by the Company. The Company, therefore,
has denied any responsibility at the sites and has declined to
participate as a member of the respective PRP groups.
Accordingly, the Company has not provided for any reserves for
costs or liabilities attributable to the Selling Corporation.
A law suit with allegations similar to those in the Alabama
case referred to above is pending in the United States
District Court for the Western District of Kentucky brought by
an individual who previously served as an independent sales
representative for the Duck Head division. The amount of
damages claimed in this suit has not yet been determined, and
the ultimate impact of this suit on the Company is yet
unknown.
As of April 2, 1994, the Company had a $175 million credit
facility provided by a Credit Agreement with its principal
lenders and two additional bank credit lines that aggregate
$75 million which will reduce to $15 million in October 1994.
The Company's loan covenants generally limit the Company's
total indebtedness to $225 million plus any amount required to
fund the Alabama jury award outlined above. Under this limit,
the unused amount of the Company's credit facilities at April
2, 1994 was $30.3 million. The amount outstanding under the
Company's credit lines fluctuates from time to time based on,
among other things, inventory levels and accounts receivable
payments.
The Company intends to continue examining near- and long-term
alternatives to strengthen its balance sheet. Such
alternatives may include debt financings.
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.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales for the third quarter ended April 2, 1994 were
$155,194,000 as compared to $176,412,000 in the prior year
third quarter, a decrease of 12%. Net earnings, including the
pretax credit to earnings described below, were $6,581,000 for
the quarter ended April 2, 1994, a decrease of 30% from the
$9,340,000 earned in the prior year third quarter. On a per
share basis, earnings were $.27 on the 24, 240,000 average
shares outstanding in the third quarter of fiscal 1994 as
compared to $.35 per share on the 26,435,000 average shares
outstanding in the third quarter of fiscal 1993.
Earnings in the third quarter ended April 2, 1994, included a
pretax credit to income of $6.2 million from a reduction by
the Alabama trial court of the $29.1 million jury verdict in
the case of former independent sales representatives
previously decided against a subsidiary of the Company and
fully reserved in the quarter ended January 1, 1994. The
Company intends to pursue an appeal to the Alabama Supreme
Court. Without this credit, pretax earnings would have been
$7,090,000 in the quarter ended April 2, 1994, and net income,
after provision for income taxes, would have been
approximately $3,510,000 or $.14 per share.
Net sales for the nine months ended April 2, 1994, totalled
$450,964,000 compared to $492,012,000 for the nine months
ended March 27, 1993, a decrease of 8%. Sales of the Nautilus
division acquired in january 1993 account for approximately $20.3
million of sales in the current fiscal year to date versus $2.7
million in the first nine months of fiscal 1993. Net loss for
the nine months ended April 2, 1994, was $23,620,000 as compared
to net earnings of $21,870,000 for the nine months ended March
27, 1993. On a per share basis, losses were $.96 per share on
the 24,651,000 average shares outstanding in the nine months
ended April 2, 1994, as compared to earnings of $.82 per share on
the 26,415,000 average shares outstanding in the nine
months ended March 27, 1993. The nine month fiscal 1994 loss
includes a pretax charge to income, net of the credit
described above, of $27,096,000 for reserves and related
expenses in connection with the Alabama court verdict and a
pretax restructuring charge against income of approximately
$12,101,000.
Consolidated gross margin was 18% of sales in the latest
fiscal quarter as compared to 20% in the same quarter of
fiscal 1993. For the nine months ended April 2, 1994,
the consolidated gross margin was 16% as compared to 18% in the
nine months ended March 27, 1993.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Fiscal 1994 third quarter sales and operating profits in the
Company's textile sector were both down 15% from last year's
third fiscal quarter levels. Sales of woven textiles were
lower and sales of knitted textiles in the quarter were higher
than in the same quarter of the previous year. The weakness
in woven womens' wear and unfinished fabrics noted in the
previous quarter continued throughout the most recent quarter.
Knitted fabric sales improved due to better performance in our
recently consolidated knit finishing plant and due to better
market demand than at this time last year. Gross profit
margins improved slightly in both woven and knitted sectors.
Incoming order rates for knitted fabrics have shown some
improvement in recent weeks. Cotton fiber prices have risen
sharply in the last four months. The Company has not yet been
able to recover these cost increases in woven fabric prices,
but is making some progress in this direction in the knitted
fabrics area. The textile segment accounted for 60% of
consolidated sales and 42% of consolidated gross profit in the
latest quarter compared to 61% and 38%, respectively, in the
same quarter of fiscal 1993.
Sales in the apparel segment were 16% lower and gross profits
were 33% lower in the third quarter of fiscal 1994 than in the
third quarter of fiscal 1993. Sales of knitted apparel were
slightly higher and sales of branded apparel were lower than
in the same quarter last year. Gross profit margins were
lower in both sectors due principally to lower sales prices
caused by continuing oversupply in the knitted apparel markets
and by higher sales of closeout inventories of branded apparel
relating principally to a Fall 1993 line that was poorly received
by retailers. The apparel segment accounted for 32% of
consolidated sales and 42% of gross profit in the latest fiscal
quarter as compared to 34% and 51%, respectively, in the same
quarter last year.
In the quarter ended April 2, 1994, the contribution by the
Company's other businesses, office products and fitness
equipment, to consolidated sales and gross profit was 8% and
17%, respectively. These operations contributed 5% of
consolidated sales and 10% of consolidated gross profit in the
quarter ended March 27, 1993.
Selling, general, and administrative expenses increased by
approximately $1.4 million in the quarter just ended over the
same period last year. Decreases in these expenses in the
textile and apparel segments were more than offset by
increases in these expenses at Nautilus International, Inc.
which was included for the months of February and March only
in fiscal 1993. Expenses in the latest fiscal quarter
included costs related to the marketing of the Company's
planned line of Nautilus equipment for individual consumers.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
During the third quarter the Company changed its estimated
effective tax benefit rate for fiscal 1994 to 33%. The
catchup effect of this change resulted in a tax rate of 50%
for the quarter ended April 2, 1994. The lower tax benefit
rate is generally attributable to a variety of factors
including certain writedowns of goodwill which are not
deductible for income tax purposes. The effect of the change
in estimated tax rate on the quarter ended April 2, 1994 was a
decrease in net income of $2,285,000 or $.09 per share.
The total order backlog at April 2, 1994, was $155,172,000
compared with the order backlog of $188,920,000 at March 27,
1993. Order backlogs in all segments were below those at the
same time last year, with the major portion of the decrease
being in the woven fabrics area.
Inventories increased from $198.3 million at July 3, 1993 to
$210.5 million at April 2, 1994. Increases in inventories in
the textile segment were principally caused by lower than
expected sales of woven blended and unfinished fabrics.
Apparel inventories have decreased slightly and other
inventories have increased slightly during the period.
During the last quarter, the Company ran relatively full
manufacturing schedules in all of its operations except woven
blended and unfinished fabrics. The Company does not expect
any major production curtailments in the fourth quarter of the
current fiscal year, except in those facilities that produce
unfinished woven fabrics and woven blended fabrics.
During the fiscal quarter ended April 2, 1994, the Securities
and Exchange Commission released guidelines on accounting for
and disclosing restructuring charges. As a result of its
interpretation of these guidelines, the Company has reviewed
its restructuring reserves established in the quarter ended
January 1, 1994. As a result of this review, the
restructuring provision was reduced in the third quarter of
fiscal 1994 by approximately $559,000. Also during the
quarter just ended, the Company charged income for $300,000 to
increase its reserve for legal costs associated with the
Alabama Supreme Court appeal. Of the $12.1 million
restructuring charge, $8.5 million relate to asset writedowns,
$.6 million has been expended in the current fiscal year and
$3.0 million relate to future expenditures.
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, one each
in North Carolina, South Carolina, and Mississippi. To the
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Company's knowledge, all of the transactions with these sites
were conducted by a corporation (the "Selling Corporation") whose
assets were sold in 1990 pursuant to the terms of an order of the
United States Bankruptcy Court to 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 1,400 PRPs and that the Selling Corporation is
listed as a "de minimis" party. The Company's most recent
information indicates that the Selling Corporation's share of
the costs of the surface removal action (the removal of drums,
equipment and materials) for this site will be immaterial.
The Company does not currently have information respecting the
soil and groundwater cleanup costs that may be incurred with
respect to this site.
At the South Carolina site, there are over 700 PRPs, and the
Selling Corporation has been listed as an "insolvent" party
and would appear to qualify as a "de minimis" party. The
site's PRP group has completed a surface removal action, 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. The Company's latest information is that
the Selling Corporation is ranked 11th out of a total of over
300 PRPs in contributions of material to the site, and, based
on volume, the Selling Corporation contributed approximately
3% of the site's material. To the Company's knowledge, latest
estimates of costs to clean up the site range up to $4
million. 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 no assurance can be provided, the Company believes
that it is shielded from liability at these three sites by the
order of the United States Bankruptcy Court pursuant to which
the Selling Corporation sold its assets to the corporation
subsequently acquired by the Company. The Company, therefore,
has denied any responsibility at the sites and has declined to
participate as a member of the respective PRP groups.
Accordingly, the Company has not provided for any reserves for
costs or liabilities attributable to the Selling Corporation.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
A law suit with allegations similar to those in the Alabama
case referred to above is pending in the United States
District Court for the Western District of Kentucky brought by
an individual who previously served as an independent sales
representative for the Duck Head division. The amount of
damages claimed in this suit has not yet been determined, and
the ultimate impact of this suit on the Company is yet
unknown.
As of April 2, 1994, the Company had a $175 million credit
facility provided by a Credit Agreement with its principal
lenders and two additional bank credit lines that aggregate
$75 million which will reduce to $15 million in October 1994.
The Company's loan covenants generally limit the Company's
total indebtedness to $225 million plus any amount required to
fund the Alabama jury award outlined above. Under this limit,
the unused amount of the Company's credit facilities at April
2, 1994 was $30.3 million. The amount outstanding under
the Company's credit lines fluctuates from time to time based
on, among other things, inventory levels and accounts
receivable payments.
The Company intends to continue examining near- and long-term
alternatives to strengthen its balance sheet. Such
alternatives may include debt financings.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In its Form 8-K, dated January 11, 1994, and Form
10-Q for the fiscal quarter ended January 1, 1994, the
Company has previously reported the award on
November 24, 1993 by a jury in the Circuit Court of
Montgomery County, Alabama (the "Circuit Court"), of
$29,056,000 to a former Duck Head sales representative
(Ken Hoots) and two of his salesmen (Terry Long and
Bill Pace) against a subsidiary of the Company in a
suit captioned "Ken Hoots, Terry Long and Bill Pace v.
Duck Head Apparel Company Inc., et. al." (the "Hoots
Suit").
After a hearing, the Circuit Court judge reduced the
jury's verdict to $22,852,000 and entered judgment
against the Company's subsidiary on March 28, 1994 as
follows:
(a) $852,000 to the plaintiffs on their claim of
breach of contract
(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) $15,000,000 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 on
appeal. On April 9, 1994, the Company's subsidiary
filed a notice of appeal of judgment with the Alabama
Supreme Court.
In order to prevent execution of the judgment
during the appellate process the Company has guaranteed
payment of the final adjudicated award and will post
bond or other security in the amount of 125% of the
judgment amount.
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
18
<PAGE>
PART II. OTHER INFORMATION--Continued
was entered (November 24, 1993) until the date that any
final adjudicated award is paid to the plaintiffs.
A lawsuit with allegations similar to those in
the Hoots Suit is pending against a subsidiary of the
Company in the United States District Court for the
Western District of Kentucky brought by an individual
(Donnie Cecil) who previously served as an independent
sales representative for the Duck Head division. The
suit was filed on October 1, 1993. The amount of
damages claimed in the suit has not yet been
determined, and the ultimate impact of the 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*
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. 3 to credit
agreement dated as of June 24, 1992.
(b) The Company filed Form 8-K dated January 11,
1994 and reported:
Item 5. Other Events
* Items 2, 3, 4 and 5 are not applicable
19
<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 May 16, 1994 /s/ E. Erwin Maddrey,II
E. Erwin Maddrey, II
President and
Chief Executive Officer
Date May 16, 1994 /s/ Douglas J. Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
20
<PAGE>
EXHIBIT
<PAGE>
AMENDMENT NO. 3
to
Credit Agreement
dated as of June 24, 1992
AMENDMENT NO. 3 entered into as of April 29, 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 and Waiver and
Amendment No. 2 dated as of February 11, 1994 (said Agreement, as
so amended, the "Credit Agreement"; terms defined therein, unless
otherwise defined herein, being used herein as therein defined).
As security for its obligations in respect of the
Alabama Judgment, Alchem proposes to furnish to the Circuit
Clerk, Circuit Court, 15th Judicial District, Montgomery County,
Alabama, a letter of credit in the stated amount of $28,565,000
for the benefit of said Circuit Clerk. In connection with the
issuance by it of said letter of credit, the Bank has requested
that each of Delta Woodside and each Subsidiary Guarantor (other
than Alchem) guarantee the reimbursement obligation of Alchem in
respect thereof in substantially the same form, mutatis mutandis,
in which the Obligations of the Borrower under the Credit
Agreement are guaranteed by the Subsidiary Guarantors. Delta
Woodside and Alchem have agreed to cause such guaranties to be
delivered by the Subsidiary Guarantors, subject to the consent to
such delivery of the Majority Lenders.
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. Amendment to Credit Agreement. Subject to
the provisions of Section 2, the Credit Agreement is hereby
amended by amending Section 9.3 Guaranties in its entirety, to
read as follows:
Section 9.3. Guaranties. After the
Effective Date, become or remain liable with
respect to any Guaranty of any obligation of
any other Person, except for Existing
Guaranties, the Subsidiary Guaranties and (a)
<PAGE>
Guaranties of the obligations of Alchem in
respect of the Alabama Judgment, provided
that the liability of the Borrower and its
Consolidated Subsidiaries thereunder shall
not exceed an amount equal to the sum of
$36.4 million, plus the expenses, if any, of
enforcement of such Guaranties and (b) in the
case of the Borrower, Guaranties in respect
of obligations of its Consolidated
Subsidiaries (i) to trade or similar
creditors, incurred by such Subsidiaries in
the ordinary course of their respective
businesses, (ii) in connection with contracts
with their respective customers entered into
in the ordinary course of their respective
businesses and (iii) under leases of property
used by such Subsidiaries in their respective
businesses.
Section 2. Effectiveness. The provisions of
Section 1 hereof shall become effective as of the date hereof on
the date (the "Amendment Effective Date") on which 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.
Section 3. Effect of Amendment. 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, 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 4. General Provisions.
(a) This Amendment shall be governed by and construed
in accordance with the laws of the State of Georgia.
<PAGE>
(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/ Philip A. Mousin
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Gregory L. Batson
Title: Assistant Vice President
<PAGE>
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
<PAGE>
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 Amendment No. 3, hereby consents to the said
Amendment No. 3 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 Amendment No. 3, 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 Amendment No. 3.
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
<PAGE>
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
