The following items were the subject of
Form 12b-25 and are included herein: Part I
All items
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
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-- 24,578,530 shares as of April 29,
1998.
INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
March 28, 1998 and June 28, 1997 3-4
Condensed consolidated statements of operations--
Three and nine months ended March 28, 1998 and
March 29, 1997 5
Condensed consolidated statements of cash
flows-Nine months ended March 28, 1998
and March 29, 1997 6
Notes to condensed consolidated financial
statements-March 28, 1998 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
March 28, June 28,
1998 1997
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,871 $ 2,696
Accounts receivable:
Factor 64,506 83,676
Trade 40,346 58,717
104,852 142,393
Less Allowances for doubtful
accounts and returns 2,638 5,358
102,214 137,035
Inventories:
Finished goods 64,619 70,343
Work in process 54,038 71,274
Raw materials and supplies 13,520 18,580
132,177 160,197
Prepaid and other current assets 3,552 2,386
Deferred income tax 13,602 9,627
Current assets of discontinued operations 42,987
TOTAL CURRENT ASSET S305,403 311,941
PROPERTY, PLANT and EQUIPMENT
Cost 280,127 273,393
Accumulated depreciation 119,093 97,912
161,034 175,481
Other assets 21,502 24,139
Noncurrent assets of discontinued operations 34,384 46,379
TOTAL ASSETS $522,323 $557,940
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable $ 35,818 $ 46,834
Accrued and sundry liabilities 25,083 27,930
Accrued restructuring charge 17,277 1,528
Current portion of long-term debt 83,622 6,081
TOTAL CURRENT LIABILITIES S161,800 $ 82,373
LONG-TERM DEBT, less current portion 157,134 227,516
DEFERRED INCOME TAXES AND OTHER LIABILITIES 25,065 22,684
SHAREHOLDERS' EQUITY
Common Stock, par value $.01-authorized
50,000,000 shares, issued and
outstanding 24,578,000
at March 28, 1998 and 24,518,000 shares at
June 28, 1997 246 245
Additional paid-in capital 165,129 164,811
Retained earnings 12,949 60,311
SHAREHOLDERS' EQUITY 178,324 225,367
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $522,323 $557,940
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
(In thousands, except per share data)
Net sales $ 121,516 $ 133,731 $ 385,585 $ 382,259
Cost of goods sold 97,601 108,168 314,786 309,596
Gross profit on sales 23,915 25,563 70,799 72,663
Selling, general and
administrative expenses 15,360 12,587 43,646 39,230
Other expense (income) (101) (240) (101) (1,543)
Restructuring charge 8,895 8,895
Operating profit (loss) (239) 13,216 18,359 34,976
Interest expense, net 5,590 6,059 17,526 17,166
Interest (income) (132) (196) (295) (532)
5,458 5,863 17,231 16,634
Income (loss) from continuing
operations before income taxes (5,697) 7,353 1,128 18,342
Income taxes expense (benefit) (1,424) 2,831 282 7,062
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (4,273) $ 4,522 $ 846 $ 11,280
(Loss) on disposal of discontinued
operations less applicable
income taxes (37,042) (37,042)
(Loss) from operations of
discontinued businesses
less applicable income taxes (4,302) (1,914) (9,325) (4,511)
(Loss) from discontinued
operations (41,344) (1,914) (46,367) (4,511)
NET INCOME (LOSS) $ (45,617) $ 2,608 $ (45,521) $ 6,769
Basic and diluted earnings
(loss) per share:
Continuing operations $ (0.17) $ 0.18 $ 0.03 $ 0.46
Discontinued Operations $ (1.68) $ (0.08) $ (1.89) $ ( 0.18)
Net earnings (loss) $ (1.86) $ 0.11 $ (1.85) $ 0.28
Dividends per share $ .025 $ .000 $ .075 $ .000
Weighted average shares
outstanding 24,574 24,515 24,573 24,512
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
March 28, March 29,
1998 1997
(In thousands)
OPERATING ACTIVITIES
Net income (loss) $ (45,521) $ 6,769
Adjustments to reconcile net income to
cash provided by operating activities:
Discontinued operations 22,351 1,376
Depreciation 21,248 15,284
Amortization 1,484 1,142
Write down of goodwill 7,459
Other (946) 1,882
Changes in operating assets and liabilities 12,882 (6,932)
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,957 19,521
INVESTING ACTIVITIES
Property, plant and equipment purchases (8,056) (16,939)
Net investing activities of discontinued
operations (2,147) (947)
Other 556 2,089
NET CASH (USED) BY INVESTING ACTIVITIES (9,647) (15,797)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 206,755 14,904
Payments on revolving lines of credit (349,255) (27,096)
Proceeds from long-term debt 145,688 6,942
Scheduled payments of long-term debt (510) (276)
Dividends paid (1,843)
Other (1,970) (78)
NET CASH (USED) BY FINANCING ACTIVITIES (1,135) (5,604)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,175 (1,880)
Cash and cash equivalents at beginning of period 2,696 6,271
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,871 $ 4,391
See notes to condensed consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 28, 1998
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 March 28,
1998 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. Certain amounts for fiscal
1997 have been reclassified to conform to the fiscal 1998
presentation.
NOTE B-OPERATIONS BY INDUSTRY SEGMENT
Effective for the fiscal year ending June 27, 1998, the Company has
adopted the segment reporting provisions of Financial Accounting
Standard 131. This standard requires the Company to report segment
information for divisions which engage in business activity, whose
operating results are regularly reviewed by the chief operating
officer. The Company has three segments in continuing operations:
Delta Mills Marketing Company, Delta Apparel and Duck Head Apparel.
Delta Mills Marketing Company manufactures and sells woven fabrics
for apparel and home furnishing manufacturers. Delta Apparel
manufactures and sells T-shirts, fleece goods, and sportswear.
Duck Head Apparel manufactures and sells casual apparel under the
brand name "Duck Head" to department stores and specialty
retailers. Operating profit does not include interest expense or
interest income. The Company also has two segments which are
presented as discontinued operations: Stevcoknit Fabrics Company
and Nautilus International. Stevcoknit Fabrics Company
manufactures and sells knitted fabrics, and Nautilus International
manufactures and sells fitness equipment.
Three Months Ended Nine Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
Net Sales
Delta Mills Marketing Company
Unaffiliated customers $ 74,323 $ 82,589 $248,025 $240,728
Intersegment 155 191 5
74,478 82,589 248,216 240,733
Delta Apparel
Unaffiliated customers 25,526 28,850 74,370 82,413
Intersegment 20 83 404
25,526 28,870 74,453 82,817
Duck Head Apparel
Unaffiliated customers 21,567 22,164 62,688 58,768
Intersegment 140
21,567 22,164 62,688 58,908
Eliminations and other
Unaffiliated customers 100 128 302 350
Intersegment (155) (20) (274) (549)
55 108 28 (199)
Total net sales $121,516 $133,731 $385,585 $382,259
Operating Profit(Loss):
Delta Mills Marketing Company $ 9,930 $ 12,549 $ 33,949 $ 34,574
Delta Apparel (7,469) 30 (14,281) 398
Duck Head Apparel (2,626) 362 (1,211) (285)
Other (74) 275 (98) 289
Total Operating Profit (Loss) (239) 13,216 18,359 34,976
Interest expense 5,590 6,059 17,526 17,166
Interest (income) (132) (196) (295) (532)
Income (Loss)from
Continuing Operations
Before Income Taxes $ (5,697) $ 7,353 $ 1,128 $ 18,342
March 28, June 28,
1998 1997
Identifiable Assets:
Delta Mills Marketing Company $234,127 $249,637
Delta Apparel 104,554 120,500
Duck Head Apparel 87,505 84,218
Discontinued operations 77,371 97,553
Corporate and other 18,766 6,032
Total identifiable assets $522,323 $557,940
Nine Months Ended
March 28, March 29,
1998 1997
Depreciation and Amortization:
Delta Mills Marketing Company $ 7,945 $ 7,488
Delta Apparel 18,104 5,680
Duck Head Apparel 3,005 2,548
Discontinued Operations 14,170 5,663
Other 1,131 710
Total depreciation and
amortization $ 44,355 $ 22,089
Capital Expenditures:
Delta Mills Marketing Company 354 8,992
Delta Apparel 914 2,104
Duck Head Apparel 6,173 2,270
Discontinued Operations 2,478 1,090
Other 29 84
Total capital expenditures $ 9,948 $ 14,540
NOTE B-OPERATIONS BY INDUSTRY SEGMENT--Continued
Intersegment sales are at prices comparable to unaffiliated
customer sales. Intersegment operating profit related to
intersegment sales is not significant. Operating profit is total
revenue less operating expenses, excluding interest expense and
interest income. During the third quarter of fiscal 1998, Delta
Apparel took a $7.5 million impairment charge to write-off
goodwill, and Duck Head Apparel recognized a charge of $1.4 million
primarily associated with the closing of certain retail stores.
Depreciation and amortization include certain write-downs of
property, equipment and goodwill. Identifiable assets are those
assets that are used in the operations of each segment. Corporate
and other identifiable assets include deferred loan costs of $5.4
million and cash of $8.9 million at March 28, 1998.
NOTE C-DISCONTINUED OPERATIONS
On March 3, 1998, the Company made the decision to close its
Stevcoknit Fabrics division and to sell its Nautilus International
division (fitness equipment). Accordingly, operating results for
those segments have been reclassified and reported as discontinued
operations. The Company is selling the assets of the Stevcoknit
division, and has retained a firm to sell the Nautilus
International fitness equipment business. The Company expects to
complete disposition of these businesses during calendar year 1998.
In connection with the decision to discontinue these businesses,
the Company has recognized a loss on disposal of discontinued
operations of $37 million including a provision of $8.0 million for
losses during the phase-out period and an income tax benefit of
$1.2 million. The Company believes that it will recover the net
book value of the assets of the Stevcoknit division. However, at
the present time, the Company does not have appraisals or other
evidence suggesting a fair-market value for the Nautilus
International fitness equipment business. At March 28, 1998,
fitness equipment division assets included accounts receivable,
inventory, property and intangibles with a net book value of $6.1
million, $4.8 million, $11.8 million and $11.0 million,
respectively. The amount the Company will ultimately realize from
the sale of the fitness equipment division could differ materially
from the carrying value of the business.
The assets of discontinued businesses at March 28, 1998 and June
28, 1998, are as follows:
March 28, 1998 June 28, 1997
Accounts Receivable $ 23,177 $ 24,504
Inventory 19,536 26,396
Other current assets 274 274
Total current assets 42,987 51,174
Property, plant and equipment
net of accumulated
depreciation 23,426 34,903
Intangibles 10,958 11,476
Total Assets $ 77,371 $ 97,553
NOTE C-DISCONTINUED OPERATIONS--Continued
Summarized results of operations for discontinued businesses are as
follows:
Three Months Ended Nine Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
Net Sales $ 25,361 $ 30,142 $ 87,794 $ 88,806
Cost and expenses 28,332 34,118 97,432 98,580
(Loss) before income taxes (2,971) (3,976) (9,638) (9,774)
Income tax expense (benefit) 1,331 (2,062) (313) (5,263)
(Loss) from discontinued
operations $ (4,302)$ (1,914) $ (9,325) $ (4,511)
NOTE D-DEBT
On August 25, 1997, a subsidiary of the Company that conducts the
Company's textile 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. Deferred loan costs in connection with the new
debt led to an increase in other assets.. For additional
information on the refinancing, see Note D to the Company's
financial statements for the year ended June 28, 1997.
Due to the restructuring and impairment charges made to income related to
discontinued operations in the most recent quarter, the Company was in
violation of two covenants of the revolving loan credit agreement between its
Delta Mills, Inc. subsidiary and the four financial institutions
participating in the credit agreement. The Company has secured waivers to
the credit agreement providing for a grace period of three months. During
that period the Company expects to reach agreement to amend the covenants so
that the Company will be in compliance. Pending receipt of the
amendment the $68 million outstanding has been classified as
current in the accompanying financial statements.
The Company has replaced its $20 million revolving credit facility
with a $30 million (subject to borrowing base limitations)
revolving credit facility as of May 7, 1998. This new facility is
backed by certain accounts receivable and inventory of Delta
Apparel, Duck Head Apparel and Nautilus International. This
credit facility has a term of one year and carries an interest
rate that is two percentage points above the London Interbank
Borrowing Rate.
NOTE E-INCOME TAXES
The effective income tax rate for the nine months ended March 28,
1998 is 3%, compared to 21% for the fiscal year ended June 28,
1997. The tax benefit rate is lower than the income tax expense
rate in previous year, because of an increase in the valuation
allowance against deferred tax assets. Net losses generated more
deferred tax assets in the current year than the Company is able to
recognize.
NOTE F-EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128. The statement requires companies to present
basic and diluted earnings per share. Common stock equivalents are
approximately .1% of weighted average shares outstanding for the
periods presented, and do not affect the calculation of earnings per share.
These common stock equivalents are attributable to the stock option
plan where the options have vested, but have not yet been
exercised.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective for the fiscal year ending June 27, 1998, the Company has
adopted the segment reporting provisions of Financial Accounting
Standard 131. This standard requires the Company to report segment
information for divisions whose operating results are regularly
reviewed by the chief operating officer. The Company has three
segments in continuing operations: Delta Mills Marketing Company,
Delta Apparel and Duck Head Apparel. Delta Mills Marketing Company
manufactures and sells woven fabrics for apparel and home
furnishing manufacturers. Delta Apparel manufactures and sells T-
shirts, fleece goods, and sportswear. Duck Head Apparel
manufactures and sells casual apparel under the brand name "Duck
Head" to department stores and specialty retailers. Operating
profit does not include interest expense or interest income. The
Company also has two segments which are presented as discontinued
operations: Stevcoknit Fabrics Company and Nautilus International.
Stevcoknit Fabrics Company manufactures and sells knitted fabrics,
and Nautilus International manufactures and sells fitness
equipment.
Net sales for the third quarter ended March 28, 1998 were $121.5
million as compared to net sales of $133.7 million in the quarter
ended March 29, 1997. Net loss from continuing operations in the
quarter ended March 28, 1998 was $4.3 million, or $.17 per share,
as compared to net income from continuing operations of $4.5
million, or $.18 per share, in the quarter ended March 29, 1997.
The net loss from continuing operations for the most recent quarter
included pre-tax charges of $8.9 million related to impairment of
goodwill at Delta Apparel and restructuring reserves established at
Duck Head Apparel.
Net loss in the quarter ended March 28, 1998 was $45.6 million, or
$1.86 per share, as compared to net income of $2.6 million, or $.11
per share in the quarter ended March 29, 1997. During the quarter
ended March 28, 1998, the Company made the decision to close its
Stevcoknit Fabrics division and to sell its Nautilus International
division.
In connection with the decision to discontinue these businesses,
the Company has recognized a loss on disposal of discontinued
operations of $37 million including a provision of $8.0 million for
losses during the phase-out period and an income tax benefit of
$1.2 million. The Company believes that it will recover the net
book value of the assets of the Stevcoknit division. However, at
the present time, the Company does not have appraisals or other
evidence suggesting a fair-market value for the Nautilus
International fitness equipment business. At March 28, 1998,
fitness equipment division assets included accounts receivable,
inventory, property and intangibles with a net book value of $6.1
million, $4.8 million, $11.8 million and $11.0 million,
respectively. The amount the Company will ultimately realize from
the sale of the fitness equipment division could differ materially
from the carrying value of the business.
Consolidated gross profit margin from continuing operations was 20%
in the most recent quarter as compared to gross profit margin from
continuing operations of 19% in the same quarter of last fiscal
year. Consolidated operating loss in the quarter ended March 28,
1998 was $.2 million as compared to a consolidated operating profit
from continuing operations of $13.2 million for the quarter ended
March 29, 1997. A discussion of the comparable differences in sales
volume, operating margin, and operating profit will be found in the
segment discussions that follow.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Sales at Delta Mills Marketing Company for the most recent quarter
declined $8.3 million from the comparable quarter of fiscal 1997.
Principal reasons for the decline in sales were substantially fewer
units of unfinished fabrics and fewer units of cotton menswear
fabrics being shipped in the most recent quarter.
The fewer units of menswear shipments were due to deferments of
shipments from some of the division's garment manufacturing
customers. The Company believes that these deferments were caused
by retailers' adjustments to inventories arising from slower than
anticipated retail demand for clothing during the winter. These
deferred shipments have now been ordered shipped by the division's
customers. Despite lower sales volume, gross margin remained level
with the comparable quarter of last fiscal year. Operating profits
declined by $2.6 million, due principally to the lower volume being
shipped. For the nine months ended March 28, 1998, sales of Delta
Mills Marketing were 3% higher than for the comparable period of
last fiscal year. Gross margins and operating profits were
substantially the same in the most recent nine month period as
compared to the first nine months of the prior fiscal year.
Sales at Delta Apparel declined $3.3 million in the most recent
quarter, compared to the same quarter in the prior fiscal year.
This decline in sales was due both to lower unit prices and to
fewer units being shipped than in the same quarter of last fiscal
year. Gross profit margin improved by 7% in the most recent
quarter due principally to improved operating efficiencies.
Operating profits before impairment charges were breakeven as
compared to breakeven in the comparable quarter of the prior fiscal
year. During the current quarter, the Company determined that the
goodwill related to the prior acquisition of an entity, a portion
of which is included in the assets of Delta Apparel, was impaired.
A charge of $7.5 million was taken in the current fiscal quarter to
write off this goodwill. Reported operating loss, including this
impairment charge, was $7.5 million in the quarter ended March 28,
1998. Sales for the nine months ended March 28, 1998 were 10% lower
than in the same period of last fiscal year, due principally to
lower unit prices for products shipped in the most recent nine
month period. Gross profits in the most recent nine month period
were $4.6 million lower than in the comparable period of the prior
fiscal year due principally to higher cost inventory being shipped
during the first six months of the current fiscal year coupled with
lower unit billing prices. Operating losses at Delta Apparel for
the nine months ended March 28, 1998 totaled $14.3 million as
compared to operating profit of $.4 million for the comparable
period of last fiscal year, due principally to lower sales volume,
lower gross margin, and the impairment charge discussed elsewhere
in this document in the current fiscal year.
Sales at Duck Head Apparel declined $ .6 million in the most recent
quarter, compared to the same quarter of the prior fiscal year.
Sales of Duck Head products to retailers increased slightly over
the comparable quarter of the prior fiscal year. But sales through
the division's retail outlet stores declined due to the division
having fewer stores in operation during the most recent fiscal
quarter as compared to the same fiscal quarter of the prior year.
Gross profit margins declined 5% in the latest quarter due
principally to higher unfavorable manufacturing variances as the
division operated its manufacturing facilities at a rate well below
capacity as part of its inventory reduction program. In addition,
sales through the division's retail outlet stores, which normally
carry a higher gross margin than sales to retailers, were lower in
the latest quarter than in the same quarter of the prior fiscal
year as noted above. During the quarter ended March 28, 1998, the
Duck Head division booked restructuring charges of $1.4 million
related to the closing of two of its sewing plants in
The Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
Costa Rica and for closing additional retail outlet stores.
Operating losses before these restructuring charges were $1.2
million as compared to an operating profit of $ .4 million in the
quarter ended March 29, 1997, due principally to sales volume being
lower than required to absorb selling and overhead expenses.
Reported operating loss, including these restructuring charges, was
$2.6 million in the most recent quarter. Duck Head Apparel's sales
for the nine months ended March 28, 1998 were 7% higher than in the
same period of the prior fiscal year, due principally to more units
being shipped in the current fiscal year. Gross margins were
substantially the same in both periods.
The operating loss at Duck Head Apparel was $.9 million higher
after nine months of the current fiscal year than in the same
period of last fiscal year, due principally to the $1.4 million
restructuring charge taken in the latest fiscal quarter and
discussed elsewhere in this document.
The Company's order backlog for continuing operations at March 28,
1998 was $159.3 million as compared to order backlog for continuing
operations of $167.7 million at March 29, 1997. Order backlog was
lower at Delta Mills Marketing Company and higher at Delta Apparel
and Duck Head Apparel.
Consolidated inventories of continuing operations totaled $132.2
million at March 28, 1998 as compared to $133.8 million at June 27,
1997. Inventories at the woven textile segment were higher, and
inventories at both the knitted apparel for printing and the Duck
Head branded apparel segment were lower at March 28, 1998 than at
June 27, 1997.
The Company's effective income tax rate for the nine months ended
March 28, 1998 is 3%, compared to 21% for the fiscal year ended
June 28, 1997. The tax benefit rate is lower than the income tax
expense rate in the previous year, because of an increase in the
valuation allowance against deferred tax assets. Net losses
generated more deferred tax assets in the current year than the
Company is able to recognize.
Due to the restructuring and impairment charges made to income
related to discontinued operations in the most recent quarter, the
Company was in violation of two covenants of the revolving loan
credit agreement between its Delta Mills, Inc. subsidiary and the
four financial institutions participating in the credit agreement. The
Company has secured waivers to the credit agreement providing for a grace
period of three months. During that period the Company expects to reach
agreement to amend the covenants so that the Company will be in compliance.
Pending receipt of the amendment the $68 million outstanding has been
classified as current in the accompanying financial statements.
The Company has replaced its $20 million revolving credit facility
with a $30 million (subject to borrowing base limitations) revolving credit
facility as of May 11, 1998. This new facility is backed by certain accounts
receivable and inventory of Delta Apparel, Duck Head Apparel and Nautilus
International. This new revolving credit facility has a term of one
year and carries an interest rate that is two percentage points
above the London Interbank Borrowing Rate.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
The Company believes that cash flow generated by its operations and
funds available under its current credit facilities will be
sufficient to service its debt, to satisfy its day-to-day
working capital requirements, to pay dividends, and to fund its
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
Date of Amount of Class of Nature of
Issuance Common Persons Transaction
Stock
August 20, 1997 50 Employees Service Awards
October 6, 1997 50 Employees Service Awards
January 1, 1998 100 Employees Service Awards
January 14, 1998 200 Employees Service Awards
January 28, 1998 150 Employees Service Awards
January 29, 1998 100 Employees Service Awards
February 17, 1998 200 Employees Service Awards
February 18, 1998 400 Employees Service Awards
February 23, 1998 100 Employees Service Awards
March 2, 1998 200 Employees Service Awards
March 5, 1998 300 Employees Service Awards
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
4.2.7 Amendment and Waiver Agreement dated as of May 11,
1998 respecting Credit Agreement dated as of
August 25, 1997
(b) The Company filed Form 8-K with date of March 9, 1998
Item 5: Other Events.
Items 1, 3, 4 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 May 18, 1998 /s/Robert W. Humphreys
Vice President - Finance
FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT
THIS FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this
"Amendment"), dated as of May 11, 1998, is entered into by and
among Delta Mills, Inc. (the "Borrower"), the guarantors
identified as such on the signature pages attached hereto (the
"Guarantors;" collectively, the Borrower and the Guarantors are
referred to as the "Credit Parties"), the lenders identified as
such on the signature pages hereto (the "Lenders"), NationsBank,
N.A., as Administrative Agent (the "Administrative Agent") for
the Lenders, and BNY Financial Corporation, as Collateral Agent
(the "Collateral Agent") for the Lenders. Terms used but not
otherwise defined herein shall have the meanings provided in the
Amended Credit Agreement (as defined below).
RECITALS
A. The Borrower, the Guarantors, the Lenders, the
Administrative Agent and the Collateral Agent entered into that
certain Credit Agreement dated as of August 25, 1997 (the
"Existing Credit Agreement").
B. The Lenders have agreed to execute and deliver this
Amendment on the terms and conditions set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
PART I
DEFINITIONS
SUBPART 1.1 General Definitions. Unless otherwise defined
herein or the context otherwise
requires, terms used in this Amendment, including the preamble
and recitals, have the meanings provided in the Existing Credit
Agreement.
SUBPART 1.2 Certain Definitions. Unless the context
otherwise requires, the following
terms used in this Amendment shall have the indicated
definitions:
"Amended Credit Agreement" means the Existing Credit
Agreement as amended hereby.
"Amendment No. 1 Effective Date" has the meaning ascribed to
such term in Part 5.1 of
this Amendment.
"Mickel Plant" means the Mickel manufacturing facility
located in Spartanburg, South Carolina.
"Mickel Plant Disposition" means the Asset Disposition
involving the Mickel Plant pursuant to the Sale Agreement.
"Sale Agreement" means, that certain agreement among the
Borrower and Ameritex Yarn, LLC providing for the sale of the
Mickel Plant by the Borrower to Ameritex Yarn, LLC for an
aggregate purchase price of $6,000,000.
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Section 7.11(d) of the Existing Credit Agreement is
hereby amended and restated to read as follows:
7.11 Financial Covenants.
*******
(d) Consolidated Tangible Net Worth. At all times the
Consolidated Tangible Net Worth shall be greater than or
equal to:
(i) for the period from the Closing Date to and
including the next to last day of the third fiscal
quarter of fiscal year 1998 of the Consolidated
Parties, $50,000,000;
(ii) for the period from the last day of the third
fiscal quarter of fiscal year 1998 to and including the
next to last day of fiscal year 1998 of the
Consolidated Parties, $27,000,000;
(iii) for the period from the last day of fiscal
year 1998 to and including the next to last day of
fiscal year 1999 of the Consolidated Parties,
$60,000,000;
(iv) for the period from the last day of fiscal
year 1999 to and including the next to last day of
fiscal year 2000 of the Consolidated Parties,
$75,000,000;
(v) for the period from the last day of fiscal
year 2000 to and including the next to last day of
fiscal year 2001 of the Consolidated Parties,
$90,000,000;
(vi) for the period from the last day of fiscal
year 2001 to and including the next to last day of
fiscal year 2002 of the Consolidated Parties,
$105,000,000; and
(vii) for the period from the last day of fiscal
year 2002 and thereafter, $120,000,000.
PART III
WAIVERS
SUBPART 3.1. Waiver of Defaults. The Required Lenders
hereby (i) waive the requirements of Sections 7.11(a),
7.11(b) and 7.11(c) of the Credit Agreement for March 28,
1998 and waive the requirement of Section 7.11(d) of the
Credit Agreement for the period from March 28, 1998 through
the Amendment No. 1 Effective Date and (ii) agree that the
Borrower's failure to observe the covenants of Sections
7.11(a), 7.11(b) and 7.11(c) for March 28, 1998 and the
covenant of Section 7.11(d) for the period from March 28,
1998 through the Amendment No. 1 Effective Date shall not
constitute an Event of Default under Section 9.1 of the
Credit Agreement.
SUBPART 3.2. Waiver of Certain Requirements of Section
8.5. With respect to the Mickel Plant Disposition, the
Required Lenders hereby waive (i) the requirement set forth
in clause (d) of Section 8.5 of the Existing Credit
Agreement and (ii) the requirement that the Borrower deliver
a certificate with respect to the Mickel Plant Disposition
at least 30 days prior to such Asset Disposition as provided
in clause (f) of Section 8.5 of the Existing Credit
Agreement. This waiver shall not be construed as a waiver of
such conditions with respect to any other Asset Disposition.
PART IV
REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES
. Each Credit Party hereby represents and warrants to the
Administrative Agent and to each Lender that:
(i) each of the representations and
warranties of the Borrower contained in the Amended
Credit Agreement or in any other Credit Document is
true as of the date hereof (after giving effect to this
Amendment);
(ii) after giving effect to this Amendment, no
Default or Event of Default exists and is continuing
under the Amended Credit Agreement;
(iii) since the date of the last financial
statements of the Borrower delivered to Lenders, no
material adverse change has occurred in the business,
financial condition, operations or prospects of the
Consolidated Parties other than as previously disclosed
to the Lenders; and
(iv) no consent, approval, authorization or order
of , or filing, registration or qualification with, any
court or governmental authority or third party is
required in connection with the execution, delivery or
performance by such Person of this Amendment.
PART V
CONDITIONS TO EFFECTIVENESS
SUBPART 5.1. Effective Time of Amendment. This Amendment
shall be and become effective as of the first Business Day upon
which each of the conditions set forth in this Subpart 5.1 shall
have been completed to the satisfaction of the Administrative
Agent and the Lenders (the "Amendment No. 1 Effective Date").
SUBPART 5.1. Execution of Amendment. The Administrative
Agent shall have received counterparts (or other evidence of
execution, including telephonic message, satisfactory to the
Administrative Agent) of the due execution of this Amendment on
behalf of the Credit Parties and each of the Lenders.
SUBPART 5.2. Amendment Fees. The Administrative Agent shall
have received from the Borrower, on the Amendment No. 1 Effective
Date, for the account of each Lender, in immediately available
funds, an amendment fee of 0.05% of each Lender's Commitment.
SUBPART 5.3. Other Documents. The Administrative Agent
shall have received such other documents relating to the
transactions contemplated hereby as the Administrative Agent or
counsel to the Administrative Agent may reasonably request of the
Borrower in writing on or before the Amendment No. 1 Effective
Date.
SUBPART 5.4. Expenses of Administrative Agent. The
Borrower shall have reimbursed the Administrative Agent for all
reasonable out-of-pocket expenses of the Administrative Agent ,
including without limitation, all reasonable fees and expenses of
its attorneys, incurred in connection with the negotiation,
preparation or execution of this Amendment as well as expenses
incurred by the Administrative Agent (or the Collateral Agent) to
release any Collateral in connection with the Mickel Plant
Disposition.
SUBPART 5.5. Receipt of Sale Agreement. The Administrative
Agent shall have received an executed copy of the Sale Agreement
in form and substance reasonably satisfactory to the
Administrative Agent.
PART VI
MISCELLANEOUS
SUBPART 6.1 Further Assurances. As soon as practicable
after receipt of a written request from the Administrative Agent,
and in any event not later than 30 days from the date such
request is received by the Borrower, the Credit Parties shall
cause to be delivered to the Administrative Agent, in form and
content reasonably satisfactory to the Administrative Agent, all
documents or other instruments incident to the transactions
contemplated by this Agreement in the reasonable judgment of the
Administrative Agent.
SUBPART 6.2. Receipt of Certificate. The Administrative
Agent shall have received at least 15 days prior to the date of
the Mickel Plant Disposition a certificate as described in clause
(f) of Section 8.5 of the Amended Credit Agreement.
SUBPART 6.3. References. References in this Amendment to
any Part or Subpart are, unless otherwise specified, to such Part
or Subpart of this Amendment. As of the Amendment No. 1
Effective Date, all references in the Credit Documents to the
"Credit Agreement" shall be deemed to refer to such document as
amended by this Amendment.
SUBPART 6.4. Counterparts. This Agreement may be executed
by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which constitute
together one and the same agreement.
SUBPART 6.5. Governing Law. This Amendment shall be deemed
to be a contract made under and governed by the internal laws and
judicial decisions of the State of North Carolina without giving
effect to the conflict of law principles thereof.
SUBPART 6.6. Successors and Assigns. This Amendment shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SUBPART 6.7. Entire Agreement. The Amended Credit
Agreement, this Amendment, and the other Credit Documents, as
amended hereby, constitute the entire contract among the parties
relative to the subject matter hereof.
SUBPART 6.8. No Other Changes. Except as expressly
modified and amended in this Agreement, all of the terms,
provisions and conditions of the Credit Documents shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
BORROWER: DELTA MILLS, INC.,
a Delaware corporation
By: /s/ Bettis C. Rainsford
Name: Bettis C. Rainsford
Title: Executive Vice President, Treasurer
and Chief Financial Officer
GUARANTOR: DELTA MILLS MARKETING, INC.,
a Delaware corporation
By: /s/ Bettis C. Rainsford
Name: Bettis C. Rainsford
Title: Executive Vice President, Treasurer
and Chief Financial Officer
[Signatures Continued]
LENDERS: NATIONSBANK, N.A., individually as a
Lender and in its capacity as Administrative Agent
By: /s/ E. Phifer Helms
Name: E. Phifer Helms
Title: Senior Vice President
BNY FINANCIAL CORPORATION, individually
as a Lender and in its capacity as Collateral
Agent
By: /s/ Frank Desparato
Name: Frank Desparato
Title: Vice President
GENERAL ELECTRIC
CAPITAL CORPORATION
By: /s/Elaine L. Moore
Name: Elaine L. Moore
Title: Senior Vice President
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND",
NEW YORK BRANCH
By: /s/Theodore W. Cox
Name: Theodore W. Cox
Title: Vice President
By: /s/W. Jeffrey Vollack
Name: W. Jeffrey Vollack
Title: Senior Credit Officer
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal quarter
ended March 28, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> MAR-28-1998
<CASH> 10,871
<SECURITIES> 0
<RECEIVABLES> 104,852
<ALLOWANCES> 2,638
<INVENTORY> 132,177
<CURRENT-ASSETS> 305,403
<PP&E> 280,127
<DEPRECIATION> 119,093
<TOTAL-ASSETS> 522,323
<CURRENT-LIABILITIES> 161,800
<BONDS> 157,134
0
0
<COMMON> 246
<OTHER-SE> 178,078
<TOTAL-LIABILITY-AND-EQUITY> 522,323
<SALES> 385,585
<TOTAL-REVENUES> 385,585
<CGS> 314,786
<TOTAL-COSTS> 358,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 17,526
<INCOME-PRETAX> (1,128)
<INCOME-TAX> 282
<INCOME-CONTINUING> 846
<DISCONTINUED> (46,367)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,521)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
