Back to GetFilings.com
UNITED STATES
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 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 333-37617
---------
DELTA MILLS, INC.
-----------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2677657
-------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
233 N. Main Street, Suite 200
Greenville, South Carolina 29601
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
864/232-8301
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------- ------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
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 be 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 [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 17, 1999 was:
Common Stock, $.01 par value - 0
The number of shares outstanding of each of the registrant's classes of Common
Stock, as of July 3, 1999 was:
Common Stock, par value $.01 100
2
DELTA MILLS, INC.
FOR THE FISCAL YEAR ENDED JULY 3, 1999
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 4
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's discussion and Analysis of Financial Condition and
Results of Operations 11
Item 7A Quantitative and Qualitative Disclosures about Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 31
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 40
Item 13. Certain Relationships and Related Transactions 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 46
3
ITEM 1 BUSINESS
- ------- --------
GENERAL
Delta Mills, Inc. ("Delta Mills" or the "Company") is a Delaware
corporation with its principal executive offices located at 233 North Main
Street, Suite 200, Greenville, South Carolina 29601 (telephone number:
864-232-8301). The Company is a wholly owned indirect subsidiary of Delta
Woodside Industries, Inc., a South Carolina corporation, the common stock of
which is listed on the New York Stock Exchange. Unless the context otherwise
requires, all references herein to "Delta Mills" or the "Company" refer to Delta
Mills, Inc. and any of its existing and future subsidiaries.
The Company has one segment in continuing operations: Delta Mills Marketing
Company. The Company is a leading manufacturer and marketer of woven finished
cotton, synthetic and blended fabrics, which are sold for the ultimate
production of apparel. The Company sells a broad range of finished apparel
fabrics primarily to branded apparel manufacturers and resellers, including Levi
Strauss, Haggar Corp., the Wrangler and Lee divisions of V.F. Corporation,
Farah Incorporated, Kellwood Company and Liz Claiborne, Inc. and private label
apparel manufacturers for J.C. Penney Company, Inc., Sears, Roebuck & Co., Wal
Mart Stores, Inc. and other retailers. The Company believes that it is a
leading producer of cotton pants-weight woven fabric used in the manufacture of
casual slacks such as Levi Strauss' Dockers and Haggar Corp.'s Wrinkle-free .
Other apparel items manufactured with the Company's woven fabrics include
women's chinos pants, women's blazers, career apparel (uniforms) and battle
dress camouflage military uniforms. During fiscal 1999, the Company
manufactured some unfinished fabrics sold to converters of finished products.
However, due to import pressure, the unfinished fabric production is being
replaced with more profitable product lines. This move away from the unfinished
fabric production will be substantially complete in the first quarter of fiscal
year 2000.
During fiscal 1998, the Company made the decision to exit the knit
textile market by closing its Stevcoknit Fabrics Company operating division.
Stevcoknit Fabrics Company has been reclassified and reported as discontinued
operations. Most of the liquidation of Stevcoknit Fabrics Company was completed
in fiscal 1998.
The Company was incorporated in Delaware in 1971 and acquired by a
predecessor of Delta Woodside Industries, Inc. in 1986.
PRODUCTS, MARKETING AND MANUFACTURING
The Company produces its woven fabrics through the Delta Mills Marketing
Company division.
Woven fabrics are manufactured from cotton, wool or synthetic fibers or
from synthetic filament yarns. Cotton and wool are purchased from numerous
suppliers. Synthetic fibers and synthetic filament yarns are purchased from a
smaller number of competitive suppliers. The Company spins the major portion of
the yarns used in its weaving operations. In manufacturing these yarns, the
cotton and synthetic fiber, either separately or in blends, are carded (fibers
straightened and oriented) and then spun into yarn. The Company combs (removing
short fibers) some cotton fiber to make higher quality yarn. In other fabrics,
filament yarns are used. The spun or filament yarn is then woven into fabric on
looms. The unfinished fabric at this stage is referred to as greige goods.
Finished fabric refers to fabric that has been treated by washing, bleaching,
dyeing and applying certain chemical finishes. Finished fabrics generally have
significantly higher margins than greige goods.
The Company produces finished woven fabrics used in the production of
apparel. Finished apparel fabric is ready to be cut and sewn into garments.
4
ITEM 1 (CONTINUED)
- ------- -----------
PRODUCTS, MARKETING AND MANUFACTURING (CONTINUED)
The Company has focused its marketing efforts on building close
relationships with major apparel companies that have broad distribution channels
and that the Company believes have positioned themselves for long-term growth.
The Company sells its woven fabrics primarily to numerous apparel manufacturers
and apparel resellers. The Company sells its fabrics through Delta Mills
Marketing Inc., a wholly owned subsidiary with a marketing office based in New
York City (which serves the United States, Canadian and Mexican markets), with
sales agents also operating in Atlanta, Chicago, Dallas, Los Angeles, San
Francisco and Mexico.
For fiscal year 1999, sales to Levi Strauss, VF Jeanswear, and the
Company's top five non-affiliated customers accounted for 21%, 13% and 49%
respectively, of the Company's total sales from continuing operations. In
fiscal year 1998, sales to Levi Strauss, VF Jeanswear, and the Company's top
five non-affiliated customers accounted for 18%, 11%, and 47% respectively, of
the Company's total sales from continuing operations. Consistent with industry
practice, the Company does not operate under a supply contract with Levi-Strauss
or any of its other major customers. In addition, during fiscal years 1999,
1998 and 1997, sales of military fabrics to apparel manufacturers accounted for
10%, 12%, and 11%, respectively, of the Company's total sales. The loss of Levi
Strauss or other major customers could have a material adverse effect upon the
Company.
During fiscal years 1999, 1998 and 1997, approximately 78%, 70% and 70%,
respectively, of the Company's finished woven fabric sales were of fabrics made
from cotton or cotton/synthetic blends, while approximately 22%, 30%, and 30%,
respectively, of such sales were of fabrics made from spun synthetics and other
natural fibers, including various blends of rayon, polyester and wool. Woven
fabrics are generally produced and shipped pursuant to specific purchase orders,
which minimizes the Company's uncommitted inventory levels. The Company's
production of cotton and cotton/synthetic blend and spun synthetic finished
woven fabrics is largely vertically integrated, with the Company performing most
of its own spinning, weaving and finishing. In the production of military
fabrics, the Company purchases a portion of its greige goods needs and finishes
this fabric to specifications. The woven finished fabrics plants are currently
operating at less than full capacity.
RAW MATERIALS
The Company's principal raw material is cotton, although it also spins
polyester, wool, linen fiber, acrylic, lyocell, nylon and rayon fibers and
weaves textured polyester filament. Polyester is obtained primarily from three
major suppliers, all of whom provide competitive prices. For fiscal 1999
polyester prices were at the lowest prices the Company has paid since fiscal
year 1993. However, management expects that trend to be reversed in fiscal 2000.
The Company's average price per pound of cotton purchased and consumed
(including freight, carrying cost and cost for the relatively high amount of
premium cotton the Company uses) was $.770 in fiscal year 1999 as compared to
$.817 in fiscal year 1998, and, as compared to $.833 in fiscal year 1997.
Management expects the downward trend in cotton prices to continue in fiscal
year 2000. In fiscal year 2000, the Company expects to use approximately 97
million pounds of cotton (including approximately 15 million pounds of premium
cotton) and 6 million pounds of polyester in its manufacture of yarn. The
Company has contracted to purchase about 61% of its expected cotton requirements
for fiscal year 2000. The percentage of the Company's cotton requirements that
the Company fixes each year varies depending upon the Company's forecast of
future cotton prices. The Company 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 textile industry when the
cotton purchased for future use is put into production. To the extent that
cotton prices decrease before the Company uses these future purchases, the
Company could be materially and adversely affected, as there can be no assurance
that it would be able to pass along its higher costs to its customers. In
addition, to the extent that cotton prices increase and the Company has not
provided for its requirements with fixed price contracts, the Company 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.
5
ITEM 1 (CONTINUED)
- ------- -----------
COMPETITION
The Company sells primarily to domestic apparel manufacturers, many of
which operate offshore sewing operations. The Company competes with numerous
domestic and foreign fabric manufacturers, including companies larger in size
and having greater financial resources than the Company. The principal
competitive factors in the woven fabrics markets 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. Management believes that the Company maintains its ability to compete
effectively by providing its customers with a broad array of high-quality
fabrics at competitive prices on a timely basis.
The Company's competitive position varies by product line. There are
several major domestic competitors in the finished cotton and cotton/polyester
blend woven fabrics business, none of which dominates the market. The Company
believes, however, that it has a strong competitive position in the all cotton
pants-weight fabrics business. In addition, the Company believes that it is one
of only two finishers successful in printing camouflage for sale to apparel
suppliers of the U.S. Government and the only supplier that is vertically
integrated for camouflage production. Additional competitive strengths of the
Company include: knowledge of its customers' business needs; its ability to
produce special fabrics such as textured blends; state of the art spinning,
weaving and fabric finishing equipment at most of its facilities; substantial
vertical integration; and its ability to communicate electronically with its
customers.
Foreign competition is a significant factor in the United States fabric
market. The Company believes that its relatively small manual labor component,
highly-automated manufacturing processes and domestic manufacturing base allow
the Company to compete on a price basis and to respond more quickly than foreign
producers to changing fashion trends and to its domestic customers' delivery
schedules. In addition, the Company benefits from protections afforded to
apparel manufacturers based in certain Latin American and Caribbean countries
that ship finished garments into the United States. NAFTA has effectively
eliminated or substantially reduced tariffs on goods imported from Mexico if
such goods are made from fabric originating in Canada, Mexico, or the United
States. 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. Because Section 807 creates an incentive to use
fabric manufactured in the United States, it is beneficial to the Company and
other domestic producers of apparel fabrics. In addition, pursuant of Section
807A, apparel articles assembled in a Caribbean country, in which all fabric
components have been wholly formed and cut in the United States, 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. A similar program, enacted as a result of NAFTA and referred to
as the Special Regime Program, provides even greater benefits (complete duty
free, quota free treatment) for apparel assembled in Mexico from fabric
components formed and cut in the United States. In contrast, apparel not
meeting the criteria of Section 807, Section 807A or the Special Regime Program,
is subject to quotas and/or relatively higher tariffs. If Section 807, Section
807A or the Special Regime Program were repealed or altered in whole or in part,
the Company believes that it could be at a serious competitive disadvantage
relative to textile manufacturers in other parts of the world seeking to enter
the United States market, which would have a material adverse effect on the
Company. Moreover, there can be no assurance that the current favorable
regulatory environment will continue or that other geographic areas will not be
afforded similar regulatory advantages.
EMPLOYEES
The Company has approximately 2,500 employees. The Company's employees are
not represented by unions. The Company believes that its relations with its
employees are good.
6
ITEM 1 (CONTINUED)
- ------- -----------
ENVIRONMENTAL AND REGULATORY MATTERS
The Company 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. The
Company'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.
The information contained under the subheading "Environmental Matters"
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations " included in Item 7 of this Form 10-K is
incorporated herein by reference.
Generally, the environmental rules applicable to the Company are becoming
increasingly stringent. The Company incurs capital and other expenditures in
each year that are aimed at achieving compliance with current and future
environmental standards.
he Company does not expect that the amount of such expenditures in the
future will have a material adverse effect on its operations or financial
condition. 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 the Company's
liability, if any, for past failures to comply with laws, regulations and
permits applicable to its operations cannot be determined.
DISCONTINUED OPERATIONS
Information concerning discontinued operations in Note F, "Notes To
Consolidated Financial Statements" included in Item 8 of this Form 10-K is
incorporated herein by reference.
OTHER
Information concerning order backlogs in "Management's Discussion and
Analysis of Financial Condition and Results of Operations, Consolidated Company
Results, Fiscal 1999 Versus Fiscal 1998" included in Item 7 of this Form 10-K is
incorporated herein by reference.
7
ITEM 2 PROPERTIES
- ------- ----------
The following table provides a description of Delta Mills, Inc.
principal production and warehouse facilities.
Approximate
Square
Location Utilization Footage Owned/Leased
- ------------------------------- ------------- ----------- -------------
Greenville, SC Admin Offices 17,400 Leased (1)
Beattie Plant, Fountain Inn, SC spin/weave 390,000 (2)
Furman Plant, Fountain Inn, SC weave 155,000 (2)
Estes Plant, Piedmont, SC spin/weave 332,000 (2)
Delta 3 Plant, Wallace, SC dye/finish 555,000 (2)
Cypress Plant, Pamplico, SC spin 144,000 (2)
Pamplico Plant, Pamplico, SC spin/weave 275,000 (2)
Delta 2 Plant, Wallace, SC dye/finish 347,000 (2)
Catawba Plant, Maiden, NC spin 115,000 Owned
Rainsford Plant, Edgefield, SC spin 296,000 Owned (3)
(1) Lease expires in December 2003 with the right to renew for one
additional five-year period.
(2) Titles to these facilities and substantially all of the equipment
located in such facilities are held by three South Carolina counties under a
fee-in-lieu-of-taxes arrangement, which has the effect of substantially reducing
the Company's property taxes in South Carolina. Although the Company can
reacquire such property at a nominal price, this would currently cause a
significant increase in the amount of property taxes paid by the Company.
(3) This plant is managed by the Delta Apparel division of Delta Woodside
Industries, Inc.
Except as noted above all of the above facilities are owned by Delta Mills,
Inc.
Delta Mills Marketing, Inc. leases sales offices in New York, NY. The
lease on the sales offices expires in December 2004. A small sales office lease
in Dallas, Texas expires in September 2002.
At the date of execution of this Form 10-K, the Company believes that its
plants are operating at less than full capacity.
The Company believes that its equipment and facilities are generally
adequate to allow it to remain competitive with its principal competitors.
The Company's accounts receivable and inventory, and certain other
intangible property, secure the Company's credit facility.
8
ITEM 3. LEGAL PROCEEDINGS
- -------- ------------------
From time to time the Company and its subsidiaries are defendants in legal
actions involving claims arising in the normal course of its business, including
product liability claims. The Company believes that, as a result of its legal
defenses, insurance arrangements and indemnification provisions with financially
capable parties, none of these actions is reasonably likely to have a material
adverse effect on its results of operations or financial condition 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 1999 fiscal year.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATEDSTOCKHOLDERMATTERS
- -------- ----------------------------------------------------------------------
Not applicable.
9
ITEM 6. SELECTED FINANCIAL DATA
- ------- -------------------------
In Thousands, Except Ratios
Fiscal Year (1)
---------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:(1)
1999 1998 1997 1996 1995
Net Sales $348,955 $364,395 $ 358,204 $ 317,446 $308,526
Cost of Goods Sold 292,914 300,556 293,145 283,776 272,413
--------- --------- ------------ ---------- ---------
Gross Profit 56,041 63,839 65,059 33,670 36,113
Selling, general and administrative expenses 16,937 17,585 16,323 13,624 14,388
Restructuring charges 0 1,596
Other income(expense) 96 146 1,553 (908) (197)
--------- --------- ------------ ---------- ---------
Operating Profit 39,200 46,400 50,289 17,542 21,528
Interest expense 17,414 19,324 14,212 14,026 12,251
Interest (income) (185) (152) 0 (19) (39)
Income from Continuing Operations
Before Income Tax 21,971 27,228 36,077 3,535 9,316
Income taxes 8,590 10,743 14,187 1,361 3,588
--------- --------- ------------ ---------- ---------
Income from Continuing Operations 13,381 16,485 21,890 2,174 5,728
Profit(Loss) from Discontinued Operations 3,802 (25,909) (5,337) (26,973) (677)
--------- --------- ------------ ---------- ---------
Net Income(Loss) $ 17,183 ($9,424) $ 16,553 ($24,799) $ 5,051
========= ========= ============ ========== =========
OTHER DATA:(1)
Depreciation and amortization $ 14,815 $ 14,127 $ 13,840 $ 12,238 $ 10,444
Capital expenditures 9,075 4,065 14,122 43,378 35,704
EBITDA (2) 53,830 60,375 64,129 29,761 31,933
Ratio of EBITDA to interest expense (2) 3.1 3.1 4.5 2.1 3.0
BALANCE SHEET DATA: (1)
Working Capital (deficit) $101,613 $107,423 ($7,525) $ 16,010 $ 50,421
Total assets 260,951 290,290 345,010 333,577 336,672
Total debt and other long-term obligations (3) 150,000 176,635 268,658 289,587 252,750
Shareholder's equity (deficit) 49,761 40,078 7,844 (8,709) 16,090
NOTES TO SELECTED FINANCIAL DATA
(1) The amounts presented for years prior to fiscal 1998 have been restated to conform to the fiscal 1998 and
fiscal 1999 presentation of discontinued operations. The Stevcoknit knitted fabrics business is presented as
part of discontinued operations.
(2) "EBITDA" is defined herein as operating profit, plus depreciation and amortization expense and interest
income, plus impairment and restructuring charges (credits). While EBITDA should not be construed as an
alternative to operating earnings (loss) or net income (loss), or as an indicator of operating performance or
liquidity, the Company believes that the ratio of EBITDA to interest expense is a measure that is commonly
used to evaluate a company's ability to service debt.
(3) Total debt and other long-term obligations, for fiscal years prior to fiscal 1998, consist of the
long-term debt due to affiliate, the current loan payable to affiliate and the noninterest-bearing payable to
affiliates. See Notes C and E to the Consolidated Financial Statements.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
- --------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains certain "forward-looking statements".
All statements, other than statements of historical fact, that address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such matters as future revenues, future
cost savings, future capital expenditures, business strategy, competitive
strengths, goals, plans, references to future success and other such information
are forward-looking statements. The words "estimate", "project", "anticipate",
"expect", "intend", "believe" and similar expressions are intended to identify
forward-looking statements.
The forward-looking statements in this Annual Report are based on the
Company's expectations and are subject to a number of business risks and
uncertainties, any of which could cause actual results to differ materially from
those set forth in or implied by the forward-looking statements. These risks
and uncertainties include, among others, changes in the retail demand for
apparel products, the cost of raw materials, competitive conditions in the
apparel and textile industries, the relative strength of the United States
dollar as against other currencies, changes in United States trade regulations
and the discovery of unknown conditions (such as with respect to environmental
matters, Year 2000 readiness and similar items). The Company does not undertake
publicly to update or revise the forward-looking statements even if it becomes
clear that any projected results will not be realized.
YEAR ENDED JULY 3, 1999 COMPARED TO YEAR ENDED JUNE 27, 1998
Net Sales. Consolidated net sales for the year ended July 3, 1999 totaled
$349.0 million, as compared to $364.4 million for the year ended June 27, 1998,
a decrease of 4.2% resulting from a decrease in unit sales. The decrease came
from the sales of finished synthetic fabric to commercial accounts, greige sales
to converters, and finished fabric sales to government accounts due to decreased
demand. The principal decline in sales was from the sale of finished synthetic
fabric to commercial accounts, which declined 30% from the prior year. These
decreases were somewhat offset by an increase in finished cotton fabric for
commercial accounts and increased knit yarn sales to the Delta Apparel
affiliate.
Gross Profit. Consolidated gross profit margin for the year ended July 3,
1999 was 16.1 %, as compared to 17.5% for the year ended June 27, 1998. The
decline in gross profit percent was due principally to the sale of knit yarn.
The decline in the finished fabric sales accounted for approximately one third
of the decline in gross profit percent. As a result of the declining market for
synthetic and greige sales, the synthetic business has been downsized to better
match capacity with market demand and the greige business assets are being
converted to the more profitable finished cotton fabrics product lines. The
movement away from the greige business is substantially complete.
Selling, General and Administrative Expenses. During the year ended July
3, 1999, selling, general and administrative expenses were $16.9 million, as
compared to $17.6 million during the year ended June 27, 1998, a decrease of
$.7 million or 4%. Expenses in this category were approximately the same as a
percent of sales in both years. The decrease was due primarily to a reduction
of fixed administrative services cost and the cost associated with information
technology system studies expensed in fiscal year 1998. Management believes it
has effectively controlled its selling, general and administrative expenses.
Operating Earnings. Operating earnings for the year ended July 3, 1999 were
$39.2 million, as compared to $46.4 million for the year ended June 27, 1998.
The decline in operating earnings was due to the factors described above.
Net Interest Expense. For the year ended July 3, 1999, net interest
expense was $17.2 million, as compared to $19.2 million for the year ended June
27, 1998. The decrease in interest expense resulted from repayment of the
amounts outstanding under the revolving line of credit facility.
11
Taxes. The effective tax rate of 39.1% for the year ended July 3, 1999 is
approximately the same as the effective tax rate for the year ended June 27,
1998.
Income from Continuing Operations. Income from Continuing Operations for
the year ended July 3, 1999 was $13.4 million, as compared to $16.5 million for
the year ended June 27, 1998. The decrease was due to the factors described
above.
Order Backlog. The Company's order backlog at July 3, 1999 was $63.3
million, a 40.6% decrease from the $106.6 million order backlog at June 27,
1998. The majority of this decrease was in finished woven fabrics for
commercial accounts due in part to a decline in blanket contracts (contracts
without specific color requirements). The decline in blanket contracts
accounted for approximately 45% of the overall decline in the order backlog.
Many customers have discontinued the practice of issuing blanket contracts when
specific color requirements are unknown. Management believes this is an
industry trend that will continue. The balance of the decline is a result of
market conditions, particularly in the synthetics business. The finished woven
fabrics order backlog for government accounts accounted for approximately 15% of
the overall decline.
YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997
Net Sales. Consolidated net sales for the year ended June 27, 1998 totaled
$364.4 million, as compared to $358.2 million for the year ended June 28, 1997,
an increase of 1.7% resulting from ---an increase in unit sales. The increase
came from the sales of finished fabric to commercial and government accounts
due to increased demand. These increases were chiefly offset by a sharp 32%
decline in unfinished greige fabric sold to converters due to decreased demand.
Gross Profit. Consolidated gross profit margin for the year ended June 27,
1998 was 17.5 %, as compared to 18.2% for the year ended June 28, 1997. This
decline was due principally to the decline in the unfinished woven fabrics
market due to volume, price, and use of manufacturing capacity.
Selling, General and Administrative Expenses. During the year ended June
27, 1998, selling, general and administrative expenses were $17.6 million, as
compared to $15.9 million during the year ended June 28, 1997, an
increase of $1.7 million or 10.7%. For the year ended June 27, 1998, expenses
in this category were 4.83% of net sales as compared to 4.44% of net sales for
the year ended June 28, 1997. The increase was due to distribution cost
related to sales volume increases, fixed administrative services cost and one
time cost associated with information technology system studies.
Operating Earnings. Operating earnings for the year ended June 27, 1998
were $46.4 million, as compared to $50.6 million for the year ended June 28,
1997. The decline in operating earnings was due to the factors described above.
Net Interest Expense. For the year ended June 27, 1998, net interest
expense was $19.2 million, as compared to $14.2 million for the year ended June
28, 1997. The increase in interest expense was primarily a result of the
higher interest rates on the senior notes (9.625%) compared to intercompany debt
at lower rates in the 1997 fiscal year.
Taxes. The effective tax rate of 39.5% for the year ended June 27, 1998 is
approximately the same as the effective tax rate for the year ended June 28,
1997.
Income from Continuing Operations. Income from Continuing Operations for
the year ended June 27, 1998 was $16.5 million, as compared to $22.0 million for
the year ended June 28, 1997. The decrease was due to the factors described
above.
12
LIQUIDITY AND SOURCES OF CAPITAL
During fiscal 1999, the Company financed its capital expenditures primarily
through proceeds from the sale of discontinued operations and cash generated
from operations.
The Company generated operating cash flows of $51.4, $32.1, and $34.8
million for the 1999, 1998 and 1997 fiscal years, respectively. Cash generated
in fiscal year 1999 from both continuing and discontinued operations was used
primarily to finance capital expenditures, including equipment purchases, and to
reduce indebtedness. The Company generated cash from investing activities of
$6.6 million in fiscal year 1998, but used $7.6, and $13.4 million in fiscal
years 1999 and 1997, respectively. Cash generated in fiscal year 1998 from
investing activities was primarily from the disposal of discontinued assets.
On August 25, 1997, the Company issued $150 million of unsecured ten-year
senior notes at an interest rate of 9.625%, and obtained a secured five-year
$100 million revolving line of credit subject to borrowing base limitations.
The interest rate on the revolving credit facility at July 3, 1999 was 6.93%.
The revolving line of credit is secured by accounts receivable and inventory
with a net book value at July 3, 1999 of approximately $129 million. The
Company had $99 million, $ 63 million and $42 million available under the
revolving credit agreement on July 3, 1999, June 27, 1998 and August 25, 1997,
respectively.
The credit facility and senior notes contain restrictive covenants which
include required minimum tangible net worth and certain other required minimum
financial ratios. The agreements also restrict additional indebtedness,
dividends and capital expenditures.
During fiscal 1999, the Company had capital expenditures of approximately
$9.1 million primarily for capital improvements, new equipment, and computer
system upgrades. During fiscal 2000, the Company plans to spend approximately
$7 million for capital improvements, new equipment, and computer system
upgrades. The Company believes that its equipment and facilities are generally
adequate to allow it to remain competitive with its principal competitors.
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At July 3, 1999 minimum
payments under these contracts with non-cancelable contract terms were $42
million in fiscal year 2000.
The carryback of the net losses for fiscal 1996 resulted in a refund of
approximately $8.5 million in the early part of fiscal year 1997.
The Company believes that cash flow generated by its operations and funds
available under its credit line should be sufficient to service its debt, to
satisfy its day-to-day working capital needs, to fund its planned capital
expenditures and to pay dividends to its corporate parent.
13
YEAR 2000 COMPLIANCE
The Company has a variety of computers and systems that are subject to Year
2000 issues. The Year 2000 problem arose because many existing computer
programs use only the last two digits to refer to a year. Therefore, these
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail, or
cause erroneous results. The Company has considered the impact of Year 2000
issues on the Company's computer information systems and other equipment that
use embedded technology such as micro-controllers, and has developed a
remediation plan. The Company's Year 2000 plan includes 1) Identification of
year 2000 issues, 2) Assessment and prioritization of issues, 3) Remediation,
and 4) Testing for Year 2000 compliance. Because the Company has a wide variety
of systems and equipment at various locations affected by the Year 2000 issue,
various aspects of the Company's Year 2000 efforts are at different stages of
progress. Most of the work now being done involves testing of Year 2000
solutions, tracking key vendor Year 2000 compliance, and testing contingency
plans. Expenditures in fiscal 1998 for the Year 2000 project amounted to
approximately $ 21,000. As a part of its plan to achieve Year 2000 compliance,
the Company decided to accelerate the schedule for implementation of certain
data collection systems. The cost of these systems is approximately $1.2
million. The Company spent approximately $ 216,000 on software improvements and
remediation work in fiscal 1999, and expects to spend an additional $223,000 in
fiscal year 2000, with completion expected by the second quarter of fiscal year
2000. Most key vendors and customers have documented assurance of current or
planned readiness for the year 2000. The most likely worst-case scenario is
that certain non-critical business systems might fail. The Company has
developed contingency plans for all systems that had not been remediated as of
July 3, 1999. Contingency plans include the option to disable certain systems
or to use alternate methods of providing the same or similar service. The
Company does not believe that these non-critical systems will have a material
adverse impact on the Company's ability to generate revenue. In the event that
the Company is unable to implement all or a part of its Year 2000 plan, then
some of the Company's computer systems could fail. Any liability or lost
revenue associated with systems failures cannot be reasonably estimated at this
time.
ENVIRONMENTAL MATTERS
Two of the Company's South Carolina plants, the Delta 2 & 3 finishing
plants, have been unable to comply with certain toxicity and other
permit-related limits contained in a National Pollutant Discharge Elimination
System ("NPDES") permit held by the Company. Additionally, high nitrate levels
have been observed at the spray field for those plants. To attempt to achieve
compliance with the non-toxicity NPDES permit limits, the Company completed
certain upgrades in October 1998 at a cost of approximately $2.3 million. Since
then, the Company has had two non-toxicity permit violations resulting in the
payment of a de minimis penalty. The Company believes that it will be able to
comply with the non-toxicity permit limits. The Company is working with the
appropriate state agency to address the toxicity and nitrate issues. Although
there is no assurance that the Company will be successful, and it could face
additional administrative penalties if it is not, the Company does not currently
believe that these matters will have a material adverse impact on the Company.
The Company is currently assessing groundwater contamination at its
discontinued Greensboro, North Carolina plant. The Company believes, however,
that the source of the contamination was removed several years ago by the prior
owner and the Company currently has no plans to remediate any groundwater
contamination. Although no assurance can be provided, the Company does not
currently believe that this matter will have a material adverse impact on the
Company.
14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- --------- ----------------------------------------------------------
RISK
- -----
COMMODITY RISK SENSITIVITY
As a part of the Company's business of converting fiber to finished fabric,
the Company makes raw cotton purchase commitments and then fixes prices with
cotton merchants who buy from producers and sell to textile manufacturers. The
Company may seek to fix prices up to 18 months in advance of delivery. Daily
price fluctuations are minimal, yet long-term trends in price movement can
result in unfavorable pricing of cotton for the Company. Before fixing prices,
the Company looks at supply and demand fundamentals, recent price trends and
other factors that affect cotton prices. The Company also reviews the backlog
of orders from customers as well as the level of fixed price cotton commitments
in the industry in general. At July 3, 1999, a 10% decline in the market price
of the cotton covered by the Company's fixed price contracts would have a
negative impact of approximately $4.2 million on the value of the contracts. At
the end of fiscal 1998, a 10% decline in the market price of the Company's fixed
price contracts would have had a negative impact of approximately $5.6 million
on the value of the contracts. The decline in the potential negative impact
from 1998 to 1999 is due principally to current cotton commitments being at
significantly lower average prices than in fiscal 1998. The Company has changed
to the current disclosure format from the format in the fiscal year 1998 10-K in
an effort to improve the comparability of its disclosure to other companies in
its industry.
INTEREST RATE SENSITIVITY
The following debt obligations are sensitive to changes in interest rates:
$150 million of unsecured ten year senior notes due 2007 at a fixed rate of
9.625%.
$100 million of secured five year revolving credit facility expiring 2002
with interest of 6.93% at July 3, 1999. Interest is based on LIBOR.
An interest rate change would not have an impact on the fixed rate ten year
senior notes totaling $150 million. An interest rate change would have a
negative impact to the extent the Company increases borrowings against the
revolving credit facility. The impact would be dependent on the level of
borrowings incurred. During fiscal years 1999 and 1998, based on the average
principal balance outstanding, a 1% increase in interest rates would have
resulted in increased interest expense of approximately $430,000 and $856,000,
respectively. In fiscal year 2000, as of this date, the Company has not
borrowed against the revolving credit facility.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------- -----------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of KPMG LLP F2
Consolidated Balance Sheets as of July 3, 1999 and June 27, 1998 F3
Consolidated Statements of Operations for the fiscal years ended July 3, 1999,
June 27, 1998, and June 28, 1997 F4
Consolidated Statements of Shareholder's Equity for the fiscal years
ended July 3, 1999, June 27, 1998, and June 28, 1997 F5
Consolidated Statements of Cash Flows for the fiscal years ended July 3,
1999, June 27, 1998 and June 28, 1997 F6
Notes to Consolidated Financial Statements F7
16
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
Delta Mills, Inc.
We have audited the accompanying consolidated balance sheets of Delta Mills,
Inc. as of July 3, 1999 and June 27, 1998 and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
years in the three-year period ended July 3, 1999. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Mills, Inc. at
July 3, 1999 and June 27, 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended July 3, 1999, in
conformity with generally accepted accounting principles.
\s\ KPMG LLP
-------------
KPMG LLP
Greenville, South Carolina
August 13, 1999
17
CONSOLIDATED BALANCE SHEETS
Delta Mills, Inc.
(In Thousands)
July 3, 1999 June 27, 1998
------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,903 $ 544
Accounts receivable:
Factor and other 69,881 82,454
Affiliates 12,994 6,783
------------- --------------
82,875 89,237
Less allowances for doubtful accounts and returns 291 246
------------- --------------
82,584 88,991
Inventories
Finished goods 9,122 10,427
Work in process 29,201 37,000
Raw materials and supplies 7,144 8,412
------------- --------------
45,467 55,839
Current assets of discontinued operations 780 15,484
Deferred income taxes and other assets 2,482 2,567
------------- --------------
TOTAL CURRENT ASSETS 141,216 163,425
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and land improvements 2,988 2,892
Buildings 45,293 47,225
Machinery and equipment 145,467 145,038
Furniture and fixtures 1,993 2,089
Lease improvements 619
Construction in progress 4,363 4,643
------------- --------------
200,723 201,887
Less accumulated depreciation 85,743 80,257
------------- --------------
114,980 121,630
DEFERRED LOAN COSTS
less accumulated amortization of $1,288 4,755 5,223
and $582 in 1999 and 1998 respectively
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS 12
------------- --------------
$ 260,951 $ 290,290
============= ==============
18
CONSOLIDATED BALANCE SHEETS
Delta Mills, Inc.
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
July 3, 1999 June 27, 1998
-------------- ---------------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 15,887 $ 23,890
Payable to Affiliates 571 4,493
Accrued employee compensation 4,014 4,937
Accrued and sundry liabilities 18,381 16,042
Restructuring accruals 750 6,640
-------------- ---------------
TOTAL CURRENT LIABILITIES 39,603 56,002
LONG-TERM DEBT 150,000 176,635
DEFERRED INCOME TAXES 15,547 7,431
OTHER LIABILITIES AND DEFERRED CREDITS 6,040 10,144
SHAREHOLDER'S EQUITY
Common Stock -- par value $.01 a share -- authorized
3000 shares, issued and outstanding 100 shares
Additional paid-in capital 51,792 51,792
Retained earnings(deficit) (2,031) (11,714)
-------------- ---------------
49,761 40,078
COMMITMENTS AND CONTINGENCIES
$ 260,951 $ 290,290
============== ===============
See notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF OPERATIONS
Delta Mills, Inc.
(In Thousands)
Year Ended Year Ended Year Ended
July 3, 1999 June 27, 1998 June 28, 1997
-------------- --------------- ---------------
Net sales to non-affiliates 318,733 342,732 336,181
Net sales to affiliated parties 30,222 21,663 22,023
-------------- --------------- ---------------
Net sales $ 348,955 $ 364,395 $ 358,204
Cost of goods sold 292,914 300,556 293,145
-------------- --------------- ---------------
Gross profit 56,041 63,839 65,059
Selling, general and administrative expenses 16,937 17,585 16,323
Other income 96 146 1,553
-------------- --------------- ---------------
OPERATING PROFIT 39,200 46,400 50,289
Other (expense) income:
Interest expense (17,415) (17,160) (413)
Interest income 186 152
Affiliate interest expense (2,164) (13,799)
-------------- --------------- ---------------
(17,229) (19,172) (14,212)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 21,971 27,228 36,077
-------------- --------------- ---------------
Income tax expense 8,590 10,743 14,187
-------------- --------------- ---------------
INCOME FROM CONTINUING
OPERATIONS 13,381 16,485 21,890
Gain (Loss) on disposal of discontinued operations less
applicable income taxes 3,802 (21,079)
(Loss) from operations of discontinued businesses less
applicable income taxes (4,830) (5,337)
-------------- --------------- ---------------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS 3,802 (25,909) (5,337)
-------------- --------------- ---------------
NET INCOME (LOSS) $ 17,183 ($9,424) $ 16,553
============== =============== ===============
See notes to consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Delta Mills, Inc.
(In Thousands)
Additional Retained Total
Common Stock Paid-In Earnings Shareholder's
Shares Amount Capital (Deficit) Equity
------ ------- ----------- ---------- ---------------
Balance at June 29, 1996 100 $ 0 $ 2,134 $ (10,843) $ (8,709)
Net Income 16,553 16,553
------ ------- ----------- ---------- ---------------
Balance at June 28, 1997 100 0 2,134 5,710 7,844
Net (loss) (9,424) (9,424)
Cash dividends paid (8,000) (8,000)
Capital Contribution 49,658 49,658
------ ------- ----------- ---------- ---------------
Balance at June 27, 1998 100 0 51,792 (11,714) 40,078
Net Income 17,183 17,183
Cash dividends paid (7,500) (7,500)
------ ------- ----------- ---------- ---------------
Balance at July 3, 1999 100 $ 0 $ 51,792 ($2,031) $ 49,761
====== ======= =========== ========== ===============
See notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Mills, Inc.
(In Thousands)
Year Ended Year Ended Year Ended
July 3, 1999 June 27, 1998 June 28, 1997
-------------- --------------- ---------------
OPERATING ACTIVITIES
Net income (loss) $ 17,183 ($9,424) $ 16,553
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,109 14,095 13,910
Amortization 706 32 (70)
Discontinued operations 22,087 29,751 (2,834)
Provision for losses on accounts receivable 45 468
Provision for deferred income taxes 605 3,068 4,198
Losses (gains) on disposition of property
and equipment 73 (6) (1,504)
Deferred compensation 317 638 605
Changes in operating assets and liabilities:
Accounts receivable 12,573 1,895 (14,092)
Inventories 10,372 (236) 4,667
Other current assets (85) 41 (349)
Accounts payable, accrued expenses and due to affiliate, net (26,596) (8,244) 13,680
-------------- --------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 51,389 32,078 34,764
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (9,075) (4,065) (14,122)
Proceeds of dispositions 1,086 13 2,275
Other investing activities 140
Investing activities of discontinued operations 206 10,686 (1,597)
-------------- --------------- ---------------
NET CASH PROVIDED(USED) BY
INVESTING ACTIVITIES (7,643) 6,634 (13,444)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 104,365 137,000
Repayments on revolving lines of credit (131,000) (110,365)
Scheduled principal payments of long-term debt (50,000)
Net proceeds/(repayments) of loan from parent company (202,093) 29,731
Proceeds from issuance of long-term debt 145,688
Dividends paid (7,500) (8,000)
Other (252) (1,493)
-------------- --------------- ---------------
NET CASH (USED) BY
FINANCING ACTIVITIES (34,387) (39,263) (20,269)
-------------- --------------- ---------------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 9,359 (551) 1,051
Cash and cash equivalents at beginning of year 544 1,095 44
-------------- --------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 9,903 $ 544 $ 1,095
============== =============== ===============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: The Company manufactures woven fabrics which are
sold through a separate sales subsidiary. The Company's operations, all within
the textile industry, are considered a single business segment.
22
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Delta Mills, Inc. and the Delta Mills Marketing, Inc. (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated. Delta Mills, Inc. and Delta Mills Marketing , Inc. are
wholly-owned subsidiaries of Alchem Capital Corporation, which is a wholly-owned
subsidiary of Delta Woodside Industries, Inc. ("DWI"). The Company has one
segment that is presented as a discontinued operation, Stevcoknit Fabrics
Company, which manufactured and sold knitted fabrics.
CASH EQUIVALENTS: The Company considers all highly liquid investments having
maturities of three months or less when purchased to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of the cost or market
determined using the first-in , first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the
basis of cost. Depreciation is computed by the straight-line method for
financial reporting based on estimated useful lives of three to thirty-two
years, but predominantly over seven to fourteen years, and by accelerated
methods for income tax reporting.
IMPAIRMENT OF LONG-LIVED ASSETS: When required by circumstances, the Company
evaluates the recoverability of its long-lived assets by comparing estimated
future undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value is required
REVENUE RECOGNITION: Sales are recorded upon shipment or designation of
specific goods for later shipment at customers' request with related risk of
ownership passing to such customers.
DEFERRED LOAN COSTS: Deferred loan costs are being amortized over periods of
five and ten years based on maturity of related debt.
INCOME TAXES: Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
ENVIRONMENTAL COSTS: Environmental compliance cost, including ongoing
maintenance, monitoring and similar costs, are expensed as incurred.
Environmental remediation costs are accrued, except to the extent costs can be
capitalized, when remedial efforts are probable, and the cost can be reasonably
estimated.
COTTON PROCUREMENT: 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 cost of cotton is
not recoverable in future sales of finished goods, the differential is charged
to income at that time.
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL YEAR: The Company's operations are based on a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to June 30. Fiscal years 1997
and 1998 each consisted of 52 weeks. Fiscal year 1999 consisted of 53 weeks.
23
NOTE B-ACCOUNTS RECEIVABLE
The Company assigns a substantial portion of its trade accounts receivable to a
bank under a factor agreement. The assignment of these receivables is primarily
without recourse, provided that customer orders are approved by the bank prior
to shipment of goods, up to a maximum for each individual account.
The Company operates within the textile industry, and its operations are
affected by the relative strength or weakness of the textile markets. The
Company has one major customer that accounted for 21%, 18%, and 22% of total net
sales of continuing operations for fiscal years 1999, 1998, and 1997,
respectively. Another major customer accounted for 13% and 11% of sales of
continuing operations in fiscal years 1999 and 1998, respectively.
The Company's accounts receivable are due from many companies that produce
apparel products located throughout the United States. The many companies
represented in the Company's accounts receivable limit to a certain extent the
concentration of credit risk. The Company generally does not require collateral
for its accounts receivable.
NOTE C-LONG-TERM DEBT AND LEASES
On August 25, 1997 the Company issued $150 million of unsecured ten-year senior
notes at an interest rate of 9.625%, and obtained a secured five-year $100
million revolving line of credit subject to borrowing base limitations. The net
proceeds of the senior notes, the initial borrowings under the revolving line of
credit and a capital contribution of the remainder of the intercompany debt were
used to repay the long-term debt and current amounts payable to affiliate. At
July 3, 1999, the interest rate on the $100 million revolving line of credit was
6.93% based on LIBOR. At July 3, 1999, accounts receivable and inventory with a
net book value of approximately $129 million, served as collateral for the $100
million revolving line of credit. The Company had $99 million available under
the revolving line of credit on July 3, 1999.
The credit facility and the senior notes contain restrictive covenants, which
include restrictions on additional indebtedness, transactions with affiliates,
payment of dividends, and capital expenditures, and require minimum tangible net
worth and certain other required minimum financial ratios.
The carrying value of the Company's revolving credit agreement approximates fair
value since the rates are tied to floating rates. At July 3, 1999 the carrying
value of the senior notes was $150,000,000 and the fair value, based on quoted
market prices was $142,500,000.
Total interest expense incurred and paid by the Company was $16,760,000,
$13,563,000 and $14,264,000 for fiscal years 1999, 1998, and 1997, respectively,
of which $106,000 and $302,000 were capitalized during fiscal years 1999 and
1997 respectively.
Rent expense relating to operating leases was approximately $3,407,000,
$3,821,000 and $ 2,759,000 for fiscal years 1999, 1998 and 1997 respectively.
24
NOTE C-CONTINUED
Aggregate principal maturities of all long-term debt and minimum payments under
operating leases are as follows:
Long-term Operating
Fiscal Year Debt Leases
- ----------- ------------ ----------
2000 $3,222,000
2001 3,216,000
2002 1,794,000
2003 360,000
2004 218,000
Later Years 150,000,000 342,000
------------ ----------
$150,000,000 $9,152,000
============ ==========
NOTE D-EMPLOYEE BENEFIT PLANS
The Company has participated in the Delta Woodside Industries, Inc. Retirement
and 40l(k) Plans.
On September 27, 1997 the Delta Woodside Industries Employee Retirement Plan
("Retirement Plan") merged into the Delta Woodside Employee Savings and
Investment Plan ("401(k) Plan"). Following the merger, contributions to the
401(k) Plan in lieu of a contribution to the Retirement Plan are made in cash
and not in stock. In the 401(k) Plan employees may elect to convert DWI stock
to other funds, but may not increase the amount of stock in their account. Each
participant has the right to direct the trustee as to the manner in which shares
held are to be voted. The Retirement Plan qualified as an Employee Stock
Ownership Plan ("ESOP") under the Internal Revenue Code as a defined
contribution plan. Contributions of $236,000 and $270,000 were allocated to
participants in fiscal 1998 and 1997, respectively. During fiscal 1999, 1998
and 1997, the Company contributed $497,000, $455,000, and $480,000,
respectively, to the 401(k) plan to match employee contributions. In addition
to the matching contributions, the Company also made a discretionary
contribution of $280,000 to the 401(k) plan in fiscal 1999.
The Company also participates 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.
The Company participates in a Deferred Compensation Plan, managed by DWI, which
permits certain management employees to defer a portion of their compensation.
Deferred compensation accounts are credited with interest and are distributed
after retirement, disability or employment termination. As of July 3, 1999 and
June 27, 1998, the Company's liability was $6,040,000 and $5,722,000
respectively.
The Company also participates in the Delta Woodside Industries, Inc. Incentive
Stock Award Plan and Stock Option Plan. Including associated tax assistance,
under the Incentive Stock Award Plan the Company recognized expense of
$321,000, $404,000, and $245,000 for fiscal years 1999, 1998 and 1997,
respectively. Under the Stock Option Plan, the Company recognized expense of
$152,000, $104,000 and $87,000 for fiscal years 1999, 1998 and 1997,
respectively.
NOTE E-AFFILIATED PARTY TRANSACTIONS
The Company participated in a cash management system maintained by Delta
Woodside Industries, Inc. until August 25, 1997. Under this system excess cash
was forwarded to DWI each day, reducing the current loan payable to affiliate.
Likewise, cash requirements were funded daily by DWI, increasing loan payable to
affiliate. Interest was charged on loan payable to affiliate balances based on
the weighted average cost of DWI's borrowings.
25
NOTE E-CONTINUED
Accounts receivable due from affiliates include $1.7 million at June 28, 1997
for anticipated refunds of income taxes from Delta Woodside Industries, Inc.
Receivables from affiliates also include $13.0 million and $5.0 million at July
3, 1999 and June 27, 1998, respectively, resulting from sales to Delta Apparel,
an affiliate.
Current payable to affiliates bears no interest and includes amounts payable to
DWI for current activity as described in the following paragraphs.
Affiliated party transactions included in the statements of operations result
from a variety of services provided and goods transferred as shown in the
following table:
1999 1998 1997
----------- ----------- -----------
Textile and yarn sales $30,221,000 $19,385,000 $29,870,000
Corporate services expense 2,816,000 2,838,000 3,302,000
Income tax payments 74,000 88,000 6,261,000
Payroll taxes, insurance and
employee related expenses 39,889,000 45,223,000 42,578,000
Printing services expense 0 220,000 505,000
Interest expense 0 2,193,000 13,679,000
Rental income 81,000 95,000 93,000
Since March 29, 1997, the Company sells textiles and yarn to an affiliate at
prices which approximate market. Prior to March 29, 1997, the Company sold
textiles and yarn to an affiliate at prices which approximate cost. Corporate
services include management, treasury, computer, purchasing, benefits, payroll,
auditing, accounting and tax services. For these services, DWI charges actual
cost based on relative usage and other factors. Actual cost is charged for
payroll taxes, insurance and employee related expenses which are managed by DWI
as a corporate service. Printing services were charged at market prices.
Interest was charged based on fixed rates for long-term debt. Interest on loan
payable to affiliates was charged based on DWI 's weighted average interest
rate. The Company charges affiliates for rent based on estimated cost and space
utilized.
NOTE F-DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
In the third quarter of fiscal year 1998, the Company adopted the segment
reporting provisions of Financial Accounting Standard 131. This standard
requires the Company to report segment information for divisions which engage in
business activity, whose operating results are regularly reviewed by the chief
operating officer. The Company has one segment in continuing operations:
Delta Mills Marketing Company which manufactures and sells woven fabrics for
apparel and home furnishings. The Company's other operations include yarn sales
to Delta Apparel, a segment of the parent company, Delta Woodside Industries,
Inc. Operating profit does not include interest expense or interest income.
The Company also has one segment which is presented as a discontinued operation:
Stevcoknit Fabrics Company which manufactured and sold knitted fabrics.
On March 3, 1998, the Company made the decision to close Stevcoknit Fabrics.
Accordingly, operating results for this segment have been reclassified and
reported as discontinued operations.
In connection with the decision to discontinue this business, the Company, in
fiscal 1998, recognized an estimated loss on disposal of discontinued operations
of $21 million including an income tax benefit of $14 million. In fiscal 1999,
the Company decreased the estimate of the after-tax cost to discontinue these
businesses and recognized after-tax credits of $2.6 million and $1.2 million
during the first and third quarters of fiscal year 1999, respectively. Proceeds
from the liquidation of this division have been used to make capital
expenditures and to reduce indebtedness.
26
NOTE F-CONTINUED
The assets of discontinued operations at July 3, 1999 and June 27, 1998 are as
follows:
(in thousands) July 3, 1999 June 27, 1998
------------- --------------
Accounts Receivable $ 763 $ 13,893
Inventory 0 1,529
Other current assets 17 62
------------- --------------
Total current assets 780 15,484
Property, plant and equipment
net of accumulated depreciation 0 12
------------- --------------
Total Assets $ 780 $ 15,496
Summarized results of operations for the discontinued business are as follows:
(in thousands) July 3, 1999 June 27, 1998 June 28, 1997
------------- --------------- ---------------
Net Sales $ 2,080 $ 91,153 $ 106,344
Cost and expense 2,080 112,899 115,213
(Loss) before income tax 0 (21,746) (8,869)
Income tax (benefit) 0 (16,916) (3,532)
------------- --------------- ---------------
(Loss) from operations of
discontinued operations $ 0 $ (4,830) $ (5,337)
============= =============== ===============
NOTE G-INCOME TAXES
The Company reports federal income taxes in the consolidated return of its
parent Delta Woodside Industries, Inc. (DWI) and had taxable income of $6.5
million which will be reported in the fiscal 1999 consolidated Federal income
tax return of its parent, DWI. The consolidated group had a tax loss of $11
million, which will be carried forward to offset future taxable income. The
Federal income tax obligation or refund that is allocated to the Company is
determined as if the Company were filing a separate Federal income tax return.
The Company's Federal tax liability or receivable is paid to or is a receivable
from the parent company.
The Company utilized its state NOL carryovers of approximately $ 1 million, $ 8
million and $ 18 million for 1999, 1998 and 1997 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. Deferred income taxes reflect the net
tax effects of temporary differences between the financial statement amounts and
amounts reported for income tax purposes. There was no change in the valuation
allowance from 1998 to 1999.
27
NOTE G-CONTINUED
Significant components of the Company's deferred tax assets and liabilities are
as follows:
1999 1998
Assets
Restructuring reserves $ 303,000 $ 3,708,000
Deferred compensation 2,325,000 2,203,000
Net operating loss carryforwards 81,000 131,000
Accrued and sundry liabilities 2,731,000 2,410,000
Inventory 350,000 557,000
Allowance for doubtful accounts & sales returns 364,000 573,000
Subtotal 6,154,000 9,582,000
Valuation allowance (37,000) (37,000)
---------------- ----------------
Deferred tax assets 6,117,000 9,545,000
Liabilities:
Depreciation 18,638,000 13,434,000
Other 991,000 1,343,000
---------------- ----------------
Deferred tax liabilities 19,629,000 14,777,000
---------------- ----------------
Net deferred tax liabilities $ 13,512,000 $ 5,232,000
================ ================
Significant components of the provision for income taxes are as follows:
1999 1998 1997
Current:
Federal income taxes $ 6,980,000 $ 7,270,000 $ 9,790,000
State income taxes 1,005,000 405,000 199,000
Total current $ 7,985,000 $ 7,675,000 $ 9,989,000
----------- ------------- ------------
Deferred:
Federal income taxes (benefits) $ 520,000 $ 2,640,000 $ 3,611,000
State income taxes (benefits) 85,000 428,000 587,000
Total Deferred $ 605,000 $ 3,068,000 $ 4,198,000
----------- ------------- ------------
Total provision for Continuing Operations $ 8,590,000 $ 10,743,000 $14,187,000
----------- ------------- ------------
The total provision for income taxes
related to Discontinued Operations 2,335,000 (16,916,000) (3,533,000)
----------- ------------- ------------
Total provision for income taxes $10,925,000 ($6,173,000) $10,654,000
----------- ------------- ------------
The reconciliation of income tax expense (benefit) computed at the Federal
statutory tax rate:
1999 1998 1997
----------- ---------------- -----------
Income tax expense (benefit) at statutory rates $ 9,835,000 $ (5,459,000) $ 9,523,000
State taxes (benefits) net of federal benefit 991,000 (733,000) 385,000
Other 99,000 19,000 746,000
----------- ---------------- -----------
$10,925,000 ($6,173,000) $10,654,000
=========== ================ ===========
The Company made tax payments of $ 81,000, $110,000 and $6,261,000 during fiscal
years 1999, 1998 and 1997, respectively.
28
NOTE H-SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
Delta Mills Marketing, Inc. (the "Guarantor") does not comprise a material
portion of the Company's assets or operations. The Guarantor is a wholly-owned
subsidiary of the Company and has fully and unconditionally guaranteed, (the
"Guarantee") the Company's payment of principal, premium, interest and certain
liquidated damages, if any, on the Company's senior notes (the "Notes"). The
Guarantor's liability under the Guarantee is limited to such amount, the payment
of which would not have left the guarantor insolvent or with unreasonably small
capital at the time its Guarantee is entered into, after giving effect to the
incurrence of existing indebtedness immediately prior to such time.
The Guarantor is the sole subsidiary of the Company. All future subsidiaries of
the Company will provide guarantees identical to the one described in the
preceding paragraph unless such future subsidiaries are Receivables Subsidiaries
(as defined in the indenture relating to the Notes). Such additional guarantees
will be joint and several with the Guarantee of the Guarantor.
The Company has not presented separate financial statements or other disclosures
concerning the Guarantor because Company management has determined that such
information is not material to investors.
Summarized financial information for the Guarantor is as follows (in thousands):
JULY 3, 1999 JUNE 27, 1998
------------- --------------
Current assets 194 1,301
Noncurrent assets 71 412
Current Liabilities 560 1,428
Noncurrent liabilities 980 1,260
Stockholders' equity (deficit) (1,275) (975)
Summarized results of operations for the Guarantor are as follows (in
thousands):
Twelve Months Ended
---------------------------------------------------
July 3, 1999 June 27, 1998 June 28, 1997
-------------- --------------- ---------------
Net sales -intercompany commissions $ 5,207 $ 6,177 $ 6,041
Cost and expenses 4,948 5,346 5,104
Income from continuing operations 167 468 513
(Loss) from discontinued operations (519) (1,450) (1,006)
Net (loss) (352) (982) (498)
NOTE I-COMMITMENTS AND CONTINGENCIES
During fiscal year 2000, the Company plans to spend approximately $ 7 million
for capital improvements.
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At July 3, 1999 minimum
payments under these contracts with non-cancelable contract terms were $42
million in fiscal year 2000.
29
NOTE I-CONTINUED
Two of the Company's South Carolina plants, the Delta 2 & 3 finishing plants,
have been unable to comply with certain toxicity and other permit-related limits
contained in a National Pollutant Discharge Elimination System ("NPDES") permit
held by the Company. Additionally, high nitrate levels have been observed at
the spray field for those plants. To attempt to achieve compliance with the
non-toxicity NPDES permit limits, the Company completed certain upgrades in
October 1998 at a cost of approximately $2.3 million. Since then, the Company
has had two non-toxicity permit violations resulting in the payment of a de
minimis penalty. The Company believes that it will be able to comply with the
non-toxicity permit limits. The Company is working with the appropriate state
agency to address the toxicity and nitrate issues. Although there is no
assurance that the Company will be successful, and it could face additional
administrative penalties if it is not, the Company does not currently believe
that these matters will have a material adverse impact on the Company.
The Company is currently assessing groundwater contamination at its
discontinued Greensboro, North Carolina plant. The Company believes, however,
that the source of the contamination was removed several years ago by the prior
owner and the Company currently has no plans to remediate any groundwater
contamination. Although no assurance can be provided, the Company does not
currently believe that this matter will have a material adverse impact on the
Company.
NOTE J-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the
years ended July 3, 1999 and June 27, 1998.
Quarter Ended
-------------------------------------------------
September 26 December 26 March 27 July 03
------------- ------------ ---------- --------
(In thousands)
1999
Net sales $ 92,417 $ 86,938 $ 81,049 $ 88,551
Gross profit 17,188 15,782 11,685 11,376
Income from continuing operations 5,397 4,186 2,260 1,528
Net income 8,029 4,186 3,401 1,557
September 27 December 27 March 28 June 27
------------- ------------ ---------- --------
(In thousands)
1998
Net sales $ 92,383 $ 89,285 $ 81,071 $101,656
Gross profit 17,025 15,006 14,497 17,311
Income from continuing operations 5,303 3,632 3,048 4,502
Net income (loss) 3,666 1,907 (19,499) 4,502
During the third quarter of fiscal year 1998, the Company recognized
restructuring and impairment charges of $21 million in connection with
discontinued operations described in Note F. In fiscal 1999, the Company
decreased the estimate of the after-tax cost to discontinue these businesses and
recognized after-tax credits of $2.6 million and $1.2 million during the first
and third quarters of fiscal year 1999, respectively.
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- -------- ------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
Not applicable.
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------- --------------------------------------------------------
The following provides certain information regarding the directors and
executive officers of the Company. Except as otherwise noted below, the
business address of each director and officer is Delta Woodside Industries,
Inc., 233 North Main Street, Hammond Square, Suite 200, Greenville, South
Carolina 29601. Each such person is a citizen of the United States. There are
no family relationships among the directors and the executive officers of the
Company or Delta Woodside.
NAME AND AGE POSITION WITH THE COMPANY DIRECTOR SINCE (8)
E. Erwin Maddrey, II (58) President and Chief Executive Officer and Director
of the Company and Delta Woodside (1) 1984
Bettis C. Rainsford (48) Director of the Company
and Delta Woodside (2) 1984
C.C. Guy (66) Director of the Company and Delta Woodside (3) 1984
Buck A. Mickel (43) Director of the Company and Delta Woodside (4) 1984
Jane H. Greer (61) Vice President and Secretary of the Company
and Delta Woodside (5)
Robert W. Humphreys (42) Vice President-Finance and
Assistant Secretary of the Company
and Delta Woodside (6)
Brenda L. Jones (54) Assistant Secretary of the Company
and Delta Woodside (7)
(1) E. Erwin Maddrey, II was President and Chief Executive Officer of Delta Woodside's
predecessor by merger Delta Woodside Industries, Inc., a Delaware corporation ("Old Delta
Woodside") or its predecessors from the founding of Old Delta Woodside's predecessors in 1984
until the November 15, 1989 merger of Old Delta Woodside into RSI Corporation, a South Carolina
corporation, which changed its name to Delta Woodside Industries, Inc. and is now Delta Woodside
(the "RSI Merger"), and he has served in such positions with Delta Woodside since the RSI Merger.
Mr. Maddrey has served in current positions with the Company since 1986. He also serves as a
director of Kemet Corporation and Delta Woodside.
(2) Bettis C. Rainsford was Executive Vice President and Chief Financial Officer of Old
Delta Woodside or its predecessors from the founding of Old Delta Woodside's predecessors in 1984
until the RSI Merger and served in such positions with Delta Woodside from the RSI Merger until
October 1, 1999. Mr. Rainsford served as Treasurer of Old Delta Woodside or its predecessors or
Delta Woodside from 1984 to 1986, from August 1988 to November 1988 and from 1990 to October 1,
1999. Mr. Rainsford served in the same officer positions with the Company (with the exception of
certain periods when he did not serve as Treasurer) from 1986 to October 1, 1999. He is also
President of The Rainsford Development Corporation which is engaged in general business
development activities in Edgefield, South Carolina. Mr. Rainsford also serves as a director of
Martin Color-Fi, Inc. and Delta Woodside and is a member of the managing entity of Mount Vintage
Plantation Golf Club, LLC.
32
ITEM 10. (CONTINUED)
- ----------------------
(3) C. C. Guy is a retired businessman. He served as Chairman of the Board of Old Delta
Woodside or its predecessors from the founding of Old Delta Woodside's predecessors in 1984 until
November 1989. Since before the RSI Merger, he has been a director of RSI Holdings, Inc., and he
also served as President of RSI Holdings, Inc. from before the RSI Merger until January 1995. RSI
Holdings, Inc. until 1992 was engaged in the sale of outdoor power equipment, until 1994 was
engaged in the sale of turf care products and currently is engaged in the consumer finance
business. Prior to November 15, 1989, RSI Holdings, Inc. was a subsidiary of RSI Corporation.
Mr. Guy served from 1979 until November 1989 as President, Treasurer and a director of RSI
Corporation. Prior to the RSI Merger, RSI Corporation owned approximately 40% of the outstanding
shares of common stock of Old Delta Woodside and, among other matters, was engaged in the office
supply business, as well as the businesses of selling outdoor power equipment and turf care
products. Mr. Guy has served as a director of the Company since 1986. Mr. Guy also serves as a
director of Delta Woodside.
(4) Buck A. Mickel is President and Chief Executive Officer and a director of RSI
Holdings, Inc. He served as a Vice President of Old Delta Woodside or its predecessors and the
Company from the founding of Old Delta Woodside's predecessors until November 1989, Secretary of
Old Delta Woodside and the Company from November 1986 to March 1987, and Assistant Secretary of
Old Delta Woodside and the Company from March 1987 to November 1988. He served as Vice President
and a director of RSI Holdings, Inc. from before the RSI Merger until January 1995 and as Vice
President of RSI Holdings, Inc. from September 1996 until July 1998, when he assumed his current
positions. He served as Vice President of RSI Corporation from 1983 until November 1989. Mr.
Mickel has served as a director of the Company since 1986. He also serves as a director of Delta
Woodside.
(5) Jane H. Greer became associated with Old Delta Woodside's predecessors in July 1986,
and was elected a Vice President of Old Delta Woodside and the Company in November 1986, in charge
of human resources and other related areas, Assistant Secretary of Old Delta Woodside and the
Company in November 1987 and Secretary of Old Delta Woodside and the Company in August 1988. She
became Vice President and Secretary of Delta Woodside and the Company on November 15, 1989.
(6) Robert W. Humphreys was elected President of Delta Apparel Company, a division of a
subsidiary of Delta Woodside, in April 1999. He was elected to serve as Vice President-Finance
and Assistant Secretary of Delta Woodside and the Company in May 1998. From January 1987 to May
1998, Mr. Humphreys was President of Stevcoknit Fabrics Company, a division of the Company.
(7) Brenda L. Jones was elected Assistant Secretary of Old Delta Woodside and the Company
in November 1988. She became Assistant Secretary of Delta Woodside and the Company on November
15, 1989. Since July 1987, she has been Vice President and Chief Financial Officer of The
Rainsford Development Corporation, a corporation wholly owned by Bettis C. Rainsford which is
engaged in general business development activities.
(8) Includes service as a director of Delta Woodside, Old Delta Woodside or any
predecessor to Old Delta Woodside.
The Company's directors hold office until the next annual meeting of the
Company's shareholder or until their successors are duly elected and qualified.
The Company's executive officers are appointed by the Board of Directors and
serve at the pleasure of the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
There were no late filings of reports for fiscal year 1999 pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended.
33
ITEM 11. EXECUTIVE COMPENSATION
Each of the executive officers of the Company serves in the same position
for Delta Woodside and various of Delta Woodside's direct and indirect
subsidiaries and is compensated by Delta Woodside. On an ongoing basis the
Company reimburses Delta Woodside for services provided to it by its executive
officers. This arrangement was formalized in a management services agreement in
August 1997. See Item 13. Certain Relationships and Related Party
Transactions. The following provides information respecting the compensation
received by the Company's executive officers in all capacities for Delta
Woodside and its direct and indirect subsidiaries (including the Company) in
fiscal years 1997, 1998 and 1999. A portion of these amounts was borne by the
Company. See Item 13. Certain Relationships and Related Party Transactions.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the fiscal years
ended July 3, 1999, June 27, 1998 and June 28, 1997 respecting the compensation
earned by the Chief Executive Officer, the Chief Financial Officer, and the
other three executive officers who earned salary and bonus in fiscal 1999 in
excess of $100,000 (the "Named Executives").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
----------------------------------------- -----------
Other Awards All
-----------
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Options sation
Principal Position Year ($)(a) ($)(a)(b) ($)(c) (#)(d) ($)
- --------------------- ---- ----------- ------------- ------------- ----------- ----------------
E.Erwin Maddrey,II, 1999 476,923 80,962 24,525 0 33,607 (m)(r)(s)
President & Chief 1998 500,000 108,243 20,127 20,000 (i) 36,563
Executive Officer 1997 500,000 0 0 0 36,905
Bettis C. Rainsford, 1999 376,923 (h) 64,758 19,620 0 15,866 (n)(r)(s)
Executive VP, CFO, 1998 450,000 (h) 86,579 16,102 16,000 (j) 16,012
& Treasurer(e) 1997 450,000 (h) 0 0 0 15,621
Jane H. Greer, 1999 207,692 53,334 14,715 0 2,701 (o)(s)
Vice President 1998 173,500 64,915 10,538 0 1,893
& Secretary 1997 144,308 63,000 11,080 15,000 (k) 1,313
Robert Humphreys, 1999 223,077 94,286 14,715 0 543,449 (p)(s)
VP-Finance & 1998 192,116 16,231 10,538 0 52,616
Asst. Secretary (f)
Douglas J. Stevens, 1999 94,231 7,500 12,841 0 157,641 (q)(s)
Vice President- 1998 143,904 64,915 10,538 21,000 (l) 3,184
International (g) 1997 134,000 63,000 11,080 19,000 (l) 1,008
- -----------------------------------
(a) The amounts shown in the column include sums the receipt of which has been deferred
pursuant to the 401(k) Plan or Delta Woodside's deferred compensation plan.
(b) Amounts in this column are cash bonuses paid to reward performance.
34
ITEM 11. (CONTINUED)
- ----------------------
(c) The amounts in this column were paid by Delta Woodside in connection with the vesting of
awards under Delta Woodside's Incentive Stock Award Plan and were in each case approximately
sufficient, after the payment of all applicable income taxes, to pay the participant's federal and
state income taxes attributable to the vesting of the award.
(d) For purposes of this table, awards under Delta Woodside's Incentive Stock Award Plan are
treated as options.
(e) Mr. Rainsford resigned from service as an officer with the Company effective October 1,
1999.
(f) Mr. Humphreys was elected President and chief executive officer of Delta Apparel Company, a
division of a subsidiary of Delta Woodside, in April 1999, and was elected Vice President-Finance and
Assistant Secretary of the Company in May 1998. The information in the table includes Mr. Humphreys'
compensation for all of fiscal 1998 and fiscal 1999.
(g) Mr. Stevens retired from service with the Company in July 1999.
(h) Of this amount $150,000 was paid to The Rainsford Development Corporation, a company wholly
owned by Mr. Rainsford.
(i) During fiscal 1998, Mr. Maddrey was granted an award covering 20,000 shares under Delta
Woodside's Incentive Stock Award Plan.
(j) During fiscal 1998, Mr. Rainsford was granted an award covering 16,000 shares under Delta
Woodside's Incentive Stock Award Plan.
(k) During fiscal 1997, Ms. Greer was granted an award covering 15,000 shares under Delta
Woodside's Incentive Stock Award Plan.
(l) During fiscal 1998, Mr. Stevens was granted options covering 21,000 shares under Delta
Woodside's Stock Option Plan. During fiscal 1997, Mr. Stevens was granted an award covering 15,000
shares under Delta Woodside's Incentive Stock Award Plan and was granted an option covering 4,000
shares under Delta Woodside's Stock Option Plan.
(m) The fiscal 1999 amount represents $30,663 premium paid by Delta Woodside for $10 million of
life insurance on the life of Mr. Maddrey, $666 Delta Woodside contribution allocated to Mr.
Maddrey's account in the 401(k) Plan, $1,416 contributed by Delta Woodside to Delta Woodside's
deferred compensation plan as payment for the amount of Delta Woodside contributions to the 401(k)
Plan for fiscal year 1998 that were not made for Mr. Maddrey because of Internal Revenue Code
contribution limitations, and $862 earned on Mr. Maddrey's deferred compensation at a rate in excess
of 120% of the Federal mid-term rate.
(n) The fiscal 1999 amount represents $14,525 premium paid by Delta Woodside for $10 million of
life insurance on the life of Mr. Rainsford, $666 Delta Woodside contribution allocated to Mr.
Rainsford's account in the 401(k) Plan, $583 contributed by Delta Woodside to Delta Woodside's
deferred compensation plan as payment for the amount of Delta Woodside contributions to the 401(k)
Plan for fiscal year 1998 that were not made for Mr. Rainsford because of Internal Revenue Code
contribution limitations, and $92 earned on Mr. Rainsford's deferred compensation at a rate in excess
of 120% of the Federal mid-term rate.
(o) The fiscal 1999 amount represents $666 Delta Woodside contribution allocated to Ms. Greer's
account in the 401(k) Plan, $319 contributed by Delta Woodside to Delta Woodside's deferred
compensation plan as payment for the amount of Delta Woodside contributions to the 401(k) Plan for
fiscal year 1998 that were not made
35
ITEM 11. (CONTINUED)
- ----------------------
for Ms. Greer because of Internal Revenue Code contribution limitations, $1,508 contributed by Delta
Woodside to the 401(k) Plan for Ms. Greer with respect to her compensation deferred under the 401(k)
Plan, and $208 earned on Ms. Greer's deferred compensation at a rate in excess of 120% of the Federal
mid-term rate.
(p) The fiscal 1999 amount represents $666 Delta Woodside contribution allocated to Mr.
Humphreys' account in the 401(k) Plan, $375 contributed by Delta Woodside to Delta Woodside's
deferred compensation plan as payment for the amount of Delta Woodside contributions to the 401(k)
Plan for fiscal year 1998 that were not made for Mr. Humphreys because of Internal Revenue Code
contribution limitations, $2,729 contributed by Delta Woodside to the 401(k) Plan for Mr. Humphreys
with respect to his compensation deferred under the 401(k) Plan, $137,241 received as a bonus
relating to the period while he was President of Stevcoknit Fabrics Company (a division of the
Company), $2,438 earned on Mr. Humphreys' deferred compensation at a rate in excess of 120% of the
Federal mid-term rate and $400,000 paid in connection with his undertaking the position of President
and chief executive officer of Delta Apparel Company.
(q) The fiscal 1999 amount represents $666 Delta Woodside contribution allocated to Mr.
Stevens' account in the 401(k) Plan, $195 contributed by Delta Woodside to Delta Woodside's deferred
compensation plan as payment for the amount of Delta Woodside contributions to the 401(k) Plan for
fiscal year 1998 that were not made for Mr. Stevens because of Internal Revenue Code contribution
limitations, $979 contributed by Delta Woodside to Delta Woodside's 401(k) Plan for Mr. Stevens with
respect to his compensation deferred under the 401(k) Plan, $150,000 received as severance related to
Mr. Stevens' retirement, and $5,801 earned on Mr. Stevens' deferred compensation at a rate in excess
of 120% of the Federal mid-term rate.
(r) Delta Woodside pays the premiums due for life insurance policies that total $10 million on
each of the life of Mr. Maddrey and the life of Mr. Rainsford. The proceeds of these policies are
payable to the beneficiary or beneficiaries chosen by Mr. Maddrey or Mr. Rainsford, as the case may
be.
(s) The 401(k) Plan allocation shown for the fiscal year was allocated to the participant's
account during that fiscal year, although all or part of the allocation may have been determined in
whole or in part on the basis of the participant's compensation during the prior fiscal year.
The amounts shown in the table above do not include reimbursement by Delta
Woodside or its subsidiaries for certain automobile expenses, club memberships
and other items. The non-business personal benefit to any Named Executive of
these amounts does not exceed 10% of the Named Executive's total salary and
bonus.
36
ITEM 11. (CONTINUED)
- ----------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides certain information respecting the exercise by
any Named Executive during fiscal 1999 of awards granted under Delta Woodside's
Incentive Stock Award Plan and options granted under Delta Woodside's Stock
Option Plan, and the fiscal year end value of any unexercised outstanding awards
and options. For purposes of this table, awards under Delta Woodside's
Incentive Stock Award Plan are treated as options.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at FY-End at FY-End
on Exercise Realized (#) ($) (a)
------------ --------- --------------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------- ------------ --------- ----------------- -------------- ------------ -------------
E. Erwin
Maddrey,II 5,000 29,640 10,000 0 59,275 0
Bettis C.
Rainsford 4,000 23,712 8,000 0 47,420 0
Jane H.
Greer 3,000 17,784 22,875 5,625 78,807 14,414
Robert W.
Humphreys 3,000 17,784 22,875 5,625 78,807 14,414
Douglas J.
Stevens 3,000 17,784 18,875 0 72,049 0
- -----------------------------------
(a) Based on the closing sales price of $5.9375 per share on July 2, 1999.
SEVERANCE ARRANGEMENTS
During fiscal 1999, Delta Woodside's Board of Directors began to consider
certain strategic alternatives to enhance shareholder value, some of which might
lead to a change in control of all or a significant part of Delta Woodside. In
order to provide an incentive for certain of Delta Woodside's key executives to
remain in Delta Woodside's employ while such alternatives were examined, Delta
Woodside entered into severance agreements in December 1998 with, among others,
Jane H. Greer and Robert W. Humphreys. Pursuant to each of these agreements,
Delta Woodside agreed that, if the applicable officer's position were eliminated
because of downsizing, restructuring or a change of control between the date of
the letter and the end of December 2000, the officer would be paid a severance
equal to two years' salary at the time of termination, in addition to the
officer's regular severance.
Robert W. Humphreys serves as Vice President-Finance and Assistant
Secretary of Delta Woodside. In April 1999, Mr. Humphreys was appointed to the
additional position of President and chief executive officer of Delta Apparel
Company, a division of a subsidiary of Delta Woodside. In connection with this
new position, Delta
37
ITEM 11. (CONTINUED)
- ----------------------
Woodside agreed in an April 1999 letter that (a) Mr. Humphreys' salary is
$300,000 effective with the pay period beginning April 26, 1999, (b) he is
guaranteed a bonus of $300,000 for the 2000 fiscal year if he remains in his new
position during that year, (c) for fiscal 1999 he would be on the corporate
bonus plan for the first ten months, then at the guaranteed annual $300,000 rate
for the eleventh and twelfth months of fiscal 1999, (d) Delta Woodside will pay
his travel and lodging expenses for commuting to the division's headquarters in
Duluth, Georgia, (e) if he remains as President and chief executive officer of
the Delta Apparel business as a spun-out separate public company (if such a
spin-off were to occur), he will participate in a Delta Apparel bonus plan
commencing with the 2001 fiscal year and he will be granted options under a
Delta Apparel performance based stock option plan for shares equal to
approximately five percent of the post-spin-off outstanding shares of Delta
Apparel, (f) the December 1998 severance agreement was modified to provide that
the two years' severance amount, based on a $200,000 salary rate, was earned in
fiscal 1999 and he would no longer be entitled to regular severance and (g) if
the restructuring/spin-offs under consideration of the Delta Apparel business
and the Duck Head Apparel business do not occur, he will be elected as a member
of Delta Woodside's Board of Directors.
Douglas J. Stevens served as Vice President-International of Delta Woodside
during fiscal 1999. By letter dated June 8, 1998, Mr. Stevens began to work
half time at a $87,500 annual salary, plus $85 per hour in excess of half time.
He was eligible to participate in a bonus plan to be developed, and at half his
previous level in any grants of options under Delta Woodside's Stock Option Plan
or awards under Delta Woodside's Incentive Stock Award Plan. The letter
provided that, upon termination of his employment, Mr. Stevens would receive
$150,000 severance if termination occurred at the end of the first year and
$75,000 if severance occurred at the end of the second year (or a pro-rated
amount if termination occurred in between). Upon termination, he could continue
under Delta Woodside's insurance plan for one year, and then be covered under
Delta Woodside's retiree insurance plan. Mr. Stevens retired in July 1999, and
received the $150,000 severance amount set forth in the letter.
Unless otherwise provided by agreement, each of the Named Executives is
eligible to participate in Delta Woodside's severance plan for salaried
employees. In the event a covered employee's employment terminates in specified
circumstances, this plan provides that the employee will receive severance equal
in amount to one week's base salary for each year of service credit, with a
minimum of two weeks' base salary.
DIRECTOR COMPENSATION
Delta Woodside pays each director who is not an officer of Delta Woodside a
fee of $20,000 per year, plus provides approximately $10,000 annually for each
such director with which shares of Delta Woodside's common stock are purchased.
These shares may be newly issued or acquired in the open market for such
purpose. Each director is also reimbursed for his reasonable travel expenses in
attending each meeting. Each non-officer director is paid $500 ($750 for the
committee chair) for each committee meeting attended and $250 for each
telephonic committee meeting in which the director participates.
The non-employee directors of Delta Woodside are eligible to participate in
the Long Term Incentive Plan. Participants are selected by the Long Term Plan
Committee, which includes those members of Delta Woodside's Compensation
Committee who are "outside directors" (as that term is defined for purposes of
Section 162(m) of the Internal Revenue Code or any successor provision). The
Long Term Plan Committee has the discretion to grant awards under the plan that,
based on a performance period of at least three years, translate into options
for Delta Woodside's common stock. No grants were made under the Long Term
Incentive Plan in fiscal 1999 to the non-employee directors.
Until August 1999, Delta Woodside had in place a Directors' Charitable
Giving Program covering each director of Delta Woodside. Under the program,
after the death of a director, Delta Woodside would make an aggregate donation
of $500,000, to be paid in 10 annual installments commencing no later than six
months after the director's death, to one or more charitable organizations
selected by such director. With respect to Max Lennon, E. Erwin Maddrey, II and
Bettis C. Rainsford, the program was to be funded by life insurance policies
owned and to be
38
ITEM 11. (CONTINUED)
- ----------------------
paid for by Delta Woodside on the lives of such directors. In August 1999, the
program was terminated, and cash in the amount of the actuarial value of the
future donation was donated by Delta Woodside to the charitable organization or
organizations selected by each director. The amounts so donated to charitable
organizations were selected as follows: $145,000 by Mr. Guy, $100,000 by Mr.
Maddrey, $70,000 by Mr. Mickel and $62,000 by Mr. Rainsford.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation Committee of Delta Woodside's
Board of Directors during fiscal 1999: C.C. Guy, Dr. James F. Kane, Dr. Max
Lennon and Buck A. Mickel.
C. C. Guy served as Chairman of the Board of Old Delta Woodside or its
predecessors from the founding of Old Delta Woodside's predecessors in 1984
until November 1989. Buck A. Mickel was a Vice President of Old Delta Woodside
or its predecessors and the Company from the founding of Old Delta Woodside's
predecessors until November 1989, Secretary of Old Delta Woodside and the
Company from November 1986 to March 1987, and Assistant Secretary of Old Delta
Woodside and the Company from March 1987 to November 1988.
39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------- ---------------------------------------------------------------------
The following table sets forth certain information as of September 17,
1999, regarding the beneficial ownership of Delta Woodside's common stock by (i)
persons beneficially owning in any case more than five percent of such common
stock, (ii) the directors of Delta Woodside, (iii) the executive officers of
Delta Woodside named in the Summary Compensation Table under Item 11, "Executive
Compensation" and (iv) all current directors and executive officers of Delta
Woodside as a group. The Company is a wholly-owned indirect subsidiary of Delta
Woodside. Unless otherwise noted in the notes to the table, the Company
believes that the persons named in the table have sole voting and investment
power with respect to all shares of common stock of Delta Woodside shown as
beneficially owned by them.
SHARES
BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENTAGE
- --------------------------------------- ------------ -----------
Reich & Tang Asset Management L. P. (1) 3,500,000 14.7%
600 Fifth Avenue
New York, New York 10020
Franklin Resources, Inc. (2) 2,320,000 9.7%
Franklin Advisory Services, Inc.
Charles B. Johnson
Rupert H. Johnson, Jr.
777 Mariners Island Boulevard
San Mateo, California 94404
Dimensional Fund Advisors Inc. (3) 1,369,420 5.75%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
E. Erwin Maddrey, II (4) 3,273,892 13.7%
233 North Main Street
Hammond Square, Suite 200
Greenville, SC 29601
Bettis C. Rainsford (5) 3,197,098 13.4%
108-1/2 Courthouse Square
Post Office Box 388
Edgefield, SC 29824
Buck A. Mickel (6) (7) 1,571,161 6.6%
Post Office Box 6721
Greenville, SC 29606
Micco Corporation (7) 1,240,634 5.2%
Post Office Box 795
Greenville, SC 29602
Minor H. Mickel(7) (8) 1,565,238 6.5%
415 Crescent Avenue
Greenville, SC 29605
40
ITEM 12. (CONTINUED)
- ---------------------------------------
Minor M. Shaw (7) (9) 1,520,099 6.4%
Post Office Box 795
Greenville, SC 29602
Charles C. Mickel (7) (10) 1,496,944 6.3%
Post Office Box 6721
Greenville, SC 29606
C. C. Guy (11) 21,819 (16)
Jane H. Greer (12) 59,368 (16)
Robert W. Humphreys (13) 38,765 (16)
Douglas J. Stevens (14) 41,701 (16)
All directors and executive officers
as a group (7 Persons) (15) 8,164,879 34.3%
- ------------------------------------
(1) This information is based on confirmation obtained on September 28,
1999 and on an amendment dated February 12, 1999 to Schedule 13G that was filed
with the Securities and Exchange Commission by Reich & Tang Asset Management L.
P. ("Reich & Tang") with respect to Delta Woodside's common stock. In the
amendment, Reich & Tang reported that, with respect to Delta Woodside's common
stock, it had shared voting power and shared dispositive power with respect to
all of the shares shown. The amendment reported that the shares of Delta
Woodside's common stock were held on behalf of certain accounts for which Reich
& Tang provides investment advice on a fully discretionary basis. The amendment
reported that none of such accounts has an interest with respect to more than 5%
of the outstanding shares of Delta Woodside's common stock.
(2) This information is based on confirmation obtained on September 21,
1999 and on an amendment dated January 16, 1998 to Schedule 13G that was filed
with the Securities and Exchange Commission by Franklin Resources, Inc. ("FRI")
with respect to Delta Woodside's common stock. Telephone confirmation was given
to Delta Woodside that the amendment was correct in all respects except that the
number of shares beneficially owned as of September 17, 1999 had changed to
2,320,000. In the amendment, FRI reported that, with respect to Delta
Woodside's common stock, the shares shown in the table above were beneficially
owned by one or more investment companies or other managed accounts that are
advised by one or more direct and indirect investment advisory subsidiaries of
FRI. The amendment reported that the investment advisory subsidiary(ies) have
investment and/or voting power over the securities owned by their investment
advisory clients. Accordingly, such subsidiary(ies) may be deemed to be the
beneficial owner of the shares shown in the table. The amendment reported that
Charles B. Johnson and Rupert H. Johnson, Jr. (the "FRI Principal Shareholders")
(each of whom has the same business address as FRI) each own in excess of 10% of
the outstanding common stock and are the principal shareholders of FRI and may
be deemed to be the beneficial owners of securities held by persons and entities
advised by FRI subsidiaries. The amendment reported that one of the investment
advisory subsidiaries, Franklin Advisory Services, Inc. (whose address is One
Parker Plaza, Sixteenth Floor, Fort Lee, New Jersey 07024), has sole voting and
dispositive power with respect to all of the shares shown. FRI, the FRI
Principal Shareholders and the investment advisory subsidiaries disclaim any
economic interest or beneficial ownership in the shares shown in the table above
and are of the view that they are not acting as a "group" for purposes of the
Securities Exchange Act of 1934, as amended.
(3) This information is based on an amendment dated February 12, 1999 to
Schedule 13G that was filed with the Securities and Exchange Commission by
Dimensional Fund Advisors Inc. ("Dimensional") with respect to Delta Woodside's
common stock. Dimensional reported that it had sole voting power and sole
dispositive power with respect to all of the shares shown. The amendment
reports that Dimensional furnishes investment advice to four investment
companies and serves as investment manager to certain other investment vehicles,
including commingled group trusts, that all of the shares of Delta Woodside's
common stock were owned by such investment
41
ITEM 12. (CONTINUED)
- ----------------------
companies or investment vehicles, that Dimensional disclaims beneficial
ownership of such securities and that, to the knowledge of Dimensional, no such
investment company or investment vehicle client owned more than 5% of the
outstanding shares of Delta Woodside's common stock.
(4) Mr. Maddrey is the President and Chief Executive Officer and a
director of the Company. The number of shares shown as beneficially owned by
Mr. Maddrey includes approximately 33,493 shares allocated to Mr. Maddrey's
account in Delta Woodside's Employee Stock Purchase Plan, 431,470 shares held by
the E. Erwin and Nancy B. Maddrey, II Foundation, a charitable trust, as to
which shares Mr. Maddrey holds sole voting and investment power but disclaims
beneficial ownership, and approximately 1,074 shares allocated to the account of
Mr. Maddrey in Delta Woodside's Savings and Investment Plan (the "401(k) Plan").
Mr. Maddrey is fully vested in the shares allocated to his account in the 401(k)
Plan. Included in the table are 10,000 unissued shares covered by incentive
stock awards that may be exercisable within 60 days after September 17, 1999.
(5) Mr. Rainsford is a director of the Company and until October 1, 1999
was the Executive Vice President, Treasurer and Chief Financial Officer of the
Company. The number of shares shown as beneficially owned by Mr. Rainsford
includes 47,945 shares held by The Edgefield County Foundation, a charitable
trust, as to which shares Mr. Rainsford holds sole voting and investment power
but disclaims beneficial ownership, and approximately 167 shares allocated to
the account of Mr. Rainsford in the 401(k) Plan. Mr. Rainsford is fully vested
in the shares allocated to his account in the 401(k) Plan. Included in the
table are 8,000 unissued shares covered by incentive stock awards that may be
exercisable within 60 days after September 17, 1999.
(6) Buck A. Mickel is a director of the Company. The number of shares
shown as beneficially owned by Buck A. Mickel includes 327,656 shares directly
owned by him, all of the 1,240,634 shares owned by Micco Corporation, and 2,871
shares held by him as custodian for a minor. See Note (7).
(7) Micco Corporation owns 1,240,634 shares of Delta Woodside's common
stock. The shares of common stock of Micco Corporation are owned in equal parts
by Minor H. Mickel, Buck A. Mickel (a director of the Company), Minor M. Shaw
and Charles C. Mickel. Buck A. Mickel, Minor M. Shaw and Charles C. Mickel are
the children of Minor H. Mickel. Minor H. Mickel, Buck A. Mickel, Minor M. Shaw
and Charles C. Mickel are officers and directors of Micco Corporation. Each of
Minor H. Mickel, Buck A. Mickel, Minor M. Shaw and Charles C. Mickel disclaims
beneficial ownership of three quarters of the shares of Delta Woodside's common
stock owned by Micco Corporation. Minor H. Mickel directly owns 116,854 shares
of Delta Woodside's common stock and as personal representative of her husband's
estate owns 207,750 shares of Delta Woodside's common stock. Buck A. Mickel,
directly or as custodian for a minor, owns 330,527 shares of Delta Woodside's
common stock. Charles C. Mickel, directly or as custodian for his children,
owns 256,210 shares of Delta Woodside's common stock. Minor M. Shaw, directly
or as custodian for her children, owns 264,978 shares of Delta Woodside's common
stock. Minor M. Shaw's husband, through an individual retirement account and as
custodian for their children, beneficially owns approximately 14,487 shares of
Delta Woodside's common stock, as to which shares Minor M. Shaw may also be
deemed a beneficial owner. Minor M. Shaw disclaims beneficial ownership with
respect to these shares and with respect to the 2,748 shares of Delta Woodside's
common stock held by her as custodian for her children. The spouse of Charles
C. Mickel owns 100 shares of Delta Woodside's common stock, as to which shares
Charles C. Mickel may also be deemed a beneficial owner. Charles C. Mickel
disclaims beneficial ownership with respect to these shares and with respect to
the 3,510 shares of Delta Woodside's common stock held by him as custodian for
his children. Buck A. Mickel disclaims beneficial ownership with respect to the
2,871 shares of Delta Woodside's common stock held by him as custodian for a
minor.
(8) The number of shares shown as beneficially owned by Minor H. Mickel
includes 116,854 shares directly owned by her, 207,750 shares owned by her as
personal representative of her husband's estate and all of the 1,240,634 shares
owned by Micco Corporation. See Note (7).
42
ITEM 12. (CONTINUED)
- ----------------------
(9) The number of shares shown as beneficially owned by Minor M. Shaw
includes 264,978 shares owned by her directly or as custodian for her children,
approximately 14,487 shares beneficially owned by her husband through an
individual retirement account or as custodian for their children, and all of the
1,240,634 shares owned by Micco Corporation. See Note (7).
(10) The number of shares shown as beneficially owned by Charles C. Mickel
includes 256,210 shares owned by him directly or as custodian for his children,
100 shares owned by his wife and all of the 1,240,634 shares owned by Micco
Corporation. See Note (7).
(11) C. C. Guy is a director of the Company. The number of shares
shown as beneficially owned by C. C. Guy includes 18,968 shares owned by his
wife, as to which shares Mr. Guy disclaims beneficial ownership.
(12) Ms. Greer is Vice President and Secretary of the Company. The number
of shares shown as beneficially owned by Ms. Greer includes approximately 1,214
shares allocated to her account in the 401(k) Plan. Ms. Greer is fully vested
in the shares allocated to her account in the 401(k) Plan. Included in the
table are 16,875 unissued shares covered by options that are exercisable within
60 days after September 17, 1999 and 6,000 shares covered by incentive stock
awards that may be exercisable within 60 days after September 17, 1999.
Excluded from the table are 5,625 unissued shares covered by options that are
not exercisable within 60 days after September 17, 1999.
(13) Mr. Humphreys is President of Delta Apparel Company, a division of a
subsidiary of Delta Woodside, and Vice President-Finance and Assistant Secretary
of the Company. The number of shares shown as beneficially owned by Mr.
Humphreys includes approximately 1,138 shares allocated to his account in the
401(k) Plan. Mr. Humphreys is fully vested in the shares allocated to his
account. Also included are approximately 1,752 shares allocated to Mr.
Humphreys' account in Delta Woodside's Employee Stock Purchase Plan. Included in
the table are 16,875 unissued shares covered by options that are exercisable
within 60 days after September 17, 1999 and 6,000 shares covered by incentive
stock awards that may be exercisable within 60 days after September 17, 1999.
Excluded from the table are 5,625 unissued shares covered by options that are
not exercisable within 60 days after September 17, 1999.
(14) Mr. Stevens was Vice President-International of the Company until his
retirement in July 1999. The number of shares shown as beneficially owned by
Mr. Stevens includes approximately 19,576 shares held in an IRA account. The
number of shares shown as beneficially owned by Mr. Stevens also includes 13,125
shares directly held by his wife as to which Mr. Stevens disclaims beneficial
ownership. Included in the table are 6,000 shares covered by incentive stock
awards that may be exercisable within 60 days after September 17, 1999.
(15) Includes all shares deemed to be beneficially owned by any current
director or executive officer. Includes 3,794 shares of Delta Woodside's common
stock held for the executive officers on the September 17, 1999 record date for
the Delta Woodside Annual Meeting by the 401(k) Plan. Each participant in the
401(k) Plan has the right to direct the manner in which the trustee of the Plan
votes the shares held by the 401(k) Plan that are allocated to such
participant's account. Except for shares as to which such a direction is made,
the shares held by the 401(k) Plan will not be voted. The number of shares
shown in the table includes an aggregate of 119,150 unissued shares subject to
employee stock options or incentive stock awards held by executive officers that
are or may be exercisable within 60 days or less, but excludes 60,625 unissued
shares subject to employee stock options held by executive officers that are not
exercisable within 60 days.
(16) Less than one percent.
43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
- --------- ---------------------------------------------------------
The Rainsford Yarn Plant of the Company sells yarn to the subsidiary of
Delta Woodside that manufactures and sells apparel. During fiscal years 1997,
1998, and 1999 these sales of yarn aggregated $22,015,000, $17,687,000 and
$29,560,000, respectively. The Company's Stevcoknit Fabric's operation (now
discontinued) also sold knit fabric to such subsidiary of Delta Woodside during
fiscal years 1997 and 1998. These sales aggregated $7,855,000, and $3,976,000,
respectively. During these periods until the end of March 1997, all such yarn
sales were at a price equal to cost plus $0.01 per pound. All such fabric
sales, and all yarn sales made since March 1997, were and have been made at
prices deemed by the Company and Delta Woodside to approximate market value. In
connection with the foregoing pricing policies on yarn sales, through March 1997
the apparel manufacturing subsidiary of Delta Woodside also maintained with the
Company's knitted fabrics division a non-interest bearing deposit which
aggregated $11.2 million at June 29,1996. Effective May 7, 1997, Delta Woodside
adopted a written policy statement governing the pricing of inter-company
transactions. Among other things, such policy statement provides that all
inter-company sales and purchases will be settled at market value and terms.
Delta Woodside provides various services to the Company, including payroll,
accounting, internal audit, employee benefits and services. These services have
been charged on the basis of Delta Woodside's cost and allocated to the Company
based on employee headcount, computer time, projected sales and other criteria.
During fiscal years 1997, 1998, and 1999, Delta Woodside charged the Company
$3,302,000, $2,838,000, and $2,753,000, respectively, for these services.
Effective August 1, 1997, the Company and Delta Woodside entered into a
management services agreement that governs the use by the Company of and the
method of charging the Company for the services to be provided by Delta Woodside
to the Company on an ongoing basis. Such management services agreement
provides, among other things, that the Company may request that Delta Woodside
provide such executive, administrative, accounting and similar services as may
be necessary and appropriate for the operation of the Company. The management
services agreement further provides that Delta Woodside shall provide such
services for a fee no greater than the lesser of: (a) the cost to the Company of
obtaining such services from a unaffiliated third party in an arm's length
transaction or (b) the Company's pro rata share of Delta Woodside's actual cost
or expense incurred in connection with providing such services (including a
reasonable allocation of overhead and other unallocated corporate cost) with
such pro rata share to be determined reasonably and in good faith by Delta
Woodside in accordance with the following formulas: in the case of benefits,
administration and payroll cost and expenses based upon the average number of
employees of the Company during the immediately preceding four full fiscal
quarters for which internal statements are available (the "Statement Period")
as compared to the average number of employees of the Delta Woodside Group
during the Statement Period; in the case of computer services based upon the
number of computer processing units attributable to the Company during the
Statement Period as compared to the total number of computer processing units of
the Delta Woodside Group during the Statement Period; in the case of purchasing
cost and expenses based upon the number of purchase orders attributable to the
Company during the Statement Period as compared to the total number of purchase
orders of the Delta Woodside Group during the Statement Period; in the case of
expenses related to cotton buying services based upon the number of cotton
orders entered into by or on behalf of the Company for the Statement Period as
compared to the total number of cotton orders of the Delta Woodside Group for
the Statement Period; in the case of accounting, tax, and internal audit cost
and expenses based upon the amount of the bill of Delta Woodside's external
auditors for the Statement Period attributable to work related to the Company,
as compared to the total bill of Delta Woodside's external auditors for the
Statement Period; and in the case of cost and expenses for all other services
based upon the total of Delta Woodside's revenues for the Statement Period as
compared to revenues of the consolidated Delta Woodside Group for the Statement
Period. The management services agreement further provides that letter of
credit or surety bond issuer fees and expenses incurred in connection with
workers compensation requirements will be borne by the Company in accordance
with its pro rata share of applicable payroll expenses. Such management
services agreement may be terminated at any time by any party thereto without
liability, except that the Company shall pay for all services provided up to and
including the date such agreement is terminated and all other amounts
attributable to the period prior to such termination.
44
ITEM 13. CONTINUED)
- ---------------------
Effective as of August 1, 1997 the Company and Delta Woodside entered into
an income tax sharing agreement. Such income tax sharing agreement provides
that Delta Woodside will file consolidated federal, and
may file consolidated state, local or foreign, income tax returns covering the
Company and the other members of the Delta Woodside Group. Such income tax
sharing agreement further provides that the Company will pay to Delta Woodside
an amount on each tax due date equal to the lesser of (a) the Company's income
tax liability had the Company filed a separate tax return for the affiliate
group (the "Subsidiary Group") consisting of the Company and
the Company's subsidiaries or (b) the Subsidiary Group's pro rata share of the
Delta Woodside Group's aggregate income tax liability, calculating such pro rata
share as if the members of the Delta Woodside Group had filed separate tax
returns. However, any reduction in the amount payable by the Company resulting
from net operating losses ("NOL") generated by another subsidiary of Delta
Woodside shall be paid to Delta Woodside when such other subsidiary would have
otherwise benefited from such NOL if it were filing separate tax returns. The
income tax sharing agreement also provides that Delta Woodside will credit the
Company for any net loss, tax credit or refund of the Subsidiary Group that
reduces the tax liability of the Delta Woodside Group. During fiscal years 1998
and 1999 the Company made no payments to Delta Woodside pursuant to this
agreement.
For further information on transactions with affiliates by the Company,
see Consolidated Statements of Cash Flows and Notes C and E to the Consolidated
Financial Statements, which information is incorporated herein by reference.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- --------- ------------------------------------------------------------
FORM 8-K
- ---------
(a) (1) and (2) Financial Statements and Financial Statement
------------------------------------------------
Schedules
---------
The response to this portion of Item 14 is set forth on page
F-2 included herein, which response is incorporated herein by
reference.
(3) Listing of Exhibits:
----------------------
3.1 Restated and Amended Certificate of Incorporation of Delta Mills, Inc.: Incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form S-4 of the Company and Delta Mills
Marketing, Inc., File No. 333-37617 (the "S-4").
3.2 Bylaws of Delta Mills, Inc.: Incorporated by reference to Exhibit 3.2 to the S-4.
4.1 See Exhibits 3.1 and 3.2.
4.2 Indenture, dated as of August 25, 1997, by and among the Company, Delta Mills Marketing, Inc.
and The Bank of New York, as Trustee, with respect to the Company's Series A and Series B 9-
5/8% Senior Notes due 2007, $150,000,000 in aggregate principal amount, together with forms of
certain related instruments, agreements and documents: Incorporated by reference to Exhibit 4.2.6
to the Current Report on Form 8-K/A of Delta Woodside Industries, Inc. with the date of
September 25, 1997 (the "DWI 8-K/A").*
4.3.1 Credit Agreement dated as of August 25, 1997 among Delta Mills, Inc. as Borrower, certain
subsidiaries of the Borrower from time to time party thereto, as guarantors, the several Lenders
from time to time party thereto, NationsBank, N.A., as Administrative Agent, and BNY Financial
Corporation, as Collateral Agent, together with forms of certain related instruments, agreements
and documents (excluding schedules): Incorporated by reference to Exhibit 4.2.4 to the DWI 8-
K/A.* The Company agrees to furnish supplementally to the Securities and Exchange Commission
a copy of any omitted schedules to such agreement upon request of the Commission.
4.3.2 First Amendment and Waiver Agreement dated as of May 11, 1998 respecting Credit Agreement
dated as of August 25, 1997: Incorporated by reference to Exhibit 4.2.7 to the Form 10-Q of Delta
Woodside Industries, Inc. for the quarter ended March 28, 1998.*
4.3.3 Second Amendment to Credit Agreement dated as of July 29, 1998 respecting Credit Agreement
dated as of August 25, 1997: Incorporated by reference to Exhibit 4.2.4.2 to the Form 10-K of
Delta Woodside Industries, Inc. for the year ended June 27, 1998.*
4.4 The Company hereby agrees to furnish to the Commission upon request of the Commission a copy
of any instrument with respect to long-term debt not being registered in a principal amount less
than 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
10.1 Lease dated September 1, 1998, by and between Hammond Square, Ltd. and Delta Woodside
Industries, Inc.: Incorporated by reference to Exhibit 10.1 to Form 10-K of Delta Woodside
Industries, Inc. for the fiscal year ended July 3, 1999 (the "DWI 1999 10-K").*
10.2** Delta Woodside Industries, Inc. Deferred Compensation Plan for Key Managers, Amended and
Restated effective January 1, 1998, as amended: Incorporated by reference to Exhibit 10.2 to the
DWI 1999 10-K.*
10.3.1** Delta Woodside Industries, Inc. Incentive Stock Award Plan effective July 1, 1990: Incorporated
by reference to Exhibit 10.1 to the Form 10-Q of Delta Woodside Industries, Inc. for the fiscal
quarter ended March 31, 1990.*
46
ITEM 14(CONTINUED)
- -------------------
10.3.2** 1995 Amendment to the Incentive Stock Award Plan effective as of November 9, 1995: Incorporated
by reference to Exhibit 10.3.1 to the Form 10-Q of Delta Woodside Industries, Inc. for the quarterly
period ended December 30, 1995 (the "DWI 12/95 10-Q").*
10.3.3** 1997 Amendment to the Incentive Stock Award Plan effective as of November 6, 1997: Incorporated
by reference to Exhibit 99.1 to the Registration Statement on Form S-8 of Delta Woodside Industries,
Inc. (File No. 333-45771).
10.4.1** Delta Woodside Industries, Inc. Stock Option Plan effective as of July 1, 1990: Incorporated by
reference to Exhibit 10.11 to the Form 10-K of Delta Woodside Industries, Inc. for the fiscal year
ended June 30, 1990.*
10.4.2** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the Form 10-Q of
Delta Woodside Industries, Inc. for the quarterly period ended December 29, 1990 (the "DWI 12/90
10-Q").*
10.4.3** Amendment to Stock Option Plan: Incorporated by reference to Exhibit 10.9.2 to the Form 10-K of
Delta Woodside Industries, Inc. for the fiscal year ended June 29, 1991 (the "DWI 1991 10-K").*
10.4.4** 1995 Amendment to Stock Option Plan effective as of November 9, 1995: Incorporated by reference to
Exhibit 10.4.4 to the DWI 12/95 10-Q.*
10.4.5** 1997 Amendment to Stock Option Plan effective as of November 6, 1997: Incorporated by reference to
Exhibit 99.1 to the Registration Statement on Form S-8 of Delta Woodside Industries, Inc. (File No.
333-45767).
10.5 Stock Transfer Restrictions and Right of First Refusal Agreement between Delta Woodside Industries,
Inc. and E. Erwin Maddrey, II: Incorporated by reference to Exhibit 10.2 to the DWI 12/90 10-Q.*
10.6 Stock Transfer Restrictions and Right of First Refusal Agreement between Delta Woodside Industries,
Inc. and Bettis C. Rainsford: Incorporated by reference to Exhibit 10.3 to the DWI 12/90 10-Q.*
10.7.1** Summary of Delta Woodside Industries, Inc. Director Charitable Giving Program: Incorporated by
reference to Exhibit 10.11 to the Form 10-K of Delta Woodside Industries, Inc. for the fiscal year
ended June 27, 1992 (the "DWI 1992 10-K").*
10.7.2** Resolution to amend Director Charitable Giving Program dated February 2, 1995: Incorporated by
reference to Exhibit 10.7.1 to the Form 10-Q of Delta Woodside Industries, Inc. for the quarterly
period ended March 31, 1995.*
10.8.1** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the DWI 1991 10-K.*
10.8.2** Amendment to Directors Stock Acquisition Plan, dated April 30, 1992: Incorporated by reference to
Exhibit 10.12.2 to the DWI 1992 10-K.*
10.9** Delta Woodside Industries, Inc. Long Term Incentive Plan: Incorporated by reference to Exhibit 10.2
to the Registration Statement on Form S-4 of the Company (File No. 333-37617).
10.10 Purchase Agreement Relating to $150 million in aggregate principal amount of the Company's 9-5/8%
Senior Notes due 2007, dated August 20, 1997, by and among the Company, Delta Mills Marketing,
Inc. and NationsBanc Capital Markets, Inc.: Incorporated by reference to Exhibit 1.1 of the S-4.
10.11 Registration Rights Agreement, dated as of August 25, 1997, by and among the Company, Delta Mills
Marketing, Inc. and NationsBanc Capital Markets, Inc.: Incorporated by reference to Exhibit 1.2 of the
S-4.
10.12** Letter dated December 14, 1998 to Robert W. Humphreys: Incorporated by reference to Exhibit 10.10
to the Form 10-Q/A of Delta Woodside Industries, Inc. for the quarterly period ended December 26,
1998 (the "DWI 12/98 10-Q").*
10.12.1** Letter dated April 22, 1999 to Robert W. Humphreys: Incorporated by reference to Exhibit 10.12.1 to
the DWI 1999 10-K.*
10.13** Letter dated December 14,1998 to Jane H. Greer: Incorporated by reference to Exhibit 10.11 to the
DWI 12/98 10-Q.*
10.14** Letter dated June 8, 1998 to Douglas J. Stevens: Incorporated by reference to Exhibit 10.14 to the DWI
1999 10-K.*
47
ITEM 14(CONTINUED)
- -------------------
10.15 See Exhibits 4.2, 4.3.1, 4.3.2 and 4.3.3.
21 Subsidiaries of the Company.
23 Report on Schedule by Independent Auditors'.
27 Financial Data Schedule.
* All reports previously filed with the Commission by Delta Woodside Industries, Inc. pursuant to the Exchange
Act and rules and regulations promulgated thereunder, exhibits of which are incorporated by reference into
This Report, were filed under Commission File No. 1-10095.
** This is a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K with date of June 25, 1999.
Items reported were:
Item 5. Other Events
Item 7. Financial statements and exhibits
(c) Exhibits
--------
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules
-----------------------------
Not applicable
48
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 MILLS, INC.
9/30/99 /s/ E. Erwin Maddrey, III
------- -----------------------------------------
Date E. Erwin Maddrey, II
President, Chief Executive Officer
and Director
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 as of the dates indicated.
/s/ C. C. Guy 9/30/99 /s/ E. Erwin Maddrey, II 9/30/99
- ---------------- ------- -----------------------------------------
C. C. Guy E. Erwin Maddrey, II Date
Director President, Chief Executive Officer
and Director
/s/ Buck A. Mickel 9/30/99 /s/ Bettis C. Rainsford 9/30/99
- --------------------- ------- -----------------------------------------
Buck A. Mickel Bettis C. Rainsford Date
Director Director
/s/ Robert W. Humphreys 9/30/99
-----------------------------------------
Robert W. Humphreys
Vice President-Finance and
Assistant Secretary
49
EXHIBIT INDEX
21 Subsidiaries of the Company.
23 Report on Schedule by Independent Auditors'.
27 Financial Data Schedule.
ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JULY 3, 1999
DELTA MILLS, INC.
GREENVILLE, SOUTH CAROLINA
F-1
FORM 10-K--ITEM 14(a)(1) AND (2)
DELTA MILLS, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Delta Mills, Inc. and for the
Year ended July 3, 1999 are incorporated by reference in Item 8:
Consolidated balance sheets-July 3, 1999 and June 27, 1998.
Consolidated statements of operations--Years ended July 3, 1999 and June
27, 1998, and June 28,1997.
Consolidated statements of shareholder's equity-- Years ended July 3, 1999
and June 27, 1998, and June 28,1997.
Consolidated statements of cash flows-- Years ended July 3, 1999 and
June 27, 1998, and June 28,1997.
Notes to consolidated financial statements.
The following consolidated financial statement schedule of Delta Mills, Inc. is
included in Item 14(d):
Schedule II -- 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.
F-2
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DELTA MILLS, INC.
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------- ----------- ------------------ ------------------- ------------- ---------------
ADDITIONS
---------------------------------------
Balance at
DESCRIPTION Beginning (1) (2) Deductions Balance at End
of Period Charged to Costs Charged to Other Describe of Period
and Expenses Accounts-Describe
- ---------------------------------- ----------- ------------------ ------------------- ------------- ---------------
Deducted from asset accounts
Allowance for Doubtful Accounts:
Year ended July 3, 1999 $ 246,000 $ 45,000(1) $ 291,000
=========== =================== ===============
Year ended June 27, 1998 $ 128,000 $ 118,000(1) $ 246,000
=========== =================== ===============
Year ended June 28, 1997 $ 99,000 $ 29,000(1) $ 128,000
=========== =================== ===============
Inventory reserves:
Year ended July 3, 1999 $ 3,452,000 $2,105,000(2) $ 1,347,000
=========== ============= ===============
Year ended June 27, 1998 $ 2,638,000 $ 814,000 $ 3,452,000
=========== ================= ===============
Year ended June 28, 1997 $ 5,322,000 $2,684,000(2) $ 2,638,000
=========== ============= ===============
NOTES:
(1) Net change in sales allowances charged to income as a reduction of sales.
(2) Deducted from costs and expenses.