-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GP1b/4R0mBcvhSjKRmBb70LO6HuCTy0yNVzvC6BuTBoND3D7n64w/Qq/N+qzOpZd HGxRp/sayxJ5WlnMMwOuiw== 0001015402-01-503287.txt : 20020410 0001015402-01-503287.hdr.sgml : 20020410 ACCESSION NUMBER: 0001015402-01-503287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA WOODSIDE INDUSTRIES INC /SC/ CENTRAL INDEX KEY: 0000806624 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 570535180 STATE OF INCORPORATION: SC FISCAL YEAR END: 0628 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10095 FILM NUMBER: 1780444 BUSINESS ADDRESS: STREET 1: P O BOX 6126 CITY: GREENVILLE STATE: SC ZIP: 29606 BUSINESS PHONE: 8642554100 MAIL ADDRESS: STREET 1: P O BOX 6126 CITY: GREENVILLE STATE: SC ZIP: 29606 10-Q 1 doc1.txt 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 29, 2001 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.) P.O. Box 6126 100 Augusta Street Greenville, South Carolina 29606 - ---------------------------------------- ------------ (Address of principal executive offices) (Zip Code) 864\255-4122 -------------------------------------------------- (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-23,324,548 shares as of November 9, 2001 DELTA WOODSIDE INDUSTRIES, INC. INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets-- September 29, 2001 and June 30, 2001 3 Condensed consolidated statements of operations-- Three months ended September 29, 2001 and September 30, 2000 4 Condensed consolidated statements of cash flows-- Three months ended September 29, 2001 and September 30, 2000 5 Notes to condensed consolidated financial statements-September 29, 2001 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities and use of Proceeds 9 Item 3. Defaults upon Senior Securities 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 10-15 SIGNATURES 16
PART I. FINANCIAL INFORMATION - ----------------------------- ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (In Thousands, except share and per share data) Delta Woodside Industries, Inc. September 29, 2001 June 30, 2001 -------------------- --------------- Unaudited ASSETS CURRENT ASSETS Cash and cash equivalents $ 11,639 $ 14,491 Accounts receivable: Factor 34,291 37,617 Less allowances for doubtful accounts and returns 51 51 -------------------- --------------- 34,240 37,566 Inventories Finished goods 12,232 13,241 Work in process 26,182 23,195 Raw materials and supplies 6,614 6,766 -------------------- --------------- 45,028 43,202 Deferred income taxes 3,938 2,966 Prepaid expenses and other current assets 545 547 -------------------- --------------- TOTAL CURRENT ASSETS 95,390 98,772 PROPERTY, PLANT AND EQUIPMENT Cost 168,522 166,226 Less accumulated depreciation 91,672 81,195 -------------------- --------------- 76,850 85,031 DEFERRED LOAN COSTS 1,622 1,680 NONCURRENT DEFERRED INCOME TAXES 8,626 4,959 OTHER ASSETS 74 -------------------- --------------- TOTAL ASSETS $ 182,488 $ 190,516 ==================== =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 9,914 $ 8,570 Accrued employee compensation 1,595 2,339 Accrued and sundry liabilities 11,168 11,966 -------------------- --------------- TOTAL CURRENT LIABILITIES 22,677 22,875 LONG-TERM DEBT 83,815 83,815 DEFERRED COMPENSATION 6,799 6,608 SHAREHOLDERS' EQUITY Preferred Stock Common Stock - par value $.01 a share - authorized 50,000,000 shares, issued and outstanding 23,325,000 shares at September 29, 2001 and 23,237,000 shares at June 30, 2001 233 233 Additional paid-in capital 86,524 86,386 Accumulated deficit (17,560) (9,401) -------------------- --------------- TOTAL SHAREHOLDERS' EQUITY 69,197 77,218 Commitments and Contingencies 0 0 -------------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 182,488 $ 190,516 ==================== ===============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, except per share data) Delta Woodside Industries, Inc. Three Three Months Ended Months Ended September 29, September 30, 2001 2000 --------------- --------------- Net sales $ 36,977 $ 63,199 Cost of goods sold 35,903 53,925 --------------- --------------- Gross profit 1,074 9,274 Selling, general and administrative expenses 2,592 3,341 Impairment and restructuring charges 8,683 Other income 22 375 --------------- --------------- Operating Profit (Loss) (10,179) 6,308 Interest (expense) income: Interest expense (2,465) (2,971) Interest income 97 285 --------------- --------------- (2,368) (2,686) --------------- --------------- Income (Loss) before Income Taxes and Extraordinary Item (12,547) 3,622 Income tax expense (benefit) (4,388) 1,286 --------------- --------------- Income (Loss ) before Extraordinary Item (8,159) 2,336 Extraordinary gain (net of taxes) 639 --------------- --------------- Net Income (Loss) ($8,159) $ 2,975 =============== =============== Basic and diluted earnings (loss) per share: Income (loss) before extraordinary item $ (0.35) $ 0.10 Extraordinary gain 0.00 0.02 --------------- --------------- Net earnings (loss) $ (0.35) $ 0.12 =============== =============== Weighted average number of shares outstanding 23,334,000 24,148,000 =============== ===============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Delta Woodside Industries, Inc. (In Thousands) September 29, 2001 September 30, 2000 -------------------- -------------------- OPERATING ACTIVITIES Net income (loss) ($8,159) $ 2,975 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 2,266 2,748 Amortization 105 106 Decrease in deferred loan costs 392 Discount to face value on repurchase of bonds (1,383) Provision for impairment and restructuring 8,683 Provision for deferred income taxes (4,639) 1,503 Deferred compensation 182 Changes in operating assets and liabilities (266) (4,073) Other (234) -------------------- -------------------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (1,828) 2,034 INVESTING ACTIVITIES Property, plant and equipment: Purchases (985) (919) Proceeds of dispositions of assets 452 Other 615 -------------------- -------------------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (985) 148 FINANCING ACTIVITIES Repurchase and retirement of long term debt (14,270) Repurchase of common stock (39) -------------------- -------------------- NET CASH (USED) BY FINANCING ACTIVITIES (39) (14,270) -------------------- -------------------- (DECREASE) IN CASH AND CASH EQUIVALENTS (2,852) (12,088) Cash and cash equivalents at beginning of year 14,491 19,385 -------------------- -------------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 11,639 $ 7,297 ==================== ====================
See notes to consolidated financial statements. DELTA WOODSIDE INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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 29, 2001 are not necessarily indicative of the results that may be expected for the year ending June 29, 2002. 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 30, 2001. NOTE B-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE A subsidiary of the Company, Delta Mills, Inc., has a secured four-year $50 million revolving bank credit facility as amended October 5, 2001 (see exhibit 4.3.1.2). At each of June 30, 2001 and September 29, 2001, no amounts were outstanding under this facility. The credit facility contains restrictive covenants that, among other things, require that the Delta Mills' Maximum Leverage Ratio, as defined therein, not exceed specified amounts. The agreement also restricts additional indebtedness, dividends, and capital expenditures. The payment of dividends with respect to Delta Mills' stock is permitted if there is no event of default and there is at least $1 of availability under the facility. The credit facility was amended effective October 5, 2001. The amendment substantially increases the permitted leverage ratio for the preceding four quarters ending with the third quarter of fiscal year 2002, and slightly reduces the permitted leverage ratio for the four quarters ending with the fourth fiscal quarter of fiscal year 2002 and subsequent quarters that Delta Mills is required to maintain pursuant to covenants in the agreement. The amendment also extends the term of the Revolving Credit Agreement to March 31, 2004, includes GMAC's consent to the sale of Delta Mills' Furman Plant, which was announced August 22, 2001, and allows Delta Mills to exclude from the calculation of the leverage ratio the closing costs and run out costs associated with the closing of its Furman Plant. In August 1997, Delta Mills issued $150 million of 9.625 % senior notes that mature in August 2007. At September 29, 2001, the outstanding balance of the notes was $83,815,000, unchanged from June 30, 2001. NOTE C - RESTRUCTURING AND IMPAIRMENT CHARGES During the quarter ended September 29, 2001, the Company took an impairment and restructuring charge of $8.7 million, on a pretax basis, associated with the closing of the Furman Plant as announced on August 22, 2001. The $8.7 million charge was principally a non-cash event and included $8.2 million for the net write down of property, plant and equipment. The balance of the charge was approximately $.5 million of accrued expenses for involuntary termination costs associated with the 122 employees terminated as a result of the plant closing. The equipment run-out schedule was completed on October 21, 2001 and the Company is in the process of liquidating the assets associated with this facility. The Company will transfer the current production for the closed facility to other weaving facilities in the Company to better utilize the remaining equipment. NOTE D - STOCKHOLDERS' EQUITY Activity in stockholders' equity during the three months ended September 29, 2001 is as follows (in thousands):
Total Common Additional Paid Retained Stockholders' Stock In Capital Earnings Equity -------- ----------------- --------- -------------- Balance at June 30, 2001 $ 233 $ 86,386 ($9,401) $ 77,218 Incentive stock award plan, shares issued 1 176 177 Share repurchases (1) (38) (39) Net Income (loss) (8,159) (8,159) -------- ----------------- --------- -------------- Balance at September 29, 2001 $ 233 $ 86,524 ($17,560) $ 69,197 ======== ================= ========= ==============
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains certain "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such matters as future revenues, future cost savings, future capital expenditures, business strategy, competitive strengths, goals, plans, references to future success and other such information are forward-looking statements. The words "estimate", "project", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this Quarterly Report are based on the Company's expectations and are subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. These risks and uncertainties include, among others, changes in the retail demand for apparel products, the cost of raw materials, competitive conditions in the apparel and textile industries, the relative strength of the United States dollar as against other currencies, changes in United States trade regulations and the discovery of unknown conditions (such as with respect to environmental matters and similar items). The Company does not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized. The Company, through its Delta Mills operating division, sells a broad range of woven, finished apparel fabric primarily to branded apparel manufacturers and resellers. Delta Mills also sells camouflage fabric and other fabrics used in apparel sold to the United States Department of Defense. Delta Mills represents the only business segment of the Company. Net sales for the three months ended September 29, 2001 were $37.0 million as compared to $63.2 million in the first quarter of the prior fiscal year, a decrease of 41.5%. The decline in sales was primarily due to a reduction in sales unit volume that reflects the downward adjustment in market demand for the apparel industry. Some sales price declines also contributed to the decline in sales. Gross profit was $1.1 million and 3.0% of sales in the first quarter of fiscal year 2002. This compares to gross profit of $9.3 million and 14.7% of sales in the prior year quarter. Compared to the previous year, the negative results for the current quarter were primarily due to decreased running schedules that were caused by the decline in sales and market demand. Continued price pressure also had a negative impact on the current quarter results. The decline in gross profit was somewhat offset by reduced manufacturing costs as a result of the cost reduction plan put in place at the beginning of fiscal year 2002. Selling, general and administrative expense (SG&A) was $2.6 million and 7.0% of net sales for the first quarter of fiscal year 2002 compared to SG&A of $3.3 million and 5.2% of net sales for the prior year quarter. The reduction in SG&A represents reductions in expenses associated with administrative salaries and various general expense items. Some of these reductions were part of the cost reduction plan put in place at the beginning of fiscal year 2002. For the quarter ended September 29, 2001, the Company took an impairment and restructuring charge of $8.7 million, on a pretax basis, associated with the closing of the Furman Plant as announced on August 22, 2001. The $8.7 million charge was principally a non-cash event and included $8.2 million for the net write down of property, plant and equipment. The balance of the charge was approximately $.5 million of accrued expenses for involuntary termination costs associated with the 122 employees terminated as a result of the plant closing. The equipment run-out schedule was completed on October 21, 2001 and the Company is in the process of liquidating the assets associated with this facility. The Company will transfer the current production for the closed facility to other weaving facilities in the Company to better utilize the remaining equipment. This adjustment to weaving capacity will also balance weaving with existing finishing capacity. The Company is currently operating at less than full capacity. Management believes that this action should result in improved operating results in the future. Excluding impairment and restructuring charges, the Company's operating loss would have been $1.5 million. Including impairment and restructuring charges, the Company's operating loss was $10.2 million compared to an operating profit of $6.3 million for the quarter ended September 30, 2000. The decline in operating profit was due to the factors discussed above. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED Interest expense net of interest income was $2.4 million for the quarter ended September 29, 2001, compared to $2.7 million for the prior year quarter. The reduction in interest expense is primarily due to the reduction in the senior notes. The Company's subsidiary, Delta Mills, Inc., amended its $50 million revolving bank credit facility effective October 5, 2001 (see exhibit 4.3.1.2). At each of June 30, 2001 and September 29, 2001, no amounts were outstanding under this facility. The amendment substantially increases the permitted leverage ratio for the preceding four quarters ending with the third quarter of fiscal year 2002, and slightly reduces the permitted leverage ratio for the four quarters ending with the fourth fiscal quarter of fiscal year 2002 and subsequent quarters that Delta Mills is required to maintain pursuant to covenants in the agreement. The amendment also extends the term of the Revolving Credit Agreement from March 31, 2003 to March 31, 2004, includes GMAC's consent to the sale of Delta Mills' Furman Plant, which was announced August 22, 2001, and allows Delta Mills to exclude from the calculation of the leverage ratio the closing costs and run out costs associated with the closing of its Furman Plant. The income tax benefit for the quarter was $1.3 million before the impairment and restructuring charge. The tax benefit of the impairment and restructuring charge was $3.1 million and the total tax benefit including the impairment and restructuring charge was $4.4 million. This compares to income tax expense of $1.3 million in the previous year quarter. The effective tax rate in both years was approximately 35%. Net loss, excluding the impairment and restructuring charge, was a loss of $2.5 million, or $.11 per share for the quarter ended September 29, 2001. Including the impairment and restructuring charge, the net loss was $8.2 million, or $.35 per share. This compares to a net income of $3.0 million, or $.12 per share for the prior year quarter. Net income for the three months ended September 30,2000 includes an extraordinary gain of $639,000, or $.02 per share, net of taxes of $352,000 and the write off of deferred loan costs of $392,000. This extraordinary gain occurred when the Company's subsidiary, Delta Mills, Inc., purchased $15.7 million face amount of its 9.625 % Senior Notes for $14.2 million. There was no extraordinary gain for the current quarter. The decline in net income was due to the factors discussed above. In the quarter ended September 29, 2001 the Company purchased, in the open market, 40,900 shares of its common stock. These shares were retired at the time of purchase. The Company believes that current cash balances combined with the cash flow generated by its operations will be sufficient to service its debt, to satisfy its day to day working capital requirements and to fund its planned capital expenditures. The Company expects that no amounts will be outstanding against its $50 million revolver at the end of fiscal year 2002. In July of 2001, the FASB issued SFAS 141, "Business Combinations". SFAS 141 requires all business combinations to be accounted for by the purchase method and eliminates use of the pooling-of -interests method. It also requires, upon adoption of SFAS 141, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. Additionally, the statement requires recognition of intangible assets apart from goodwill and provides for additional disclosure of information related to a business combination. This SFAS is effective for all business combinations initiated after June 30, 2001. The adoption of this standard is not expected to materially impact the Company. In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 eliminates goodwill amortization, provides guidance and requirements for impairment testing of goodwill, and discusses the treatment of other intangible assets. Adoption of the standard is required for fiscal years beginning after December 15, 2001. The adoption of this standard is not expected to materially impact the Company. 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. 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. As of September 29, 2001, a 10% decline in market price of the Company's fixed price contracts would have had a negative impact of approximately $2.0 million on the value of the contracts. 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, 2001. Broker For Against Withheld Abstentions Non-Votes Election of ---------- ------- -------- ----------- --------- Directors - --------- W.F. Garrett 21,846,704 117,390 C.C. Guy 21,695,513 268,581 J.F. Kane 21,695,463 268,631 M. Lennon 21,670,764 293,330 E.E. Maddrey, II 21,821,924 142,170 B.A. Mickel 21,818,524 145,570 Ratification of Appointment of KPMG LLP as Independent Auditors for Fiscal 2002 21,876,869 65,037 22,188 - ----------- Item 5. Other Information* Item 6. Exhibits and Reports on Form 8-K a) Listing of Exhibits 4.3.1.2 Consent and Amendment to Credit Agreement and Other Documents, dated as of October 5, 2001. b) No report on Form 8-K was filed during the fiscal quarter ended September 29, 2001. * 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 November 9, 2001 By: /s/ W. H. Hardman, Jr. ----------------------- -------------------------------- W.H. Hardman, Jr. Chief Financial Officer EX-4.3.1.2 3 doc2.txt Exhibit 4.3.1.2 GMAC COMMERCIAL CREDIT LLC 1290 Avenue of the Americas New York, New York 10104 as of October 5, 2001 DELTA MILLS, INC. 100 Augusta Street Greenville, South Carolina 29601 Re: Consent and Amendment to Credit Agreement and Other Documents ------------------------------------------------------------- Gentlemen: Reference is made to the Revolving Credit and Security Agreement dated as of March 31, 2000 (as amended, restated, renewed, extended, supplemented, substituted or otherwise modified, the "Credit Agreement"), by and between DELTA MILLS, INC. ("Borrower") and GMAC COMMERCIAL CREDIT LLC, as a lender and as agent for the lenders party to the Credit Agreement from time to time (in such capacity, "Agent"). All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Credit Agreement. 1. Borrower has requested that Agent make certain amendments to the Credit Agreement and Agent has agreed to do so, subject to the terms and conditions contained herein. 2. Effective as of the date hereof, the Credit Agreement and the Other Documents are hereby amended as follows: 1 All references to "March 31, 2003" appearing in Section 9(a) of the Amended and Restated Factoring Agreement and Section 8.3(a) of the Factoring Service Agreement are amended and restated to read "March 31, 2004." 2 The definition of "Term" appearing in Section 1.2 of the Credit Agreement is hereby amended and restated in its entirety as follows: " "Term" shall mean the Closing Date through March 31, 2004." ---- 3 Exhibit 5.5(b) of the Credit Agreement is hereby deleted in its entirety and Exhibit 5.5(b) annexed to this Amendment is substituted therefor. 4 Section 6.9 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "6.9 Maximum Leverage Ratio. ------------------------ (a) Maintain as of the dates set forth below for the four consecutive quarter period ending thereon, a maximum Leverage Ratio of not more than the corresponding ratios set forth below: Maximum Four Quarter Leverage Ratio Period Ending --------------- -------------- 25.5:1 September 29, 2001 105.00:1 December 29, 2001 18.50:1 March 30, 2002 6.50:1 June 29, 2002 and as of the last day of each of Borrower's fiscal quarters occurring after June 29, 2002 a maximum Leverage Ratio of not more than the lesser of (a) 6.50:1 or (b) an amount equal to Funded Indebtedness on the last day of the applicable fiscal quarter divided by an amount equal to fifty percent (50%) of Borrower's EBITDA for Borrower's four consecutive fiscal quarters ending on such date. (b) At all times, if at the end of any fiscal quarter the aggregate amount of outstanding Revolving Advances ("Actual Advances") exceeds the amount of Revolving Advances set forth in the Borrower's business plan annexed hereto as Exhibit 5.5(b), then the applicable maximum Leverage Ratio set forth in Section 6.9(a) above shall be increased by multiplying such maximum Leverage Ratio by the quotient of (i) the Adjusted Funded Indebtedness (as defined below) on such date divided by (ii) the projected Funded Indebtedness for such date as set forth on Exhibit 5.5(b). For the purposes hereof, the term "Adjusted Funded Indebtedness" for a particular date shall mean the sum of the projected Funded Indebtedness for such date as set forth on Exhibit 5.5(b) plus the Actual Advances on such date. For the purposes of clarity, the following is provided as an example: Funded Actual Scheduled Adjusted Indebtedness Advances Ratio* Ratio ------------ -------- --------- --------- Per Business Plan 138,302 0 7.0:1 -- Actual 188,302** 50,000 -- 9.8:1 Quotient 1.4 -- -- 1.4 * Scheduled Ratio shall mean the applicable Maximum Leverage Ratio for the four quarter period ending on the relevant date on which Actual Advances exceed the Revolving Advances set forth in the Borrower's business plan. ** Adjusted Funded Indebtedness: 188,302 = 138,302 + 50,000" 4. Borrower has requested that Lender consent to the sale of Borrower's "Furman Plant" located in Fountain Inn, South Carolina (the "Furman Plant"). By its signature below, Lender hereby consents to the sale of the Furman Plant by the Borrower. Borrower and Lender hereby agree that for purposes of calculating EBITDA under the Credit Agreement, impairment and restructuring costs of the Furman Plant closing as reflected on the Borrower's income statements in accordance with GAAP are considered extraordinary costs as set forth on the extraordinary cost line in Exhibit 5.5(b). 5. Except as specifically set forth herein, no other changes or modifications to the Credit Agreement are intended or implied, and, in all other respects, the Credit Agreement shall continue to remain in full force and effect in accordance with its terms as of the date hereof. Except as specifically set forth herein, nothing contained herein shall evidence a waiver or amendment by Agent of any other provision of the Credit Agreement nor shall anything contained herein be construed as a consent by Agent to any transaction other than those specifically consented to herein. 6. The terms and provisions of this agreement shall be for the benefit of the parties hereto and their respective successors and assigns; no other person, firm, entity or corporation shall have any right, benefit or interest under this agreement. 7. This agreement may be signed in counterparts, each of which shall be an original and all of which taken together constitute one amendment. In making proof of this agreement, it shall not be necessary to produce or account for more than one counterpart signed by the party to be charged. 8. This agreement sets forth the entire agreement and understanding of the parties with respect to the matters set forth herein. This agreement cannot be changed, modified, amended or terminated except in a writing executed by the party to be charged. Very truly yours, GMAC COMMERCIAL CREDIT LLC, as Agent By: ---------------------------------- Title: ------------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] [SIGNATURES CONTINUED FROM PREVIOUS PAGE] ACKNOWLEDGED AND AGREED: DELTA MILLS, INC. By: --------------------------------- Title: ------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----