-----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, DXs57UQ9jBlVsnA6D8IOi71424zJXBaEocYsX5to7hLeJJ8aTpq+iPeFXjOdRvOC /pCd6l9Bq6z36WFr167/Zg== 0001015402-02-001683.txt : 20020514 0001015402-02-001683.hdr.sgml : 20020514 ACCESSION NUMBER: 0001015402-02-001683 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020330 FILED AS OF DATE: 20020514 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: 02645613 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 March 30, 2002 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-5,830,423 shares as of May 14, 2002 DELTA WOODSIDE INDUSTRIES, INC.
INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets-March 30, 2002 and June 30, 2001 3 Condensed consolidated statements of operations-- Three and Nine months ended March 30, 2002 and March 31, 2001 4 Condensed consolidated statements of cash flows-- Nine months ended March 30, 2002 and March 31, 2001 5 Notes to condensed consolidated financial statements-March 30, 2002 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities and use of Proceeds 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 PART I. FINANCIAL INFORMATION - ----------------------------- ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (In Thousands, except share and per share data) Delta Woodside Industries, Inc. March 30, 2002 June 30, 2001 ---------------- --------------- Unaudited ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,269 $ 14,491 Accounts receivable: Factor 42,688 37,617 Less allowances for doubtful accounts and returns 51 51 ---------------- --------------- 42,637 37,566 Inventories Finished goods 6,493 13,241 Work in process 22,234 23,195 Raw materials and supplies 5,752 6,766 ---------------- --------------- 34,479 43,202 Deferred income taxes 3,338 2,966 Prepaid expenses and other current assets 360 547 ---------------- --------------- TOTAL CURRENT ASSETS 87,083 98,772 PROPERTY, PLANT AND EQUIPMENT Cost 172,022 166,226 Less accumulated depreciation 96,242 81,195 ---------------- --------------- 75,780 85,031 DEFERRED LOAN COSTS 1,410 1,680 NONCURRENT DEFERRED INCOME TAXES 11,730 4,959 OTHER ASSETS 74 ---------------- --------------- TOTAL ASSETS $ 176,003 $ 190,516 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 9,512 $ 8,570 Accrued employee compensation 1,370 2,339 Accrued and sundry liabilities 10,771 11,966 ---------------- --------------- TOTAL CURRENT LIABILITIES 21,653 22,875 LONG-TERM DEBT 82,815 83,815 DEFERRED COMPENSATION 7,122 6,608 SHAREHOLDERS' EQUITY Preferred Stock Common Stock - par value $.01 a share - authorized 50,000,000 shares, issued and outstanding 5,830,000 shares at March 30, 2002 and 5,809,000 shares at June 30, 2001,as adjusted (see Note D) 58 58 Additional paid-in capital 86,694 86,561 Accumulated deficit (22,339) (9,401) ---------------- --------------- TOTAL SHAREHOLDERS' EQUITY 64,413 77,218 Commitments and Contingencies ---------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 176,003 $ 190,516 ================ ===============
See notes to consolidated financial statements. 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, except per share data) Delta Woodside Industries, Inc. Three Three Nine Nine Months Ended Months Ended Months Ended Months Ended March 30, March 31, March 30, March 31, 2002 2001 2002 2001 -------------- -------------- -------------- -------------- Net sales $ 41,190 $ 52,991 $ 122,307 $ 175,887 Cost of goods sold 40,165 50,795 118,500 158,500 -------------- -------------- -------------- -------------- Gross profit 1,025 2,196 3,807 17,387 Selling, general and administrative expenses 3,033 3,001 8,496 9,922 Impairment and restructuring charges 8,683 Other income (expense) 50 (11) 90 352 -------------- -------------- -------------- -------------- Operating Profit (Loss) (1,958) (816) (13,282) 7,817 Interest (expense) income: Interest expense (2,409) (2,653) (7,342) (8,327) Interest income 93 75 226 533 -------------- -------------- -------------- -------------- (2,316) (2,578) (7,116) (7,794) -------------- -------------- -------------- -------------- Income (Loss) before Income Taxes and Extraordinary Item (4,274) (3,394) (20,398) 23 Income tax expense (benefit) (1,496) (1,205) (7,135) 20 -------------- -------------- -------------- -------------- Income (Loss ) before Extraordinary Item (2,778) (2,189) (13,263) 3 Extraordinary gain (net of taxes) 325 325 1,585 -------------- -------------- -------------- -------------- Net Income (Loss) ($2,453) ($2,189) ($12,938) $ 1,588 ============== ============== ============== ============== Basic and diluted earnings (loss) per share, as adjusted (Note D): Income (loss) before extraordinary item $ (0.48) $ (0.37) $ (2.27) $ 0.00 Extraordinary gain 0.06 0.00 0.06 0.27 -------------- -------------- -------------- -------------- Net earnings (loss) $ (0.42) $ (0.37 ) $ (2.21) $ 0.27 ============== ============== ============== ============== Weighted average number of shares outstanding 5,831,000 5,910,000 5,832,000 5,992,000 ============== ============== ============== ==============
See notes to consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Delta Woodside Industries, Inc. (In Thousands) For the Nine Months Ended March 30, 2002 March 31, 2001 ---------------- ---------------- OPERATING ACTIVITIES Net income (loss) ($12,938) $ 1,588 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 6,836 8,204 Amortization 316 318 Decrease in deferred loan costs 783 Discount to face value on repurchase of bonds (500) (3,242) Provision for impairment and restructuring 8,683 Change in deferred income taxes (7,144) 1,164 Deferred compensation 513 Changes in operating assets and liabilities 2,342 8,621 Other 5 ---------------- ---------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,892) 17,441 INVESTING ACTIVITIES Property, plant and equipment: Purchases (5,786) (4,612) Proceeds of dispositions of assets 450 Other 811 ---------------- ---------------- NET CASH USED BY INVESTING ACTIVITIES (5,786) (3,351) FINANCING ACTIVITIES Proceeds from revolving line of credit 3,003 Repayments of revolving line of credit (3,003) Repurchase and retirement of long term debt (500) (28,021) Repurchase of common stock (44) (641) ---------------- ---------------- NET CASH USED BY FINANCING ACTIVITIES (544) (28,662) ---------------- ---------------- DECREASE IN CASH AND CASH EQUIVALENTS (8,222) (14,572) Cash and cash equivalents at beginning of year 14,491 19,385 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 6,269 $ 4,813 ================ ================
See notes to consolidated financial statements. 5 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 nine months ended March 30, 2002 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 On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc., issued $150 million of unsecured ten-year Senior Notes at an interest rate of 9.625%. These notes will mature in August 2007. At March 30, 2002, the outstanding balance of the notes was $82,815,000, a decrease of $1.0 million from the balance at June 30, 2001. Delta Mills has completed a "Modified Dutch Auction" tender offer for a portion of its Senior Notes. The offer commenced on April 3, 2002 and expired on May 1, 2002 as scheduled. As of the expiration, a total principal amount of $34,996,000 of notes was tendered by holders of the notes and accepted for payment by Delta Mills. The "Clearing Price" of $525 per $1,000 principal amount was paid on May 6, 2002 to all holders who tendered their notes. The Company paid a total of $18,372,900, plus accrued interest of $608,177, to repurchase notes. To fund this transaction, Delta Mills used available cash plus borrowings of $14.2 million from its revolving credit facility and $3.4 million from its parent, Delta Woodside Industries, Inc. On March 31, 2000 a subsidiary of the Company, Delta Mills, Inc., obtained a secured four-year $50 million revolving credit facility. Borrowings under this credit facility are based on eligible accounts receivable and inventory of the Company, subject to a maximum $37.5 million availability limit as a result of a March 31, 2002 amendment described below. The facility is secured by the accounts receivable, inventory and capital stock of the Company. The interest rate on the credit facility is based on a spread over either LIBOR or a base rate. At each of June 30, 2001 and March 30, 2002, 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. An amendment of October 5, 2001 substantially increased the permitted leverage ratio for the preceding four quarters ending with the third quarter of fiscal year 2002, and slightly reduced 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. This amendment also extends the term of the Revolving Credit Agreement to March 31, 2004, includes the lender'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 continuing costs associated with the closing of its Furman Plant. Effective March 31, 2002, Delta Mills amended its $50 million credit facility, eliminating the permitted leverage ratio covenant and adding a $12.5 million minimum availability requirement. Under the minimum availability requirement, Delta Mills' availability for borrowings cannot exceed $37.5 million. 6 NOTE B-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE-CONTINUED Delta Mills assigns a substantial portion of its trade accounts receivable to GMAC Commercial Credit LLC (the Factor) under a factor agreement. The assignment of these receivables is primarily without recourse, provided that customer orders are approved by the Factor prior to shipment of goods, up to a maximum for each individual account. The assigned trade accounts receivables are recorded on the Delta Mills' books at full value and represent amounts due Delta Mills from the Factor. There are no advances from the Factor against the assigned receivables. All factoring fees are recorded on the Delta Mills' books as incurred as a part of General and Administrative Expense. NOTE C - STOCKHOLDERS' EQUITY Activity in stockholders' equity during the nine months ended March 30, 2002 is as follows (in thousands):
Total Common Additional Paid Accumulated Stockholders' Stock In Capital Deficit Equity -------- ----------------- ------------ --------------- Balance at June 30, 2001 $ 58 $ 86,561 ($9,401) $ 77,218 Incentive stock award plan, shares issued 1 176 177 Share repurchases (1) (43) (44) Net Loss (12,938) (12,938) -------- ----------------- ------------ --------------- Balance at March 30, 2002 $ 58 $ 86,694 ($22,339) $ 64,413 ======== ================= ============ ===============
NOTE D - REVERSE STOCK SPLIT The Company effected a 4:1 reverse split of its common stock on Tuesday, February 5, 2002. The Company's shareholders adopted an amendment to the Company's articles of incorporation that provided for the reverse split at a special meeting held on January 28, 2002. The shareholders authorized the Company's board of directors to determine whether to consummate the reverse split and to determine the ratio of the reverse split within a range of whole shares from 3:1 to10:1. The Company's board of directors set the ratio for the reverse split at 4:1. The Company paid cash in lieu of any fractional share in an amount based on the average of the closing sale prices of the Company's common stock (as adjusted to reflect the reverse split of shares) for the 20 trading days immediately prior to February 5, 2002 as reported in The Wall Street Journal. The total number of authorized shares of common stock and the par value of the common stock remain the same and were unaffected by the reverse split. The common stock purchase rights attached to the Company's common stock pursuant to its Shareholder Rights Agreement, dated December 10, 1999, as amended, with First Union National Bank as rights agent, were adjusted in connection with the reverse stock split as required by the provisions of Section 11(a) of the Rights Agreement to prevent any dilution or enlargement of the rights. The exercise price of each right was increased from the pre-split $5.00 per quarter-share of common stock to $20.00 per quarter-share. Each share of common stock will continue to have only one right attached to it, and each right will continue to evidence the right to acquire one quarter share of the Company's common stock. All shares and per share amounts in the condensed consolidated financial statements have been retroactively restated in connection with the reverse stock split. 7 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 March 30, 2002 were $41.2 million as compared to $53.0 million in the third quarter of the prior fiscal year, a decrease of 22.3%. For the nine months ended March 30, 2002, net sales were $122.3 million as compared to $175.9 million for the nine months ended March 31, 2001, a decrease of 30.5%. For both the current quarter and the nine months, the majority of the decline in sales was 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 $1.0 million and 2.5% of sales in the third quarter of fiscal year 2002. This compares to gross profit of $2.2 million and 4.1% of sales in the prior year quarter. For the nine months ended March 30, 2002, gross profit was $3.8 million or 3.1% of net sales as compared to $17.4 million or 9.9% of net sales for the same nine months period of the prior fiscal year. For both the current quarter and the nine months, the decline in gross profit was due to decreased production schedules, reduced sales prices and some change in product mix. All three factors were caused by the decline in sales and market demand. 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 $3.0 million and 7.4% of net sales for the third quarter of fiscal year 2002 compared to SG&A of $3.0 million and 5.7% of net sales for the prior year quarter. Selling, general and administrative expense (SG&A) was $8.5 million and 6.9% of net sales for the nine months ended March 30, 2002 as compared to SG&A of $9.9 million and 5.6% of net sales for the nine months ended March 31, 2001. The year to date reduction in SG&A over the previous year's expense 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. The Company reported an operating loss of $2.0 million in the current quarter compared to an operating loss of $.8 million in the previous year quarter and an operating loss of $1.1 million in the second quarter of the current fiscal year. The previous quarter's operating loss included continuing costs of closed facilities of $329,000. The current quarter's operating loss includes continuing costs of $86,000 associated with closed facilities. Excluding the asset impairment and continuing costs of closed facilities, the Company's operating loss during the current quarter would have been $1.9 million. For the nine months ended March 30, 2002, the Company's operating loss was $13.3 million as compared to an operating profit of $7.8 million for the nine months ended March 31, 2001. The current year results include an impairment and restructuring charge of $8.7 million related to the closing of the Company's Furman facility. Excluding impairment and restructuring charges and the continuing costs of closed facilities, the Company's operating loss would have been $4.2 million for the nine months ended March 30, 2002. The decline in operating profit was due to the factors discussed above. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED Interest expense net of interest income was $2.3 million for the quarter ended March 30, 2002, compared to $2.6 million for the prior year quarter. Interest expense net of interest income for the nine months ended March 30, 2002 was $7.1 million compared to $7.8 million for the same period in fiscal 2001. The reduction in interest expense is primarily due to the reduction in the senior notes and was somewhat offset by a reduction in interest income due to a decline in interest rates and a reduction in cash. The income tax benefit for the quarter was $1.5 million. This compares to an income tax benefit of $1.2 million in the previous year quarter. The income tax benefit for the nine months ended March 30, 2002 was $7.1 million. This compares to income tax expense of $20,000 for the nine months ended March 31, 2001. The effective tax rate in both periods was approximately 35%. At March 30, 2002, the Company had regular tax loss carry forwards of $39 million for federal purposes and $13 million for state purposes. The Federal loss carry forwards expire at various intervals from 2012 to 2021,while the state loss carry forwards expire at various intervals beginning in 2003. At March 30, 2002, the Company's gross deferred tax assets are not reduced by a valuation allowance due to management's belief that it is more likely than not that the gross deferred tax assets will be realized in the future. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management continues to evaluate the need for a valuation allowance based upon the Company's current operations and projections of future earnings. The potential tax effect of establishing a full valuation allowance is approximately $15 million. The Company reported a net loss of $2.5 million or $0.42 per common share for the quarter ended March 30, 2002 compared to a net loss of $2.2 million or $.37 per common share for the quarter ended March 31, 2001. The Company's net loss for the quarter ended March 30, 2002 included an after tax extraordinary gain of $325,000 or $0.06 per common share. This extraordinary gain occurred when the Company's subsidiary, Delta Mills, Inc., purchased $1.0 million face amount of its 9.625 % Senior Notes for $.5 million. The Company's net loss for the quarter ended March 30, 2002 included continuing costs of closed facilities of $56,000 or $.01 per share on an after tax basis. The Company reported a net loss of $12.9 million or $2.21 per common share for the nine months ended March 30, 2002 compared to net income of $1.6 million or $.27 per common share for the nine months ended March 31, 2001. The Company's net income for the nine months ended March 31, 2001 included an after tax extraordinary gain of $1.6 million. 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. The net loss for the nine months ended March 30, 2002 included asset impairment and continuing costs associated with closed facilities of $5.9 million or $1.00 per share on an after tax basis. The decline in net income was due to the factors discussed above. On August 25, 1997 Delta Mills issued $150 million of unsecured ten-year Senior Notes at an interest rate of 9.625%. These notes will mature in August 2007. At March 30, 2002, the outstanding balance of the notes was $82,815,000, a decrease of $1.0 million from the balance at June 30, 2001. Delta Mills has completed a "Modified Dutch Auction" tender offer for a portion of its Senior Notes. The offer commenced on April 3, 2002 and expired on May 1, 2002 as scheduled. As of the expiration, a total principal amount of $34,996,000 of notes was tendered by holders of the notes and accepted for payment by Delta Mills. The "Clearing Price" of $525 per $1,000 principal amount was paid on May 6, 2002 to all holders who tendered their notes. The Company paid a total of $18,372,900, plus accrued interest of $608,177, to repurchase notes. To fund this transaction, Delta Mills used available cash plus borrowings of $14.2 million from its revolving credit facility and $3.4 million from its parent, Delta Woodside Industries, Inc. On March 31, 2000 Delta Mills obtained a secured four-year $50 million revolving credit facility. Borrowings under this credit facility are based on eligible accounts receivable and inventory of the Company, subject to a maximum $37.5 million availability limit as a result of a March 31, 2002 amendment described below. The facility is secured by the accounts receivable, inventory and capital stock of the Company. The interest rate on the credit facility is based on a spread over either LIBOR or a base rate. At each of June 30, 2001 and March 30, 2002, no amounts were outstanding under this facility. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED 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. An amendment of October 5, 2001 substantially increased the permitted leverage ratio for the preceding four quarters ending with the third quarter of fiscal year 2002, and slightly reduced 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. This amendment also extends the term of the Revolving Credit Agreement to March 31, 2004, includes the lender'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 continuing costs associated with the closing of its Furman Plant. Effective March 31, 2002, Delta Mills amended its $50 million credit facility, eliminating the permitted leverage ratio covenant and adding a $12.5 million minimum availability requirement. Under the minimum availability requirement, Delta Mills' availability for borrowings cannot exceed $37.5 million. During the three months ended March 30, 2002, Delta Mills did not pay any dividends to the Company. On October 3, 2001 the FASB issued statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supersede FASB statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and provide a single accounting model for long-lived assets to be disposed of. The Company will adopt the Statement effective for fiscal 2003. The adoption of this standard is not expected to materially impact the Company. CRITICAL ACCOUNTING POLICIES Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties, and potentially result in materially different results under different assumptions and conditions. Impairment of Long - Lived Assets: When required by circumstances, the Company evaluates the recoverability of its long - lived assets by comparing estimated future undiscounted cash flows with the asset's carrying amount to determine if a write - down to fair value is required. Income Taxes: Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. At March 30, 2002, the Company had regular tax loss carry forwards of $39 million for federal purposes and $13 million for state purposes. The Federal loss carry forwards expire at various intervals from 2012 to 2021,while the state loss carry forwards expire at various intervals beginning in 2003. At March 30, 2002, the Company's gross deferred tax assets are not reduced by a valuation allowance due to management's belief that it is more likely than not that the gross deferred tax assets will be realized in the future. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management continues to evaluate the need for a valuation allowance based upon the Company's current operations and projections of future earnings. The potential tax effect of establishing a full valuation allowance is approximately $15 million. 10 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 March 30, 2002, a 10% decline in market price of the Company's fixed price contracts would have had a negative impact of approximately $1.4 million on the value of the contracts. As of June 30, 2001, such a 10% decline would have had a negative impact of $2.1 million. The decline in the potential negative impact from June 30, 2001 to March 30, 2002 is due principally to current cotton commitments being at lower average prices and because of a decline in the quantity of cotton with fixed prices as compared to the previous period. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings* Item 2. Changes in Securities and Use of Proceeds The Company effected a 4:1 reverse split of its common stock on Tuesday, February 5, 2002. The Company's shareholders adopted an amendment to the Company's articles of incorporation that provides for the reverse split at a special meeting held on January 28, 2002. The shareholders authorized the Company's board of directors to determine whether to consummate the reverse split and to determine the ratio of the reverse split within a range of whole shares from 3:1 to10:1. The Company's board of directors set the ratio for the reverse split at 4:1. The Company paid cash in lieu of any fractional share in an amount based on the average of the closing sale prices of the Company's common stock (as adjusted to reflect the reverse split of shares) for the 20 trading days immediately prior to February 5, 2002 as reported in The Wall Street Journal. The total number of authorized shares of common stock and the par value of the common stock remain the same and were unaffected by the reverse split. The common stock purchase rights attached to the Company's common stock pursuant to its Shareholder Rights Agreement, dated December 10, 1999 as amended, with First Union National Bank as rights agent were adjusted in connection with the reverse stock split as required by the provisions of Section 11(a) of the Rights Agreement to prevent any dilution or enlargement of the rights. The exercise price of each right was increased from the pre-split $5.00 per quarter-share of common stock to $20.00 per quarter-share. Each share of common stock will continue to have only one right attached to it, and each right will continue to evidence the right to acquire one quarter share of the Company's common stock. All shares and per share amounts in the condensed consolidated financial statements have been retroactively restated in connection with the reverse stock split. Item 3. Defaults upon Senior Securities* Item 4. Submission of Matters to a Vote of Security Holders The Company held a special meeting of its shareholders on January 28, 2002 to consider an amendment to the Company's articles of incorporation to authorize a reverse stock split with a ratio within a range of whole shares from 3:1 to 10:1 to be determined by the Company's board of directors. The amendment also authorized the board of directors to determine whether to consummate the reverse split. Holders of a total of 21,063,924 shares (90.3% of the total outstanding shares) of the Company's common stock were present at the special meeting either in person or by proxy constituting a quorum. The amendment was approved with 20,672,014 shares (98.1% of shares present) votes for, 362,138 shares (1.7%) voted against or withheld and 29,772 shares (.2%) abstaining. There were no broker non-votes. Item 5. Other Information On April 22, 2002, the Company received notification from the New York Stock Exchange that the Company had not met the continued listing standard that provides that average total market capitalization cannot be less than $15 million over a consecutive 30 trading day period. The Company has 45 days from April 22, 2002 to submit a business plan to the exchange that returns the Company to conformity with this continued listing standard within 18 months of April 22, 2002. Management is considering options to address the deficiency within the required time frame and expects to present a business plan to representatives of the New York Stock Exchange within the required time frame. 12 Item 6. Exhibits and Reports on Form 8-K a) Listing of Exhibits 3.1.6 Articles of Amendment to the Articles of Incorporation of the Company filed with the South Carolina Secretary of State on February 5, 2002. 4.3.1.2 Consent and Amendment to Credit Agreement and Other Documents, dated as of October 5, 2001. 4.3.1.3 Consent and Amendment to Credit Agreement and Other Documents, dated as of March 31,2002. b) No report on Form 8-K was filed during the fiscal quarter ended March 30, 2002. * Items 1 and 3 are not applicable. 13 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 14, 2002 By: /s/ W. H. Hardman, Jr. ---------------------------- -------------------------- W.H. Hardman, Jr. Chief Financial Officer 14 EX-3.1.6 3 doc2.txt Exhibit 3.1.6 15 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT TYPE OR PRINT CLEARLY IN BLACK INK - ---------------------------------------- Pursuant to Section 33-10-106 of the 1976 South Carolina Code of Laws, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is Delta Woodside Industries, Inc. -------------------------------------- 2. Date of Incorporation May 31, 1972 -------------------------------------------------- 3. Agent's Name and Address William J. Hardman, Jr., 100 Augusta Street, ---------------------------------------------- Greenville, SC 29601 --------------------------------------------------------------------------- 4. On January 28, 2002 the corporation adopted the following Amendment(s) of ---------------- its Articles of Incorporation: (Type or attach the complete text of each Amendment) Effective on February 5, 2002, upon the filing of these Articles of Amendment of the Articles of Incorporation of the Corporation on such date (the "Effective Date"), each four (4) shares of Common Stock of the Corporation then issued and outstanding automatically shall be combined into one (1) share of fully paid and nonassessable Common Stock of the Corporation. The number of authorized shares of the Common Stock and the par value of the Common Stock shall remain unchanged. There shall be no fractional shares of Common Stock issued. Each holder of shares of Common Stock who would otherwise be entitled to receive a fractional share shall be entitled to receive a cash payment in lieu thereof equal to the fraction to which the stockholder would otherwise be entitled multiplied by the average of the closing sale prices of the Common Stock (as adjusted to reflect the reverse split of shares hereby) for the 20 trading days immediately prior to the Effective Date, as reported in The Wall Street Journal. If such price or prices are not available, the fractional share payment will be based on such other price as determined by the Board of Directors of the Corporation. 5. The manner, if not set forth in the Amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). Set forth in paragraph 4. 6. Complete either "a" or "b", whichever is applicable. a. X Amendment(s) adopted by shareholder action. At the date of adoption of the Amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed Voting Outstanding Votes Entitled Represented at Shares Group Shares to be Cast The Meeting For or Against ----------- -------------- --------------- ---------------------- Common 23,324,548 23,324,548 21,063,924 20,672,014 362,138 Stock
*NOTE: Pursuant to Section 33-10-106(6)(i) of the 1976 South Carolina Code of Laws, as amended, the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. 16 b. [ ] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code of Laws, as amended, and shareholder action was not required. 7. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (See Section 33-1-230(b) of the 1976 South Carolina Code of Laws, as amended) ------------------------------------------------------------------- Date: February 5, 2002 Delta Woodside Industries, Inc. ------------------ --------------------------------------- Name of Corporation Effective Hour: 9:00 a.m. ---------- --------------------------------------- Signature William H. Hardman, Jr., VP & Secretary --------------------------------------- Type or Print Name and Office FILING INSTRUCTIONS ------------------- 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at time of filing application. Filing Fee $ 10.00 Filing Tax 100.00 ------ TOTAL $110.00 Return to: Secretary of State P.O. Box 11350 Columbia, SC 29211 17 EX-4.3.1.2 4 doc3.txt Exhibit 4.3.1.2 18 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 19 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. 20 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] 21 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] ACKNOWLEDGED AND AGREED: DELTA MILLS, INC. By: --------------------------------- Title: ------------------------------------- 22 EX-4.3.1.3 5 doc4.txt Exhibit 4.3.1.3 23 [GMAC Commercial Credit LLC letterhead] March 29, 2002 Delta Mills, Inc. 100 Augusta Street Greenville, SC 29601 Ladies/Gentlemen: Reference is made to the Revolving Credit and Security Agreement between us with an effective date of March 31, 2000, as supplemented and amended (the "Agreement"). It is hereby agreed that, effective as of the date hereof, the Agreement shall be amended by deleting Section 6.9 thereof and substituting in its place and stead the following: "6.9 Minimum Availability. Not permit, at any time, the aggregate --------------------- amount of the Obligations to exceed the lesser of (i)(a) the Maximum Loan Amount less the aggregate undrawn amount of outstanding Letters of Credit or (b) the Formula Amount minus (ii) $12,500,000.00." Except as heretofore and hereby amended, the Agreement shall remain in full force and effect in accordance with its original terms. Please indicate your agreement to the foregoing by signing below and returning a copy of this letter to our offices. Very truly yours, GMAC COMMERCIAL CREDIT LLC By: /s/ J.M. Frangos Title: E.V.P. READ AND AGREED TO: DELTA MILLS, INC. By: /s/ W.H. Hardman, Jr. Title: Chief Financial Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----