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 December 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-- 24,573,585 shares as of February 2, 1998.
INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
December 27, 1997 and June 28, 1997 3-4
Condensed consolidated statements of income --
Three months ended December 27, 1997 and
December 28, 1996 5
Condensed consolidated statements of cash
flows-- Three months ended December 27, 1997
and December 28, 1996 6
Notes to condensed consolidated financial
statements--December 27, 1997 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Uses of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Securities
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 27, June 28,
1997 1997
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,833 $ 2,696
Accounts receivable:
Factor 77,773 83,676
Trade 58,769 58,717
136,542 142,393
Less allowances for doubtful
accounts and returns 5,017 5,358
131,525 137,035
Inventories
Finished goods 77,093 70,343
Work in process 56,560 71,274
Raw materials and supplies 18,045 18,580
151,698 160,197
Deferred income taxes 4,568 9,627
Prepaid and other current assets 3,726 2,386
TOTAL CURRENT ASSETS 298,350 311,941
PROPERTY, PLANT AND EQUIPMENT
Cost 376,503 370,428
Less accumulated depreciation 174,240 160,017
202,263 210,411
EXCESS OF COST OVER ASSIGNED VALUE
OF NET ASSETS ACQUIRED 24,890 25,309
OTHER ASSETS 15,337 10,279
TOTAL ASSETS $540,840 $557,940
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
December 27, June 28,
1997 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable 37,820 $ 46,834
Accrued and sundry liabilities 25,633 29,458
Current portion of long-term debt 16,653 6,081
TOTAL CURRENT LIABILITIES 80,106 82,373
LONG-TERM DEBT, less current portion 217,317 227,516
DEFERRED INCOME TAXES 10,033 14,324
OTHER LIABILITIES AND DEFERRED CREDITS 8,865 8,360
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--
authorized 50,000,000 shares, issued
and outstanding 24,573,000 shares
at December 27, 1997 and 24,518,000
shares at June 28, 1997 246 245
Additional paid-in capital 165,092 164,811
Retained earnings 59,181 60,311
TOTAL SHAREHOLDERS' EQUITY 224,519 225,367
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $540,840 $557,940
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
(In thousands, except per share data)
Net sales $ 155,816 $ 162,671 $ 326,502 $ 307,192
Cost of goods sold 132,771 136,604 277,395 255,897
Gross profit on sales 23,045 26,067 49,107 51,295
Selling, general and
administrative expenses 18,464 18,492 37,293 36,846
Other income (expense) 44 1,321 117 1,513
Operating Profit 4,625 8,896 11,931 15,962
Other expense (income):
Interest expense 5,669 5,959 11,975 11,131
Interest income (118) (101) (202) (360)
5,551 4,858 11,773 10,771
INCOME (LOSS) BEFORE
INCOME TAXES (926) 3,038 158 5,191
Income taxes 356 880 62 1,030
NET INCOME (LOSS) $ (570) $ 2,158 $ 96 $ 4,161
Net income (loss) per share $ (.02) $ .09 $ 0 $ .17
Dividends per share of
common stock $ .025 $ .05
Weighted average shares
outstanding 24,573 24,511 24,572 24,511
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
December 27, December 28,
1997 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 96 $ 4,161
Depreciation 14,522 13,636
Amortization 1,462 996
Other 2,039 5,785
Changes in operating assets and
liabilities 283 (6,621)
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,402 17,957
INVESTING ACTIVITIES
Property, plant and equipment purchases (7,339) (12,784)
Other 256 1,300
NET CASH (USED) BY INVESTING ACTIVITIES (7,083) (11,484)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 141,000 965
Principal payments on revolving lines
of credit (290,500) (6,485)
Proceeds of long-term debt 143,935
Scheduled principal payments of
long-term debt and capital
lease obligations (259) (158)
Dividends paid (1,229)
Other (109) (78)
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (7,162) (5,756)
INCREASE IN CASH AND
CASH EQUIVALENTS 4,157 717
Cash and cash equivalents at beginning
of period 2,676 6,271
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,833 $ 6,988
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 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 and six months ended December 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 and six months ended December
27, 1997 was 39%, compared to 21% for the fiscal year ended June 27, 1997.
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
Net sales for the second quarter of fiscal year 1998 totaled $156 million
as compared to $163 million in the first quarter of the prior fiscal year,
a decrease of 4%. A decline in sales and profits from the textile and
apparel segments resulted in a net loss for the current quarter compared to
net income of $2 million in the second quarter of the prior fiscal year.
In the first six months of fiscal 1998, sales increased by approximately
$19 million compared to the same period in the prior fiscal year. The
textile segment led the Company in sales increases, principally in sales of
woven fabrics.
Gross profit margin was 15% in the second quarter of fiscal year 1998, as
compared to 16% in the same quarter of the prior fiscal year. During the
second quarter of fiscal 1998, 63% of the Company's gross profit came from
the textile segment compared to 60% in the second quarter of fiscal 1997.
Apparel segment gross profit as a percent of total gross profit was 29%,
compared to 33% in the second quarter of the prior fiscal year. In the
first six months of fiscal 1998, a decrease in gross profit in the apparel
segment more than offset an increase in gross profits in the textile
segment.
Operating earnings for the second quarter of fiscal 1998 were down $4
million compared to the same quarter of the prior fiscal year. The
downturn in operating profits in the second quarter of the current fiscal
year came in the both the textile and apparel segments. In the first six
months of fiscal 1998, operating earnings declined in the apparel segment,
but stayed level in the textile segment compared to the same period in the
prior fiscal year.
The textile segment's net external sales for the second quarter of fiscal
year 1998 were $110 million, down slightly compared to $111 million in the
second quarter of fiscal year 1997. Net sales in the woven fabrics
division were down slightly at $85 million in the second quarter of fiscal
1998 as compared to the second quarter of fiscal 1997, primarily due to a
decline in sales of commercial fabrics. Net external sales in the knitted
fabrics division were also down slightly at $25 million in the second
quarter of fiscal 1998, compared to the second quarter of fiscal 1997.
Units sold as well as unit prices decreased in the knitted fabrics
division.
Net external sales in the textile segment for the six months of fiscal year
1998 totaled $225 million, as compared to $205 million for the six months
of the prior fiscal year, an increase of 10%. Sales of the woven fabrics
division were $174 million in the first six months of fiscal year 1998 as
compared to $158 million in the same period of the prior fiscal year, an
increase of 10% resulting from an increase in unit sales and unit prices.
Net sales of the knitted fabrics division were $51 million for the first
six months of fiscal year 1998, up from the same period of the prior fiscal
year.
The gross profit margin of the textile segment in the second quarter of
fiscal 1998 was 13%, down slightly compared to 14% in the second quarter of
fiscal 1997. During the second quarter of fiscal 1998, the woven fabric
division's gross profit was $15 million, approximately the same as compared
to the second quarter of fiscal 1997. Gross profit in the knitted fabrics
division decreased from a profit of $.6 million in the second quarter of
fiscal 1997 to a loss of $.4 million in the second quarter of fiscal 1998.
This decline was due to reduced unit volume and to an increase of off-
quality production.
The gross profit margin for the textile segment in the first six months of
fiscal year 1998 was 14%, approximately the same when compared to the first
six months of the prior fiscal year. During the first six months of fiscal
year 1998, the woven fabric division's gross profit was $32 million,
compared to $28 million for the first six months of the prior fiscal year.
The gross profit increase was due principally to an increase in demand for
both woven government and commercial fabrics supported by increased
capacity in cotton fabric production. Gross profit in the knitted fabrics
division declined from a profit of $.5 million for the first six months of
fiscal year 1997 compared to
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
a loss of $.6 million for the first six months of fiscal year 1998. This
decline was due primarily to an increase in off-quality production.
Operating earnings of the textile segment for the second quarter of fiscal
1998 were $8 million, as compared to $11 million in the second quarter of
fiscal 1997. Operating earnings in the woven fabrics division declined to
$11 million in the second quarter of fiscal 1998, from $13 million in same
quarter of the prior fiscal year. Operating earnings in the second
quarter of the prior fiscal year included a $1.2 million gain on the sale
of a warehouse in the woven fabrics division. The knitted fabrics division
reported operating losses in the second quarter of fiscal 1998 and in the
second quarter of fiscal 1997.
Operating earnings in the textile segment for the first six months of
fiscal year 1998 were $18 million, approximately the same as in the first
six months of the prior fiscal year. Operating earnings in the woven
fabrics division were $24 million in the first six months of fiscal year
1998, up from $22 million for the first six months of the prior fiscal
year. Earnings for the first six months of the prior fiscal year included
a $1.2 million gain described in the preceding paragraph. Operating losses
in the knitted fabrics division increased in the current six months
compared to the same period of the prior fiscal year.
The apparel segment's net sales in the second quarter of fiscal year 1998
were $40 million, down $6 million from the same quarter of the prior fiscal
year. Sales of branded apparel increased based on an increase in unit
sales, however average unit prices decreased along with increased sales of
obsolete inventory. Sales of knitted apparel for printing decreased by $7
million as a result of from worsening market conditions, as reflected in a
decline in units sold and average unit prices. The apparel segment's net
sales for the six months ended December 27, 1997 were $90 million,
approximately the same as in the first six months of the prior fiscal year.
For the first six months of fiscal year 1998, an increase in sales of
branded apparel was offset by a decrease in sales of knitted apparel for
printing as compared to the first six months of fiscal year 1997. For the
first six months of fiscal year 1998 an increase of units sold in the
branded apparel business offset a decline in average unit prices for both
branded apparel and knitted apparel for printing, as well as a decline in
unit sales of knitted apparel for printing when compared to the first six
months of the prior fiscal quarter.
The apparel segment's gross profit declined to $6.7 million in the second
quarter of fiscal year 1998, as compared $8.5 million in the same quarter
of the prior year. Increases 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 fewer units sold and at
prices lower than in the same quarter of the prior year. The decreases in
apparel segment gross profit resulted in a $3.3 million operating loss in
the first quarter of fiscal 1998 compared to a $1.1 million loss in the
same quarter of the prior fiscal year. Operating losses in the apparel
segment for the first six months of fiscal year 1998, were $5.4 million as
compared to losses of $.3 million in the first six months of the prior
fiscal year. As with the current quarter, profits in the branded apparel
business increased and turned positive compared to the first six months of
the prior fiscal year, while the knitted apparel business experienced
losses for the first six months of the current fiscal year.
The Company's order backlog at December 27, 1997, was $157 million a
decrease of 2% from order backlogs at December 28, 1996. Order backlogs
increased in the textile segment, but were down in the apparel segment
where the knitted apparel for printing backlog was down by 44% compared to
the backlog at December 28, 1996.
Total inventories decreased to $152 million at December 27, 1997, from $106
million at June 27, 1998, an increase in inventory in the textile segment
was more than offset by decreases in the apparel segment.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
With respect to certain South Carolina plants, the Company is working with
the appropriate state agency in developing a corrective action plan for
addressing toxicity and other permit-related issues including upgrades at
the Company's Delta 2 and 3 finishing plants. A Delta 2 and 3 consent
order (#97-109W) became effective on December 2, 1997. The order requires
correction of waste treatment plant deficiencies by November 1, 1998.
Construction to upgrade the treatment process has commenced. The upgrades
are estimated to cost between $2.0 million and $2.5 million. Management
believes construction will be complete, deficiencies corrected, and the
upgraded treatment process in operation before the November 1, 1998
deadline.
As described in the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1997, the Company's Nautilus business has been named as
a potentially responsible party ("PRP") under CERCLA with respect to three
sites. 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 site in Mississippi, the PRP group has completed the 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 eleventh 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.
There is significant groundwater contamination at the site, but there is no
current estimate of the cost of remediating such contamination.
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 has denied any responsibility at these three sites, has declined to
participate as a member of the respective PRP groups, and has not provided
for any reserves for costs or liabilities attributable to the Selling
Corporation.
The effective income tax rate for the first six months of fiscal year 1998
was 39%, compared to 20% for the first six months of the prior fiscal year.
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 year 1996.
The Company believes that cash flow generated by its operations and funds
available under its existing 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
The following summarizes the votes at the Annual Meeting of the
Company's shareholders held on November 6, 1997:
Election of Broker
Directors For Against Withheld Abstentions Nonvotes
C. C. Guy 20,744,902 0 1,482,019 N/A N/A
J. F. Kane 20,747,771 0 1,479,150 N/A N/A
M. Lennon 20,745,558 0 1,481,362 N/A N/A
E. E. Maddrey, II 20,728,510 0 1,498,411 N/A N/A
B. Mickel 20,729,680 0 1,497,241 N/A N/A
B. A. Mickel 20,740,595 0 1,486,326 N/A N/A
B. C. Rainsford 20,730,030 0 1,496,891 N/A N/A
Ratification of
Appointment of
KPMG Peat Marwick
as Independent
Auditors
For Fiscal 1998 22,159,014 13,253 54,654 N/A N/A
Long-term
Incentive Plan 15,293,396 3,491,098 408,225 N/A N/A
Amendment to the
Incentive Stock
Award Plan 15,179,755 3,589,096 423,979 N/A N/A
Amendment to the
Incentive Stock
Award Plan to
delete the provision
excluding 5% or
more of the
outstanding common
Stock 16,507,708 2,314,041 368,111 N/A N/A
Amendment to the
Option Plan 14,881,538 3,923,051 387,344 N/A N/A
Item 5. Other Information*
PART II. OTHER INFORMATION--Continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) No reports were filed on form 8-K during the quarter ended
December 27, 1997.
* Items 1, 2, 3 and 5 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 2/9/98 /s/ Douglas J.Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
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This schedule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal quarter
ended December 27, 1997 and is qualified in its entirety by reference to such
financial statements.
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