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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-10095
DELTA WOODSIDE INDUSTRIES, INC.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0535180
- --------------------------- --------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
PO Box 6126
100 Augusta Street
Greenville, South Carolina 29606
- ---------------------------------------------- --------------------
(Address of principal executive offices) (Zip code)
864/255-4100
------------------------------------------------------------------------------
(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
------------------- --------------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, Par Value $.01
Common Stock Purchase Rights
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
-------- -------
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 26, 2003, which was the last trading day of the second quarter of
fiscal 2004, of $1.60 per share, was $9,428,800.
The number of shares of Common Stock outstanding, par value $.01 per share, as
of October 15, 2004: 6,002,052
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to
shareholders for the fiscal year ended July 3, 2004 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 22,
2004 are incorporated by reference into Part III.
2
FOR THE FISCAL YEAR ENDED JULY 3, 2004
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common equity and Related Stockholder Matters and Issuer Purchases
of Equity Securities 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13
Item 9A. Controls and Procedures 13
Item 9B. Other Information 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
Item 14. Principal Accountant Fees and Services 14
PART IV
Item 15. Exhibits and Financial Statement Schedules 15
3
PART I
ITEM I. BUSINESS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
The following discussion contains various "forward-looking statements". All
statements, other than statements of historical fact, which 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, but are not limited to:
o changes in the retail demand for apparel products
o the cost of raw materials
o competitive conditions in the apparel and textile industries
o the relative strength of the United States dollar as against other
currencies
o 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
o the discovery of unknown conditions, such as 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. You should also review
the other cautionary statements we make in this Annual Report and in other
reports and other documents the Company files with the Securities and Exchange
Commission. All forward-looking statements attributable to us, or persons acting
for us, are expressly qualified in their entirety by our cautionary statements.
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). The Company's common stock is listed on the NASDAQ OTC Bulletin
Board under the symbol "DLWI". 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.
4
GENERAL - CONTINUED
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. ("Delta Mills"), 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.
During fiscal 1998, the Company made the decision to exit the knit textile
market by closing the Delta Mills 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,
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.
PRODUCTS, RAW MATERIALS, AND MANUFACTURING
The Company produces woven textile fabrics through its Delta Mills (formerly
named the Delta Mills Marketing Company) operating subsidiary. Delta Mills is
the only business segment of the Company.
The Company manufactures woven textile fabrics from cotton, wool, flax or
synthetic fibers from cotton yarn 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. The
Company expects the portion of its yarn purchases from outside suppliers to
increase in fiscal year 2005. 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. Finished apparel fabric is ready
to be cut and sewn into garments.
5
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 two
major suppliers, both of whom provide competitive prices. Polyester prices for
fiscal year 2004 were unchanged from fiscal year 2003. The Company's average
price per pound of cotton purchased and consumed, including freight and carrying
costs, was $0.590 in fiscal year 2004 as compared to $0.463 in fiscal year 2003,
and $0.594 in fiscal year 2002. As of July 3, 2004, the Company had contracted
to purchase 74%, and had fixed the price for approximately 47%, of its expected
cotton requirements for fiscal year 2005. 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.
Most of the Company's raw materials are available from more than one primary
source, but the Company is currently depending primarily on one supplier for
rayon staple. This supplier recently emerged from reorganization under Chapter
11 of the federal bankruptcy laws. While the Company does not anticipate, and
has not suffered any adverse effects from, this reorganization, there can be no
assurances that this supplier will remain viable in the future. The Company does
not currently have an alternate domestic source for rayon staple. However, the
Company is currently investigating foreign sources of rayon staple or possibly
the use of other types of rayon-like fibers. If an alternate source of rayon
staple must be used, the Company believes that a cost increase is likely.
During fiscal years 2004, 2003 and 2002, approximately 84%, 77% and 83%,
respectively, of the Company's finished fabric sales were of fabrics made from
cotton or cotton/synthetic blends, while approximately 16%, 23%, and 17%,
respectively, of such sales were of fabrics made from spun synthetics and other
natural fibers, including various blends of rayon, polyester, and wool. 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 finished fabrics plants are
currently operating at less than full capacity.
SALES AND MARKETING
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 fabrics primarily to numerous apparel manufacturers and apparel
resellers and their subcontractors. These manufacturers and resellers include
Levi-Strauss or its subcontractors, 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 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 fabrics include women's
chino pants, women's blazers, and career apparel (uniforms). The Company also
sells camouflage fabric and other fabrics used in apparel for the United States
Department of Defense. 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, Dallas, San Francisco and Mexico.
6
For fiscal year 2004, the Company had two customers, V.F. Corporation, and
Levi-Strauss and its subcontractors, which exceeded 10% of consolidated net
sales. The Company's net sales to these customers totaled $45 million, or
approximately 26%, of net sales in fiscal 2004. For fiscal year 2003, the
Company had three customers, Levi-Strauss, Haggar Apparel and V.F. Corporation,
net sales to each of which exceeded 10% of consolidated net sales. The Company's
net sales to these customers totaled $71 million, or approximately 40%, of net
sales in fiscal year 2003. For fiscal year 2002, the Company had two customers,
Levi-Strauss and V.F. Corporation, net sales to each of which each exceeded 10%
of consolidated net sales. The Company's aggregate net sales to these customers
were $63 million, or approximately 36%, of net sales for fiscal year 2002. There
is a trend towards selling directly to subcontractors of major apparel companies
either in addition to or in lieu of sales directly to the major apparel
companies themselves. The foregoing amounts include sales directly to
subcontractors or the apparel companies named. In addition, during fiscal years
2004, 2003, and 2002, net sales of military fabrics to apparel customers
accounted for approximately 44%, 33%, and 31%, respectively, of the Company's
total net sales. The loss of any of these accounts could have a material adverse
effect on the results of the Company.
ORDER BACKLOG
The Company's order backlog at July 3, 2004 was $41.6 million, a decrease of
$13.9 million from the $55.5 million order backlog at June 28, 2003. The
majority of this decrease was in men's apparel fabrics. This decline was
partially offset by an increase in the order backlog for both government and
synthetic fabrics. In recent years, customers in the industry have shortened
lead times for delivery requirements. In response to this, the Company has
implemented a quick response delivery system. The Company expects to ship the
majority of the orders that make up its order backlog during the next twelve
months. However, because the apparel market continues to be soft, management
believes that the order backlog at any given point in time is not an indication
of future sales.
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 volatile 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 can maintain 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 that print camouflage for sale to apparel suppliers of the
U.S. Government and the only supplier that is vertically integrated for
camouflage production. We believe 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.
7
COMPETITION - CONTINUED
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. Because NAFTA and CBTPA 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 tariffs. If NAFTA or CBTPA 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. Quotas
among WTO members are to be eliminated by the end of calendar year 2004. 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 is expected to 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.
The Company expects to face a significant change in global competition in 2005
as a result of the WTO's phase-out of textile and apparel quotas by the end of
calendar year 2004. Tariffs on textile/apparel products are also being reduced
(but not eliminated.) 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.
The U.S., the Dominican Republic and the five Central American countries of
Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua have signed the
U.S./Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). This
merged trade agreement is awaiting Congressional consideration. DR-CAFTA will be
a NAFTA-like agreement among the signature countries. The rules of origin will
allow apparel to be imported into the United States without tariff provided the
yarns and fabrics are formed in any participating country. This agreement would
create an incentive for apparel manufacturers to use fabric from this region
rather than from 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.
9
EMPLOYEES
The Company has approximately 1,500 employees. Unions do not represent any of
the Company's employees and the Company is not aware of any efforts to organize
any of its employees. The Company believes that its relations with its employees
are good.
ENVIRONMENTAL
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.
Two of the Company's South Carolina plants, the Delta 2 and Delta 3 Finishing
Plants, have experienced high nitrate levels at the spray field for these
plants. The Company is working with the South Carolina Department of Health and
Environmental Control ("DHEC") to address this issue. On August 5, 2004, DHEC
proposed a consent agreement, which establishes a groundwater mixing zone with
nitrate parameters that the Company believes it can satisfy without additional,
material cost or future violations. Although there is no assurance that the
Company will be successful and it could face administrative penalties if it is
not, the Company does not currently believe that this matter will have a
material adverse impact on the Company's financial position.
In addition, the National Pollutant Discharge Elimination System ("NPDES")
permit issued to the Delta 2 and Delta 3 Finishing Plants on April 1, 2004,
contained a new parameter for zinc that the Company is supposed to meet by April
1, 2006. Discharges from nitrate recovery wells have exceeded this parameter.
The Company has proposed to convert the recovery wells into monitoring wells to
eliminate the zinc discharge and understands that DHEC is amenable to this
approach. Although there is no assurance that the Company will be successful and
it could be required to construct a zinc wastewater treatment feature and/or
face administrative penalties if it is not, the Company does not currently
believe that this matter will have a material adverse impact on the Company's
financial position.
On June 30, 2000, the Company sold its Greensboro, North Carolina plant to the
City of Greensboro. The Company had been working with environmental consultants
in assessing groundwater contamination at this site. Because of these studies,
one-half of the proceeds from the sale of the plant, consisting of approximately
$400,000, were placed in an interest bearing escrow account to cover expenses
related to this contamination. As of the date of this filing, approximately
$306,000 remains in this escrow account. The Company recorded the sale net of
estimated costs to remediate the property. The North Carolina Department of
Environment and Natural Resources is requiring Delta Mills to install a
monitoring well on an adjacent property owner's land. The adjacent owner is
requesting that Delta Mills provide it with the sampling results and indemnify
it from any contamination on its property. If contamination is discovered, the
Company would likely face a claim for damages. At the time of this filing,
management believes that the escrow is sufficient to cover any expenses related
to the remediation of this property.
The Company's previously owned Nautilus business has been named as a
"potentially responsible party" ("PRP") under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") with respect to three
hazardous waste sites in North Carolina, South Carolina and Mississippi. To the
Company's knowledge, all of the transactions with these sites were conducted by
a corporation (the "Selling Corporation") whose assets were sold in 1990
pursuant to the terms of an order of the United States Bankruptcy Court to
another corporation, the stock of which was subsequently acquired by the Company
in January 1993.
At the North Carolina site, the Selling Corporation is listed as a "de Minimis"
party, and at the South Carolina site, the Selling Corporation has been listed
as an "insolvent" party and would appear to qualify as a "de Minimis" party. The
Company believes that the Selling Corporation's share of the liabilities at
either of these sites will be immaterial.
10
ENVIRONMENTAL - CONTINUED
At the Mississippi site, the PRP group completed the surface removal action and
investigated soil and groundwater contamination, both at the site and in the
surrounding area. The Company's latest information is that the Selling
Corporation is ranked eleventh out of a total of over 300 PRPs in contributions
of material to the site, and, based on volume, the Selling Corporation
contributed approximately 3% of the site's material. To the Company's knowledge,
estimates of costs to clean-up the site were $4 million, and could be higher.
Trichloromethane, one of the substances delivered by the Selling Corporation to
the site, was found in the site's groundwater and at nearby drinking water
wells. The EPA referred the site to the Mississippi Department of Environmental
Quality ("MDEQ") in 1996. In August of 2001, MDEQ indicated to a third party
that it was still considering action at the site. On June 16, 2004, MDEQ
conducted a site investigation for an EPA RCRA contractor to determine if any
homes around the site still used private water wells and located three such
homes.
Although no assurance can be provided, the Company believes that it is shielded
from liability at these three sites by the order of the United States Bankruptcy
Court pursuant to which the Selling Corporation sold its assets to the
corporation subsequently acquired by the Company. The Company has denied any
responsibility at these three sites, has declined to participate as a member of
the respective PRP groups, and has not provided for any reserves for costs or
liabilities attributable to the Selling Corporation.
On January 10, 2000, the North Carolina Department of Environment and Natural
Resources requested that Delta Mills, Inc., a subsidiary of the Company, accept
responsibility for investigating the discharge of hazardous substances at a
hazardous waste site known as the Glen Raven Mills Site, Kings Mountain, North
Carolina (the "Site"). A predecessor by merger of Delta Mills, Inc., Park Yarn
Mills Company, Inc. ("Park Yarn"), owned the Site for approximately six (6)
years, from 1977 to 1983 (prior to the time Delta Mills, Inc. became a
subsidiary of Delta Woodside Industries, Inc.) Delta Mills, Inc. is aware of no
evidence that Park Yarn discharged or deposited any hazardous substance at the
Site or is otherwise a "responsible party" for the Site. Further, Park Yarn
filed bankruptcy and was discharged in 1983. Although no assurance can be
provided, any liability of Park Yarn for the Site may have been discharged by
the bankruptcy order. Accordingly, Delta Mills, Inc. has denied any
responsibility at the Site, declined to undertake any activities concerning the
Site, and has not provided for any reserves for costs or liabilities
attributable to Park Yarn.
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.
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 the Company'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.
11
Item 2. PROPERTIES
The following table provides a description of Delta Woodside's principal
facilities.
Approximate
Square
Location Utilization Footage Owned/Leased
-------- ----------- ------- ------------
Greenville, SC Administrative Offices 17,400 Leased (1)
New York, NY Sales Offices 10,245 Leased (2)
Beattie Plant, Fountain Inn, SC Spinning and Weaving 390,000 (3)
Estes Plant, Piedmont, SC Spinning and Weaving 332,000 (3)
Delta 3 Plant, Wallace, SC Dyeing and Finishing 555,000 (3)
Pamplico and Cypress Plants, Pamplico, SC Spinning and Weaving 419,000 (3)
Delta 2 Plant, Wallace, SC Dyeing and Finishing 347,000 (3)
(1) Lease expires in December 2008.
(2) Lease expires in December 2004.
(3) 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 with Delta Mills, which has
the effect of substantially reducing the Company's property taxes in
South Carolina. Although Delta Mills 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 on December 31, 2008. 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's plants are operating at less than
full production capacity. The Company believes that its equipment and facilities
are generally adequate to allow it to remain competitive with its principal
competitors.
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. The Company has since
liquidated or transferred substantially all of the assets associated with this
facility except for the facility's real property. On August 24, 2004, Delta
Mills contracted to sell the real property for expected net proceeds of
approximately $1.8 million. The sales price, net of selling costs, under the
contract was approximately $847,000 less than the carrying amount of the asset
on the Company's books. Based on this information relative to the fair value of
the property at July 3, 2004, the Company recorded an impairment charge of
approximately $847,000 for the fourth quarter of fiscal 2004. The sale was
subject to closing conditions, and the prospective purchaser has since
terminated the proposed sale as permitted by the contract. The Company has
lowered its offering price for the property to reflect the price in the
terminated contract.
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. 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'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.
12
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 should 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 2004 fiscal year.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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 July 3, 2004 is incorporated herein by reference.
During fiscal year 2004, 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 July 3, 2004:
( 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 370,910 $6.75 45,840
Incentive Stock Plans:
Incentive Stock Award Plan $0.01 7,417
2004 Stock Plan:
Restricted Awards 87,300 N/A 14,400
Phantom Awards 58,200 N/A 9,600
--------------------------- ------------------------- --------------------------
Sub-total 516,410 $6.75 77,257
Equity compensation plans not
approved by stockholders N/A N/A N/A
--------------------------- ------------------------- --------------------------
Total 516,410 $6.75 77,257
13
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 July 3, 2004 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 July 3, 2004 is incorporated
herein by reference.
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 July 3, 2004 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 July 3, 2004 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-15(e),
have concluded that, as of July 3, 2004, 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 changes in the Company's
internal controls over financial reporting during the fiscal quarter
ended July 3, 2004 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over
financial reporting.
Item 9B. OTHER INFORMATION
Not applicable.
14
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company has adopted a code of ethics that applies to its chief executive
officer, its chief financial officer and its controller. A copy of this code of
ethics is posted on the Company's web site at www.deltawoodside.com. The Company
will disclose any amendment to, or any waiver of, any provision of its code of
ethics that is required to be included in the code by Item 406 of Regulation S-K
promulgated under the Securities Exchange Act that applies to the Company's
chief executive officer, chief financial officer or controller by posting such
information on its web site.
The other 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 Registered Public Accounting Firm - Principal Accountant Fees and
Services."
15
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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 July 3, 2004 are incorporated by reference in
Item 8:
Consolidated balance sheets-- July 3, 2004 and June 28, 2003.
Consolidated statements of operations--Years ended July 3, 2004, June
28, 2003 and June 29, 2002.
Consolidated statements of shareholders' equity--Years ended July 3,
2004, June 28, 2003 and June 29, 2002.
Consolidated statements of cash flows--Years ended July 3, 2004, June
28, 2003 and June 29, 2002.
Notes to consolidated financial statements.
The following consolidated financial statement schedules of Delta Woodside
Industries, Inc. are included in Item 15(a)(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").
16
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, 3.1.6 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.
4.3.1.5 Waiver dated September 27, 2003 by GMAC Commercial Credit, LLC as a lender and agent: Incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2003.
4.3.1.6 Consent under Credit Agreement and Other Documents dated February 4, 2004: Incorporated by reference to
Exhibit 4.3.1.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2003.
4.3.1.7 Waiver and Amendment to Credit Agreement and Other Documents dated April 19, 2004: Incorporated by
reference to Exhibit 4.3.1.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 27, 2004.
4.3.1.8 Amendment to Credit Agreement dated August 18, 2004 by and between Delta Mills, Inc. and GMAC Commercial
Finance, LLC, as a lender and agent.
4.3.1.9 Amendment to Credit Agreement dated October 18, 2004 by and between Delta Mills, Inc. and GMAC Commercial
Finance, LLC, as a lender and agent.
17
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.
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.
10.1.1** First Amendment dated December 23, 2003 to Delta Woodside Group Deferred Compensation Plan for Key
Managers Amended and Restated Effective June 30, 2000: Incorporated by reference to Exhibit 10.1.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2003.
18
10.1.2** Second Amendment dated January 16, 2004 to Delta Woodside Group Deferred Compensation Plan for Key
Managers Amended and Restated Effective June 30, 2000: Incorporated by reference to Exhibit 10.1.2 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 2003.
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.
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.
19
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** Delta Woodside Industries, Inc. 2004 Stock Plan. Effective September 25, 2003. Incorporated by reference to
Exhibit 99 to the Company's Registration Statement on Form S-8 filed with the Commission on January 29,
2004 (Commission File No. 333-112308.)
10.10 See Exhibits 4.3.1, 4.3.1.1, 4.3.1.2, 4.3.1.3, 4.3.1.4, 4.3.1.5, 4.3.1.6, 4.3.1.7, 4.3.1.8, 4.3.1.9,
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 July 3, 2004.
21 Subsidiaries of the Company: Incorporated by reference to Exhibit 21 to the 2001 Form 10-K.
23 Report on Schedules and Consent of Independent Registered Public Accounting Firm for the years
ended July 3, 2004, June 28, 2003 and June 29, 2002.
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.
20
* 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 21, 2004, the Company furnished a Current Report on
Form 8-K dated April 20, 2004 reporting information under
Items 7, 9 and 12.
(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.
21
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)
October 15, 2004 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 10/15/2004 /s/ William F. Garrett 10/15/2004
- ------------------------------------- ------------- -------------------------------------------------------- -------------
C.C. Guy Date William F. Garrett Date
Director President, Chief Executive Officer and Director
/s/ J. Patrick Danahy 10/15/2004 /s/ William H. Hardman, Jr. 10/15/2004
- ------------------------------------- ------------- -------------------------------------------------------- -------------
J. Patrick Danahy Date William H. Hardman, Jr. Date
Director Vice President, Treasurer, and Chief Financial Officer
/s/ Michael R. Harmon 10/15/2004 /s/ Donald C. Walker 10/15/2004
- ------------------------------------- ------------- -------------------------------------------------------- -------------
Michael R. Harmon Date Donald C. Walker Date
Director Vice President, Assistant Secretary, and Controller
/s/ Max Lennon 10/15/2004
- ------------------------------------- -------------
Max Lennon Date
Director
/s/ E. Erwin Maddrey, II 10/15/2004
- ------------------------------------- -------------
E. Erwin Maddrey, II Date
Director
/s/ Buck A. Mickel 10/15/2004
- ------------------------------------- -------------
Buck A. Mickel Date
Director
22
EXHIBIT INDEX
4.3.1.8 Amendment to Credit Agreement dated August 18, 2004 by and between Delta Mills, Inc. and GMAC
Commercial Finance, LLC, as a lender and agent.
4.3.1.9 Amendment to Credit Agreement dated October 18, 2004 by and between Delta Mills, Inc. and GMAC
Commercial Finance, LLC, as a lender and agent.
13 Annual Report to Shareholders of the Company for the fiscal year ended July 3, 2004.
23 Report on Schedules and Consent of Independent Registered Public Accounting Firm for the years ended July 3, 2004,
June 28, 2003, and June 29, 2002.
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.
23
SCHEDULE I
CONDENSED BALANCE SHEETS
Delta Woodside Industries, Inc.
(In thousands, except share data)
July 3, 2004 June 28, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents $161 $261
Prepaid expenses and other current assets 8,697 7,703
---------------- ----------------
TOTAL CURRENT ASSETS 8,858 7,964
INVESTMENT IN SUBSIDIARIES 36,033 41,521
ADVANCES TO SUBSIDIARIES 17,333 17,082
DEFERRED INCOME TAXES 1,594 4,841
OTHER ASSETS 25 25
---------------- ----------------
TOTAL ASSETS $63,843 $71,433
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $5 $53
Deferred income taxes 491 574
---------------- ----------------
TOTAL CURRENT LIABILITIES 496 627
SHAREHOLDERS' EQUITY
Preferred Stock
Common Stock -- par value $.01 a share - authorized
50,000,000 shares, issued and outstanding 6,002,000 shares
(2004) and 5,862,000 shares (2003) 60 59
Additional paid-in capital 87,073 86,869
Accumulated deficit (23,786) (16,122)
---------------- ----------------
63,347 70,806
COMMITMENTS AND CONTINGENCIES
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $63,843 $71,433
================ ================
See notes to condensed financial statements.
F-1
CONDENSED STATEMENTS OF OPERATIONS Delta Woodside Industries, Inc.
(In thousands, except per share data) Year Ended Year Ended Year Ended
July 3, 2004 June 28, 2003 June 29, 2002
------------ ------------- -------------
Selling, general and administrative (expense) income $(32) $(1) $118
Equity in income (loss) of subsidiaries (5,488) 2,595 (2,063)
Other income 12 1 4
---------------- ---------------- ---------------
OPERATING PROFIT (LOSS) (5,508) 2,595 (1,941)
Interest income 76
---------------- ---------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (5,508) 2,595 (1,865)
Income tax expense 2,156 7,211 240
---------------- ---------------- ---------------
NET LOSS $(7,664) $(4,616) $(2,105)
================ ================ ===============
Basic and diluted loss per share $(1.30) $(0.79) $(0.36)
================ ================ ===============
Weighted average number
of shares outstanding 5,893 5,862 5,831
================ ================ ===============
See notes to condensed financial statements.
F-2
CONDENSED STATEMENTS OF CASH FLOWS
Delta Woodside Industries, Inc.
(In thousands) Year Ended Year Ended Year Ended
July 3, 2004 June 28, 2003 June 29, 2002
------------ ------------- -------------
OPERATING ACTIVITIES
Net loss $(7,664) $(4,616) $(2,105)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in net (income) loss of subsidiaries 5,488 (2,595) 2,063
Change in deferred income taxes 3,164 9,480 755
Other 169 200 113
Changes in operating assets and liabilities (1,042) (2,234) 32
---------------- ---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 115 235 858
---------------- ---------------- ---------------
FINANCING ACTIVITIES
Net advances to subsidiaries (215) (212) (3,327)
Repurchase common stock (24) (44)
---------------- ---------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (215) (236) (3,371)
---------------- ---------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (100) (1) (2,513)
Cash and cash equivalents at beginning of year 261 262 2,775
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $161 $261 $262
================ ================ ===============
See notes to condensed financial statements.
F-3
NOTES TO CONDENSED FINANCIAL STATEMENTS
Delta Woodside Industries, Inc.
The accompanying condensed financial statements of Delta Woodside Industries,
Inc., ("Delta Woodside"), 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 July 3, 2004, the net assets of the
Company include net assets of the wholly owned subsidiary Delta Mills of
approximately $44 million, which are subject to the restrictions described
above.
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 July 3, 2004, 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, Delta
Mills could incur at least $1 of additional indebtedness under a fixed charge
coverage ratio test. Dividends are also capped based on cumulative net income
and proceeds from the issuance of securities and liquidation of certain
investments. At July 3, 2004, under the most restrictive of these covenants, no
dividends were available for distribution by Delta Mills to Delta Woodside
Industries, Inc. During the year ended July 3, 2004, 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.
F-4
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 July 3, 2004 $ 180,000 $1,714,000(1) $(1,874,000)(2) $20,000
=================== ================= ================= =============
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
=================== ================== ================ =============
NOTES:
1) The change in the allowance for returns is charged to income as a reduction
of net sales. 2) Deductions represent customer returns and allowances during the
period.