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 September 26, 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-- 24,164,850 shares as of November 5, 1998
DELTA WOODSIDE INDUSTRIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
September 26, 1998 and June 27, 1998 3-4
Condensed consolidated statements of operations--
Three months ended September 26, 1998 and
September 27, 1997 5
Condensed consolidated statements of cash flows
Three months ended September 26, 1998
and September 27, 1997 6
Notes to condensed consolidated financial
statements-September 26, 1998 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
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 Use 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 11
SIGNATURES 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 26, June 27,
ASSETS 1998 1998
(Unaudited)
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $4,587 $2,753
Accounts receivable:
Factor 77,597 81,256
Customers 33,808 41,253
___________ ___________
111,405 122,509
Less allowances for doubtful accounts and returns 3,326 3,309
___________ ___________
108,079 119,200
Inventories
Finished goods 53,408 52,219
Work in process 50,752 48,814
Raw materials and supplies 14,847 12,925
___________ ___________
119,007 113,958
Current assets of discontinued operations 13,919 25,797
Deferred income taxes 228 861
Prepaid expenses and other current assets 4,521 2,962
___________ ___________
TOTAL CURRENT ASSETS 250,341 265,531
PROPERTY, PLANT AND
EQUIPMENT, at cost 283,621 288,300
Less accumulated depreciation 122,068 123,537
___________ ___________
161,553 164,763
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS 13,046 22,323
OTHER ASSETS 22,222 21,425
___________ ___________
$447,162 $474,042
DELTA WOODSIDE INDUSTRIES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
September 26, June 27,
1998 1998
(Unaudited)
(In thousands)
LIABILITIES
CURRENT LIABILITIES
Short-term bank debt $6,450 $11,108
Trade accounts payable 32,069 41,592
Accrued and sundry liabilities 22,808 31,337
Accrued restructuring charges 6,657 10,123
Current portion of long-term debt 617 610
___________ ___________
TOTAL CURRENT LIABILITIES 68,601 94,770
LONG-TERM DEBT 181,748 183,535
DEFERRED INCOME TAXES 5,578 3,716
OTHER LIABILITIES AND DEFERRED
CREDITS 8,583 12,454
SHAREHOLDERS' EQUITY
Common Stock -- par value $ 01 a share -- authorized
50,000,000 shares, issued and outstanding
24,649,000 shares September 26, 1998 and
24,644,000 shares June 27, 1998 246 246
Additional paid-in capital 165,265 165,221
Retained earnings 17,141 14,100
___________ ___________
182,652 179,567
COMMITMENTS AND CONTINGENCIES
$447,162 $474,042
___________ ___________
___________ ___________
DELTA WOODSIDE INDUSTRIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three months Ended
September 26, September 27,
1998 1997
Net sales $130,622 $139,142
Cost of goods sold 102,271 113,925
___________ ___________
Gross profit 28,351 25,217
Selling, general and administrative expenses 14,376 14,429
Other income (expense) (98) 9
___________ ___________
OPERATING PROFIT 14,073 10,779
Interest (expense) income:
Interest expense 4,911 6,306
Interest (income) (53) (84)
___________ ___________
4,858 6,222
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 9,215 4,557
Income tax expense 1,166 1,139
___________ ___________
INCOME FROM CONTINUING
OPERATIONS 8,049 3,418
(Loss) on disposal of discontinued
operations less applicable income taxes ($4,394)
(Loss) from operations of discontinued
operations less applicable income taxes ($2,752)
___________ ___________
NET INCOME $3,655 $666
___________ ___________
___________ ___________
Basic and diluted earnings (loss) per share:
Continuing operations $0.33 $0.14
Discontinued operations (0.18) (0.11)
___________ ___________
Net earnings (loss) $0.15 $0.03
___________ ___________
___________ ___________
Weighted average number
of shares outstanding 24,657 24,571
___________ ___________
___________ ___________
See notes to consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) Three Months
Ended
September 26, September 27,
1998 1997
OPERATING ACTIVITIES
Net income (loss) $3,655 $666
Adjustments to reconcile net income to net
cash provided by operating activities:
Discontinued operations 19,532 (670)
Depreciation 5,191 5,385
Amortization 47 546
Other 3,009 433
Changes in operating assets and liabilities: (23,577) (1,974)
___________ ___________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,857 4,386
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (1,509) (1,908)
Proceeds of dispositions 1,037 276
Investing activities of discontinued operations 1,421 (1,287)
Other 117
___________ ___________
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 1,066 (2,919)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 151,930 109,500
Repayments on revolving lines of credit (158,223) (255,000)
Scheduled principal payments of long-term debt (145) (203)
Proceeds from issuance of long-term debt 145,688
Dividends paid (616) (614)
Other (35) (1,109)
___________ ___________
NET CASH (USED) BY
FINANCING ACTIVITIES (7,089) (1,738)
___________ ___________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,834 (271)
Cash and cash equivalents at beginning of year 2,753 2,696
___________ ___________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $4,587 $2,425
___________ ___________
___________ ___________
See notes to consolidated financial statements
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) September 26, 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 months ended September
26, 1998 are not necessarily indicative of the results that may be
expected for the year ending July 3, 1999. 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 27, 1998.
NOTE B--DISCONTINUED OPERATIONS
On March 3, 1998, the Company made the decision to close its
Stevcoknit Fabrics division and sell its Nautilus International
division (fitness equipment). The Company expects to complete
disposition of these businesses during the second quarter of fiscal
year 1999. During the first quarter of fiscal 1999, the Company
recognized additional impairment charges of $4.4 million to reduce the
carrying value of the assets of discontinued operations. The amount
the Company will ultimately realize from the liquidation of the
Stevcoknit Fabrics division and the sale of the fitness equipment
division could differ materially from the carrying value of the assets
of these businesses.
The assets of discontinued businesses at September 26, 1998 and June
27, 1998, are as follows:
September 26, June 27,
(In thousands) 1998 1998
Accounts Receivable $9,428 $19,450
Inventories 4,320 6,104
Other current assets 171 243
_______ _______
Total current ass 13,919 25,797
Property, plant and
equipment net of
accumulated depreciatio 11,169 11,535
Intangibles 1,877 10,788
_______ _______
Total Assets $26,965 $48,120
_______ _______
_______ _______
NOTE B--DISCONTINUED OPERATIONS - Continued
Summarized results of operations for discontinued businesses are as
follows:
Three Months Ended
September 26, September 27,
1998 1997
Net Sales $6,909 $31,544
Cost and expenses 11,910 35,017
_______ _______
(Loss) before income ta (5,001) (3,473)
Income tax (benefit) (607) (721)
_______ _______
(Loss) from discontinued
operations ($4,394) ($2,752)
_______ _______
_______ _______
NOTE C-INCOME TAXES
The effective income tax rate on income from continuing operations for
the three months ended September 26, 1998 is 13%, compared to 25% for
the fiscal year ended June 27, 1998. The Company expects that
earnings for fiscal year 1999 will permit it to reduce the valuation
allowance against deferred tax assets, resulting in a lower effective
income tax rate for fiscal year 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales in the first quarter of fiscal year 1999 were $131 million
as compared to $139 million in the first quarter of the prior fiscal
year, a decrease of 6%. Sales were down in all three business segments.
While sales decreased, gross profit increased to $28 million from $25
million and the gross margin increased to 22% from 18%. The principal
reason for the gross margin improvement was lower-cost raw materials
and improved manufacturing efficiencies, at both Delta Mills Marketing
Company and Delta Apparel.
Operating profits in the current quarter increased to $14 million as
compared to $11 million in the same quarter of the prior fiscal year.
This improvement was due to the gross margin improvements described
above and to selling, general and administrative costs remaining level
compared to the same quarter of the prior fiscal year.
Income from continuing operations increased to $8.0 million in the
current quarter as compared to $3.4 million in the same quarter of the
prior fiscal year. The increase is attributable to the increase in
operating profits and a decrease in interest expense due to lower debt
levels, along with a decrease in the effective tax rate. On a per
share basis, earnings from continuing operations for the current
quarter were $.33 on 24,657,000 average shares outstanding as compared
to $.14 per share on the 24,571,000 average shares outstanding in the
same quarter of the prior fiscal year.
The Company recognized a net loss of $4.4 million in discontinued
operations during the current quarter, which included the recognition
of a reduction in the estimated net proceeds from the anticipated sale
of Nautilus, and a reduction in the estimated costs to close the
Stevcoknit Fabrics operation.
Net income in the latest quarter was $3.7 million or $.15 per share as
compared to net income of $.7 million or $.03 per share in the same
quarter of the prior fiscal year.
Delta Mills Marketing Company which manufactures and sells finished
and unfinished woven fabrics had another good quarter. Operating
profits were slightly ahead of the same quarter of the prior fiscal
year while sales declined 6% to $83 million, as a result of a decline
in sales of unfinished (greige) fabrics, and a decline in sales of
finished fabric to government accounts. Gross margins increased as
the business continues to benefit from the modernization program
completed during fiscal 1997; gross margins have also improved as a
result of lower raw material costs. This business remains good with
the exception of the unfinished fabrics portion of the business which
is operating at reduced running schedules. This market represents
less than 10% of the division's sales, and their production is being
shifted to alternative end markets.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Delta Apparel, the Company's T-shirt and fleece apparel division,
experienced a 7% decrease in sales to $25 million in the first quarter
of fiscal year 1999 as compared to the same quarter of the prior
fiscal year. Unit sales were consistent with the prior year, but
market conditions resulted in lower unit sales prices causing the
decline in sales. Gross profit improved as a result of lower raw
material prices and better manufacturing efficiencies. The improvement
in gross profit resulted in an operating profit of $.6 million as
compared to an operating loss of $3.4 million in the same quarter of
the prior fiscal year. As a result of poor conditions in the fleece
business over the past several years, and an abundance of inventory in
the market, the Company has decided to close the fleece manufacturing
plant in Decatur, Tennessee. Although Delta Apparel will remain in
the fleece business, limited inventory requirements will not support
continued operation of the Decatur facility. Fleece products will be
manufactured in the Washington, Georgia facility or in off-shore
facilities. Closure of the Decatur facility is not expected to have
a material impact on the operations of Delta Apparel.
Duck Head Apparel's sales were down 4% to $23 million in the current
quarter as compared to the same quarter of the prior fiscal year.
Sales to retailers increased while sales through the division's outlet
stores declined as a result of recent outlet store closings. Gross
margins declined with the decline in outlet store sales. Lower
selling, general and administrative expenses resulted in operating
profit of $1.5 million as compared to $1.3 million in the same quarter
of the prior fiscal year.
On October 9, 1998, the Board of Directors made the decision to sell
the Duck Head division. Accordingly, the Company is seeking a buyer
who is better positioned to help realize the value that the Company
believes exists in the Duck Head name. The Company expects that
progress in finding a buyer will result in the classification of Duck
Head Apparel as a discontinued operation in the second quarter of
fiscal 1999.
The Stevcoknit liquidation is almost complete and the Company expects
to collect the remaining accounts receivable during the second quarter
of fiscal 1999. The Company is also optimistic that it will close on
the sale of Nautilus International during the second quarter of fiscal
1999.
Order backlogs were down in all segments as the total backlog declined
16% to $129 million at September 26, 1998 as compared to September 27,
1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Inventories increased $5 million to $119 million at September 26, 1998
as compared to inventories at June 27, 1998, but decreased from
inventory levels at September 27, 1997. During the current quarter,
inventories increased at both Delta Mills Marketing and Delta Apparel
while they decreased at Duck Head Apparel.
The Company's effective income tax rate on income from continuing
operations for the quarter September 26, 1998 is 13%, compared to 25%
in the same quarter of the prior fiscal year, and for the fiscal year
ended June 27, 1998. The tax rate is lower than the rate in the
previous year because of an expected reduction in the valuation
allowance on deferred tax assets.
On September 15, 1998, the Company announced a plan to repurchase,
from time to time, up to 2.5 million shares of the Company's
outstanding stock at prices at the discretion of the Company's top
management. Through September 26, 1998, the Company had repurchased
8,800 shares of stock for $34,000.
The Company has a variety of computers and systems that are subject to
Year 2000 issues. The Year 2000 problem arose because many existing computer
programs use only the last two digits to refer to a year. Therefore, these
programs do not properly recognize a year that begins with "20" instead of
the familiar "19". If not corrected, many computer applications could fail,
or cause erroneous results. The Company has considered the impact of Year
2000 issues on the Company's computer information systems and other
equipment that use embedded technology such as micro-controllers, and has
developed a remediation plan. The Company's Year 2000 plan includes 1)
Identifying Year 2000 issues, 2) Assessment and prioritization of issues,
3) Remediation, and 4) Testing for Year 2000 compliance. Because the Company
has a wide variety of systems and equipment at various locations affected by
the Year 2000 issue, various aspects of the Company's Year 2000 efforts are
at different stages of progress. Most of the work now being done involves
remediation and testing of Year 2000 solutions. Expenditures in fiscal 1998
for the Year 2000 project amounted to approximately $150,000. As a part of
its plan to achieve Year 2000 compliance, the Company has decided to accelerate
the schedule for implementation of certain data collection systems. The cost
of these systems is approximately $1 million. The Company now expects to
spend approximately $1.5 million on software improvements and remediation
work in fiscal year 1999, and an additional $.4 million in fiscal year 2000,
with completion expected by the first quarter of fiscal year 2000. Key vendors
and customers have documented assurance of current or planned readiness for
the year 2000. The most likely worst-case scenario is that certain non-critical
business sytems might fail. The Company has developed contingency plans for
all systems that had not been remediated as of December 26, 1998. Contingency
plans include the option to disable certain systems or to use alternate methods
of providing the same or similar service. The Company does not believe that
these non-critical systems will have a material adverse impact on the Company's
ability to generate revenue. In the event that the Company is unable to
implement all or a part of its Year 2000 plan, then some of the Company's
computer systems could fail. Any liability or lost revenue associated with
systems failure cannot be reasonably estimated at this time.
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
As a part of the Company's business of converting fiber to
finished fabric, the Company makes raw cotton purchase commitments
and then fixes prices with cotton merchants who buy from producers
and sell to textile manufacturers. Daily price fluctuations are
minimal, yet long-term trends in price movement can result in
unfavorable pricing of cotton for the Company. Before fixing
prices, the Company looks at supply and demand fundamentals,
recent price trends and other factors that affect cotton prices.
The Company also reviews the backlog of orders from customers as
well as the level of fixed price cotton commitments in the
industry in general. The Company also has long-term debt which is
sensitive to changes in interest rates.
(In thousands) Fiscal years: Later Fair
1999 2000 2001 2002 years Total Value
Cotton:
Inventory............. $2,462 $2,462 $2,532
Fixed price purchase
commitments.......... 37,780 $9,448 47,228 48,503
Long-term debt:
Fixed rate............ $150,000 150,000 138,000
Average interest rate. 9.6% 9.6%
Variable rate......... $465 $6,723 $135 $42 25,000 32,365 32,365
Average interest rate. 7.8% 9.2% 7.6% 10.5% 7.4% 7.8%
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*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) The Company filed Form 8-K with date of October 27, 1998.
Item 5. Other Events
Items 1,2, 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 November 5, 1998 /s/ Robert W. Humphreys
Robert W. Humphreys
Vice President - Finance
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal
quarter ended September 26, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
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