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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended July 1, 2000
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 No. 1-15583
DELTA APPAREL, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2508794
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (678) 775-6900
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $0.01 American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of September 20, 2000, there were outstanding 2,411,643 shares of the
registrant's common stock, par value $0.01, which is the only class of
outstanding common or voting stock of the registrant. As of that date, the
aggregate market value of the shares of common stock held by nonaffiliates of
the registrant (based on the closing price for the common stock on the American
Stock Exchange on September 20, 2000) was approximately $17.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the fiscal year
ended July 1, 2000 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A for the 2000 Annual Meeting of Stockholders to be held on
November 7, 2000 are incorporated by reference into Part III of this report.
PART I
ITEM 1. BUSINESS
The following discussion contains various "forward-looking statements". All
statements, other than statements of historical fact, that address activities,
events or developments that Delta Apparel expects or anticipates will or may
occur in the future are forward-looking statements. Examples are statements that
concern future revenues, future costs, future capital expenditures, business
strategy, competitive strengths, competitive weaknesses, goals, plans,
references to future success or difficulties and other similar information. The
words "estimate", "project", "forecast", "anticipate", "expect", "intend",
"believe" and similar expressions, and discussions of strategy or intentions,
are intended to identify forward-looking statements.
The forward-looking statements in this document are based on Delta Apparel's
expectations and are necessarily dependent upon assumptions, estimates and data
that Delta Apparel believes are reasonable and accurate but may be incorrect,
incomplete or imprecise. Forward-looking statements are also 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. Many of these risks and uncertainties are described under the
subheading "Risk Factors" below and are beyond Delta Apparel's control.
Accordingly, any forward-looking statements do not purport to be predictions of
future events or circumstances and may not be realized.
Delta Apparel 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.
OVERVIEW
Based in Duluth, Georgia, Delta Apparel, Inc. (AMEX: DLA) ("Delta Apparel" or
the "Company") is a vertically integrated supplier of knit apparel, particularly
T-shirts, sportswear and fleece goods. Approximately 97% of Delta Apparel's
fiscal year 2000 sales were of T-shirts. Delta Apparel specializes in selling to
the decorated knit apparel marketplace products such as blank T-shirts, golf
shirts and fleece sweatshirts. Delta Apparel sells its products to distributors,
screen printers and private label accounts.
Delta Apparel is a Georgia corporation with its principal executive offices
located at 2750 Premiere Parkway, Suite 100, Duluth, Georgia 30097 (telephone
number: 678-775-6900). As described below, on June 30, 2000, Delta Apparel was
spun-off as an independent company when Delta Woodside Industries, Inc. (NYSE:
DLW) ("Delta Woodside") separated into three businesses.
DELTA APPAREL DISTRIBUTION AND RELATED TRANSACTIONS
Delta Apparel was incorporated on December 10, 1999 as an indirect wholly-owned
subsidiary of Delta Woodside.
Pursuant to a distribution agreement (the "Distribution Agreement") among Delta
Woodside, Delta Apparel and Duck Head Apparel Company, Inc., a Georgia
corporation ("Duck Head"), the following transactions, among others, were
completed in May 2000 (the "Intercompany Reorganization"):
(a) Delta Woodside and its subsidiaries (other than Delta Mills,
Inc.) contributed, as contributions to capital, all net debt
amounts owed to any of them by the corporations that had been
conducting the Delta Apparel Company division's business, with
certain exceptions. These intercompany contributions of debt
did not, however, affect any obligation that Delta Woodside,
Delta Apparel or Duck Head may have under the Distribution
Agreement or the tax sharing agreement (the "Tax Sharing
Agreement") among Delta Woodside, Delta Apparel and Duck Head.
Prior to completion of the Intercompany Reorganization, the
Delta Apparel Company division's assets were owned by several
wholly-owned subsidiaries of Delta Apparel.
(b) All the assets used in the operations of the Delta Apparel
Company division's business were transferred to Delta Apparel
or a subsidiary of Delta Apparel to the extent not already
owned by Delta Apparel or its subsidiaries. This transfer
included the sale by Delta Mills, Inc. to Delta Apparel of the
Rainsford plant, located in Edgefield, SC.
(c) Delta Apparel assumed all of the liabilities of the Delta
Apparel Company division of Delta Woodside, and caused all
holders of indebtedness for borrowed money that were part of
the assumed Delta Apparel liabilities and all lessors of
leases that were part of the assumed Delta Apparel liabilities
to agree to look only to Delta Apparel or a subsidiary of
Delta Apparel for payment of that indebtedness or lease
(except where Delta Woodside or Duck Head, as applicable,
consented to not being released from the obligations).
On June 30, 2000, Delta Woodside completed the pro rata distribution (the "Delta
Apparel Distribution") of all the outstanding shares of Delta Apparel and the
pro rata distribution (the "Duck Head Distribution") of all the outstanding
shares of Duck Head to the holders of record of Delta Woodside shares on June
19, 2000. In the Delta Apparel Distribution, Delta Woodside distributed one
share of Delta Apparel common stock to each of those holders for every ten
shares of Delta Woodside common stock owned of record by that holder. As a
result of the Delta Apparel Distribution, Delta Apparel became on June 30, 2000
a separate public reporting company, the common stock of which trades on the
American Stock Exchange under the symbol "DLA".
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BUSINESS
The following information under this subheading, "Business" describes Delta
Apparel as if the transactions contemplated by the Distribution Agreement had
been consummated at the beginning of the periods described. All references in
this document to Delta Apparel refer to Delta Apparel, Inc., together with its
subsidiaries.
PRODUCTS, MARKETING AND MANUFACTURING
Delta Apparel markets a standard set of knit garments with standard colors under
the Delta Apparel(R) label to distributors, who resell to printers, and directly
to large printer accounts. Delta Apparel also supplies knit apparel to private
label customers under the customers' label. Approximately 46% of Delta Apparel's
sales are to screen printers and approximately 32% to distributors, with the
balance of its sales to private label accounts. Generally, sales to distributors
and large printers are driven by availability of competitive products and price.
Margins are generally 4 to 10 percentage points higher in the private label
business, which is also characterized by slightly higher customer loyalty.
Delta Apparel's marketing is performed primarily by employed sales personnel
located throughout the country. Delta Apparel maintains a sales office in New
York City. Sales personnel call directly on the retail trade, contacting
department stores, distributors, screen printing companies and mass marketers
such as discount houses. Delta Apparel also utilizes independent sales
representatives to sell to screen printing companies. Most knit apparel items
are inventoried based on forecasts to permit quick shipment and to level
production schedules. Special knit apparel items and customer private label knit
apparel styles generally are made only to order.
Delta Apparel's sales reflect some seasonality, with sales during the first and
fourth fiscal quarters generally being highest, and sales during the second
fiscal quarter generally being the lowest.
As a vertically integrated operation, the Company converts raw fibers into
finished apparel utilizing company-owned and leased facilities, as well as
contractors and general suppliers for spinning, knitting, dyeing and finishing,
and cutting and sewing operations. Delta Apparel spins the majority of its yarn
at its modern facility in Edgefield, South Carolina, with the remainder being
purchased from outside vendors. The business knits, dyes and finishes, and cuts
the majority of its fabric in a company-owned plant in Maiden, North Carolina.
In order to expand its textile production capacity, Delta Apparel has
established an arrangement with a third party textile manufacturer under which
the manufacturer will supply textile fabrics to Delta Apparel. Delta Apparel
sews most of its garments in two leased facilities in Honduras and a small part
of its production at a company-owned plant in Georgia. Delta Apparel also uses
outside sewing contractors when demand exceeds internal production capacity or
it is cost-effective to do so. Approximately 36% of Delta Apparel's current
sewing requirements are satisfied by outside contractors. All products are
distributed from Delta Apparel's distribution center in Tennessee. During the
last five years, Delta Apparel has opened its two Honduras plants and closed
five sewing plants in the United States. Delta Apparel is currently establishing
a leased sewing facility in Mexico which the Company expects will commence
production by the end of calendar year 2000. At 2000, 1999, and 1998 fiscal year
ends, Delta Apparel's long-lived assets in Honduras comprised 15.6%, 6.6%, and
4.9%, respectively, of Delta Apparel's total net property, plant and equipment.
Delta Apparel's principal raw material is cotton. Cotton is acquired from
several suppliers. Delta Apparel's average price per pound of cotton purchased
and consumed (including freight and carrying cost) was $.601 in fiscal year
2000, $.678 in fiscal year 1999, and $.817 in fiscal year 1998. In fiscal year
2001 Delta Apparel expects to use over 40 million pounds of cotton in its
manufacture of yarn. Delta Apparel has contracted to purchase approximately 91%
and fixed the price on approximately 46% of its expected cotton requirements for
fiscal year 2001. The percentage of its cotton requirements that Delta Apparel
fixes each year varies depending upon its forecast of future cotton prices.
Current cotton market prices are at relatively low levels. Delta Apparel
believes that recent cotton prices have enabled it to contract for cotton at
prices that will permit it to be competitive with other companies in the United
States apparel industry when the cotton purchased for future use is put into
production. To the extent that cotton prices decrease before Delta Apparel uses
these future purchases, Delta Apparel could be materially and adversely
affected, as there can be no assurance that it would be able to pass along its
own relatively higher costs to its customers. In addition, to the extent that
cotton prices increase and Delta Apparel has not provided for its requirements
with fixed price contracts, Delta Apparel may be materially and adversely
affected, as there can be no assurance that it would be able to pass along these
increased costs to its customers.
No customer accounted for more than 10% of Delta Apparel's sales in fiscal year
2000, 1999 or 1998. Part of Delta Apparel's strategy is not to become dependent
on any particular customer.
Many customers place multi-month orders, but request shipment at their
discretion. Third party carriers are used to ship products to Delta Apparel's
customers.
ORDER BACKLOG
Delta Apparel's order backlog at July 1, 2000 was $14.3 million, a $10.2 million
decrease from the $24.5 million order backlog at July 3, 1999. In the third
quarter of fiscal 1999, as a result of excessive inventory quantities, Delta
Apparel began offering special pricing as part of Delta Apparel's inventory
reduction plan. This caused the July 3, 1999 order backlog to be unusually high
and to increase significantly over the June 27, 1998 backlog amount. Due to the
lower average inventory levels during fiscal 2000, these special pricing
allowances were not given, thereby causing the order backlog at July 1, 2000 to
be significantly less than at July 3, 1999. Delta Apparel believes that backlog
orders can give a general indication of future sales, although a growing
percentage of the Company's business is sold on an at once shipment basis to
catalog customers.
3
BUSINESS STRATEGY
Delta Apparel's strategy is to provide the best value to its customers with
respect to the products it manufactures. This strategy includes the following
components:
-Consistently produce high quality products.
-Provide excellent customer service with respect to rapid and
accurate delivery, a close tie in to the customers' inventory
needs and order monitoring.
-Shift the product mix to higher margin items.
-Take advantage of being largely a totally vertical producer
to reduce costs, plan efficient production, implement exacting
controls and provide consistent products.
-Use its Honduran facilities to manufacture most of its
product, taking advantage of the favorable wage differential
offered by that country.
-Establish a Mexican sewing plant to take advantage of the
favorable wage differential offered by that country and the
benefits offered by NAFTA.
-Use its Georgia plant to produce goods needed on a quick
turnaround basis.
-Increase the focus on a relatively small range of core basic
products.
-Have a balanced mix of customers.
-Continue to focus on the management of inventory and accounts
receivable to minimize risk and capital investment.
-Increase production capacity to the extent economically
feasible.
Delta Apparel's management believes that this strategy will take advantage of
the following market trends:
-Increasing coordination, including electronic data
interchange, between producers and retailers.
-Compression of the supply chain, with retailers monitoring
sales on a weekly or daily basis, carrying less inventory,
demanding quicker response times from producers and requiring
producers to keep the retailers' inventories stocked for quick
delivery.
-Because of the retailers' focus on cost reduction and
enhancing narrow margins, virtually all productive capacity
has gone off shore.
-Continued trend in the market toward more casual clothes.
COMPETITION
The cyclical nature of the apparel industry, characterized by rapid shifts in
fashion, consumer demand and competitive pressures, results in both price and
demand volatility. The demand for any particular product varies from time to
time based largely upon changes in consumer preferences and general economic
conditions affecting the apparel industry, such as consumer expenditures for
non-durable goods. The apparel industry is also cyclical because the supply of
particular products changes as competitors enter or leave the market.
Delta Apparel competes with a number of United States and Canadian branded and
private label manufacturers of knit apparel. Many of these companies are larger
in size and some have greater financial resources than Delta Apparel.
Some of Delta Apparel's competitors offer their product on consignment (whereby
the customer is not billed until the customer resells the product) or with
extended payment terms (90 to 180 days) to customers in some market segments.
Delta Apparel's current strategy does not include offering similar terms to its
customers. Delta Apparel believes that the long-term benefits of its approach
will outweigh any short-term loss of business that it may suffer as result of
this practice by some of its competitors.
Approximately three-quarters of the United States market sales of knit apparel
are made by three major knit apparel manufacturers which are Delta Apparel's
primary competitors. Based on mill dozens sold in 1998, Delta Apparel has an
approximate 5% share of the market
4
for decorated T-shirts for wholesalers and screen printers, which is up from 4%
in 1996 and makes it a second tier supplier to the market. In fiscal year 2000,
approximately 97% of Delta Apparel's sales were of T-shirts, 2% of Delta
Apparel's sales were of fleece sweatshirts and 1% of Delta Apparel's sales were
of other products.
The principal competitive factors are price, service, delivery time, quality and
flexibility, with the relative importance of each factor depending upon the
needs of particular customers and the specific product offering. Delta Apparel's
products face considerable price pressure. Delta Apparel's strategy is to
provide the best value to its customers. Favorable competitive aspects of Delta
Apparel's business are the relatively high quality of its products, its state of
the art information systems, its relatively low distribution and selling and
general administrative costs and the business' flexibility and process control,
which leads to product consistency. These advantages derive from Delta Apparel
being largely a totally vertical producer, its focus on service and quick order
turn around times and its relatively low distribution costs. Delta Apparel's
primary relative competitive disadvantage is that its Delta Apparel brand name
is not as well known as the brand names of its largest competitors, such as
Fruit-of-the-Loom(R), Hanes(R) and Russell(R).
EMPLOYEES
At July 1, 2000, Delta Apparel had approximately 2,200 full time employees.
Delta Apparel's employees are not represented by unions. Delta Apparel believes
that its relations with its employees are good.
ENVIRONMENTAL AND REGULATORY MATTERS
Delta Apparel is subject to various federal, state and local environmental laws
and regulations concerning, among other things, wastewater discharges, storm
water flows, air emissions, ozone depletion and solid waste disposal. Delta
Apparel's plants generate very small quantities of hazardous waste, which are
either recycled or disposed of off-site. Most of its plants are required to
possess one or more discharge permits.
On August 25, 2000, Delta Apparel's Maiden, North Carolina textile plant
received a Notice of Violation and Assessment of Civil Penalty amounting to $2.1
thousand for violation of the 11% chronic toxicity effluent discharge
limitation. A review of the facility's toxicity self-monitoring data from March,
2000 indicated a 4.1% chronic value, which is below the 11% limitation. Delta
Apparel has responded to the violation by reformulating the high salt dye
formulas. This has brought the Company within the permitted levels. Delta
Apparel believes that it is in compliance in all material respects with all
other federal, state, and local environmental statutes and requirements.
Delta Apparel's Maiden, North Carolina textile plant has received complaints
from downstream owners about the color of its effluent discharge into a river's
tributary. Although Delta Apparel's current NPDES permit, which expires in July
2001, does not regulate the color of effluent, some additional regulatory
control of color is likely to occur in the future. Delta Apparel believes that
it can reduce the color of its effluent discharge at an estimated cost of
approximately $200,000 to $300,000 per year.
As a result of environmental rules relating to waste water discharge, any
significant increase in production capacity of the Maiden, North Carolina plant
would require significant expenditures for environmental studies and, depending
on the results of those studies, possible significant other expenditures. The
plant holds a permit to discharge 1 million gallons of waste water per day. As a
result of process improvements, Delta Apparel has reduced the amount of waste
water discharge from 950,000 gallons to a current level of approximately 825,000
gallons per day.
Delta Apparel incurs capital and other expenditures in each year that are aimed
at achieving compliance with current and future environmental standards.
Generally, the environmental rules applicable to Delta Apparel are becoming
increasingly stringent. Delta Apparel does not expect that the amount of these
expenditures in the future will have a material adverse effect on its
operations, financial condition or liquidity. There can be no assurance,
however, that future changes in federal, state, or local regulations,
interpretations of existing regulations or the discovery of currently unknown
problems or conditions will not require substantial additional expenditures.
Similarly, the extent of Delta Apparel's liability, if any, for past failures to
comply with laws, regulations and permits applicable to its operations cannot be
determined.
RISK FACTORS
PRIOR TO FISCAL YEAR 2000, DELTA APPAREL HAD SIGNIFICANT OPERATING LOSSES AND
USED SIGNIFICANT AMOUNTS OF CASH IN ITS OPERATIONS AND THESE LOSSES AND THIS USE
OF CASH MAY RECUR.
Delta Apparel had operating losses of $9.7 million in the fiscal year ended July
3, 1999 and $17.8 million in the fiscal year ended June 27, 1998. Delta Apparel
had operating income of $12.2 million in the fiscal year ended July 1, 2000.
Net cash used in operating activities by Delta Apparel was $6.8 million in the
1999 fiscal year and $12.6 million in the 1998 fiscal year. During the 2000
fiscal year, Delta Apparel generated $16.5 million of cash from operations.
Delta Apparel believes that the primary factors that have contributed to its
recent positive operating results have been:
-Its use of its Honduras plants and sewing contractors with
facilities in the Caribbean basin to satisfy its sewing needs;
-Its effective utilization of the new information systems that
it has implemented;
5
-Efficiencies gained from the modernization of its textile
manufacturing operation in Maiden, North Carolina;
-The increased proportion of its sales to T-shirt screen
printers and sales to private label accounts; and
-The closing down by some of its competitors of manufacturing
capacity.
The benefits that these factors have provided to Delta Apparel may decline as
its competitors make similar or other changes to their operations. Such a change
in competitive conditions, coupled with the long-term trend of declining prices
for Delta Apparel's products, may cause Delta Apparel to incur operating losses
or to use significant amounts of cash in its operations. Significant operating
losses or significant uses by Delta Apparel of cash in its operations could
cause Delta Apparel to be unable to pay its debts as they become due and to
default on its credit facility, which would have an adverse effect on the value
of the Delta Apparel shares.
PRIOR TO FISCAL YEAR 2000, DELTA APPAREL'S NEEDS FOR CASH WERE GENERALLY MET BY
ADVANCES FROM DELTA WOODSIDE. SINCE MID-MAY 2000, DELTA APPAREL HAS BEEN
ENTIRELY DEPENDENT ON ITS OWN OPERATIONS AND THIRD PARTY LENDERS TO OBTAIN
NEEDED FINANCING.
Prior to fiscal year 2000, when the Delta Apparel operations needed funds for
operations or capital expenditures, it received those funds from Delta Woodside.
During the two fiscal years ended July 3, 1999, Delta Apparel used an aggregate
of $25.5 million of cash provided by Delta Woodside (of which $16.0 million was
used to pay interest to Delta Woodside on the affiliated debt owed by the Delta
Apparel Company division).
As a result of the Delta Apparel Distribution and related transactions, Delta
Apparel can no longer look to Delta Woodside to satisfy its cash flow needs.
DELTA APPAREL'S REVOLVING CREDIT FACILITY MAY NOT BE AVAILABLE OR SUFFICIENT TO
SATISFY DELTA APPAREL'S NEEDS FOR WORKING CAPITAL.
Delta Apparel expects that its peak borrowing needs will be in its third and
fourth fiscal quarters and that during those quarters it will be in its lowest
cash position or it could possibly be required to draw against the revolver
loan.
Delta Apparel's ability to borrow under its $25 million revolving credit
facility will be based upon, and thereby limited by, the amounts of its accounts
receivable and inventory. Any material deterioration in Delta Apparel's results
of operations could, therefore, result in a reduction in Delta Apparel's
borrowing base, which could cause Delta Apparel to lose its ability to borrow
additional amounts under its revolving credit facility or to issue additional
letters of credit to suppliers. In such a circumstance, the borrowing
availability under Delta Apparel's credit facility may not be sufficient for
Delta Apparel's working capital needs.
DEMAND FOR AND PRICING OF DELTA APPAREL'S PRODUCTS ARE LARGELY OUT OF DELTA
APPAREL'S CONTROL. EVEN THOUGH DELTA APPAREL'S STRATEGY IS TO BE A LOW COST
PRODUCER WITH A REPUTATION FOR QUALITY SERVICE, THIS STRATEGY MAY NOT BE
SUFFICIENT TO OFFSET DETRIMENTAL TRENDS IN DEMAND AND PRICING FOR DELTA
APPAREL'S PRODUCTS.
Prices for Delta Apparel's products have generally been dropping over the last
several years, even though demand for Delta Apparel's products has increased
since fiscal year 1998. The price declines have resulted from factors largely
outside Delta Apparel's control, such as excess supply capacity, the industry's
transfer of manufacturing out of the United States and declining raw material
prices. Demand for Delta Apparel's products is dependent on the general demand
for T-shirts and fleece goods and the availability of alternative sources of
supply.
Delta Apparel's strategy in this market environment is to be a low cost producer
and to differentiate itself by providing quality service to its customers. Even
if this strategy is successful, its results may be offset by large demand or
price declines.
DELTA APPAREL PURCHASES SIGNIFICANT AMOUNTS OF COTTON IN ITS BUSINESS. AS A
RESULT, EVEN SMALL INCREASES IN THE PRICE OF COTTON CAN SIGNIFICANTLY INCREASE
DELTA APPAREL'S PRODUCT COSTS.
Delta Apparel's principal raw material is cotton. In fiscal year 2001 Delta
Apparel expects to use more than 40 million pounds of cotton in its manufacture
of yarn. Accordingly, a one cent per pound increase in the average price of
cotton during that period would increase Delta Apparel's product costs by more
than $400,000.
The recent improvements in Delta Apparel's results of operations have been due
in part to the fact that cotton prices have declined over the last few years.
Delta Apparel has contracts that fix the prices it pays for cotton for a
significant portion of its short-term requirements, but these contracts provide
no price protection in the longer term. If cotton prices were to increase, Delta
Apparel may not be able to increase the prices of its products to offset the
corresponding increases in its product costs.
DELTA APPAREL'S ABILITY TO EXPAND PRODUCTION SIGNIFICANTLY IS LIMITED.
Delta Apparel's ability to increase production is constrained primarily by the
capacity of its textile manufacturing operation. The ability of Delta Apparel to
acquire fabric from outside sources is limited, and relatively significant
expenditures would be required to expand the productive capacity of its Maiden,
North Carolina textile plant.
6
DELTA APPAREL FACES INTENSE COMPETITION IN ITS MARKETS, AND DELTA APPAREL'S
FINANCIAL RESOURCES ARE NOT AS GREAT AS SEVERAL OF ITS COMPETITORS.
The domestic apparel industry is highly competitive. In part because there are
low economic barriers to entry into the apparel manufacturing business, a large
number of domestic and foreign manufacturers supply apparel into the United
States market.
Approximately three-quarters of the United States market sales of knit apparel
are made by three major knit apparel manufacturers that are Delta Apparel's
primary competitors. These primary competitors have brand names, such as
Fruit-of-the-Loom(R), Hanes(R) and Russell(R), that are far better known than
the Delta Apparel brand name. Based on mill dozens sold in 1998, Delta Apparel
has an approximate 5% share of the market for decorated T-shirts for wholesalers
and screen printers, which makes it a second tier supplier to the market.
Some of Delta Apparel's competitors have substantially greater financial,
marketing, personnel and other resources than does Delta Apparel. This may
enable Delta Apparel's competitors to compete more aggressively than can Delta
Apparel in pricing, marketing and other respects, to react more quickly to
market trends and to better weather market downturns.
THE FINANCIAL DIFFICULTIES OF SOME OF DELTA APPAREL'S COMPETITORS IS CURRENTLY
CREATING CONSIDERABLE UNCERTAINTY IN DELTA APPAREL'S MARKETS.
Currently, some of Delta Apparel's competitors are experiencing significant
financial difficulties. These difficulties may lead these competitors to sell
substantial amounts of goods at prices against which Delta Apparel cannot
effectively compete.
THERE MAY BE LITTLE INSTITUTIONAL INTEREST, RESEARCH COVERAGE OR TRADING VOLUME
IN THE DELTA APPAREL SHARES BECAUSE OF DELTA APPAREL'S SIZE. IN ADDITION, A
LARGE PERCENTAGE OF THE OUTSTANDING DELTA APPAREL SHARES ARE HELD BY A FEW
INSTITUTIONAL INVESTORS WHO ARE FREE TO SELL THEIR DELTA APPAREL SHARES AT ANY
TIME. THESE FACTORS COULD HAVE A MAJOR DEPRESSIVE EFFECT ON THE MARKET PRICE OF
THE DELTA APPAREL SHARES FOR AN INDETERMINATE PERIOD OF TIME.
Various investment banking firms have informed Delta Apparel that public
companies with relatively small market capitalizations have difficulty
generating institutional interest, research coverage or trading volume, which
illiquidity can translate into price discounts as compared to industry peers or
to the shares' inherent value. Delta Apparel believes that the market will
perceive it to have a relatively small market capitalization. In addition, some
of Delta Woodside's stockholders who receive Delta Apparel shares in the Delta
Apparel Distribution may wish to dispose of those shares because they do not
meet the stockholders' investment objectives regardless of the shares' value or
prospects. Moreover, the financial difficulties of other companies in Delta
Apparel's industry are likely to have a depressive effect on the market for the
Delta Apparel shares. Coupled with Delta Apparel's prior history of operating
losses, these factors could lead to Delta Apparel's shares trading at prices
that are significantly lower than Delta Apparel's estimate of their inherent
value.
As of September 20, 2000, Delta Apparel had outstanding approximately 2,411,643
shares of common stock. Delta Apparel believes that approximately 67.8% of this
stock is beneficially owned by persons who beneficially own more than 5% of the
outstanding shares of Delta Apparel common stock and related individuals, and
that of this approximately 29.2% of the outstanding stock is beneficially owned
by institutional investors. Sales of substantial amounts of Delta Apparel common
stock in the public market by any of these large holders could adversely affect
the market price of the common stock.
POLITICAL AND ECONOMIC UNCERTAINTY IN HONDURAS COULD ADVERSELY AFFECT DELTA
APPAREL.
Delta Apparel has two company-operated sewing facilities located in Honduras.
The Honduran labor market has recently tightened, which has had some adverse
effects on most industries located in Honduras. In addition, Delta Apparel might
be adversely affected if economic or legal changes occur in Honduras that affect
the way in which Delta Apparel conducts its business in that country. For
example, a growing economy could lower unemployment which could increase wage
rates or make it difficult to retain employees or employ enough people to meet
demand. The government could also decide to add additional holidays or change
employment law increasing Delta Apparel's costs to produce.
DELTA APPAREL'S RESULTS COULD BE ADVERSELY AFFECTED BY U.S. TRADE REGULATIONS.
Delta Apparel's products are subject to foreign competition, which in the past
has been faced with significant U.S. government import restrictions. Foreign
producers of apparel often have significant labor cost advantages. Given the
number of these foreign producers, the substantial elimination of import
protections that protect domestic apparel producers could materially adversely
affect Delta Apparel's business. The extent of import protection afforded to
domestic apparel producers has been, and is likely to remain, subject to
considerable political considerations.
The North American Free Trade Agreement (which this document refers to as
"NAFTA") became effective on January 1, 1994 and has created a free-trade zone
among Canada, Mexico and the United States. NAFTA contains a rule of origin
requirement that products be produced in one of the three countries in order to
benefit from the agreement. NAFTA has phased out all trade restrictions and
tariffs among the three countries on apparel products competitive with those of
Delta Apparel. Because most of Delta Apparel's internal production of apparel
currently occurs outside of the NAFTA territory, NAFTA may adversely affect
Delta Apparel so long as Delta Apparel has manufacturing facilities outside of
the three NAFTA countries.
7
Delta Apparel, along with all of its major competition, makes use of provisions
of the tariff code that are commonly referred to as Section 807 and Section
807A. Section 807 provides for the duty-free treatment of United States origin
components used in the assembly of imported articles. The result is that duty is
assessed only on the value of any foreign components that may be present and the
labor cost incurred offshore in the assembly of apparel using United States
origin fabric components. Pursuant to Section 807A, apparel articles assembled
in a Caribbean country (such as Honduras), in which all fabric components have
been wholly formed and cut in the United States (such as at Delta Apparel's
Maiden plant in North Carolina), are subject to preferential quotas with respect
to access into the United States for such qualifying apparel, in addition to the
significant tariff reduction pursuant to Section 807. Apparel not meeting the
criteria of Section 807, Section 807A or NAFTA is subject to quotas and/or
relatively higher tariffs, except as may result under the Trade and Development
Act of 2000, as noted below. Delta Apparel believes that, if Section 807 or
Section 807A or any similar program were repealed or adversely altered in whole
or in part, Delta Apparel would be at a serious competitive disadvantage
relative to textile and apparel manufacturers in the rest of the world seeking
to enter the United States market.
The Trade and Development Act of 2000 (often referred to as the "CBI Parity
Bill") will become effective on October 1, 2000. Delta Apparel believes that the
provisions of the CBI Parity Bill will have the following effects most relevant
to its business:
-Apparel assembled in most Caribbean nations (such as
Honduras) from fabric formed and cut in the United States of
U.S. yarn can enter the United States duty-free;
-Apparel cut and sewn in most Caribbean nations from fabric
formed in the United States of U.S. yarn can enter the United
States duty-free so long as it is sewn with U.S. manufactured
thread; and
-Certain limits of apparel made from fabric formed in certain
Caribbean nations of U.S. yarn and cut and sewn in those
nations can enter the United States duty-free.
Apparel entering the United States under any of these three provisions will not
be subject to any quotas that may exist for that specific category of goods.
Delta Apparel believes that the CBI Parity Bill will give it a competitive
advantage relative to apparel manufacturers outside of the Caribbean and improve
its competitive position relative to apparel manufacturers inside the non-U.S.P
NAFTA countries. Subsequent repeal or adverse alteration of the CBI Parity Bill
could put Delta Apparel at a serious competitive disadvantage relative to such
manufacturers.
The World Trade Organization (which this document refers to as the "WTO"), a new
multilateral trade organization, was formed in January 1995 and is the successor
to the General Agreement on Tariffs and Trade. This new multilateral trade
organization has set forth mechanisms by which world trade in clothing is being
progressively liberalized by phasing-out quotas and reducing duties over a
period of time that began in January of 1995. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which are generally exporters of textile and apparel
products) that are members of the WTO to get them to reduce their tariffs on
imports of textiles and apparel in exchange for reductions by the United States
in tariffs on imports of textiles and apparel. The elimination of quotas and the
reduction of tariffs under the WTO may result in increased imports of certain
apparel products into North America. These factors could make Delta Apparel's
products less competitive against low cost imports from developing countries.
DELTA APPAREL IS DEPENDENT ON ITS TRADEMARKS.
Delta Apparel relies on the strength of its trademarks. Approximately 75% of
Delta Apparel's products are currently sold under the Delta Apparel(R) brand.
Delta Apparel has incurred legal costs in the past to establish and protect its
trademarks, but this cost has not been significant. Delta Apparel may in the
future be required to expend resources to protect these trademarks. The loss or
limitation of the exclusive right to use its trademarks could adversely affect
Delta Apparel's sales and results of operations.
A LOSS OF KEY MANAGEMENT PERSONNEL, PARTICULARLY ROBERT W. HUMPHREYS, COULD
ADVERSELY AFFECT DELTA APPAREL.
Delta Apparel's success depends upon the talents and efforts of a small number
of key management personnel, particularly Robert W. Humphreys (President and
Chief Executive Officer of Delta Apparel). The loss or interruption of the
services of these executives could have a material adverse effect on Delta
Apparel. Delta Apparel has no assurance that it would be able to find
replacements for its key management with equivalent skills or experience in a
timely manner or at all.
DELTA APPAREL'S BUSINESS IS SEASONAL.
Historically, Delta Apparel's business has been seasonal, with peak sales
occurring in the first and fourth quarters of its fiscal year. In response to
this seasonality, Delta Apparel generally increases its inventory levels, and
thereby has higher working capital needs, during the third and fourth quarters
of its fiscal year to meet customer demands for the peak first and fourth fiscal
quarter seasons.
DELTA APPAREL'S RESULTS WILL LIKELY BE CYCLICAL.
Delta Apparel and the U.S. apparel industry are sensitive to the business cycle
of the national economy. Moreover, the popularity, supply and demand for
particular apparel products can change significantly from year to year based on
prevailing fashion trends and other factors.
8
Reflecting the cyclical nature of the apparel industry, many apparel producers
tend to increase capacity during years in which sales are strong. These
increases in capacity tend to accelerate a general economic downturn in the
apparel markets when demand weakens.
These factors have contributed historically to fluctuations in Delta Apparel's
results of operations and these fluctuations are expected to occur in the
future. Delta Apparel may be unable to compete successfully in any industry
downturn.
DELTA APPAREL DEPENDS ON OUTSIDE PRODUCTION FOR A SIGNIFICANT PORTION OF ITS
PRODUCTION.
Delta Apparel currently sources from third party suppliers 25% to 40% of the
sewing production it requires. Any shortage of supply or significant price
increases from Delta Apparel's suppliers could adversely affect Delta Apparel's
results of operations.
DELTA APPAREL'S CREDIT AGREEMENT IMPOSES RESTRICTIONS THAT, IF BREACHED BY DELTA
APPAREL, MAY PREVENT IT FROM BORROWING UNDER ITS REVOLVING CREDIT FACILITY AND
RESULT IN THE EXERCISE OF REMEDIES BY THE CREDIT AGREEMENT LENDER.
Delta Apparel's credit agreement contains covenants that restrict, among other
things, the ability of Delta Apparel and its subsidiaries to incur indebtedness,
create liens, consolidate, merge, sell assets or make investments. The credit
agreement also contains customary representations and warranties, funding
conditions and events of default.
A breach of one or more covenants or any other event of default under the Delta
Apparel credit agreement could result in an acceleration of Delta Apparel's
obligations under that agreement, in the foreclosure on any assets subject to
liens in favor of the credit agreement's lender and in the inability of Delta
Apparel to borrow additional amounts under the credit agreement.
ENVIRONMENTAL RULES COULD ADVERSELY AFFECT DELTA APPAREL.
Delta Apparel's operations must meet extensive federal, state and local
regulatory standards in the areas of safety, health and environmental pollution
controls. In addition, there can be no assurance that future changes in federal,
state, or local regulations, interpretations of existing regulations or the
discovery of currently unknown problems or conditions will not require
substantial additional expenditures. Similarly, the extent of Delta Apparel's
liability, if any, for past failures to comply with laws, regulations and
permits applicable to its operations cannot be determined.
DELTA APPAREL MAY BE RESPONSIBLE FOR ANY HISTORICAL TAX LIABILITIES OF DELTA
WOODSIDE AND DUCK HEAD THAT DELTA WOODSIDE OR DUCK HEAD DOES NOT PAY.
Prior to the Delta Apparel Distribution, Delta Apparel was a member of Delta
Woodside's consolidated group for federal income tax purposes. Each member of a
consolidated group is jointly and severally liable for the federal income tax
liability of the other members of the group. After the Delta Apparel
Distribution, Delta Apparel, along with Delta Woodside and Duck Head, will
continue to be liable for these Delta Woodside liabilities that were incurred
for periods before the Delta Apparel Distribution.
Delta Apparel, Delta Woodside and Duck Head have entered into the Tax Sharing
Agreement. This agreement generally seeks to allocate consolidated federal
income tax liabilities to Delta Woodside for all periods prior to and including
the Delta Apparel Distribution. Under this agreement, Delta Woodside generally
retains the authority to file returns, respond to inquiries and conduct
proceedings on Delta Apparel's behalf with respect to consolidated federal
income tax returns for periods beginning before the Delta Apparel Distribution.
In addition, Delta Woodside has the authority to decide all disputes that arise
under the Tax Sharing Agreement. These arrangements may result in conflicts of
interest among Delta Apparel, Delta Woodside and Duck Head. In addition, if
Delta Woodside does not satisfy any of its liabilities respecting any period
prior to the Delta Apparel Distribution, Delta Apparel could be responsible for
satisfying them, notwithstanding the Tax Sharing Agreement.
DELTA APPAREL'S PRINCIPAL STOCKHOLDERS WILL EXERT SUBSTANTIAL INFLUENCE.
As of September 20, 2000, two members of Delta Apparel's board of directors and
related individuals had the voting power in Delta Woodside shares that results
in voting power with respect to approximately 24.6% of the outstanding Delta
Apparel common stock. These individuals will exert substantial influence with
respect to all matters submitted to a vote of stockholders, including elections
of Delta Apparel's directors.
VARIOUS RESTRICTIONS AND AGREEMENTS COULD HINDER ANY ATTEMPT BY A THIRD PERSON
TO CHANGE CONTROL OF DELTA APPAREL.
Delta Apparel has entered into a rights agreement providing for the issuance of
rights that will cause substantial dilution to any person or group of persons
that acquires 20% or more of the outstanding Delta Apparel common shares without
the rights having been redeemed by the Delta Apparel board. In addition, Delta
Apparel's articles of incorporation and bylaws and the Official Code of Georgia
contain provisions that could delay or prevent a change in control of Delta
Apparel in a transaction that is not approved by its board of directors. These
include provisions requiring advance notification of stockholder nominations for
director and stockholder proposals, setting forth additional factors to be
considered by the board of directors in evaluating extraordinary transactions,
prohibiting cumulative voting, limiting business combinations with stockholders
that have a significant beneficial ownership in Delta Apparel shares, and
prohibiting stockholders from calling a special meeting. Moreover, Delta
Apparel's board of directors has the authority, without further action by the
stockholders, to set the terms of and to
9
issue preferred stock. Issuing preferred stock could adversely affect the voting
power of the owners of Delta Apparel common stock, including the loss of voting
control to others.
Delta Apparel's credit agreement also provides that a "change of control", as
defined in that agreement, would be an event of default and includes
restrictions on the ability of Delta Apparel and its subsidiaries to pay
dividends and make share repurchases.
All of these provisions could deter or prevent an acquirer that is interested in
acquiring Delta Apparel from doing so.
ITEM 2. PROPERTIES
Delta Apparel's principal administrative, sales, and marketing operations are
located in a leased facility in Duluth, Georgia. The lease is for approximately
18,600 square feet and expires in February, 2006 and has one option to extend
the lease for a five year term. The Company also has a leased sales office in
New York City. The lease is for approximately 648 square feet and expires in
November, 2003. The following table provides a description of Delta Apparel's
principal production and warehouse facilities.
------------------------------------------------ ---------------------------- ----------------- ------------------
Location Utilization Approximate Owned/
Square Leased
Footage
------------------------------------------------ ---------------------------- ----------------- ------------------
Rainsford Plant, Edgefield, SC Spin 296,000 Owned
------------------------------------------------ ---------------------------- ----------------- ------------------
Maiden Plant, Maiden, NC Knit/dye/finish/cut 305,000 Owned
------------------------------------------------ ---------------------------- ----------------- ------------------
Washington Plant, Washington, GA Sew 129,800 Owned
------------------------------------------------ ---------------------------- ----------------- ------------------
Distribution Center, Knoxville, TN Distribution 550,000 Owned
------------------------------------------------ ---------------------------- ----------------- ------------------
Honduras Plant, San Pedro Sula, Honduras Sew 70,000 Leased (1)
------------------------------------------------ ---------------------------- ----------------- ------------------
Honduras Plant, San Pedro Sula, Honduras Sew 30,000 Leased (1)
------------------------------------------------ ---------------------------- ----------------- ------------------
Mexico Plant, Campeche, Mexico Sew 47,000 Leased (2)
------------------------------------------------ ---------------------------- ----------------- ------------------
(1) The lease of each of these Honduras plants expires in November 2000. Delta
Apparel has an option to extend each lease for an additional 5 years.
(2) The lease of the Mexico plant expires in June 2010. Delta Apparel has an
option to extend the lease for an additional 5 years.
Substantially all of Delta Apparel's assets are subject to liens in favor of
Delta Apparel's credit agreement lender.
Various factors affect the relative use by Delta Apparel of its own facilities
and outside contractors in the various apparel production phases. Delta Apparel
is currently using the majority of its internal production capacity.
Delta Apparel believes that its equipment and facilities are generally adequate
to allow it to remain competitive with its principal competitors.
ITEM 3. LEGAL PROCEEDINGS
In April 1994, a product liability and wrongful death lawsuit, captioned Scelza,
et al. v. Caldor, Inc., et al, was filed in the Supreme Court of the State of
New York in New York County, New York, against Duck Head Apparel Company, Inc.,
a Tennessee corporation (which conducted the Delta Apparel Company division's
business and the Duck Head Apparel Company division's business), and other
parties. Venue of the lawsuit has been changed to the Supreme Court of the State
of New York in Westchester County, New York. The lawsuit seeks $95 million, plus
punitive damages and attorneys' fees, for the death in January 1993 of Mrs.
Scelza allegedly caused by her bodysuit and Duck Head sweatshirt catching fire
while she used a gas range. The lawsuit was previously stayed as a result of the
bankruptcy of Caldor, Inc., a defendant in the case. The case is still in the
preliminary stages and very little discovery has been completed. Because the
allegedly defective sweatshirt would have been manufactured by the Delta Apparel
Company division (if it was a Duck Head sweatshirt), Delta Apparel has agreed in
the Distribution Agreement to indemnify Delta Woodside and Duck Head with
respect to this lawsuit. Delta Apparel believes that any reasonably likely
judgment in the lawsuit would be covered by insurance and, therefore, does not
believe that the lawsuit will have a material adverse effect on Delta Apparel's
operations, financial condition or liquidity.
All other pending litigation to which Delta Apparel is a party is ordinary
routine product liability litigation or contract breach litigation incident to
its business that does not depart from the normal kind of such actions. Delta
Apparel believes that none of these actions, if adversely decided, would have a
material adverse effect on its results of operations, financial condition or
liquidity taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the Company's 2000 fiscal year following the Delta Apparel Distribution.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information for Common Stock
The common stock of the Company is listed on the American Stock Exchange. The
common stock was first traded on the Exchange on June 30, 2000 concurrent with
the Delta Apparel Distribution. On that date, the high and low sales prices for
Delta Apparel's common stock were $9.25 and $8.75, respectively. Prior to the
Delta Apparel Distribution, Delta Apparel was a wholly-owned subsidiary of Delta
Woodside and there was no established public trading market for the Company's
shares.
Holders
At September 20, 2000, there were approximately 1,707 holders of record of
common stock.
Dividends
No dividends were declared on the Company's common stock in fiscal 2000. Subject
to the provisions of any outstanding blank check preferred stock, the holders of
Delta Apparel common stock are entitled to receive whatever dividends, if any,
may be declared from time to time by the Delta Apparel board of directors in its
discretion from funds legally available for that purpose. Delta Apparel's credit
agreement permits the payment of cash dividends in an amount up to 25% of
cumulative net income (excluding extraordinary or unusual non-cash items),
provided that no event of default exists or would result from that payment and
after the payment at least $6.0 million remains available to borrow under the
revolving credit facility.
Delta Apparel expects that it will from time to time consider the advisability
of instituting a dividend program. In general, any future cash dividend payments
will depend upon Delta Apparel's earnings, financial condition, capital
requirements, compliance with loan covenants and other relevant factors.
Recent Sales of Unregistered Securities
Following Delta Apparel's incorporation on December 10, 1999, Delta Apparel
issued 100 shares of its common stock for aggregate consideration of $100 to its
parent corporation, Duck Head Apparel Company, Inc., a Tennessee corporation
which was an indirect wholly-owned subsidiary of Delta Woodside, in a
transaction that was not registered under the Securities Act of 1933 because of
the exemption from registration provided by Section 4(2) of that Act. As part of
the Intercompany Reorganization described in "Business - Delta Apparel
distribution and related transactions", Delta Apparel's parent corporation
merged into its immediate parent corporation, which in turn merged into Delta
Woodside. On June 28, 2000, prior to the Delta Apparel Distribution, Delta
Apparel issued as a stock dividend to Delta Woodside, in a transaction that did
not constitute a sale under the Securities Act of 1933, the number of additional
Delta Apparel shares needed so that the Delta Apparel Distribution could be
effected.
ITEM 6. SELECTED FINANCIAL DATA
The material under the heading "Selected Financial Data" in the Company's annual
report to stockholders for the year ended July 1, 2000 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The material under the heading "Management's Discussion and Analysis of Results
of Operations and Financial Condition" in the Company's annual report to
stockholders for the year ended July 1, 2000 is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk Sensitivity
The Company purchases cotton from approximately seven established merchants with
whom it has long standing relationships. The majority of the Company's purchases
are executed using "on-call" contracts. These on-call arrangements are used to
insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts.
Cotton on-call with a fixed price at July 1, 2000 was valued at $10.8 million,
and is scheduled for delivery between July, 2000 and December, 2000. At July 1,
2000, the Company had unpriced contracts for deliveries between September, 2000
and June, 2001. Based on the prevailing
11
price at July 1, 2000, the value of these commitments are approximately $11.3
million. As commodity price aberrations are generally short-tem in nature, and
have not historically had a significant long-term impact on operating
performance, financial instruments are not used to hedge commodity price risk.
At July 1, 2000, a 10% decline in the market price of the cotton covered by
Delta Apparel's fixed price contracts would have had a negative impact of
approximately $1.1 million on the value of the contracts.
Interest Rate Sensitivity
Delta Apparel's credit agreement provides that the interest rate on outstanding
amounts owed shall bear interest at variable rates. If the amounts of
outstanding indebtedness at July 1, 2000 under the term loan were outstanding
for the entire year and the interest rate on this outstanding indebtedness were
increased by 1%, Delta Apparel's expense would be approximately $0.1 million
higher than at the current rate of interest. The actual increase in interest
expense resulting from a change in interest rates would depend on the magnitude
of the increase in rates and the average principal balance outstanding.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The material included under the heading "Independent Auditors' Report" and the
consolidated financial statements and related notes thereto included in the
Company's annual stockholders' report for the year ended July 1, 2000 are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference from
the portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the headings "Election of Directors", "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance".
Effective September 14, 2000, Bettis C. Rainsford resigned as a director of the
Company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the headings "Management Compensation" and
"Compensation Committee Interlocks and Insider Participation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the portion of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the heading "Stock Ownership of Principal
Shareholders and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the portion of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the heading "Related Party Transactions".
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Delta Apparel, Inc.
and subsidiaries included in the Company's annual report to
stockholders are incorporated herein by reference:
Consolidated balance sheets--July 1, 2000 and July 3, 1999.
Consolidated statements of operations--Years ended July 1,
2000, July 3, 1999 and June 27, 1998.
Consolidated statements of stockholders' equity/divisional
deficit--Years ended July 1, 2000, July 3, 1999 and June 27,
1998.
Consolidated statements of cash flows--Years ended July 1,
2000, July 3, 1999 and June 27, 1998.
Notes to consolidated financial statements.
The following consolidated financial statement schedule of Delta
Apparel, Inc. and subsidiaries is included in Item 14(d):
Schedule II -- Consolidated Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted. Columns omitted from schedules filed have
been omitted because the information is not applicable.
(a)(3) Listing of Exhibits*
2.1 Distribution Agreement by and among Delta Woodside Industries,
Inc, DH Apparel Company, Inc. (since renamed Duck Head Apparel
Company, Inc.) and the Company (excluding schedules and
exhibits): Incorporated by reference to Exhibit 2.1 to the
Company's Form 10.
3.1 Articles of Incorporation of the Company: Incorporated by
reference to Exhibit 3.1 to the Company's Form 10.
3.2.1 Bylaws of the Company: Incorporated by reference to Exhibit
3.2.1 to the Company's Form 10.
3.2.2 Amendment to Bylaws of the Company adopted January 20, 2000:
Incorporated by reference to Exhibit 3.2.2 to the Company's
Form 10.
3.2.3 Amendment to Bylaws of the Company adopted February 17, 2000:
Incorporated by reference to Exhibit 3.2.3 to the Company's
Form 10.
3.2.4 Amendment to Bylaws of the Company adopted June 6, 2000:
Incorporated by reference to Exhibit 3.2.4 to the Company's
Form 10.
4.1 See Exhibits 3.1, 3.2.1, 3.2.2, 3.2.3, 3.2.4, 10.8.1, 10.8.2,
10.8.3, 10.8.4 and 10.8.5.
4.2 Specimen certificate for common stock, par value $0.01 per
share, of the Company: Incorporated by reference to Exhibit
4.2 to the Company's Form 10.
4.3 Shareholder Rights Agreement, dated January 27, 2000, by and
among the Company and First Union National Bank: Incorporated
by reference to Exhibit 4.3 to the Company's Form 10.
10.1 See Exhibits 2.1 and 4.3.
10.2 Tax Sharing Agreement by and among Delta Woodside Industries,
Inc., Duck Head Apparel Company, Inc. and the Company:
Incorporated by reference to Exhibit 2.2 to the Report on Form
8-K of Delta Woodside Industries, Inc. (File No. 1-10095) with
date of June 30, 2000.
10.3.1 Letter dated December 14, 1998, from Delta Woodside
Industries, Inc. to Robert W. Humphreys: Incorporated by
reference to the Form 10-Q/A of Delta Woodside Industries,
Inc. for the quarterly period ended December 26, 1998
(Commission File No. 1-10095).**
10.3.2 Letter dated April 22, 1999, from Delta Woodside Industries,
Inc. to Robert W. Humphreys: Incorporated by reference to the
Form 10-K of Delta Woodside Industries, Inc. for the fiscal
year ended July 3, 1999 (Commission File No. 1-10095).**
13
10.4 Delta Apparel, Inc. 2000 Stock Option Plan, Effective as of
February 15, 2000, Amended & Restated March 15, 2000:
Incorporated by reference to Exhibit 10.4 to the Company's
Form 10.**
10.5 Delta Apparel, Inc. Incentive Stock Award Plan, Effective
February 15, 2000, Amended & Restated March 15, 2000:
Incorporated by reference to Exhibit 10.5 to the Company's
Form 10.**
10.6 Delta Apparel, Inc. Deferred Compensation Plan for Key
Managers: Incorporated by reference to Exhibit 10.6 to the
Company's Form 10.**
10.7 Form of Amendment of Certain Rights and Benefits Relating to
Stock Options and Deferred Compensation by and between Delta
Woodside Industries, Inc., the Company and certain
pre-spin-off Delta Woodside Industries, Inc. plan
participants: Incorporated by reference to Exhibit 10.7 to the
Company's Form 10.**
10.7.1 List of directors and officers of the Company who signed the
document described in Exhibit 10.7.
10.8.1 Collateral Assignment of Acquisition Agreements dated May 16,
2000 by and among DH Apparel Company, Inc., Delta Apparel,
Inc. in favor of Congress Financial Corporation (Southern):
Incorporated by reference to Exhibit 10.8.1 to the Company's
Form 10.
10.8.2 Loan and Security Agreement by and between Congress Financial
Corporation (Southern), Delta Apparel, Inc., dated May 16,
2000 (excluding exhibits and schedules): Incorporated by
reference to Exhibit 10.8.2 to the Company's Form 10.
10.8.3 Term Promissory Note in the principal amount of $10,000,000
dated May 16, 2000 by Delta Apparel, Inc. in favor of Congress
Financial Corporation (Southern): Incorporated by reference to
Exhibit 10.8.3 to the Company's Form 10.
10.8.4 Pledge and Security Agreement dated May 16, 2000 by Delta
Apparel, Inc. by and in favor of Congress Financial
Corporation (Southern) (excluding exhibits and schedules):
Incorporated by reference to Exhibit 10.8.4 to the Company's
Form 10.
10.8.5 Trademark Security Agreement dated May 16, 2000 by and between
Delta Apparel, Inc. and Congress Financial Corporation
(Southern) (excluding exhibits and schedules): Incorporated by
reference to Exhibit 10.8.5 to the Company's Form 10.
10.9 Form of Agreement Respecting Delta Woodside Industries, Inc.
Long Term Incentive Plan dated in June 2000: Incorporated by
reference to Exhibit 10.9.1 to Annual Report on Form 10-K for
fiscal year ended July 1, 2000 of Delta Woodside Industries,
Inc. (Commission File No. 1-10095.)**
13 Annual Report to Stockholders for fiscal year 2000.
21 Subsidiaries of the Company.
23 Report on Schedule for the years ended July 1, 2000, July 3,
1999 and June 27, 1998.
27 Financial Data Schedule (electronic filing only).
* All reports previously filed by the Company with the
Commission pursuant to the Securities Exchange Act, and the
rules and regulations promulgated thereunder, exhibits of
which are incorporated to this Report by reference thereto,
were filed under Commission File Number 1-15583.
** This is a management contract or compensatory plan or
arrangement.
The registrant agrees to furnish supplementally to the Securities and
Exchange Commission a copy of any omitted schedule or exhibit to any of
the above filed exhibits upon request of the Commission.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the fiscal
quarter ended July 1, 2000.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 APPAREL, INC.
(Registrant)
September 28, 2000 By: /s/ Herbert M. Mueller
- -------------------------------------------- ----------------------------------------
Date Herbert M. Mueller
Vice President, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ C. C. Guy 9/27/00 /s/ Max Lennon 9/28/00
- -------------------------------------------- ----------------------------------------
C. C. Guy Date Max Lennon Date
Director Director
/s/ Buck A. Mickel 9/27/00
/s/ William F. Garrett 9/27/00 ----------------------------------------
- -------------------------------------------- Buck A. Mickel Date
William F. Garrett Date Director
Director
/s/ Herbert M. Mueller 9/28/00
/s/ Robert W. Humphreys 9/26/00 ----------------------------------------
- -------------------------------------------- Herbert M. Mueller Date
Robert W. Humphreys Date Vice President, Chief Financial Officer
President, Chief Executive Officer & & Treasurer (principal financial officer
Director and principal accounting officer)
/s/ James F. Kane 9/28/00
- --------------------------------------------
James F. Kane Date
Director
15
SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
DELTA APPAREL, INC.
(In thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Beg Expense Charged to Other Credits Issued End
--------------- ---------------- --------------------- ------------------- ----------------
2000 $ 3,199 269 --- (1,558) 1,910
1999 776 2,795 --- (372) 3,199
1998 443 685 --- (352) 776
RETURNS AND ALLOWANCES
Beg Expense Charged to Other Credits Issued End
--------------- ---------------- --------------------- ------------------- ----------------
2000 1,855 1,196 --- (2,535) 516
1999 553 2,059 --- (757) 1,855
1998 141 195 483 (266) 553
TOTAL
Beg Expense Charged to Other Credits Issued End
--------------- ---------------- --------------------- ------------------- ----------------
2000 $ 5,054 1,465 --- (4,093) 2,426
1999 1,329 4,854 --- (1,129) 5,054
1998 584 880 483 (618) 1,329
16
EXHIBIT INDEX
10.7.1 List of directors and officers of the Company who signed the
document described in Exhibit 10.7.
13 Annual Report to Stockholders for fiscal year 2000.
21 Subsidiaries of the Company.
23 Report on Schedule for the years ended July 1, 2000, July 3,
1999 and June 27, 1998.
17
EXHIBIT 10.7.1
18
DIRECTORS AND OFFICERS
Listed below are the directors and officers of the Company who signed the
document described in Exhibit 10.7:
1) Robert W. Humphreys
2) Herbert M. Mueller
19
EXHIBIT 13
20
2000 ANNUAL REPORT
(Delta Apparel logo appears here)
To Our Fellow Stockholders:
Fiscal 2000 was an exciting year at Delta Apparel. As you know, on June 30, 2000
Delta Apparel, Inc. was spun-off from our parent corporation, Delta Woodside
Industries, Inc. Our stock now trades on the American Stock Exchange under the
symbol DLA. Perhaps more important than the spin-off, during the past fiscal
year Delta Apparel made a solid operating profit after several years of
unacceptable performance.
As a part of the spin-off strategy, Delta Apparel was able to keep a large
equity base. This large equity base, combined with the strong cash flow
generated during the past year, has positioned Delta Apparel with a conservative
financial structure that will serve us well in the future.
For several years our company had concentrated on improving its manufacturing
operations and lowering product costs. While considerable progress was made,
these efforts did not result in positive operating results. This year we
developed a business plan to coordinate our manufacturing operations with a new
marketing direction. We concentrated on expanding our business with customers
well positioned to grow. We also concentrated on managing the distribution
channels our products are sold through to ensure we were building our business
for the future. These strategies resulted in increased demand for our products,
which allowed us to make more efficient use of our manufacturing operations,
while reducing our selling, general, and administrative expenses.
These improvements resulted in an operating profit of over $12 million. Average
inventories were reduced during the year resulting in much higher inventory
turns. We were also able to attract customers willing to purchase our products
on shorter payment terms, resulting in lower accounts receivable despite an
increase in sales.
We now believe Delta Apparel is positioned to generate a superior return on the
capital invested in the business. Our capital expenditures were modest during
the past year, and we will continue to carefully invest the capital available to
us. We do, however, believe we have the ability to grow our business in the
upcoming year and have operating profit growth at a multiple of our sales growth
rate.
A key part of our growth strategy will be to continue to expand our
manufacturing base in low cost countries. On August 3, 2000 we held a
groundbreaking ceremony for a new sewing facility in Campeche, Mexico. We are
considering an option to start phase two of this expansion at a later date,
which would include a textile operation. These facilities will be leased from a
local real estate developer thereby reducing our capital commitment and
providing flexibility for the future.
Delta Apparel has approximately 2,200 employees located in four states, Honduras
and Mexico. We all appreciate the opportunity you have given us to be the
stewards of your investment. As an independent company, our performance will now
be clear to all interested parties. We hope this visibility, combined with our
improved results, will help you achieve an adequate return on your investment in
Delta Apparel. All of us are excited to continue to work on your behalf in the
upcoming year and hope to meet many of you at our upcoming annual meeting.
Robert W. Humphreys
President and
Chief Executive Officer
21
CONTENTS:
Letter to Stockholders.......................................Inside Front Cover
Selected Financial Data.......................................................1
Management's Discussion and Analysis........................................2-6
Independent Auditors' Report..................................................7
Consolidated Financial Statements..........................................8-20
Market Information for Common Stock...........................Inside Back Cover
Corporate Directory...........................................Inside Back Cover
SELECTED FINANCIAL DATA
The selected financial data of Delta Apparel set forth below should be read in
conjunction with Delta Apparel's consolidated financial statements, including
the notes to those statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The consolidated financial
statements of Delta Apparel include the operations and accounts of the Delta
Apparel Company division, which consisted of operations and accounts included in
various subsidiaries of Delta Woodside, and from April 1998 the operations and
net assets of the Rainsford Yarn Mill, operational control of which was
transferred to the Delta Apparel Company division as of that date. The
consolidated statement of operations data for the year ended June 29, 1996, and
the consolidated balance sheet data as of June 29, 1996 and June 28, 1997, are
derived from unaudited consolidated financial statements not included in this
document. The consolidated statement of operations data for the year ended June
28, 1997, and the consolidated balance sheet data as of June 27, 1998, are
derived from, and are qualified by reference to, Delta Apparel's audited
consolidated financial statements not included in this document. The
consolidated statement of operations data for the years ended June 27, 1998,
July 3, 1999 and July 1, 2000, and the consolidated balance sheet data as of
July 3, 1999 and July 1, 2000, are derived from, and are qualified by reference
to, Delta Apparel's audited consolidated financial statements included elsewhere
in this document. Delta Apparel did not operate as a stand alone company for any
of the periods presented. Historical results are not necessarily indicative of
results to be expected in the future.
Fiscal Year Ended
---------------------------------------------------------------------------
July 1, 2000 July 3, 1999 June 27, 1998 June 28, 1997 June 29, 1996
------------ ------------ ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA: (In thousands)
Net Sales $ 114,466 106,779 107,967 112,593 124,601
Cost of goods sold (94,144) (101,125) (103,867) (109,334) (108,660)
Selling, general and administrative expenses (8,099) (13,720) (13,956) (9,530) (10,945)
Impairment charges --- (1,415) (7,459) --- (2,393)
Other income (loss) (17) (221) (505) (132) 501
--------------- ------------ -------------- -------------- --------------
Operating income (loss) 12,206 (9,702) (17,820) (6,403) 3,104
Interest expense, net (7,417) (9,578) (6,379) (5,866) (5,736)
--------------- ------------ -------------- -------------- --------------
Income (loss) before taxes 4,789 (19,280) (24,199) (12,269) (2,632)
Income tax expense (benefit) 60 (90) 108 (208) (342)
--------------- ------------ -------------- -------------- --------------
Income (loss) before cumulative effect of change in
accounting principle 4,729 (19,190) (24,307) (12,061) (2,290)
Cumulative effect of change in accounting principle --- --- --- --- (182)
-------------- ------------- -------------- -------------- --------------
Net income (loss) $ 4,729 (19,190) (24,307) (12,061) (2,472)
============= ============= ============== ============== ==============
BALANCE SHEET DATA (AT YEAR END):
Working capital (deficit) $ 34,807 (1) (67,217) (56,756) 10,333 13,357
Total assets 79,107 84,357 99,950 90,704 95,299
Total long-term debt 7,667 30,517 30,756 63,186 60,818
Stockholders' equity/divisional deficit 53,802 (1) (66,556) (47,366) (23,059) (10,998)
(1) See Note 1 to the consolidated financial statements.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The foregoing letter to stockholders and the following discussion contain
various "forward-looking statements". All statements, other than statements of
historical fact, that address activities, events or developments that Delta
Apparel expects or anticipates will or may occur in the future are
forward-looking statements. Examples are statements that concern future
revenues, future costs, future capital expenditures, business strategy,
competitive strengths, competitive weaknesses, goals, plans, references to
future success or difficulties and other similar information. The words
"estimate", "project", "forecast", "anticipate", "expect", "intend", "believe"
and similar expressions, and discussions of strategy or intentions, are intended
to identify forward-looking statements.
The forward-looking statements in this Annual Report are based on Delta
Apparel's expectations and are necessarily dependent upon assumptions, estimates
and data that Delta Apparel believes are reasonable and accurate but may be
incorrect, incomplete or imprecise. Forward-looking statements are also 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. Accordingly, any forward-looking statements do not
purport to be predictions of future events or circumstances and may not be
realized.
Delta Apparel 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.
Results of Operations
Fiscal Year 2000 versus Fiscal Year 1999
Net sales for fiscal year 2000 were $114.5 million, an increase of $7.7 million,
or 7.2%, from net sales of $106.8 million in fiscal year 1999. Fiscal year 2000
net sales included $0.9 million of outside yarn sales from the Rainsford plant
versus $5.0 million in fiscal year 1999. Higher fiscal 2000 net sales were the
result of increased unit sales (up 17.3%, accounting for $17.6 million) offset
by lower unit prices (down 4.8%, accounting for $5.8 million). The lower unit
prices were a result of a general decline in market prices for T-shirts,
reflecting lower raw material costs.
Gross profit increased to $20.3 million in fiscal year 2000 from $5.7 million in
fiscal year 1999, and gross profit margin increased to 17.8% in fiscal year 2000
from 5.3% in fiscal year 1999, as a result of lower raw material costs and
better manufacturing efficiencies. Included in fiscal year 1999 is a charge of
$1.7 million to increase reserves on certain discontinued and slow moving
inventory categories, and a charge of $2.4 million related to the write-off of
long-lived assets resulting from a physical inventory completed in the third
quarter of fiscal 1999.
During the year ended July 1, 2000, selling, general and administrative expenses
were $8.1 million, as compared to $13.7 million during the year ended July 3,
1999, a decrease of $5.6 million or 41.0%. For the year ended July 1, 2000,
expenses in this category were 7.1% of net sales as compared to 12.8% of net
sales for the year ended July 3, 1999. The decrease in selling, general and
administrative expenses was driven by a reduction of $3.1 million in
administrative costs and a reduction of bad debt expense of $1.4 million. The
lower administrative costs resulted from lower corporate overhead, lower
commission expense, and a reduction in distribution expense. The lower bad debt
cost resulted from a lower level of aged receivables and the establishment in
fiscal year 1999 of reserves for bankrupt customers.
The fiscal year 2000 operating income was $12.2 million, compared to an
operating loss of $9.7 million in fiscal 1999. Delta Apparel's improved gross
profit contributed to the operating income in fiscal year 2000. The fiscal 1999
operating loss included a $1.4 million impairment charge to adjust the carrying
value of certain plant assets, primarily with respect to the Washington, Georgia
sewing facility and the Knoxville, Tennessee distribution center. The
Washington, Georgia facility incurs significantly higher operating cost as
compared to off-shore sewing operations. The distribution center is a multistory
building, which creates distribution inefficiencies. Both assets had book values
in excess of their respective market values. In the impairment charge, Delta
Apparel recognized the inability of the facilities to generate future cash flows
equal to book values. Both of these facilities were written down to their
respective estimated fair values.
For the year ended July 1, 2000, net interest expense was $7.4 million, as
compared to $9.6 million for the year ended July 3, 1999. In the latter part of
the year ended July 1, 2000, pursuant to the distribution agreement to which the
Company and Delta Woodside Industries, Inc. are parties related to the spin-off
of the Company by Delta Woodside, the affiliated debt was contributed to equity
or repaid and replaced with significantly lower levels of third party debt. This
decreased the Company's interest expense for the last two periods of the fiscal
year. The decrease in interest expense was also the result of the lower average
principal balance outstanding on affiliated debt during the fiscal year ended
July 1, 2000.
The effective tax rate for the year ended July 1, 2000 was 1.3% on pretax income
as compared to a 0.5% effective tax benefit on a pretax loss for the year ended
July 3, 1999. The low tax rates were the result of valuation allowance
adjustments on net operating loss carryovers.
Net income for the year ended July 1, 2000 was $4.7 million, as compared to a
net loss of $19.2 million for the year ended July 3, 1999, due to the factors
described above.
23
Inventories at July 1, 2000 totaled $28.2 million, compared to $27.0 million at
July 3, 1999. The increase in inventory is mainly due to an increase in
in-process inventory. In fiscal 1999, the Company's plants were shut-down for
maintenance during the last week of the fiscal year, thereby reducing in-process
inventory levels at year end.
Capital expenditures in fiscal 2000 were $2.1 million as compared to $3.6
million in fiscal 1999. These investments were primarily for the textile
operations in order to increase capacity and lower costs. Expenditures were also
made for an upgrade of the Company's information systems.
Fiscal Year 1999 versus Fiscal Year 1998
Net sales for fiscal year 1999 were $106.8 million, which was consistent with
net sales of $108.0 million in fiscal year 1998. Fiscal year 1999 net sales
included $5.0 million of outside yarn sales from the Rainsford plant versus none
in fiscal year 1998. Control of operations, management and net assets of the
Rainsford plant was transferred by Delta Mills, Inc. (a wholly-owned subsidiary
of Delta Woodside) to Delta Apparel in April 1998, and the results of operations
and net assets of the Rainsford plant have been included in Delta Apparel since
that time. Lower fiscal year 1999 net sales were the result of lower unit prices
(down 11%, accounting for ($5.7) million) partially offset by increased unit
sales (up 12%, accounting for $11.7 million) as compared to fiscal year 1998.
Part of the average lower sales prices resulted from reserves that were
established for sales promotion programs to distributors ($0.5 million), an
increase in the reserve for general returns and allowances that resulted from a
higher rate of returns and allowances during the fiscal year ($0.3 million), and
a higher number of unresolved chargebacks at the end of the fiscal year ($0.3
million).
Gross profit increased to $5.7 million in fiscal year 1999 from $4.1 million in
fiscal year 1998, and gross profit margin increased to 5.3% in fiscal year 1999
from 3.8% in fiscal year 1998, as a result of lower raw material costs and
better manufacturing efficiencies. Included in fiscal year 1999 is a charge of
$1.7 million to increase reserves on certain discontinued and slow moving
inventory categories, and a charge of $2.4 million related to the write-off of
long-lived assets.
During the year ended July 3, 1999, selling, general and administrative expenses
were $13.7 million, as compared to $14.0 million during the year ended June 27,
1998, a decrease of $0.3 million or 1.7%. For the year ended July 3, 1999,
expenses in this category were 12.8% of net sales as compared to 12.9% of net
sales for the year ended June 27, 1998. The decrease in selling, general and
administrative expenses was driven by a reduction of $1.3 million in
administrative cost offset by bad debt expense of $1.6 million which was $1.0
million higher than the amount in fiscal 1998. The lower administrative cost
resulted from headcount and other cost reductions. The higher bad debt cost
resulted from reserves established of approximately $1.0 million for two
customer bankruptcies. In addition, the reserve for bad debt also increased in
the fiscal year due to a higher level of aged receivables.
The fiscal year 1999 operating loss was $9.7 million, compared to an operating
loss of $17.8 million in fiscal 1998. Delta Apparel's improved gross profit
contributed to the reduction in operating loss for fiscal year 1999.
The fiscal 1998 operating loss included an impairment charge of $7.3 million
that was recorded to write off the excess of cost over assigned value of net
assets. During the third quarter of fiscal year 1998, Delta Woodside announced
significant restructuring plans, including the shut down of the Stevcoknit knit
fabrics division and the transfer of operational control of the Rainsford plant
to Delta Apparel. Delta Apparel's results through the first three quarters of
fiscal year 1998 were disappointing and considerably below estimates made as
part of the year end close for fiscal year 1997 due to Delta Apparel's inability
to replace lost business and continuing to operate at a loss. Additionally, the
apparel industry appeared to have undergone significant structural adverse
change. These conditions triggered a review of impairment at Delta Apparel. At
that time, Delta Apparel's projected undiscounted cash flows were less than the
net book value of its long lived assets, including the net book value of the
Rainsford plant. The cash flows were discounted at 8%, which resulted in a $12.4
million impairment. $7.3 million of this was allocated to the excess of cost
over assigned value of net assets acquired associated with the assets of Delta
Apparel and $5.1 million was allocated to the Rainsford plant. Accordingly, a
charge of $7.3 million was taken to writeoff this excess of cost over assigned
value of net assets acquired. Delta Apparel acquired management control of the
Rainsford plant in April 1998 at its written down cost.
The fiscal 1999 operating loss included the $1.4 million impairment charge
described above under the subheading "Fiscal Year 2000 versus Fiscal Year 1999".
For the year ended July 3, 1999, net interest expense was $9.6 million, as
compared to $6.4 million for the year ended June 27, 1998. The increase in
interest expense was primarily a result of the higher average principal balance
outstanding on affiliated debt.
The effective tax rate for the year ended July 3, 1999 was 0.5% as compared to a
(0.4)% effective tax rate for the year ended June 27, 1998. Although both years
reflected a pretax loss, the year ended July 3, 1999 had less of a tax benefit
due to increasing the valuation allowance for net operating loss carryover
benefits which may not be recognized in the future.
Net loss for the year ended July 3, 1999 was $19.2 million, as compared to $24.3
million for the year ended June 27, 1998, due to the factors described above.
24
Inventories at Delta Apparel at July 3, 1999 totaled $27.0 million, compared to
$32.3 million at June 27, 1998. The decrease resulted primarily from a strategic
focus to improve raw material and work in process inventory management utilizing
the benefits gained from the implementation of enterprise-wide resource planning
software, as well as a $1.7 million charge to increase reserves on certain
discontinued and slow moving inventory categories.
Capital expenditures in fiscal 1999 were $3.6 million as compared to $3.7
million in fiscal 1998. These investments were primarily for the modernization
of the textile operations, which has resulted in increased capacity and lower
costs, as well as the implementation of the Enterprise Wide Resource Planning
system.
Liquidity and Capital Resources
In the first ten and a half months of fiscal year 2000 and in each of fiscal
years 1999 and 1998, Delta Apparel's source of liquidity and capital was the
informal borrowing arrangement it had with its former parent company, Delta
Woodside. As funds were needed, the affiliated debt was increased, and as funds
were generated, the affiliated debt was decreased.
Delta Apparel's operating activities resulted in $16.5 million of cash provided
in fiscal year 2000 and uses of cash of $6.8 million in fiscal year 1999 and
$12.6 million in fiscal year 1998. The cash provided in fiscal year 2000 was
primarily due to net income, a reduction in accounts receivable and an increase
in accrued expenses and was after the charge of $7.2 million of interest due to
Delta Woodside on affiliated debt in fiscal year 2000. The uses of cash in each
of the fiscal years 1999 and 1998 were primarily associated with net losses
incurred in each of these years. These net losses included interest charges on
the affiliated debt of $9.5 million in fiscal year 1999 and $6.5 million in
fiscal year 1998.
Capital expenditures were $2.1 million in the year ended July 1, 2000 and $3.6
million in the year ended July 3, 1999. Capital expenditures in fiscal 2000 were
primarily for the Company's textile operations in order to increase capacity and
lower costs. Fiscal 2000 capital expenditures were also made for an upgrade of
the Company's information systems. Capital expenditures in fiscal 1999 were also
primarily for the textile operations in order to modernize the knitting, dyeing
and finishing facilities. In addition, during fiscal 1999 the Company
implemented an Enterprise Wide Resource Planning system. Delta Apparel expects
fiscal 2001 capital expenditures to approximate $4.1 million, primarily for the
Mexico sewing facility, a West Coast distribution center and continued process
improvements in the textile operations. At 2000, 1999, and 1998 fiscal year
ends, Delta Apparel's long-lived assets in Honduras comprised 15.6%, 6.6%, and
4.9%, respectively, of Delta Apparel's total net property, plant and equipment.
Pursuant to the Distribution Agreement, in mid-May 2000 all net debt amounts
(other than certain accounts payable) owed to Delta Woodside by the corporations
that previously had conducted the Delta Apparel Company division's business were
contributed to capital or repaid. As a result of this action, Delta Apparel no
longer owes any amounts to Delta Woodside, other than for the payment of
accounts payable, except as otherwise specifically provided in the Distribution
Agreement or the Tax Sharing Agreement.
Also in mid-May 2000, Delta Apparel entered into the following financing
arrangements:
-Delta Apparel entered into a credit agreement with a lending
institution, under which the lender provided Delta Apparel
with a $10 million term loan and a 3-year $25 million
revolving credit facility. All loans under the credit
agreement bear interest at rates based on an adjusted LIBOR
rate plus an applicable margin or a bank's prime rate plus an
applicable margin. Delta Apparel granted the lender a first
mortgage lien on or security interest in substantially all of
its assets. Delta Apparel has the option to increase the
revolving credit facility from $25 million to $30 million,
provided that no event of default exists under the facility.
-The credit agreement contains limitations on, or prohibitions
of, cash dividends, stock purchases, related party
transactions, mergers, acquisitions, sales of assets,
indebtedness and investments.
-Principal of the term loan will be repaid in monthly
installments of principal based on a 60 month amortization,
with payment of all outstanding principal and interest
required upon earlier termination of the credit facility.
-Under the revolving credit facility, Delta Apparel is able to
borrow up to $25 million (including a $10.0 million letter of
credit subfacility) subject to borrowing base limitations
based on accounts receivable and inventory levels.
Approximately forty-five percent of the face amount of
outstanding documentary letters of credit will reduce the
amount available under the revolving credit facility for
working capital loans.
In mid-May 2000, as part of the spin-off related transactions, Delta Apparel
purchased from Delta Mills the Rainsford plant, located in Edgefield, South
Carolina, and related inventory. Delta Mills and Delta Apparel agreed that the
purchase price for these assets would be the assets' book value as of the
effective date of the sale. The purchase price for the real property, furniture,
fixtures and equipment was approximately $12.0 million and the purchase price
for the inventory and other tangible personal property was approximately $1.4
million. This purchase price was paid in cash in the amount of approximately
$12.5 million and by the assumption by Delta Apparel of certain liabilities
aggregating approximately $0.9 million as of the effective date of the sale.
Delta Apparel paid the cash portion of the purchase price with borrowings under
its credit facility. Delta Apparel has had management control of the Rainsford
plant since April, 1998.
25
Typically, Delta Apparel's peak borrowing needs are in the third and fourth
fiscal quarters. When Delta Apparel entered into its new credit facility, it
owed amounts to the lender on Delta Woodside's existing credit facility or to
Delta Woodside for certain borrowings made to fund Delta Apparel's needs after
January 1, 2000. These borrowings, totaling $0.8 million were refinanced by
proceeds of Delta Apparel's new credit facility.
Delta Apparel expects that its peak borrowing needs will be in its third and
fourth fiscal quarters and that during those quarters it will be in its lowest
cash position. Based on projections for fiscal 2001, the Company does not expect
to have to draw on the revolver credit facility for normal operating purposes in
the foreseeable future. The interest rate on the credit facility at July 1, 2000
was 9.5%. At July 1, 2000, the Company had the ability to borrow $24.9 million
under the revolving credit facility.
Based on these expectations, Delta Apparel believes that its $25 million
revolving credit facility should be sufficient to satisfy its foreseeable
working capital needs, and that the cash flow generated by its operations and
funds available under its revolving credit line should be sufficient to service
its debt payment requirements, to satisfy its day-to-day working capital needs
and to fund its planned capital expenditures. Any material deterioration in
Delta Apparel's results of operations, however, may result in Delta Apparel
losing its ability to borrow under its revolving credit facility and to issue
letters of credit to suppliers or may cause the borrowing availability under
that facility to be insufficient for Delta Apparel's needs.
Dividends and Purchases by Delta Apparel of its Own Shares
Delta Apparel's ability to pay cash dividends or purchase its own shares will
largely be dependent on its earnings, financial condition, capital requirements,
compliance with loan covenants and other relevant factors. Delta Apparel's
credit agreement permits the payment of cash dividends in an amount up to 25% of
cumulative net income (excluding extraordinary or unusual non-cash items),
provided that no event of default exists or would result from that payment and
after the payment at least $6.0 million remains available under the revolving
credit facility. Delta Apparel's credit agreement also permits up to an
aggregate of $3.0 million of purchases by Delta Apparel of its own stock
provided that no event of default exists or would result from that action and
after the purchase at least $3.0 million remains available to borrow under the
revolving credit facility.
Delta Apparel expects that it will from time to time consider the advisability
of instituting a dividend program. If Delta Apparel's board of directors
determines at any time that the purchase of its own stock is in the best
interests of its stockholders and that the purchase complies with its loan
covenants, Delta Apparel may purchase its own shares in the market or in
privately negotiated transactions.
Quantitative and Qualitative Disclosures about Market Risk
Commodity Risk Sensitivity
The Company purchases cotton from approximately seven established merchants with
whom it has long standing relationships. The majority of the Company's purchases
are executed using "on-call" contracts. These on-call arrangements are used to
insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts.
Cotton on-call with a fixed price at July 1, 2000 was valued at $10.8 million,
and is scheduled for delivery between July, 2000 and December, 2000. At July 1,
2000, the Company had unpriced contracts for deliveries between September, 2000
and June, 2001. Based on the prevailing price at July 1, 2000, the value of
these commitments are approximately $11.3 million. As commodity price
aberrations are generally short-tem in nature, and have not historically had a
significant long-term impact on operating performance, financial instruments are
not used to hedge commodity price risk. At July 1, 2000, a 10% decline in the
market price of the cotton covered by Delta Apparel's fixed price contracts
would have had a negative impact of approximately $1.1 million on the value of
the contracts.
Interest Rate Sensitivity
Delta Apparel's credit agreement provides that the interest rate on outstanding
amounts owed shall bear interest at variable rates. If the amounts of
outstanding indebtedness at July 1, 2000 under the term loan were outstanding
for the entire year and the interest rate on this outstanding indebtedness were
increased by 1%, Delta Apparel's expense would be approximately $0.1 million
higher than at the current rate of interest. The actual increase in interest
expense resulting from a change in interest rates would depend on the magnitude
of the increase in rates and the average principal balance outstanding.
Year 2000 Compliance
The Year 2000 computer problem refers to the potential for system and processing
failures of date-related data as a result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, software
programs that have time sensitive components may recognize a date represented as
"00" as the year 1900 rather than the year 2000.
Delta Apparel has not suffered any material adverse effect as a result of the
Year 2000 problem. We continue to monitor our systems for Year 2000 compliance.
26
Environmental Matters
Delta Apparel is subject to various federal, state and local environmental laws
and regulations concerning, among other things, wastewater discharges, storm
water flows, air emissions, ozone depletion and solid waste disposal. Delta
Apparel's plants generate very small quantities of hazardous waste, which are
either recycled or disposed of off-site. Most of its plants are required to
possess one or more discharge permits.
On August 25, 2000, Delta Apparel's Maiden, North Carolina textile plant
received a Notice of Violation and Assessment of Civil Penalty amounting to $2.1
thousand for violation of the 11% chronic toxicity effluent discharge
limitation. A review of the facility's toxicity self-monitoring data from March,
2000 indicated a 4.1% chronic value, which is below the 11% limitation. Delta
Apparel has responded to the violation by reformulating the high salt dye
formulas. This has brought the Company within the permitted levels. Delta
Apparel believes that it is in compliance in all material respects with all
other federal, state, and local environmental statutes and requirements.
Delta Apparel's Maiden, North Carolina textile plant has received complaints
from downstream owners about the color of its effluent discharge into a river's
tributary. Although Delta Apparel's current NPDES permit, which expires in July
2001, does not regulate the color of effluent, some additional regulatory
control of color is likely to occur in the future. Delta Apparel believes that
it can reduce the color of its effluent discharge at an estimated cost of
approximately $200,000 to $300,000 per year.
As a result of environmental rules relating to waste water discharge, any
significant increase in production capacity of the Maiden, North Carolina plant
would require significant expenditures for environmental studies and, depending
on the results of those studies, possible significant other expenditures. The
plant holds a permit to discharge 1 million gallons of waste water per day. As a
result of process improvements, Delta Apparel has reduced the amount of waste
water discharge from 950,000 gallons to a current level of approximately 825,000
gallons per day.
Delta Apparel incurs capital and other expenditures in each year that are aimed
at achieving compliance with current and future environmental standards.
Generally, the environmental rules applicable to Delta Apparel are becoming
increasingly stringent. Delta Apparel does not expect that the amount of these
expenditures in the future will have a material adverse effect on its
operations, financial condition or liquidity. There can be no assurance,
however, that future changes in federal, state, or local regulations,
interpretations of existing regulations or the discovery of currently unknown
problems or conditions will not require substantial additional expenditures.
Similarly, the extent of Delta Apparel's liability, if any, for past failures to
comply with laws, regulations and permits applicable to its operations cannot be
determined.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Delta Apparel, Inc.:
We have audited the accompanying consolidated balance sheets of Delta Apparel,
Inc. and subsidiaries (the "Company"), as described in note 1, as of July 1,
2000 and July 3, 1999 and the related consolidated statements of operations,
stockholders' equity/divisional deficit and cash flows for each of the years in
the three-year period ended July 1, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Delta Apparel, Inc.
and subsidiaries as of July 1, 2000 and July 3, 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 1, 2000, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Atlanta, Georgia
August 4, 2000
27
DELTA APPAREL, INC.
(as described in Note 1)
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
July 1, July 3,
Assets 2000 1999
Current assets:
Cash $ 415 402
Accounts receivable, less allowances of $2,426 in 2000
and $5,054 in 1999 21,658 24,049
Other receivables 457 241
Parent and affiliate receivables (notes 1 and 8) -- 9
Inventories (note 3) 28,207 27,034
Prepaid expenses and other current assets 1,186 872
Income taxes receivable -- 90
--------------- ---------------
Total current assets 51,923 52,697
Property, plant and equipment, net (note 4) 26,871 31,441
Other assets 313 219
--------------- ---------------
$ 79,107 84,357
=============== ===============
Liabilities and Stockholders' Equity/Divisional Deficit
Current liabilities:
Accounts payable $ 6,700 5,270
Accrued expenses (note 5) 8,416 5,359
Current portion of long-term debt (note 6) 2,000 239
Due to related parties (notes 2 and 8) -- 109,046
--------------- ---------------
Total current liabilities 17,116 119,914
Long-term debt (note 6) 7,667 100
Due to related parties (notes 2 and 8) -- 30,417
Other liabilities 522 482
--------------- ---------------
Total liabilities 25,305 150,913
--------------- ---------------
Stockholders' equity/divisional deficit (note 1):
Preferred stock, 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock - par value $0.01 a share - 7,500,000 shares
authorized, 2,399,863 issued and outstanding at July 1, 2000 24 --
Additional paid-in capital 53,778 --
Divisional deficit -- (66,556)
--------------- ---------------
Total stockholders'equity/divisional deficit 53,802 (66,556)
Commitments and contingencies (notes 6, 9, 10, and 12)
--------------- ---------------
$ 79,107 84,357
=============== ===============
See accompanying notes to consolidated financial statements.
28
DELTA APPAREL, INC.
(as described in Note 1)
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Year ended
-----------------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
------------- ------------- -------------
Net sales $ 114,466 106,779 107,967
Cost of goods sold 94,144 101,125 103,867
------------- ------------- -------------
Gross profit 20,322 5,654 4,100
Selling, general and administrative expenses 7,830 10,940 12,223
Intercompany management fees (note 2) -- 1,135 1,048
Provision for bad debts 269 1,645 685
Impairment charges (note 2) -- 1,415 7,459
Other income 17 221 505
------------- ------------- -------------
Operating income (loss) 12,206 (9,702) (17,820)
------------- ------------- -------------
Interest (income) expense:
Intercompany interest expense (note 2) 7,237 9,457 6,541
Other interest (income) expense, net 180 121 (162)
------------- ------------- -------------
7,417 9,578 6,379
------------- ------------- -------------
Income (loss) before income taxes 4,789 (19,280) (24,199)
Income tax expense (benefit) - (note 7) 60 (90) 108
------------- ------------- -------------
Net income (loss) $ 4,729 (19,190) (24,307)
============= ============= =============
Basic and diluted proforma earnings per share $ 2.00 -- --
============= ============= =============
Proforma weighted average number of shares outstanding 2,365 -- --
============= ============= =============
See accompanying notes to consolidated financial statements.
29
DELTA APPAREL, INC.
(as described in Note 1)
Consolidated Statements of Stockholders' Equity/Divisional Deficit
(Amounts in thousands, except share amounts)
Additional
Common stock paid-in Retained Divisional
Shares Amount capital earnings deficit Total
----------- ------- --------- -------- -------------- ------------
Balance at June 28, 1997 -- $ -- -- -- (23,059) (23,059)
Net loss -- -- -- -- (24,307) (24,307)
----------- ------- --------- -------- -------------- ------------
Balance at June 27, 1998 -- -- -- -- (47,366) (47,366)
Net loss -- -- -- -- (19,190) (19,190)
----------- ------- --------- -------- -------------- ------------
Balance at July 3, 1999 -- -- -- -- (66,556) (66,556)
Net income -- -- -- -- 4,729 4,729
Spin-off (note 1) 2,399,863 24 53,778 -- 61,827 115,629
----------- ------- --------- -------- -------------- ------------
Balance at July 1, 2000 2,399,863 $ 24 53,778 -- -- 53,802
=========== ======= ========= ======== ============== ============
See accompanying notes to consolidated financial statements.
30
DELTA APPAREL, INC.
(as described in Note 1)
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year ended
-----------------------------------------
July 1, July 3, June 27,
2000 1999 1998
---------- -------- --------
Operating activities:
Net income (loss) $ 4,729 (19,190) (24,307)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 6,597 9,208 4,312
Amortization -- 6 155
Impairment charges -- 1,415 7,459
Provision for (recovery of) allowances on accounts receivable (2,627) 3,725 745
Loss on sale of property and equipment 35 347 29
Changes in operating assets and liabilities:
Accounts receivable 4,803 (2,702) (7,661)
Inventories (1,173) 5,255 8,409
Prepaid expenses and other current assets (294) 72 310
Other noncurrent assets (94) 38 (253)
Accounts payable 1,432 (6,214) 3,302
Accrued expenses 3,056 1,083 1,100
Income taxes payable -- (198) (1,730)
Due to/from affiliates 9 530 (4,513)
Other liabilities 41 (136) 61
---------- -------- --------
Net cash provided by (used in) operating activities 16,514 (6,761) (12,582)
---------- -------- --------
Investing activities:
Purchases of property, plant and equipment (2,092) (3,593) (3,658)
Proceeds from sale of property, plant and equipment 99 1,683 302
---------- -------- --------
Net cash used in investing activities (1,993) (1,910) (3,356)
---------- -------- --------
Financing activities:
Proceeds from (repayment of) long-term financing 9,328 (239) (239)
Change in due to affiliates, net (23,836) 9,211 16,274
---------- -------- --------
Net cash (used in) provided by financing activities (14,508) 8,972 16,035
---------- -------- --------
Increase in cash 13 301 97
Cash at beginning of year 402 101 4
---------- -------- --------
Cash at end of year $ 415 402 101
========== ======== ========
Supplemental cash flow information:
Cash paid during the year for interest $ 157 33 53
========== ======== ========
Noncash investing activity - transfer of plant and
equipment from Parent company $ -- -- 18,758
========== ======== ========
See accompanying notes to consolidated financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended July 1, 2000
Delta Apparel, Inc.
(1) Basis of Presentation
Prior to June 30, 2000, Delta Apparel, Inc. (together with its
predecessors, the "Company") was a wholly owned subsidiary of Delta
Woodside Industries, Inc. ("Delta Woodside" or the "Parent"). In
connection with a plan to separate its two apparel businesses, Delta
Woodside transferred to the Company the assets, liabilities, and
operations of its apparel business previously conducted by the following
divisions or subsidiaries of Delta Woodside: Delta Apparel Company and
Rainsford (collectively the "Predecessor Operations"). Effective June 30,
2000, Delta Woodside distributed all the common stock of the Company to
the Delta Woodside stockholders (the "Distribution"). In connection with
the Distribution, Delta Woodside contributed, as contributions to
capital, all net debt amounts owed to it by the Company, with certain
exceptions. Borrowings related to the Company under Delta Woodside's
credit agreement were repaid with the proceeds from borrowings under the
Company's new credit agreement.
The accompanying financial statements for periods prior to the
Distribution reflect the operations and accounts of the Predecessor
Operations and are for periods when the Company did not operate as a
separate stand-alone company.
The following balance sheet as of July 1, 2000 details the adjustments
made related to the spin-off of Delta Apparel.
Pre Spin-off Spin-Off Post Spin-off
Assets July 1, 2000 Adjustments July 1, 2000
--------------- ---------------- ----------------
(In thousands except for share data)
Current assets:
Cash $ 415 -- 415
Accounts receivable 21,658 -- 21,658
Other receivables 457 -- 457
Inventories 28,207 -- 28,207
Prepaid expenses and other current
assets 1,186 -- 1,186
Income taxes receivable 8,316 (8,316) (2) --
--------------- ---------------- ----------------
Total current assets 60,239 (8,316) 51,923
Property, plant, and equipment 26,871 -- 26,871
Other assets 313 -- 313
--------------- ---------------- ----------------
$ 87,423 (8,316) 79,107
=============== ================ ================
Liabilities and Stockholders'
Equity/Divisional Deficit
Current liabilities:
Accounts payable $ 6,477 223 (1) 6,700
Accrued expenses 8,416 -- 8,416
Current portion of long-term debt 2,000 -- 2,000
Due to related parties 83,548 (83,548) (1) --
--------------- ---------------- ----------------
Total current liabilities 100,441 (83,325) 17,116
Long-term debt 7,667 -- 7,667
Due to related parties 30,417 (30,417) (1) --
Other liabilities 522 -- 522
--------------- ---------------- ----------------
Total liabilities 139,047 (113,742) 25,305
--------------- ---------------- ----------------
Stockholders' equity/divisional deficit:
Common stock -- 24 (1) 24
Additional paid-in capital -- 53,778 (1)(2) 53,778
Divisional deficit (51,624) 51,624 (1) --
--------------- ---------------- ----------------
Total stockholders' equity/
divisional deficit (51,624) 105,426 53,802
--------------- ---------------- ----------------
$ 87,423 (8,316) 79,107
=============== ================ ================
The following is a summary of the adjustments reflected in the historical
combined balance sheet:
(1) To reflect the contribution to equity or repayment of net
intercompany debt owed by Delta Apparel to Delta Woodside and
subsidiaries totaling $113,742 and the distribution of
2,399,863 Delta Apparel common shares to Delta Woodside's
existing shareholders.
(2) To reflect estimated tax liability.
32
The accompanying consolidated balance sheet as of July 1, 2000 includes
the effects of the Distribution.
All balances and transactions among the consolidating entities have been
eliminated in consolidation. Balances and transactions with other
affiliates have not been eliminated in the consolidation and are
reflected as affiliate balances and transactions.
(2) Significant Accounting Policies
(a) Description of Business
The Company manufactures and sells T-shirts, fleece goods, and
sportswear to distributors, screen printers, and private label
accounts. The Company operates manufacturing and distribution
facilities in the Southeastern United States, as well as
manufacturing facilities in Central America. The majority of the
Company's raw materials are readily available, and thus it is not
dependent on a single supplier. The Company's business constitutes
a single reportable segment.
(b) Fiscal Year
The Company's operations are based upon a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to June 30. Fiscal
years 2000 and 1998 each consist of 52 weeks and fiscal year 1999
consists of 53 weeks.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Estimated losses on inventories represent
reserves for obsolescence, excess quantities, and irregulars and
slow moving inventory. The Company estimates the losses on the
basis of its assessment of the inventory's net realizable value
based upon current market conditions and historical experience.
(d) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation
and amortization is provided using the straight-line method over
estimated useful lives of 3 to 20 years. Leasehold improvements
are amortized over the shorter of the lease term or the estimated
useful life of the improvements.
(e) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets.
During fiscal year 1999, the Company continued to operate at a
loss, continued to downsize its operations and was not using
certain plant assets at their full capacity, which triggered an
impairment review of its long-lived assets. Based on the Company's
business plan for fiscal 2000, the trend in the apparel industry
to move production off-shore and the age and condition of the
Company's distribution facility in the United States the Company
determined that certain of its plant assets were impaired. The
Company calculated the present value of expected cash flows of
certain plant assets consisting of land, buildings, machinery and
equipment to be held and used to determine the fair value of the
assets. Accordingly, in the fourth quarter of fiscal 1999, the
Company recorded an impairment charge of $1,415.
(f) Goodwill
Goodwill, which represented the excess purchase price over net
assets acquired, was amortized on a straight-line basis over 40
years. In 1998, the Company continued to incur operating losses,
the T-shirt apparel industry continued to see declines in margins
due to offshore competition and the Company lost its largest
customer in the fourth quarter of fiscal 1997. Concurrent with the
Company's annual planning process, the Company determined that the
future undiscounted cash flows were below the carrying value of
the goodwill. Accordingly, during the third quarter of fiscal 1998
the Company wrote off the goodwill of $7,240. The estimated fair
value was based on anticipated future cash flows discounted at a
rate commensurate with the risk involved.
(g) Accounts Receivable and Revenue Recognition
Sales of goods are recognized upon shipment of the goods to the
customer. The Company provides allowances for merchandise returns,
claims, and markdowns based on historical credits issued as a
percentage of sales and periodic evaluations of the aging of
accounts receivable.
33
(h) Related Party Transactions
Through April, 2000, the Company participated in a cash management
system maintained by Delta Woodside. Under this system, excess
cash was forwarded to Delta Woodside each day, reducing the due to
Parent, and cash requirements were funded daily by Delta Woodside,
increasing the due to Parent. Interest was charged on loan payable
to Delta Woodside balances based on the weighted-average cost of
Delta Woodside's borrowings. In addition, through fiscal year 1999
the Company incurred management fees from Delta Woodside for
various corporate services, including management, treasury,
computer, benefits, payroll, auditing, accounting and tax
services. For these services, Delta Woodside charged actual cost
based on relative usage and other factors which, in the opinion of
management, represented a reasonable and appropriate method of
allocation.
(i) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company's operations were included in the consolidated Federal
tax return of Delta Woodside. Under the tax sharing agreement, the
allocation of tax liabilities and benefits is as follows:
- With respect to federal income taxes:
(a) For each taxable year ending July 3, 1999 and prior,
Delta Woodside shall be responsible for paying any
increase in federal income taxes, and shall be entitled
to receive the benefit of any refund of or saving in
federal income taxes, that results from any tax
proceeding with respect to any returns relating to
federal income taxes of the Delta Woodside consolidated
federal income tax group.
(b) For the taxable period ending July 1, 2000, Delta
Woodside shall be responsible for paying any federal
income taxes, and shall be entitled to any refund of or
saving in federal income taxes, with respect to the
Delta Woodside consolidated federal income tax group.
- With respect to state income, franchise or similar taxes, for
each taxable year ending July 1, 2000 and prior, each corporation
that is a member of the Delta Woodside tax group, the Duck Head
tax group or the Delta Apparel tax group shall be responsible for
paying any of those state taxes, and any increase in those state
taxes, and shall be entitled to receive the benefit of any refund
of or saving in those state taxes, with respect to that
corporation (or any predecessor by merger of that corporation) or
that results from any tax proceeding with respect to any returns
relating to those state taxes of that corporation (or any
predecessor by merger of that corporation)
(j) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
amount to $792, $1,300 and $852, in fiscal 2000, 1999 and 1998,
respectively.
(k) Computation of Proforma Net Earnings Per Share
Proforma net earnings per share is calculated by dividing the net
earnings by the weighted-average common shares outstanding of
Delta Woodside adjusted for the distribution ratio assuming that
shares distributed in the Distribution were outstanding the entire
year. The weighted-average shares do not include securities that
would be anti-dilutive for each of the periods presented.
(l) Cotton Procurements
The Company contracts to buy cotton with future delivery dates at
fixed prices in order to reduce the effects of fluctuations in the
prices of cotton used in the manufacture of its products. These
contracts permit settlement by delivery and are not used for
trading purposes. The Company commits to fixed prices on a
percentage of its cotton requirements up to eighteen months in the
future. If market prices for cotton fall below the Company's
committed fixed costs and it is estimated that the costs of cotton
are not recoverable in future sales of finished goods, the
differential is charged to income at that time.
34
(m) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(n) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its fixed plan stock options.
As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure
requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123.
(o) Comprehensive Income (Loss)
No statements of comprehensive income have been included in the
accompanying financial statements since comprehensive income
(loss) and net income (loss) would be the same.
(p) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which was subsequently
deferred by SFAS 137 and amended by SFAS 138. SFAS 133 establishes
accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and
for hedging activities. SFAS 133 is effective for all fiscal years
beginning after June 15, 2000. The Company does not believe the
application of SFAS No. 133 will have a material impact on its
financial statements.
On December 31, 1999, the SEC issued SAB No. 101, Revenue
Recognition in Financial Statements. On June 26, 2000, the SEC
issued SAB 101B which delays the implementation date of SAB 101 to
the fourth quarter of 2000. The Company does not believe the
application of SAB 101 will have a material impact on its
financial statements.
In April 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation
("FIN 44") which contains rules designed to clarify the
application of APB Opinion No. 25. FIN 44 is effective July 1,
2000. The Company does not believe FIN 44 will have a material
impact on its financial statements.
(3) Inventories
Inventories consist of the following:
July 1, July 3,
2000 1999
--------------- --------------
Raw materials $ 2,785 2,731
Work in process 11,903 7,768
Finished goods 13,519 16,535
--------------- --------------
$ 28,207 27,034
=============== ==============
35
(4) Property, Plant and Equipment
Property, plant and equipment consist of the following:
Estimated July 1, July 3,
useful life 2000 1999
----------------- --------------- --------------
Land and land improvements N/A $ 1,099 1,778
Buildings 20 years 7,613 12,043
Machinery and equipment 10-15 years 37,486 57,825
Computers and software 3 years 2,595 2,310
Furniture and fixtures 7 years 382 432
Leasehold improvements 3-10 years 733 733
Automobiles 5 years 63 50
Construction in progress N/A 181 63
--------------- --------------
50,152 75,234
Less accumulated depreciation and
amortization (23,281) (43,793)
--------------- --------------
$ 26,871 31,441
=============== ==============
(5) Accrued Expenses
Accrued expenses consist of the following:
July 1, July 3,
2000 1999
---------------- ---------------
Accrued employee compensation and benefits $ 5,876 2,619
Taxes accrued and withheld 188 699
Accrued insurance 524 1,016
Accrued advertising 102 333
Other 1,726 692
---------------- ---------------
$ 8,416 5,359
================ ===============
(6) Long-term Debt
Long-term debt consists of the following:
July 1, July 3,
2000 1999
---------------- ----------------
Term loan facility secured by property of the Company, interest at
prime rate (9.5% at July 1, 2000) or 2% over Libor rate payable
monthly, principal payable in monthly installments of $166 with
final payment due May 1, 2005 $ 9,667 --
Promissory note -- 339
---------------- ----------------
9,667 339
Less current installments 2,000 239
---------------- ----------------
Long-term debt, excluding current installments $ 7,667 100
================ ================
In May 2000, the Company entered into a credit agreement with a lending
institution, under which the lender has provided the Company with a $10
million term loan and a 3 year $25 million revolving credit facility. All
loans under the credit agreement will bear interest based on an adjusted
LIBOR rate plus an applicable margin or the bank's prime rate plus an
applicable margin. The Company has granted the lender a first mortgage
lien on or security interests in substantially all of its assets. The
Company has the option to increase the revolving credit facility
from $25 million to $30 million, provided that no event of defaults
exists under the facility.
The credit agreement contains limitations on, or prohibitions of, cash
dividends, stock purchases, related party transactions, mergers,
acquisitions, sales of assets, indebtedness and investments.
36
Principal of the term loan will be repaid in monthly installments based
on a 60 month amortization, with a payment of all outstanding principal
and interest required upon earlier termination of the credit facility.
Under the revolving credit facility, the Company is able to borrow up to
$25.0 million (including a $10.0 million letter of credit subfacility)
subject to borrowing base limitations based on the accounts receivable
and inventory levels. The Company had no borrowings under the revolving
credit facility at July 1, 2000. At July 1, 2000 the Company had the
ability to borrow $24.9 million under the revolving credit facility.
The aggregate maturities of long-term debt are as follows:
Fiscal year
-----------
2001 $ 2,000
2002 2,000
2003 2,000
2004 2,000
2005 1,667
----------------
$ 9,667
================
(7) Income Taxes
The Company's operations, which generated taxable income of
approximately $4.8 million, will be reported in the consolidated Federal
tax return of Delta Woodside. The Federal income tax obligation or
refund under the corporate tax sharing arrangement that is allocated to
the Company is substantially determined as if the Company was filing a
separate Federal income tax return. Until mid-May 2000, the Company's
Federal tax liability or receivable was paid to or was received from
Delta Woodside. As a result of the Distribution, the Company will not be
included in the consolidated returns of Delta Woodside in future years.
Federal and state income tax expense (benefit) was as follows:
Year ended
----------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
------------ ------------- -------------
Current:
Federal $ -- -- --
State 60 (90) 108
------------ ------------- -------------
Total current 60 (90) 108
------------ ------------- -------------
Deferred:
Federal -- -- --
State -- -- --
------------ ------------- -------------
Total deferred -- -- --
------------ ------------- -------------
Income tax expense (benefit) $ 60 (90) 108
============ ============= =============
37
A reconciliation between actual income tax expense (benefit) and the
income tax expense (benefit) computed using the Federal statutory income
tax rate of 35% is as follows:
Year ended
----------------------------------------------
July 1, July 3, June 27,
2000 1999 1998
------------ ------------- ------------
Income tax expense (benefit) at the
statutory rate $ 1,676 (6,748) (8,470)
State income tax expense (benefit) net
of federal income tax effect 39 (59) 70
Valuation allowance adjustments 854 6,112 5,217
Nondeductible amortization and other 554 127 2,538
permanent differences
Other -- 478 753
Spin-off adjustment (3,063) -- --
------------ ------------- ------------
Income tax expense (benefit) $ 60 (90) 108
============ ============= ============
Significant components of the Company's deferred tax assets and
liabilities are as follows:
July 1, July 3,
2000 1999
--------------- ---------------
Deferred tax assets:
Net operating loss carryforward $ 4,054 3,968
Investment tax credit -- 617
Currently nondeductible accruals 2,026 2,841
Other 124 203
--------------- ---------------
Gross deferred tax assets 6,204 7,629
Less valuation allowance (4,682) (3,828)
--------------- ---------------
Net deferred tax assets 1,522 3,801
--------------- ---------------
Deferred tax liabilities:
Depreciation (1,456) (3,801)
Other (66) --
--------------- ---------------
Gross deferred tax liabilities (1,522) (3,801)
--------------- ---------------
Net deferred tax liability $ -- --
=============== ===============
The valuation allowance for deferred tax assets as of July 1, 2000 and
July 3, 1999 was $4,682 and $3,828, respectively. The net change in the
total valuation allowance for the years ended July 1, 2000, July 3, 1999
and June 27, 1998 was an increase of $854, $6,112 and $5,217,
respectively. The Company's gross deferred tax assets are reduced by a
valuation allowance to net deferred tax assets considered by management
to be more likely than not realizable. 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.
As of July 1, 2000, the Company had regular tax loss carryforwards of
approximately $8.8 million for Federal purposes and approximately $17.5
million for State purposes after the spin-off transaction. These
carryforwards expire at various intervals through 2019.
(8) Affiliated Party Transactions
Due to (from) related parties consists of the following:
July 3,
1999
------------
Delta Woodside Industries, Inc., including Delta
Mills, Inc. $ 139,525
Duck Head Apparel Company (85)
Delta Mills Marketing, a division of Delta Mills, Inc. 23
------------
$ 139,463
============
The Company had sales to Duck Head Apparel Company of $28, $455, and $156
in fiscal 2000, 1999 and 1998, respectively.
38
(9) Leases
The Company has several noncancellable operating leases relating to
buildings, office equipment, machinery and equipment, and computer
systems.
Future minimum lease payments under noncancellable operating leases as of
July 1, 2000 were as follows:
Fiscal year
-----------
2001 $ 883
2002 356
2003 325
2004 312
2005 286
Thereafter 158
----------------
$ 2,320
================
Rent expense for all operating leases was approximately $1,270, $1,410
and $1,806 for fiscal years 2000, 1999 and 1998, respectively.
(10) Employee Benefit Plans
The Company participated in the Delta Woodside Retirement and 401(k)
Plans. On September 27, 1997, the Delta Woodside Employee Retirement Plan
("Retirement Plan") merged into the Delta Woodside Employee Savings and
Investment Plan ("401(k) Plan"). The Retirement Plan qualified as an
Employee Stock Ownership Plan ("ESOP") under the Internal Revenue Code as
a defined contribution plan. The Company contributed approximately $119,
$132 and $71 to the 401(k) Plan during fiscal 2000, 1999 and 1998,
respectively. The Company contributed approximately $0, $90 and $155 to
the Retirement Plan and/or 401(k) Plan during fiscal 2000, 1999 and 1998,
respectively.
The Company also participated in a 501(c)(9) trust, the Delta Woodside
Employee Benefit Plan and Trust ("Trust"). The Trust collects both
employer and employee contributions from the Company and makes
disbursements for health claims and other qualified benefits.
Effective with the spin-off transaction, the Company established its own
401(k) Plan, with benefits similar to the Delta Woodside 401(k) Plan.
The Company also participated in the Delta Woodside Incentive Stock Award
Plan and Stock Option Plan. Under both Plans, the Company recognized
expenses of approximately $221, $521 and $166 for fiscal years 2000, 1999
and 1998, respectively.
Effective with the spin-off transaction, the Company established the
Delta Apparel Stock Option Plan (the "Option Plan") and the Delta Apparel
Incentive Stock Award Plan (the "Award Plan").
Under the Option Plan, the compensation grants committee of the Company's
board of directors will have the discretion to grant options for up to an
aggregate maximum of 500,000 common shares. Participation in the Option
Plan is limited to key and middle level executives.
Under the Award Plan, the compensation grants committee of the Company's
board of directors will have the discretion to grant awards for up to an
aggregate maximum of 200,000 common shares. The Award Plan authorizes the
compensation grants committee to grant to officers and other key
management employees or the middle level management employees of the
Company or any of its subsidiaries rights to acquire common shares at a
cash purchase price of $0.01 per share.
As of July 1, 2000, no options or awards have been granted under the
Option Plan or Award Plan.
(11) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values approximate fair values for financial
instruments that are short-term in nature, such as cash, accounts
receivable, accounts payable and accrued expenses. The Company estimates
that the carrying value of the Company's long-term debt approximates fair
value based on the current rates offered to the Company for debt of the
same remaining maturities.
39
(12) Commitments and Contingencies
(a) Litigation
The Company is a defendant in a legal action involving a product
liability claim. The Company believes that, as a result of legal
defenses, insurance arrangements, and indemnification provisions
with parties believed to be financially capable, this action
should not have a material effect on its operations, financial
condition, or liquidity.
(b) Postretirement Benefits
The Company provides postretirement life insurance benefits for
certain retired employees. The Plan is noncontributory and is
unfunded. Expenses are paid from the general assets of the
Company. All the employees in the Plan are fully vested.
The Company has applied the transition provisions of SFAS 106
Employers Accounting for Postretirement Benefits Other Than
Pensions and accordingly is recognizing the transition obligation
on a straight-line bases over the average remaining life
expectancy of the Plan participants, which is nine years.
The postretirement liability recognized on the balance sheet was
$1,269 and $1,200 for fiscal years 2000 and 1999, respectively.
The transition obligation will be recognized through fiscal 2009.
(c) Cotton Procurements
The Company has entered into agreements, and has fixed prices, to
purchase cotton for use in its manufacturing operations. At July
1, 2000, minimum payments under these contracts with
non-cancelable contract terms were $10,799.
(d) Letters of Credit
As of July 1, 2000, the Company had an outstanding standby letter
of credit for $125. This letter of credit expires on June 30,
2001.
(13) Quarterly Financial Information (Unaudited)
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended July 1, 2000 and July 3, 1999.
2000 quarter ended
----------------------------------------------------------------------------
October 2 January 1 April 1 July 1
------------------ ------------------ ------------- ---------------
Net sales $ 28,659 21,561 27,293 36,953
Gross profit 3,693 3,017 4,956 8,656
Operating income 1,777 1,243 2,926 6,260
Net income (loss) (459) (749) 735 5,202
1999 quarter ended
----------------------------------------------------------------------------
September 28 December 26 April 1 July 1
------------------ ------------------ ------------- ---------------
Net sales $ 25,131 17,950 20,598 43,100
Gross profit (loss) 4,076 1,180 (695) 1,093
Operating income (loss) 667 (1,290) (3,362) (5,717)
Net loss (1,520) (3,496) (5,788) (8,386)
During the fourth quarter of fiscal year 1999, the Company recognized an
impairment loss of $1,415 on certain property and equipment that was
written down to estimated net realizable value.
40
MARKET INFORMATION FOR COMMON STOCK
The common stock of the Company is listed on the American Stock Exchange. The
common stock was first traded on the Exchange on June 30, 2000 concurrent with
the Delta Apparel Distribution. On that date, the high and low sales prices for
Delta Apparel's common stock were $9.25 and $8.75, respectively. Prior to the
Delta Apparel Distribution, Delta Apparel was a wholly-owned subsidiary of
Delta Woodside and there was no established public trading market for the
Company's shares.
HOLDERS
At September 20, 2000, there were approximately 1,707 holders of record of
common stock.
DIVIDENDS
No dividends were declared on the Company's common stock in fiscal 2000. Subject
to the provisions of any outstanding blank check preferred stock, the holders of
Delta Apparel common stock are entitled to receive whatever dividends, if any,
may be declared from time to time by the Delta Apparel board of directors in its
discretion from funds legally available for that purpose. Delta Apparel's credit
agreement permits the payment of cash dividends in an amount up to 25% of
cumulative net income (excluding extraordinary or unusual non-cash items),
provided that no event of default exists or would result from that payment and
after the payment at least $6.0 million remains available to borrow under the
revolving credit facility.
Delta Apparel expects that it will from time to time consider the advisability
of instituting a dividend program. In general, any future cash dividend payments
will depend upon Delta Apparel's earnings, financial condition, capital
requirements, compliance with loan covenants and other relevant factors.
CORPORATE DIRECTORY
Delta Apparel, Inc.
2750 Premiere Parkway
Suite 100
Duluth, Georgia 30097
Corporate Officers
Robert W. Humphreys
President and Chief Executive Officer
Herbert M. Mueller
Vice President, Chief Financial Officer and Treasurer
Board of Directors
William F. Garrett
President and Chief Executive Officer
Delta Woodside Industries, Inc.
(Textile Fabrics Manufacturer)
C. C. Guy
Retired businessman
Robert W. Humphreys
President and Chief Executive Officer
Delta Apparel, Inc.
Dr. James F. Kane
Dean Emeritus, College of Buisness
University of South Carolina
Dr. Max Lennon
President
Mars Hill College
E. Erwin Maddrey, II
President
Maddrey & Associates
(Investment/Consulting)
Buck A. Mickel
Vice President and Director
Micco Corporation
(Real estate and business investments)
41
Form 10-K
Upon written request, the Company will furnish without charge to any Delta
Apparel stockholder a copy of the Company's Annual Report on Form 10-K for the
fiscal year ended July 1, 2000 including financial statements and schedules, but
excluding exhibits. Requests should be directed to:
Herbert M. Mueller
Vice President, Chief Financial Officer and Treasurer
Delta Apparel, Inc.
2750 Premiere Parkway
Suite 100
Duluth, Georgia 30097
Email: investor.relations@deltaapparel.com
----------------------------------
Annual Meeting
The Annual Meeting of Stockholders of Delta Apparel, Inc. will be held on
Tuesday, November 7, 2000 at 10:30 a.m. at the Gunter Theater, 320 South Main
Street, Greenville, South Carolina.
42
EXHIBIT 21
43
Subsidiaries of
Delta Apparel, Inc.
Listed below are the subsidiaries of Delta Apparel, Inc.:
(1) Delta Apparel Honduras, S.A., a Honduran sociedad anonima.
2,496 shares are owned by Delta Apparel, Inc. One (1) share is owned by
each of four directors of Delta Apparel, Inc. Delta Apparel, Inc. has
the right to acquire such director-owned shares at a nominal price.
(Honduran law requires a sociedad anonima to have at least five
shareholders.)
(2) Delta Campeche, S.A. de C.V., a Mexican sociedad anonima de capital
variable.
49 shares are owned by Delta Apparel, Inc. One (1) share is owned by
Robert W. Humphreys.
44