DWI10Q.DOC
11/7/97 3:45 PM
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 September 27, 1997
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, Suite 200
Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
864\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-- 24,572,573 shares as of November 4, 199
INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
September 27, 1997 and June 28, 1997 3-4
Condensed consolidated statements of income --
Three months ended September 27, 1997 and
September 28, 1996 5
Condensed consolidated statements of cash
flows-- Three months ended September 27, 1997
and September 28, 1996 6
Notes to condensed consolidated financial
statements--September 27, 1997 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Uses of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 27, June 28,
1997 1997
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,425 $ 2,696
Accounts receivable:
Factor 81,580 83,676
Trade 63,591 58,717
145,171 142,393
Less allowances for doubtful
accounts and returns 4,697 5,358
140,474 137,035
Inventories
Finished goods 68,468 70,343
Work in process 67,605 71,274
Raw materials and supplies 19,067 18,580
155,140 160,197
Deferred income taxes 9,627 9,627
Prepaid and other current assets 3,719 2,386
TOTAL CURRENT ASSETS 311,385 311,941
PROPERTY, PLANT AND EQUIPMENT
Cost 372,806 370,428
Less accumulated depreciation 167,088 160,017
205,718 210,411
EXCESS OF COST OVER ASSIGNED VALUE
OF NET ASSETS ACQUIRED 25,100 25,309
OTHER ASSETS 15,241 10,279
$557,444 $557,940
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
September 27, June 28,
1997 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 46,689 $ 46,834
Accrued and sundry liabilities 23,882 29,458
Current portion of long-term debt 646 6,081
TOTAL CURRENT LIABILITIES 71,217 82,373
LONG-TERM DEBT, less current portion 237,418 227,516
DEFERRED INCOME TAXES 14,324 14,324
OTHER LIABILITIES AND DEFERRED CREDITS 8,786 8,360
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--
authorized 50,000,000 shares, issued
and outstanding 24,572,000 shares
at September 27, 1997 and 24,518,000
shares at June 28, 1997 246 245
Additional paid-in capital 165,091 164,811
Retained earnings 60,362 60,311
225,699 225,367
$557,444 $557,940
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
September 27, September 28,
1997 1996
(In thousands, except per share data)
Net sales $ 170,686 $ 144,521
Cost of goods sold 144,624 119,293
Gross profit on sales 26,062 25,228
Selling, general and administrative expenses 18,829 18,354
7,233 6,874
Other expense (income):
Interest expense 6,306 5,172
Interest income and other (157) (451)
6,149 4,721
INCOME BEFORE INCOME TAXES 1,084 2,153
Income taxes 418 150
NET INCOME $ 666 $ 2,003
Net income per share $ .03 $ .08
Dividends per share of common stock $ . 025
Weighted average shares outstanding 24,571 24,510
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 27, September 28,
1997 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 666 $ 2,003
Depreciation 7,260 6,687
Amortization 719 498
Other 789 408
Changes in operating assets and liabilities (4,986) 14,715
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,448 24,311
INVESTING ACTIVITIES
Property, plant and equipment
purchases (3,142) (9,640)
Other 181 (39)
NET CASH (USED) BY INVESTING ACTIVITIES (2,961) (9,679)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 109,500 1,030
Principal payments on revolving line of credit (255,000) (1,485)
Proceeds of long-term debt 144,579
Scheduled principal payments of long-term
debt and capital lease obligations (164) (77)
Dividends paid (614)
Other (39) (8)
NET CASH (USED) BY FINANCING ACTIVITIES (1,738) (540)
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (251) 14,092
Cash and cash equivalents at beginning of period 2,676 6,271
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,425 $ 20,363
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 27, 1997
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 months ended September 27, 1997 are not necessarily
indicative of the results that may be expected for the year ending
June 27, 1998. 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 June 28, 1997.
NOTE B--SHORT-TERM DEBT
On August 25, 1997, a subsidiary of the Company that conducts the Company's
textile segment operations, Delta Mills, Inc. ("DMI"), issued $150
million of unsecured ten-year senior notes, and obtained a secured $100
million five-year revolving line of credit (subject to borrowing base
limitations). In addition, the Company also obtained a separate $20 million
secured revolving line of credit. The net proceeds of the senior notes and
the initial borrowings under the new revolving lines of credit were used
to repay certain long-term debt. The increase in other assets is a result
of deferred loan costs in connection with the new debt. For additional
information on the refinancing, see Note D to the Company's financial
statements for the year ended June 28, 1997.
NOTE C-INCOME TAXES
The effective income tax rate for the quarter ended September 27,
1997 was 39%, compared to 7% for the quarter ended September 28, 1996.
The lower tax rate in the prior year was a result of a decrease in the
valuation allowance for deferred taxes.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Consolidated net sales for the first quarter ended September 27, 1997
totaled $170,686,000, as compared to $144,521,000 in the prior year's
first quarter, an increase of 18%. Net income was $666,000 for the
quarter ended September 27, 1997 as compared to $2,003,000 for the
quarter ended September 28, 1996. On a per share basis, net income was
$.03 per share on the 24,571,000 average shares outstanding,
as compared to $.08 per share on the 24,510,000 average shares outstanding
in the first quarter of fiscal 1997.
Consolidated gross profit margin was 15% in the quarter ended September 27,
1997, as compared to 17% in the quarter ended September 28, 1996.
During the first quarter of fiscal 1998, 67% of the Company's gross
profit came from the textile segment compared to 65% in the first quarter
of fiscal 1997. Apparel segment gross profit as a percent of total gross
profit was 30%, approximately the same as in the first quarter of the
prior year.
Consolidated operating earnings for the quarter ended September 27, 1997
were slightly higher than in the same quarter of the prior fiscal year.
The slightly higher operating earnings were primarily attributable to the
improved performance of the woven fabrics division of the textile segment.
The textile segment's net external sales for the first quarter of fiscal
year 1998 were $115 million, as compared to $94 million for the first
quarter of fiscal year 1997, an increase of 22%. Sales of the woven
fabrics division were $89 million in the first quarter of fiscal year
1998 as compared to $72 million in the first quarter of fiscal year 1997,
an increase of 23% resulting from an increase in unit sales and unit prices.
Sales of woven fabrics to commercial accounts increased due both to
increased capacity resulting from recent capital expenditures and to
increased demand. Sales of woven government fabrics increased due to increased
procurement activity. Sales of the knitted fabrics division were $31
million in the first fiscal quarter 1998 up from $28 million in the first
quarter of fiscal year 1997, an increase of 13%. In the knitted fabrics
division unit sales and unit prices increased.
The textile segment's gross profit margin in the first quarter of fiscal
year 1998 was 15% of net outside sales, as compared to 14% in the first
quarter of fiscal year 1997. During the first quarter of fiscal year 1998,
woven fabrics division gross profit totaled $18 million, as compared
to $13 million in the first quarter of fiscal year 1997. This gross
profit increase was due principally to an increase in demand for both
government and commercial fabrics. Gross margins in the knitted fabrics
division showed small losses in both the most recent fiscal quarter and
the same quarter a year ago. The textile segment's operating earnings
for the first quarter of fiscal year 1998 were $10 million, as compared
to $7 million in the first quarter of fiscal year 1997.
The apparel segment's net sales were $50 million, up 13% from the same
quarter of the prior fiscal year. Sales of branded apparel and knitted
apparel for printing both increased. The increased sales of branded
apparel were due to more units sold at higher average prices. Unit
sales of knitted apparel for printing increased, but average unit prices
were down as compared to the same quarter in the prior year.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The apparel segment's gross profit declined to $8 million in the quarter
ended September 27, 1997 as compared $10 million in the same quarter of the
prior year. Improvements in the profit margins of branded apparel were more
than offset by a decrease in margins in the knitted apparel for printing
business. The decrease is a result of higher cost inventory in the knitted
apparel for printing division having been sold at prices lower than in the
same quarter of the prior year. The decreases in apparel segment gross
profit resulted in a $2 million operating loss in the first quarter of
fiscal 1998 compared to $1 million of earnings in the same quarter of
the prior year.
The Company's order backlog at September 27, 1997, was $176,560,000 an
increase of 13% from order backlogs at September 28, 1996. Order backlogs
increased in the textile segment, but were down in the apparel segment
where an increase in the branded apparel backlog was offset by a 50%
decrease in the knitted apparel for printing backlog.
Total inventories decreased to $155 million at September 27, 1997.
Inventories decreased by approximately $11 million in the apparel
segment compared to June 28, 1997, primarily due to a decrease in
high cost inventories in the knitted apparel for printing division.
The decrease in inventory in the apparel segment was offset in part
by an increase in inventories in the textile division.
The effective income tax rate for the quarter ended September 27, 1997
was 39%, compared to 7% for the quarter ended September 28, 1996, and
21% for the fiscal year ended June 28, 1997. The lower tax rate in the
prior year was a result of a decrease in the valuation allowance for
deferred taxes.
During the quarter ended September 27, 1997, the Company began paying
a dividend of $.025 per share, per quarter. Because of losses experienced
during fiscal 1996, the Company had stopped paying dividends effective
with the fourth quarter of fiscal 1996.
The Company believes that cash flow generated by its operations and funds
available under its credit facilities will be sufficient to service its
debt, pay dividends, satisfy day-to-day working capital needs and
fund planned capital expenditures.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not Applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings*
Item 2. Changes in Securities and Use of Proceeds*
Item 3. Defaults upon Senior Securities*
Item 4. Submission of Matters to a Vote of Security Holders*
Item 5. Other Information
The following table shows the issuances by the Company during fiscal 1998 of
its shares of Common Stock that were not registered under the Securities Act
of 1933, as amended, and were not previously reported by the Company in a
Form 10-Q.
Amount of Class of Nature of
Date of Issuance Common Stock Persons Transaction
October 10, 1997 350 Employees Service Awards
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.10 Registration Rights Agreement, dated as of August 25,
1997, by and among Delta Mills, Inc., Delta Mills
Marketing, Inc. and NationsBanc Capital Markets, Inc.:
Incorporated by reference to Exhibit 1.2 to Registration
Statement on Form S-4 of Delta Mills, Inc. (File No.
333-376-17).
10.11 Purchase Agreement relating to $150 million 9 5/8%
Senior Notes due 2007, dated August 20, 1997, by and
among Delta Mills, Inc., Delta Mills Marketing, Inc. and
NationsBanc Capital Markets, Inc.: Incorporated by
reference to Exhibit 1.1 to Registration Statement on
Form S-4 of Delta Mills, Inc. (File No. 333-376-17).
(b) Reports filed on Form 8-K
During the first quarter of the fiscal year ended September 27, 1997,
the Company filed Form 8-K with a date of August 25, 1997, as
amended by Form 8-K/A, which reported Item 7, financial statements
and exhibits.
* Items 1, 2, 3 and 4 are not applicable
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 October 27, 1997 /s/ Douglas J. Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
<TABLE> <S> <C>
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This scehdule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal quarter
ended September 27, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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