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 June 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-10095
DELTA WOODSIDE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
South Carolina 57-0535180
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(State of Incorporation) (I.R.S. Employer Identification No.)
PO Box 6126
100 Augusta Street
Greenville, South Carolina 29606
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(Address of principal executive offices) (Zip code)
864/255-4100
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
-------------------- on which registered
Common Stock, Par Value $.01 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
1
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the New York Stock Exchange on
December 27, 2002, which was the last trading day of the second quarter of
fiscal 2003, of $4.90, was $28,724,369.
The number of shares outstanding of each of the registrant's classes of Common
Stock, as of September 25, 2003 was:
Common Stock, par value $.01 - 5,862,116
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to
shareholders for the fiscal year ended June 28, 2003 are incorporated by
reference into Parts I and II.
Portions of the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A for the annual shareholders' meeting to be held on November 6,
2003 are incorporated by reference into Part III.
2
PART I
ITEM I. BUSINESS
The following discussion contains various "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 are forward-looking statements. Examples are statements that
concern future revenues, future costs, future capital expenditures, business
strategy, competitive strengths, competitive weaknesses, goals, plans,
references to future success or difficulties and other similar information. The
words "estimate", "project", "forecast", "anticipate", "expect", "intend",
"believe" and similar expressions, and discussions of strategy or intentions,
are intended to identify forward-looking statements.
The forward-looking statements in this document are based on the Company's
expectations and are necessarily dependent upon assumptions, estimates and data
that the Company believes are reasonable and accurate but may be incorrect,
incomplete or imprecise. Forward-looking statements are also subject to a number
of business risks and uncertainties, any of which could cause actual results to
differ materially from those set forth in or implied by the forward-looking
statements. 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 and
international trade regulations, including without limitation the expected end
of quotas on textile and apparel products amongst WTO member states in 2005, and
the discovery of unknown conditions (such as with respect to environmental
matters and similar items). Accordingly, any forward-looking statements do not
purport to be predictions of future events or circumstances and may not be
realized.
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.
GENERAL
Delta Woodside Industries, Inc. ("Delta Woodside" or the "Company") is a South
Carolina corporation with its principal executive offices located at 100 Augusta
Street, PO Box 6126, Greenville, South Carolina 29606 (telephone number:
864-255-4100). All references herein to Delta Woodside or the Company refer to
Delta Woodside Industries, Inc. and its subsidiaries.
Until June 30, 2000, the Company had two apparel businesses and a textile
fabrics business. One of the apparel businesses was conducted by the Company's
Delta Apparel Company division, a vertically integrated supplier of knit
apparel, particularly T-shirts, sportswear and fleece goods. The other apparel
business was conducted by the Company's Duck Head Apparel Company division,
which designed, sourced, produced, marketed and distributed boys' and men's
value-oriented casual sportswear. The textile fabrics business was conducted by
the Company's Delta Mills Marketing Company division, which engages in the
manufacture and sale of a broad range of finished apparel fabrics primarily to
branded apparel manufacturers and resellers and private label apparel
manufacturers.
During fiscal 2000, the Company's board of directors determined that it was in
the best interest of the Company and its shareholders to separate the three
businesses into three independent companies. In May of 2000, the Company
internally reorganized its business operations such that (i) all of the assets
and operations of the Delta Apparel Company division were transferred to a
newly-formed direct subsidiary of the Company named Delta Apparel, Inc. ("Delta
Apparel") or to a subsidiary of Delta Apparel, (ii) all of the assets and
operations of the Duck Head Apparel Company division were transferred to another
newly-formed direct subsidiary of the Company named Duck Head Apparel Company,
Inc. ("Duck Head") or to a subsidiary of Duck Head, and (iii) the Company's
subsidiary Delta Mills, Inc., which includes all of the assets and operations of
the Delta Mills Marketing Company division, became a direct subsidiary of the
Company.
On June 30, 2000, the Company simultaneously spun-off Delta Apparel and Duck
Head. All of the outstanding common stock of Delta Apparel and all of the
outstanding common stock of Duck Head were distributed to the shareholders of
the Company pro rata based on their record ownership on June 19, 2000 of the
Company's common stock.
3
GENERAL - CONTINUED
During fiscal 1998 the Company made the decision to exit the knit textile market
by closing its Stevcoknit Fabrics Company operating division. Also during fiscal
1998 the Company made the decision to exit the fitness equipment (Nautilus
International) business. Delta Apparel, Duck Head Apparel, Stevcoknit Fabrics
Company and Nautilus International have been classified and reported as
discontinued operations. Most of the liquidation of Stevcoknit Fabrics Company
was completed in fiscal 1998. The Nautilus International business was sold in
January 1999.
Delta Woodside Industries, Inc. is the successor by merger to Delta Woodside
Industries, Inc., a Delaware corporation that was incorporated in 1986. The
corporation that is now Delta Woodside Industries, Inc. was incorporated in
1972.
During the year ended June 28, 2003, the Company announced the closing of its
Catawba Plant, a yarn manufacturing facility located in Maiden, North Carolina.
The equipment run-out schedule was completed in April 2003, and the Company is
in the process of liquidating the assets associated with this facility. The
Company has replaced the production from this facility with purchased yarn from
outside sources.
During the year ended June 29, 2002, the Company announced the closing of its
Furman Plant, a weaving facility located in Fountain Inn, South Carolina. The
equipment run-out schedule was completed in October 2001 and the Company is in
the process of either liquidating or transferring the assets associated with
this facility. The Company transferred the production for the closed facility to
other weaving facilities in the Company to better utilize the remaining
equipment.
PRODUCTS, MARKETING AND MANUFACTURING
The Company produces woven textile fabrics through its Delta Mills (formerly
named the Delta Mills Marketing Company) operating division. Delta Mills is the
only business segment of the Company.
Woven textile fabrics produced for sale by the Company are manufactured from
cotton, wool, flax or synthetic fibers or from synthetic filament yarns. Cotton
is purchased from numerous suppliers. Wool, flax, synthetic fibers and synthetic
filament yarns are purchased from a smaller number of competitive suppliers. The
Company spins the major portion of the spun yarns used in its weaving
operations, and the balance is purchased from a small number of domestic
spinners. In manufacturing these yarns, the cotton and synthetic fibers, 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 high quality yarns. 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.
The Company sells a broad range of finished apparel fabrics primarily to branded
apparel manufacturers and resellers, including Levi Strauss, Haggar Corp., the
Wrangler(R) and Lee(R) divisions of V.F. Corporation, 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 also
sells camouflage fabric and other fabrics used in apparel sold to the United
States Department of Defense. These fabrics account for more than 10% of net
sales for fiscal year 2003. 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(R) and Haggar Corp.'s Wrinkle-Free(R). Other
apparel items manufactured with the Company's woven fabrics include women's
chino pants, women's blazers, and career apparel (uniforms).
4
PRODUCTS, MARKETING AND MANUFACTURING - CONTINUED
Net sales of woven fabrics were $177 million, $175 million, and $213 million
during fiscal 2003, 2002, and 2001, respectively. For fiscal year 2003, the
Company had three customers, Levi Strauss, V.F. Corporation, and Haggar Apparel
that each exceeded 10% of consolidated net sales. The Company's sales to these
customers totaled $71 million or approximately 40% of net sales in fiscal 2003.
For fiscal year 2002, only two of these customers, Levi Strauss and V.F.
Corporation, each exceeded 10% of consolidated net sales. The Company's sales to
these customers totaled $63 million or approximately 36% of net sales in fiscal
2002. For fiscal year 2001, the Company again had three customers, Levi Strauss,
Haggar Corp., and V.F. Corporation, which each exceeded 10% of consolidated net
sales. The Company's aggregate sales to these customers were $90 million or
approximately 42% of net sales for fiscal 2001. In addition, during fiscal years
2003, 2002, and 2001, sales of military fabrics to apparel customers accounted
for approximately 33%, 31%, and 22%, respectively, of the Company's total sales.
The loss of any of these accounts could have a material adverse effect on the
results of the Company.
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 and distributes its fabrics through a marketing office based in New York
City (which serves the United States, Canadian and Mexican markets), with sales
agents also operating from Atlanta, Dallas, San Francisco and Mexico.
During fiscal years 2003, 2002 and 2001, approximately 77%, 83% and 82%,
respectively, of the Company's finished woven fabric sales were of fabrics made
from cotton or cotton/synthetic blends, while approximately 23%, 17% and 18%,
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. The Company's 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. Polyester prices for
fiscal year 2003 were volatile and slightly higher than in fiscal 2002. The
Company's average price per pound of cotton purchased and consumed, including
freight and carrying costs, was $.463 in fiscal year 2003 as compared to $.594
in fiscal year 2002, and $.659 in fiscal year 2001. As of June 28, 2003, the
Company had contracted to purchase 85% and had fixed the price for approximately
72% of its expected cotton requirements for fiscal year 2004. 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. In the fourth
quarter of fiscal 2003, the Company increased its cotton purchases to lock-in
favorable costs as cotton prices were rising. 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
COMPETITION
The cyclical nature of the textile and apparel industries, characterized by
rapid shifts in fashion, consumer demand and competitive pressures, results in
both price and demand volatility. The demand for any particular product varies
from time to time based largely upon changes in consumer preferences and general
economic conditions affecting the textile and apparel industries, such as
consumer expenditures for non-durable goods. In recent years, the Company has
seen a trend toward shorter lead times for its customers' orders. The textile
and apparel industries are also cyclical because the supply of particular
products changes as competitors enter or leave the market.
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 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. The North American Free
Trade Agreement (often referred to as "NAFTA") entered into force on January 1,
1994. NAFTA has effectively eliminated all tariffs and quotas on goods imported
from Mexico if such goods are made from fabric originating in Canada, Mexico, or
the United States. The Caribbean Basin Trade Partnership Act (often referred to
as "CBTPA") became effective on October 1, 2000. CBTPA has effectively
eliminated tariffs and quotas on apparel products imported from participating
Caribbean and Central American nations if such products are made from fabric
woven in the United States of U.S. yarn. The Andean Trade Promotion and Drug
Eradication Act (often referred to as "ATPDEA") was signed into force on October
31, 2002, with similar rules of origin. Because NAFTA, CBTPA, and ATPDEA create
an incentive to use fabric manufactured in the United States, they are
beneficial to the Company and other domestic producers of apparel fabrics. In
contrast, apparel not meeting the origin requirements of these trade preference
agreements is subject to quotas and/or relatively higher tariffs. If NAFTA,
CBTPA or ATPDEA 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.
The World Trade Organization (often referred to as the "WTO"), a multilateral
trade organization, was formed in January 1995 and is the successor to the
General Agreement on Tariffs and Trade or "GATT". This multilateral trade
organization has set forth mechanisms by which world trade in clothing is being
progressively liberalized by phasing-out quotas and reducing duties over a
period of time that began in January of 1995. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which are generally exporters of textile and apparel
products) that are members of the WTO to get them to reduce their tariffs on
imports of textiles and apparel in exchange for reductions by the United States
in tariffs on imports of textiles and apparel. The elimination of quotas and the
reduction of tariffs under the WTO may result in increased imports of certain
textile and apparel products into North America. These factors could make the
Company's products less competitive against low cost imports from developing
countries.
6
COMPETITION - CONTINUED
A Free Trade Area of the Americas agreement (often referred to as "FTAA") is
being negotiated, with expected implementation in the year 2005. FTAA will be a
NAFTA-like agreement among most of the nations in the Americas. While the
agreement language is not final, the rules of origin will likely allow apparel
to be imported into the United States without tariff or quota provided the yarns
and fabrics are formed in any participating country. This agreement would create
an incentive for apparel manufacturers to use fabric from the Americas region
rather than other parts of the world, which could be beneficial to the Company
and other domestic textile manufacturers. Conversely, this agreement may result
in an increase in the production and use of regional fabrics formed outside the
U.S., which would be a disadvantage to the Company.
The Company expects to face a significant change in global competition in 2005
as a result of the impact of multilateral agreements intended to liberalize
global trade. The World Trade Organization ("WTO") is overseeing the phase-out
of textile and apparel quotas over a 10-year period ending 2004. Tariffs on
textile/apparel products are being reduced (but not eliminated) over the same
10-year period. In addition, China's admission to the WTO will have a
significant impact on global textile and apparel trade. By gaining admission to
the WTO, China is able to take advantage of the elimination of quota limitations
on access to the U.S. market, and there could be a significant negative impact
on the North American textile industry. With the arrival of 2005 and the
elimination of quotas for WTO members, certain countries, most particularly, but
not limited to, China, may have cost advantages compared to the Company.
Accordingly, the Company believes it must fully utilize other competitive
advantages it believes it has compared to Asian competitors. Among the
advantages of the Company are its well established relationships with its
customers, its ability to respond quickly to its customers needs as well as the
logistic advantages associated with its manufacturing being located in North
America. However, there can be no assurance that these advantages will allow the
Company to successfully compete with foreign textile producers.
EMPLOYEES
The Company has approximately 1,600 employees. The Company's employees are not
represented by unions. The Company believes that its relations with its
employees are good.
ENVIRONMENTAL AND REGULATORY MATTERS
Delta Woodside is subject to various federal, state and local environmental laws
and regulations concerning, among other things, wastewater discharges, storm
water flows, air emissions, ozone depletion and solid waste disposal. Delta
Woodside'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 Results of Operations and
Financial Condition" incorporated into 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 aim at achieving compliance with current and future environmental
standards.
The 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 Delta Woodside's liability, if any, for
past failures to comply with laws, regulations and permits applicable to its
operations cannot be determined.
INDUSTRY SEGMENT INFORMATION
Delta Mills is the only business segment of the Company.
7
ITEM 2. PROPERTIES
The following table provides a description of Delta Woodside's principal
facilities.
Approximate
Square
Location Utilization Footage Owned/Leased
-------- ----------- ------------ ------------
Corporate and
Greenville, SC Administrative Offices 17,400 Leased (1)
Beattie Plant, Fountain Inn, SC Spinning and Weaving 390,000 (2)
Estes Plant, Piedmont, SC Spinning and Weaving 332,000 (2)
Delta 3 Plant, Wallace, SC Dyeing and Finishing 555,000 (2)
Pamplico/Cypress Plant, Pamplico, SC Spinning and Weaving 419,000 (2)
Delta 2 Plant, Wallace, SC Dyeing and Finishing 347,000 (2)
(1) Lease expires in December 2003 with the right to renew for an
additional five-year period.
(2) The title to these facilities and substantially all of the equipment
located in these facilities is 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.
Except as noted above, all of the above facilities are owned by the
Company's Delta Mills, Inc. subsidiary, subject in certain cases to various
outstanding liens.
Delta Woodside leases corporate offices in Greenville, South Carolina.
The lease on the corporate offices expires December 31, 2003. Sales offices are
leased in New York City under leases expiring in December 2004.
At the date of execution of this Form 10-K, the Company believes that
its plants are operating at less than full production capacity.
At the date of execution of this Form 10-K, the Company has closed and
plans to dispose of its Furman facility in Fountain Inn, SC.
At the date of execution of this Form 10-K, the Company has closed and
plans to dispose of its Catawba facility in Maiden, NC.
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 (including the capital stock of Delta Mills, Inc. and its
subsidiary) secure the credit facility of the Company's wholly owned subsidiary,
Delta Mills, Inc.
8
Item 3. LEGAL PROCEEDINGS
All litigation to which the Company is a party is ordinary routine product
liability litigation, contract breach litigation, or employment litigation
incident to its business that does not depart from the normal kind of such
actions. The Company believes that none of these actions, if adversely decided,
would 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 2003 fiscal year.
9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The material under the heading "Common Stock Market Prices and Dividends" on the
inside front cover of the Company's annual shareholders' report for the year
ended June 28, 2003 is incorporated herein by reference.
During fiscal 2003, the Company issued no shares of common stock that were not
registered under the Securities Act of 1933, as amended, and were not previously
reported by the Company in a Form 10-Q.
EQUITY COMPENSATION PLAN DISCLOSURE
The following table summarizes equity compensation plans approved by security
holders and equity compensation plans that were not approved by security holders
as of June 28, 2003:
( c )
Number of Securities
( a ) Remaining Available for
Number of Securities ( b ) Future Issuance Under
to be Issued Upon Weighted-Average Equity Compensation
Exercise of Outstanding Exercise Price of Plans (Excluding
Options, Warrants, Outstanding Options, Securities Reflected in
Plan category and Rights Warrants and Rights Column ( a ))
- ---------------------------------- --------------------------- ------------------------- --------------------------
Equity compensation plans approved by stockholders:
Stock Option Plans 381,035 $6.82 45,842
Incentive Stock Plans 93,836 $0.01 7,417
--------------------------- ------------------------- --------------------------
Sub-total 474,871 $5.54 53,259
Equity compensation plans not
approved by stockholders N/A N/A N/A
--------------------------- ------------------------- --------------------------
Total 474,871 $5.54 53,259
Item 6. SELECTED FINANCIAL DATA
The material under the heading "Selected Financial Data" on page 1 of the
Company's annual shareholders' report for the year ended June 28, 2003 is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The material under the heading "Management's Discussion and Analysis of Results
of Operations and Financial Condition" on pages 3 through 15 of the Company's
annual shareholders' report for the year ended June 28, 2003 is incorporated
herein by reference.
10
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The material under the subheading , "Quantitative and Qualitative Disclosures
About Market Risk" under the heading "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on page 11 of the Company's
annual shareholders' report for the year ended June 28, 2003 is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements included on pages 16 through 36 of the
Company's annual shareholders' report for the year ended June 28, 2003 are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's
principal executive officer and its principal financial officer, after
evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14(e)),
have concluded that, as of June 28, 2003, the Company's disclosure
controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those
entities.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could
significantly affect the Company's disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's
internal controls. As a result, no corrective actions were required or
undertaken.
11
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference from
the portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the headings "Election of Directors" ,"Executive
Officers" and "Section 16 (a) Beneficial Ownership Reporting Compliance."
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the portions of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the headings "Management Compensation" and
"Compensation Committee Interlocks and Insider Participation."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the portion of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the heading "Stock Ownership of Principal
Shareholders and Management."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the portion of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the heading "Related Party Transactions."
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference from
the portion of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to 120 days following the end of the
Company's fiscal year under the heading "Ratification of Appointment of KPMG LLP
as Independent Auditors - Principal Accountant Fees and Services."
12
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Delta Woodside Industries,
Inc. and subsidiaries included in the Annual Report of the Registrant to its
shareholders for the Year ended June 28, 2003 are incorporated by reference in
Item 8:
Consolidated balance sheets-- June 28, 2003 and June 29, 2002.
Consolidated statements of operations--Years ended June 28, 2003, June
29, 2002 and June 30, 2001.
Consolidated statements of shareholders' equity--Years ended June 28,
2003, June 29, 2002 and June 30, 2001.
Consolidated statements of cash flows--Years ended June 28, 2003, June
29, 2002 and June 30, 2001.
Notes to consolidated financial statements.
The following consolidated financial statement schedules of Delta Woodside
Industries, Inc. are included in Item 15a(2):
Schedule I - Condensed Financial Information of Registrant
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulations 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.
(3) Listing of Exhibits:*
2.1 Distribution Agreement by and among Delta Woodside Industries, Inc,DH Apparel Company, Inc. (subsequently
renamed Duck Head Apparel Company, Inc.) and Delta Apparel, Inc. (excluding schedules and exhibits):
Incorporated by reference to Exhibit 2.1 to the Form 10/A of Delta Apparel, Inc. (File No. 1-15583).
3.1 Articles of Incorporation of the Company, as amended through February 5, 1989: Incorporated by reference
to Exhibit 3.1 to the Registration Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc., File
No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment to Articles of Incorporation of the Company: Incorporated by reference to Exhibit
3.1.2 to the Form S-4.
3.1.2 Articles of Merger of Harper Brothers, Inc. into RSI Corporation: Incorporated by reference to Exhibit
4.1.1 to the Registration Statement of the Company on Form S-8, File No. 33-33116 (the "1990 Form S-8").
3.1.3 Articles of Merger of Delta Woodside Industries, Inc., a Delaware corporation, into RSI Corporation:
Incorporated by reference to Exhibit 4.1.2 to the 1990 Form S-8.
3.1.4 Articles of Merger of Duncan Office Supplies, Inc., into Delta Woodside Industries, Inc.: Incorporated by
reference to Exhibit 3.1 to the Company's Form 10-Q for the quarterly period ended December 29, 1990 (the
"December 1990 10-Q").
13
3.1.5 Articles of Amendment to the Articles of Incorporation of Delta Woodside Industries, Inc., filed with the
South Carolina Secretary of State on November 15, 1991: Incorporated by reference to Exhibit 4.6 to the
Form 10-Q of the Company for the quarterly period ended December 28, 1991.
3.1.6 Articles of Amendment to the Articles of Incorporation of the Company filed with the South
Carolina Secretary of State on February 5, 2002: Incorporated by reference to Exhibit 3.1.6 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2001 and filed with
the Securities and Exchange Commission on February 12, 2002.
3.2 Amended and Restated Bylaws of the Company adopted December 9, 1999: Incorporated by reference to Exhibit
3.1 to the Company's Current Report on Form 8-K with date of December 9, 1999 and filed with the Securities
and Exchange Commission on December 16, 1999.
4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5 and 3.2.
4.2 Specimen of Certificate for the Company's Common Stock: Incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-3, File No. 33-42710 (the "Form S-3").
4.3.1 Revolving Credit and Security Agreement, dated as of March 31, 2000, between GMAC Commercial Credit LLC as
agent and lender, and Delta Mills, Inc. as borrower: Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange
Commission on April 13, 2000.
4.3.1.1 Letter, dated July 28, 2000, amending Revolving Credit and Security Agreement: Incorporated by reference to
Exhibit 4.3.1.1 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and
Exchange Commission on September 29, 2000.
4.3.1.2 Consent and Amendment to Credit Agreement and Other Documents, dated as of October 5, 2001: Incorporated
by reference to Exhibit 4.3.1.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 2001 and filed with the Securities and Exchange Commission on November 9, 2001.
4.3.1.3 Consent and Amendment to Credit Agreement and Other Documents, dated as of March 31,2002: Incorporated by
reference to Exhibit 4.3.1.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 30, 2002 and filed with the Securities and Exchange Commission on May 14, 2002.
4.3.1.4 Consent and Amendment to Credit Agreement and Other Documents, dated as of March 20,2003: Incorporated by
reference to Exhibit 4.3.1.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2003 and filed with the Securities and Exchange Commission on May 13, 2003.
4.3.2 Guarantee, dated as of March 31, 2000, of Delta Mills Marketing, Inc. in favor of GMAC Commercial Credit
LLC as agent: Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000.
4.3.3 General Security Agreement, dated as of March 31, 2000, between Delta Mills Marketing, Inc. and GMAC
Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.3 to the Company's Current
Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000.
4.3.4 Stock Pledge and Security Agreement, dated as of March 31, 2000, by Alchem Capital Corporation in
favor of GMAC Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange
Commission on April 13, 2000.
14
4.3.5 Stock Pledge and Security Agreement, dated as of March 31, 2000, by Delta Mills, Inc. in favor of GMAC
Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.5 to the Company's Current
Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April
13, 2000
4.3.6 Stock Pledge and Security Agreement, dated as of May 11, 2000, by Delta Woodside Industries, Inc. in favor
of GMAC Commercial Credit LLC as agent : Incorporated by reference to Exhibit 4.3.6 to the Company's Report
on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29,
2000.
4.4 Indenture, dated as of August 25, 1997 with respect to Delta Mills, Inc.$150,000,000 Series A and Series
B 9 5/8% Senior Notes due 2007, with The Bank of New York, as Trustee, together with forms of certain
related instruments, agreements and documents: Incorporated by reference to Exhibit 4.2.6 to Form
8-K/A of the Company with date of September 25, 1997.
4.5 Rights Agreement, dated as of December 10, 1999, between the Company and First Union National
Bank, which includes, as Exhibit A, the Form of Rights Certificate and, as Exhibit B, the Summary of Rights
to Purchase Common Stock: Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form
8-K with date of December 9, 1999 and filed with the Securities and Exchange Commission on December 16,
1999.
4.5.1 Amendment No. 1 to Shareholders Rights Agreement, dated as of March 15, 2000, between the Company and
First Union National Bank: Incorporated by reference to the Company's Current Report on Form 8-K dated
March 15, 2000 and filed with the Securities and Exchange Commission on April 3, 2000.
4.6 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** Delta Woodside Deferred Compensation Plan for Key Managers, Amended and Restated Effective June 30,
2000: Incorporated by reference to Exhibit 10.2 to the Company's Report on Form 10-K dated July 1, 2000
and filed with the Securities and Exchange Commission on September 29, 2000.
10.2** Stock Option Plan effective as of July 1, 1990: Incorporated by reference to Exhibit 10.11 to the
Company's Form 10-K for the fiscal year ended June 30, 1990.
10.2.1** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the December 1990 Form
10-Q.
10.2.2** Amendment to Stock Option Plan: Incorporated by reference to Exhibit 10.9.2 to the Company's Form 10-K for
the fiscal year ended June 29, 1991 (the "1991 10-K").
10.2.3** 1995 Amendment to the Stock Option Plan effective as of November 9, 1995: Incorporated by reference to
Exhibit 10.4.4 to the December 1995 Form 10-Q.
10.2.4** 1997 Amendment to Stock Option Plan effective as of November 6, 1997: Incorporated by reference to Exhibit
99.1 to Registration Statement on Form S-8 of Delta Woodside Industries, Inc. (File No. 333-45767).
10.2.5** Amendment to Stock Option Plan adopted April 25, 2000: Incorporated by reference to Exhibit 10.4.6 to
the Company's Form 10-Q for the fiscal quarter ended April 1, 2000.
10.2.6** Amendments to Stock Option Plan: Incorporated by reference to Exhibit 10.4.7 to the Company's Report
on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000.
15
10.3** Form of Amendment of Certain Rights and Benefits Relating to Stock Options and Deferred Compensation
by and between the Company and certain pre-spin-off Delta Woodside Industries, Inc, plan participants:
Incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K dated July 1, 2000 and
filed with the Securities and Exchange Commission on September 29, 2000.
10.3.1 List of directors and officers of the Company who signed the document described in Exhibit 10.7:
Incorporated by reference to Exhibit 10.7.1 to the Company's Report on Form 10-K dated July 1, 2000 and
filed with the Securities and Exchange Commission on September 29, 2000.
10.3.2** Form of Amendment of Stock Options by and between Delta Woodside Industries, Inc. and certain pre-spin-off plan
participants: Incorporated by reference to Exhibit 10.7.2 to the Company's Report on Form 10-K dated July 1,
2000 and filed with the Securities and Exchange Commission on September 29, 2000.
10.4** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the 1991 Form 10-K.
10.4.1** Amendment of Director Stock Acquisition Plan, dated April 30, 1992: Incorporated by reference to Exhibit
10.12.2 to the 1992 Form 10-K.
10.5** 2000 Stock Option Plan of Delta Woodside Industries, Inc: Incorporated by reference to Exhibit 10.10 to the
Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on
September 29, 2000.
10.5.1 Amendment of 2000 stock option plan of Delta Woodside Industries, Inc: Incorporated by reference to Item
6(a) of the Company's report on Form 10-Q for the quarter ended September 30, 2000 and filed with the
Securities and Exchange Commission on November 14, 2000.
10.6** 2000 Incentive Stock Award Plan of Delta Woodside Industries, Inc: Incorporated by reference to Exhibit
10.11 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange
Commission on September 29, 2000.
10.7** Letter dated June 28,2000 to William F. Garrett: Incorporated by reference to Exhibit 10.14 to the
Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on
September 29, 2000.
10.8 Tax Sharing Agreement, dated as of June 30, 2000 by and among Delta Woodside Industries, Inc. Duck Head
Apparel Company, Inc. and Delta Apparel, Inc.: Incorporated by reference to Exhibit 2.2 to the Report on
Form 8-K of the Company with the date of June 30, 2000.
10.8.1 Amendment to tax sharing agreement dated as of August 6, 2001: Incorporated by reference to Exhibit
10.17.2 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and filed with the
Securities and Exchange Commission on September 24, 2001, the "2001 10-K."
10.9 See Exhibits 4.3.1, 4.3.1.1, 4.3.2, 4.3.3, 4.3.4, 4.3.5, 4.3.6 and 4.4.
13 Annual Report to Shareholders of the Company for the fiscal year ended June 28, 2003.
21 Subsidiaries of the Company: Incorporated by reference to Exhibit 21 to the 2001 Form 10-K.
23 Report on Schedules and Independent Auditors' Consent for the years ended June 28, 2003, June 29, 2002 and
June 30, 2001.
16
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* All reports previously filed by the Company with the
Commission pursuant to the Exchange Act, and the rules and
regulations promulgated thereunder, exhibits of which are
incorporated to this Report by reference thereto, were filed
under Commission File Number 1-10095.
** This is a management contract or compensatory plan or arrangement.
The registrant agrees to furnish supplementally to the Securities and
Exchange Commission a copy of any omitted schedule or exhibit to any of
the above filed exhibits upon request of the Commission.
(b) Reports on Form 8-K
On April 4, 2003, the Company filed a Current Report on Form
8-K dated April 3, 2003 reporting information under Item 5 and
Item 7.
(c) Exhibits
The response to this portion of Item 15 is incorporated by
reference from Item 15(a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 15 is submitted as a
separate section of this report.
17
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 WOODSIDE INDUSTRIES, INC.
(Registrant)
September 25, 2003 By: /s/ William F. Garrett
- ------------------------------------------ --------------------------------
Date William F. Garrett
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 on the dates indicated.
/s/ C.C. Guy 9/25/2003 /s/ William F. Garrett 9/25/2003
- ------------------------------------- ------------ -------------------------------------------------------- ------------
C.C. Guy Date William F. Garrett Date
Director President, Chief Executive Officer and Director
/s/ J. Patrick Danahy 9/25/2003 /s/ William H. Hardman, Jr. 9/25/2003
- ------------------------------------- ------------ -------------------------------------------------------- ------------
J. Patrick Danahy Date William H. Hardman, Jr. Date
Director Vice President, Treasurer, and Chief Financial Officer
/s/ James Kane 9/25/2003 /s/ Donald C. Walker 9/25/2003
- ------------------------------------- ------------ -------------------------------------------------------- ------------
James Kane Date Donald C. Walker Date
Director Vice President, Assistant Secretary, and Controller
/s/ Max Lennon 9/25/2003
- ------------------------------------- ------------
Max Lennon Date
Director
/s/ E. Erwin Maddrey, II 9/25/2003
- ------------------------------------- ------------
E. Erwin Maddrey, II Date
Director
/s/ Buck A. Mickel 9/25/2003
- ------------------------------------- ------------
Buck A. Mickel Date
Director
18
EXHIBIT INDEX
13 Annual Report to Shareholders of the Company for the fiscal year ended June 28, 2003.
23 Report on Schedules and Independent Auditors' Consent for the years ended June 28, 2003, June 29, 2002 and
June 30, 2001.
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19
SCHEDULE I
CONDENSED BALANCE SHEETS
Delta Woodside Industries, Inc.
(In thousands)
June 28, 2003 June 29, 2002
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $261 $262
Deferred income taxes 0 533
Prepaid expenses and other current assets 7,703 5,470
---------------- ----------------
TOTAL CURRENT ASSETS 7,964 6,265
INVESTMENT IN SUBSIDIARIES 41,521 38,926
ADVANCES TO SUBSIDIARIES 17,082 16,870
DEFERRED INCOME TAXES 4,841 13,214
OTHER ASSETS 25 25
---------------- ----------------
TOTAL ASSETS $71,433 $75,300
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $53 $54
Deferred income taxes 574
---------------- ----------------
TOTAL CURRENT LIABILITIES 627 54
SHAREHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock -- par value $.01 a share - authorized
50,000,000 shares, issued and outstanding 5,862,000 shares
(2003) and 5,829,000 shares (2002) 59 58
Additional paid-in capital 86,869 86,694
Accumulated deficit (16,122) (11,506)
---------------- ----------------
70,806 75,246
COMMITMENTS AND CONTINGENCIES
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $71,433 $75,300
================ ================
See notes to condensed financial statements.
20
CONDENSED STATEMENTS OF OPERATIONS Delta Woodside Industries, Inc.
(In thousands, except per share data) Year Ended Year Ended Year Ended
June 28, 2003 June 29, 2002 June 30, 2001
------------- ------------- -------------
Selling, general and administrative (expenses) $ (1) $ 118
Equity in income (loss) of subsidiaries 2,595 (2,063) $(3,926)
Other income (expense) 1 4 (27)
---------------- ---------------- ---------------
OPERATING PROFIT (LOSS) 2,595 (1,941) (3,953)
Interest (expense) income:
Interest expense (28)
Interest income 76 54
---------------- ---------------- ---------------
76 26
---------------- ---------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 2,595 (1,865) (3,927)
Income tax expense (benefit) 7,211 240 (6)
---------------- ---------------- ---------------
NET LOSS $ (4,616) $(2,105) $(3,921)
================ ================ ===============
Basic and diluted loss per share $ (0.79) $ (0.36) $ (0.66)
================ ================ ===============
Weighted average number
of shares outstanding 5,862 5,831 5,959
================ ================ ===============
See notes to condensed financial statements.
21
CONDENSED STATEMENTS OF CASH FLOWS
Delta Woodside Industries, Inc.
(In thousands) Year Ended Year Ended Year Ended
June 28, 2003 June 29, 2002 June 30, 2001
------------- ------------- -------------
OPERATING ACTIVITIES
Net loss $(4,616) $(2,105) $(3,921)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Equity in net (income) loss of subsidiaries (2,595) 2,063 3,926
Change in deferred income taxes 9,480 755 529
Other 200 113 981
Changes in operating assets and liabilities (2,234) 32 (3,342)
---------------- ---------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 235 858 (1,827)
---------------- ---------------- ---------------
INVESTING ACTIVITIES
Dividends received from subsidiaries 2,900
---------------- ---------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,900
---------------- ---------------- ---------------
FINANCING ACTIVITIES
Net advances from (to) subsidiaries (212) (3,327) 1,627
Repurchase common stock (24) (44) (1,023)
---------------- ---------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (236) (3,371) 604
---------------- ---------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1) (2,513) 1,677
Cash and cash equivalents at beginning of year 262 2,775 1,098
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $261 $262 $2,775
================ ================ ===============
See notes to consolidated financial statements.
22
NOTES TO CONDENSED FINANCIAL STATEMENTS
Delta Woodside Industries, Inc.
The accompanying condensed financial statements of Delta Woodside Industries,
Inc. should be read in conjunction with the consolidated financial statements of
Delta Woodside Industries, Inc. and its consolidated subsidiaries.
BASIS OF PRESENTATION: Delta Woodside Industries Inc. is the parent of
subsidiaries that are engaged in the manufacture, sale and distribution of
textile products. Delta Woodside's investments in its subsidiaries are reported
in these condensed financial statements using the equity method of accounting.
LONG TERM DEBT: Delta Mills, Inc., a subsidiary of Delta Woodside, has unsecured
Senior Notes and a bank credit facility outstanding. See Note C to Consolidated
Financial Statements and "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Sources of Capital" in the
Company's Annual Report to Shareholders. The Delta Mills credit facility
contains restrictive covenants that restrict additional indebtedness, dividends,
and capital expenditures of Delta Mills. The payment of dividends with respect
to Delta Mills' stock is permitted if there is no event of default and there is
at least $1 of undrawn availability under the facility. Loan covenants in the
Senior Notes and the Delta Mills credit facility limit the Company's ability to
use cash generated by Delta Mills to fund operations in the rest of the Company.
In addition to the limitations contained in the Delta Mills credit facility
described above, the Senior Notes also contain restrictive covenants limiting
payments to the rest of the Company. At June 28, 2003, the net assets of the
Company include net assets of the wholly owned subsidiary Delta Mills of
approximately $50 million, which are subject to the restrictions described
above.
REVERSE STOCK SPLIT: The Company effected a 4:1 reverse split of its common
stock on February 5, 2002. The Company's shareholders adopted an amendment to
the Company's articles of incorporation that provided for the reverse split at a
special meeting held on January 28, 2002. The shareholders authorized the
Company's board of directors to determine whether to consummate the reverse
split and to determine the ratio of the reverse split within a range of whole
shares from 3:1 to 10:1. The Company's board of directors set the ratio for the
reverse split at 4:1. The Company paid cash in lieu of any fractional shares.
The total number of authorized shares of common stock and the par value of the
common stock remain the same and were unaffected by the reverse split. All
shares and per share amounts have been retroactively restated in connection with
the reverse stock split.
DIVIDENDS: The Delta Mills' credit facility contains restrictive covenants that
restrict additional indebtedness, dividends, and capital expenditures. The
payment of dividends with respect to Delta Mills, Inc. stock is permitted if
there is no event of default and there is at least $1 of availability under the
facility. At June 28, 2003, under the most restrictive of these covenants, no
dividends were available for distribution by Delta Mills to Delta Woodside
Industries, Inc. The indenture pertaining to the Delta Mills' 9.625% Senior
Notes contains restrictive covenants that restrict additional indebtedness,
dividends, and investments by Delta Mills' and its subsidiaries. The payment of
dividends with respect to Delta Mills, Inc. stock is permitted if there is no
event of default under the indenture and after payment of the dividend, the
Delta Mills could incur at least $1 of additional indebtedness under a fixed
coverage ratio. Dividends are also capped based on cumulative net income and
proceeds from the issuance of securities and liquidation of certain investments.
During the year ended June 28, 2003 and the year ended June 29, 2002, Delta
Mills did not pay any dividends to Delta Woodside Industries, Inc. During the
year ended June 30, 2001, Delta Mills paid $2.9 million of dividends to Delta
Woodside Industries, Inc.
23
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DELTA WOODSIDE INDUSTRIES, INC.
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------------
Balance at (2)
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 Returns:
Year ended June 28, 2003 $ 32,000 $1,751,000(1) ($1,603,000)(2) $180,000
================ ===================== ================= =================
Year ended June 29, 2002 $ 51,000 $1,795,000(1) ($1,814,000)(2) $32,000
================ ===================== ================= =================
Year ended June 30, 2001 $173,000 $2,998,000(1) ($3,222,000)(2) $51,000
================ ===================== ================= =================
NOTES:
1) The change in the reserve for returns and allowances is charged to income as
a reduction of net sales. 2) Deductions represent customer returns and
allowances during the period.
24