UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-10095
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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.)
233 N. Main Street, Suite 200
Greenville, South Carolina 29601
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(Address of principal executive offices) (Zip code)
864/232-8301
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(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
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Common Stock, Par Value $.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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None
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
not be contained, to be best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
The aggregate market value of the common equity held by non-affiliates of the
registrant as of September 17, 1999 was:
Common Stock, $.01 par value - $38,992,955
The number of shares outstanding of each of the registrant's classes of Common
Stock, as of September 17, 1999 was:
Common Stock, par value $.01 - 23,804,384
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to
shareholders for the fiscal year ended July 3, 1999 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 4,
1999 are incorporated by reference into Part III.
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Item I Business
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GENERAL
Delta Woodside Industries, Inc. ("Delta Woodside" or the "Company") is a
South Carolina corporation with its principal executive offices located at 233
North Main Street, Suite 200, Greenville, South Carolina 29601 (telephone
number: 864-232-8301). All references herein to Delta Woodside or the Company
refer to Delta Woodside Industries, Inc. and its subsidiaries.
The Company has three operating divisions. Delta Mills Marketing Company
produces a range of cotton, synthetic and blended finished and unfinished woven
products which are sold for the ultimate production of apparel, home
furnishings, and other products. Duck Head Apparel produces woven and knit
apparel, including the "Duck Head" (Reg. Trademark) line of casualwear marketed
primarily in the Southeastern United States to department stores and specialty
apparel retailers. Duck Head Apparel also operates 24 retail apparel outlet
stores that sell primarily closeout and irregular "Duck Head" products. Delta
Apparel manufactures and sells T-shirts, fleece goods and sportswear to
distributors, screen printers and private label accounts. The Company has
operations in 12 states, Costa Rica and Honduras, and has approximately 5,000
employees.
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. 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
and whose subsidiaries' businesses were acquired beginning in 1984. The
corporation that is now Delta Woodside Industries, Inc. was incorporated in
1972.
PRODUCTS, MARKETING AND MANUFACTURING
The Company produces woven textile fabrics through its Delta Mills
Marketing Company operating division. It conducts its branded and non-branded
apparel operations through the "Duck Head" and "Delta Apparel" (Reg. Trademarks)
divisions respectively. The Company also licenses the use of the "Duck Head"
trademark. Each division has its own management and employees and operates
independently of the other divisions under the overall direction of the
Company's executive officers. Intersegment sales accounted for no more than
approximately 2% of net sales in any segment for fiscal 1999, 1998, and 1997.
Woven textile fabrics produced for sale by the Company are manufactured
from cotton, wool or synthetic fibers or from synthetic filament yarns. Knit
fabrics are manufactured by the Company using cotton and polyester cotton blend
yarns for use in its knit apparel operations. Cotton and wool are purchased
from numerous suppliers. Synthetic fibers and synthetic filament yarns are
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purchased from a smaller number of competitive suppliers. The Company spins the
major portion of the spun yarns used in its weaving and knitting operations.
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 or knitted into fabric on knitting
machines. The unfinished fabric at this stage is referred to as greige goods.
If sold at this stage, greige goods are typically sold to converters who, in
turn, enhance the fabric through finishing techniques and sell it to
manfacturers of apparel, home furnishings and other products. 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. Finished fabrics generally have significantly higher
margins than greige goods.
The Company sells its woven fabrics primarily to numerous apparel
manufacturers and apparel resellers. Apparel products are sold primarily to
department stores and specialty retailers under the Company's "Duck Head" label,
to private label apparel resellers, and to distributors and screen printers.
DELTA MILLS MARKETING SEGMENT
Delta Mills Marketing Company sells a broad range of finished apparel
fabrics primarily to branded apparel manufacturers and resellers, including Levi
Strauss, Haggar Corp., the Wrangler and Lee divisions of V.F. Corporation,
Farah Incorporated, Kellwood Company and Liz Claiborne, Inc., and private label
apparel manufacturers for J.C. Penney Company, Inc., Sears Roebuck & Co.,
Wal-Mart Stores, Inc., and other retailers. The Company believes that it is a
leading producer of cotton pants-weight woven fabric used in the manufacture of
casual slacks such as Levi Strauss' Dockers and Haggar Corp.'s Wrinkle-Free .
Other apparel items manufactured with the Company's woven fabrics include
women's chinos pants, women's blazers, career apparel (uniforms) and battle
dress camouflage military uniforms. Net sales of woven fabrics were $314
million, $342 million, and $336 million during fiscal 1999, 1998, and 1997
respectively. Sales of woven fabric to Levi Strauss & Co., Inc. accounted for
approximately 15%, 12% and 15% of the Company's total net sales for fiscal 1999,
1998 and 1997, respectively. The loss of this account could have a material
adverse effect on the results of the Company.
Delta Mills Marketing 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 woven fabrics division 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,
Chicago, Dallas, Los Angeles, San Francisco and Mexico.
During fiscal years 1999, 1998, and 1997, approximately 78%, 70% and 70%,
respectively, of the division's finished woven fabric sales were of fabrics made
from cotton or cotton/synthetic blends, while approximately 22%, 30% and 30%,
respectively, of such sales were of fabrics made from spun synthetics and other
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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 division's
production of cotton and cotton/synthetic blend and spun synthetic finished
woven fabrics is largely vertically integrated, with the division performing
most of its own spinning, weaving and finishing. In the production of military
fabrics, the Company purchases a portion of its greige goods needs and finishes
this fabric to specifications. The woven finished fabrics plants are currently
operating at less than full capacity.
The division also produces a variety of unfinished light-weight woven
fabrics that are sold to converters of finished products. Due to import
pressure, the unfinished fabrics business is being discontinued and is being
replaced with more profitable product lines. This move away from the unfinished
fabric production will be substantially complete in the first quarter of fiscal
2000.
DUCK HEAD APPAREL SEGMENT
Duck Head produces collections of men's and boy's casual apparel sold under
the "Duck Head" label, including pants, shorts and shirts. In addition, this
division sells a relatively small amount of men's and boy's woven uniforms,
sportswear and casualwear under the private labels of its customers. The
division also licenses various other categories of apparel and accessories.
"Duck Head" labeled products are primarily marketed by employed sales staff
to regional and national retailers. The "Duck Head" trademark has been
associated with apparel since 1865 and has been historically distributed in the
Southeastern United States. The Company acquired the brand in February 1989.
The division has over 400 men's and 200 boy's Duck Head shops in major
department stores. The "shop" display format of a large part of the Duck Head
line utilizes dedicated retail floor space in the sportswear department
positioned with other national brands. Net sales of "Duck Head" products were
approximately $72 million, $86 million, and $81 million during fiscal 1999,
1998, and 1997, respectively.
Duck Head Apparel operates 2 facilities located in Georgia and Costa Rica.
The division purchases the fabrics used in its products from a number of
producers. "Duck Head" also currently acquires a substantial amount of its
finished products from other sourcing companies throughout the world. This
outside production takes the form of sewing fabric parts cut at contractor's
facilities, cutting and sewing with fabric and patterns supplied by Duck Head,
or providing finished garments made to Duck Head specifications. The division
maintains a staff of quality specialists who consistently monitor work in
process at outside companies. The Company believes that there is ample capacity
among outside contractors worldwide to meet its future production requirements.
All of the products are warehoused in the division's distribution facility in
Georgia.
Duck Head labeled apparel items are generally required to be inventoried to
permit reorder shipment and to level production schedules. Customer private
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label apparel items are generally made only to order. The division's products
are manufactured primarily from 100% cotton. The division's marketing office is
based in Winder, Georgia with a showroom in New York, New York and sales
personnel located throughout the country.
The Duck Head division has 24 outlet stores located in 9 states that sell
principally closeout and irregular Duck Head products. These stores also sell a
small amount of apparel and accessory items manufactured by Duck Head licensees.
DELTA APPAREL SEGMENT
Delta Apparel Company, headquartered in Duluth, Georgia, operates a total
of 5 facilities and produces knitted T-shirts, polo-type shirts and sweatshirts.
The division markets its products primarily to companies that screen print
shirts for resale and to distributors. Net sales in this division were $106
million, $106 million and $112 million during fiscal 1999, 1998, and 1997,
respectively.
The division's marketing is performed by employed sales personnel located
throughout the country. Sales personnel call directly on the retail trade,
contacting department stores, distributors, screen printing companies and the
mass marketers such as discount houses. This operation also utilizes
independent sales representatives to sell to distributors and screen printing
companies. Demand for the division's products is strongest during the spring
and summer months. Most knit apparel items are inventoried to permit quick
shipment and to level production schedules during the months of lower demand.
Special knit apparel items and customer private label knit apparel styles
generally are made only to order.
The division spins the majority of its yarn at the Company's modern
facility in Edgefield , South Carolina, with the remainder being purchased from
outside vendors. The division knits, dyes, finishes, and cuts fabric in a
company owned plant in Maiden, North Carolina and sews garments in a company
owned plant in Georgia and in leased facilities in Honduras. The division also
uses outside sewing contractors when demand exceeds internal production
capacities. Fabrics used by the division are primarily 100% cotton and
polyester/cotton blends.
RAW MATERIALS FOR YARN
The Company's principal raw material for yarn is cotton, although it also
spins polyester, wool, linen fiber, acrylic, lyocell, nylon and rayon fibers and
weaves textured polyester filament. Polyester is obtained primarily from three
major suppliers, all of whom provide competitive prices. For fiscal 1999
polyester prices were at the lowest prices the Company has paid since fiscal
year 1993. However, management expects that trend to be reversed in fiscal 2000.
The Company's average price per pound of cotton purchased and consumed
(including freight, carrying cost and cost for the relatively high amount of
premium cotton the Company uses) was $.770 in fiscal year 1999 as compared to
$.817 in fiscal year 1998, and, as compared to $.833 in fiscal year 1997.
Management expects the downward trend in cotton prices to continue in fiscal
2000. In fiscal year 2000, the Company expects to use approximately 97 million
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pounds of cotton (including approximately 15 million pounds of premium cotton)
and 6 million pounds of polyester in its manufacture of yarn. The Company has
contracted to purchase about 61% of its expected cotton requirements for fiscal
year 2000. The percentage of the Company's cotton requirements that the Company
fixes each year varies depending upon the Company's forecast of future cotton
prices. The Company believes that recent cotton prices have enabled it to
contract for cotton at prices that will permit it to be competitive with other
companies in the United States textile industry when the cotton purchased for
future use is put into production. To the extent that cotton prices decrease
before the Company uses these future purchases, the Company could be materially
and adversely affected, as there can be no assurance that it would be able to
pass along its higher costs to its customers. In addition, to the extent that
cotton prices increase and the Company has not provided for its requirements
with fixed price contracts, the Company may be materially and adversely affected
as there can be no assurance that it would be able to pass along these increased
costs to its customers.
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. The textile and apparel industries
are also cyclical because the supply of particular products changes as
competitors enter or leave the market.
Delta Mills Marketing Company sells primarily to domestic apparel
manufacturers, many of which operate offshore sewing operations. The division
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 division 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.
Delta Mills Marketing Company's competitive position varies by product
line. There are several major domestic competitors in the finished cotton and
cotton/polyester blend woven fabrics business, none of which dominates the
market. The Company believes, however, that it has a strong competitive
position in the all cotton pants-weight fabrics business. In addition, the
Company believes that it is one of only two finishers successful in printing
camouflage for sale to apparel suppliers of the U.S. Government and the only
supplier that is vertically integrated for camouflage production. Additional
competitive strengths of the woven fabrics division 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.
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Foreign competition is a significant factor in the United States fabric
market. The Delta Mills Marketing division believes that its relatively small
manual labor component, highly-automated manufacturing processes and domestic
manufacturing base allow the division 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 division benefits from
protections afforded to apparel manufacturers based in certain Latin American
and Caribbean countries that ship finished garments into the United States.
NAFTA has effectively eliminated or substantially reduced tariffs on goods
imported from Mexico if such goods are made from fabric originating in Canada,
Mexico, or the United States. Section 807 provides for the duty free treatment
of United States origin components used in the assembly of imported articles.
The result is that duty is assessed only on the value of any foreign components
that may be present and the labor cost incurred offshore in the assembly of
apparel using United States origin fabric components. Because Section 807
creates an incentive to use fabric manufactured in the United States, it is
beneficial to the division and other domestic producers of apparel fabrics. In
addition, pursuant to Section 807A, apparel articles assembled in a Caribbean
country, in which all fabric components have been wholly formed and cut in the
United States, are subject to preferential quotas with respect to access into
the United States for such qualifying apparel, in addition to the significant
tariff reduction pursuant to Section 807. A similar program, enacted as a
result of NAFTA and referred to as the Special Regime Program, provides even
greater benefits (complete duty free, quota free treatment) for apparel
assembled in Mexico from fabric components formed and cut in the United States.
In contrast, apparel not meeting the criteria of Section 807, Section 807A, or
the Special Regime Program, is subject to quotas and/or relatively higher
tariffs. If Section 807, Section 807A or the Special Regime Program were
repealed or altered in whole or in part, the Company believes that it could be
at a serious competitive disadvantage relative to textile manufacturers in other
parts of the world seeking to enter the United States market, which would have a
material adverse effect on the division. 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.
Duck Head Apparel Company competes with numerous domestic and foreign
manufacturers of branded and private label apparel. Foreign competition has
been an increasingly significant factor in the apparel manufacturing industry,
particularly with respect to items that require labor-intensive production, such
as shirts and jackets, and high cost luxury items. Although domestic apparel
companies must compete to some extent on a price basis with foreign competition,
the Company's management believes that domestic apparel companies can best
compete by selling branded products, by manufacturing off-shore, by offering
product flexibility, by responding quickly to changes in consumer demand and by
providing more timely deliveries. The latter characteristics permit retailers
to reduce their inventory cost and lower the risk that product availability will
not match consumer demand. The division is oriented towards supplying its
customers with all or some of these competitive advantages.
Delta Apparel Company competes with a number of domestic branded and
private label manufacturers of T-shirts, Fleece products, and Placket shirts.
Many of these companies are larger in size and have greater financial resources
than the Company. The division also competes with imported garments to a lesser
extent. The division, along with all of its major competition, makes use of
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Section 807 and Section 807A of the tariff code and/or NAFTA and assembles a
substantial amount of its garment production in certain Latin American or
Caribbean countries and Mexico. If Section 807 or Section 807A or any similar
program were repealed or altered in whole or in part, the division believes it
would be at a serious competitive disadvantage relative to textile and apparel
manufacturers in the rest of the world seeking to enter the United States
market, which would have a material and adverse effect on the division.
Moreover, there can be no assurance that the current favorable regulatory
environment will continue or that other geographic areas will not be afforded
similar regulatory advantages.
EMPLOYEES
The Company has approximately 5,000 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 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 Delta Woodside's liability, if any, for past failures
to comply with laws, regulations and permits applicable to its operations cannot
be determined.
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.
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At the North Carolina site, the Selling Corporations 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. At the Mississippi
site, the PRP group has completed the surface removal action and is
investigating 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, latest estimates of costs to clean up the site range up to $4
million. Trichlomethane, one of the substances delivered by the Selling
Corporation to the site, has been found in the site's groundwater and at nearby
residential drinking water wells.
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.
INDUSTRY SEGMENT INFORMATION
Segment information made part of Note G of the Company's consolidated
financial statements for the fiscal year ended July 3, 1999 is incorporated
herein by reference.
YEAR 2000 COMPLIANCE
Information concerning year 2000 compliance in "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Year 2000 Compliance"
incorporated into Item 7 of this Form 10-K is incorporated herein by reference.
OTHER
Information concerning order backlogs in "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Consolidated Company
Results, Fiscal 1999 Versus Fiscal 1998" incorporated into Item 7 of this Form
10-K is incorporated herein by reference.
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Item 2. PROPERTIES
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The following table provides a description of Delta Woodside's principal
production and warehouse facilities.
<TABLE>
<CAPTION>
Approximate
Square
Location Utilization Footage Owned/Leased
- ------------------------------------ -------------------- ------- ------------
DELTA MILLS MARKETING COMPANY
<S> <C> <C> <C>
Greenville, SC Admin. Offices 17,400 Leased (1)
Beattie Plant, Fountain Inn, SC spin/weave 390,000 (2)
Furman Plant, Fountain Inn, SC weave 155,000 (2)
Estes Plant, Piedmont, SC spin/weave 332,000 (2)
Delta 3 Plant, Wallace, SC dye/finish 555,000 (2)
Cypress Plant, Pamplico, SC spin 144,000 (2)
Pamplico Plant, Pamplico, SC spin/weave 275,000 (2)
Delta 2 Plant, Wallace, SC dye/finish 347,000 (2)
Catawba Plant, Maiden, NC spin 115,000 Owned
DELTA APPAREL COMPANY
Duluth, GA Admin. Offices 40,244 Leased
Rainsford Plant, Edgefield, SC spin 296,000 Owned(5)
Maiden Plant, Maiden, NC knit/dye/finish/cut 325,000 Owned
Washington Plant, Washington, GA sew 129,800 Owned
Distribution Center, Knoxville, TN distribution 550,000 Owned
Honduras Plant, San Pedro Sula,
Honduras sew 104,000 Leased(3)
DUCK HEAD APPAREL COMPANY
Monroe #2, Monroe, GA pressing 93,000 Owned
San Jose Plant, San Jose, Costa Rica sew 60,000 Leased(3)
316 Distribution Center, Winder, GA admin offices and
warehouse 200,000 Owned
Various retail stores (4)
</TABLE>
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Item 2. PROPERTIES
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(1) Lease expires in December 2003 with the right to renew for an additional
five-year period.
(2) Titles to these facilities and substantially all of the equipment
located in such facilities are held by three South Carolina counties
under a fee-in-lieu-of-taxes arrangement, which has the effect of
substantially reducing the Company's property taxes in South Carolina.
Although the Company can reacquire such property at a nominal price,
this would currently cause a significant increase in the amount of
property taxes paid by the Company.
(3) The Honduras plant has a lease that expires in November 2000. The San
Jose plant is leased on a month-to-month basis.
(4) The "Duck Head" Outlet Stores operation leases 24 facilities in 9
states, which leased space is approximately 75,000 square feet. These
leases expire at various dates through 2006.
(5) The Rainsford Plant is owned by Delta Mills, Inc., a wholly-owned
indirect subsidiary of Delta Woodside. The plant is managed by Delta
Apparel Company.
Except as noted above all of the above facilities are owned by Delta
Woodside or one of its subsidiaries, subject in certain cases to various
outstanding mortgages and security interests.
Delta Woodside leases corporate offices in Greenville, South Carolina. The
lease on the corporate offices expires September 1, 2003. Sales offices are
leased in or near New York, Chicago, Newport Beach, San Francisco, Dallas and
Los Angeles with leases expiring through December 2004.
At the date of execution of this Form 10-K, the Company believes that its
plants in the Delta Mills Marketing division are operating at less than full
production capacity. Various factors affect the relative use by the Company's
apparel divisions of their own facilities and outside contractors in the various
apparel production phases. The Delta Apparel division is currently using the
majority of its internal production capacity. The Duck Head Apparel operation
is operating at approximately 50% of its internal production capacity.
The Company believes that its equipment and facilities are generally
adequate to allow it to remain competitive with its principal competitors.
The Company's accounts receivable and inventory, and certain other
intangible property (including the capital stock of the Company's major United
States subsidiaries), secure the Company's credit facility or the credit
facility of the Company's indirect wholly owned subsidiary, Delta Mills, Inc.
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Item 3. LEGAL PROCEEDINGS
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From time to time the Company and its subsidiaries are defendants in legal
actions involving claims arising in the normal course of its business, including
product liability claims. The Company believes that, as a result of its legal
defenses, insurance arrangements and indemnification provisions with financially
capable parties, none of these actions is reasonably likely to have a material
adverse effect on its results of operations or financial condition taken as a
whole.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
- ------ ----------------------------------------------------------
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's 1999 fiscal year.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
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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 July 3, 1999 is incorporated herein by reference.
The following table shows the issuances by the Company during fiscal 1999
of its 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.
Date of Type of Amount of Class of Nature of
Transaction Transaction Common Stock Persons Transaction
----------- ----------- ------------- --------- --------------
May 10, 1999 Issued 750 Employees Service Awards
The Company believes that these issuances are exempt from registration
under the Securities Act of 1933 by reason of Section 4(2) of the Securities Act
of 1933 and as not constituting a "sale".
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, 1999 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 7 of the
Company's annual shareholders' report for the year ended July 3, 1999 is
incorporated herein by reference.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
- ---------------------------------------------------------------------
RISK
----
COMMODITY RISK SENSITIVITY
- ----------------------------
As a part of the Company's business of converting fiber to finished fabric,
the Company makes raw cotton purchase commitments and then fixes prices with
cotton merchants who buy from producers and sell to textile manufacturers. The
Company may seek to fix prices up to 18 months in advance of delivery. Daily
price fluctuations are minimal, yet long-term trends in price movement can
result in unfavorable pricing of cotton for the Company. Before fixing prices,
the Company looks at supply and demand fundamentals, recent price trends and
other factors that affect cotton prices. The Company also reviews the backlog
of orders from customers as well as the level of fixed price cotton commitments
in the industry in general. At July 3, 1999, a 10% decline in the market price
of the cotton covered by the Company's fixed price contracts would have a
negative impact of approximately $4.2 million on the value of the contracts. At
the end of fiscal 1998, a 10% decline in the market price of the Company's fixed
price contracts would have had a negative impact of approximately $5.6 million
on the value of the contracts. The decline in the potential negative impact
from 1998 to 1999 is due principally to current cotton commitments being at
significantly lower average prices than in fiscal 1998. The Company has changed
to the current disclosure format from the format in the fiscal year 1998 10-K in
an effort to improve the comparability of its disclosure to other companies in
its industry.
INTEREST RATE SENSITIVITY
- ---------------------------
The following debt obligations are sensitive to changes in interest rates:
$150 million of unsecured ten year senior notes due 2007 at a fixed
rate of 9.625%.
$100 million of secured five year revolving credit facility expiring
2002 with interest of 6.93% at July 3, 1999. Interest is based on LIBOR.
$30 million of short-term secured revolving credit facility expiring
December 2000 with interest of 7.22% at July 3, 1999. Interest is
based on LIBOR.
An interest rate change would not have an impact on the fixed rate ten year
senior notes totaling $150 million. An interest rate change would have a
negative impact to the extent the Company increases borrowings against the
revolving credit facilities. The impact would be dependent on the level of
borrowings incurred. During fiscal years 1999 and 1998, based on the average
principal balance outstanding, a 1% increase in interest rates would have
resulted in increased interest expense of approximately $533,000 and $879,000,
respectively. In fiscal year 2000, as of this date, the Company has no
outstanding borrowings against the revolving credit facilities.
15
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------- -----------------------------------------------
The consolidated financial statements included on pages 10 through 13 of
the Company's annual shareholders' report for the year ended July 3, 1999 are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
--------------------------
Not applicable.
16
<PAGE>
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".
17
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------- ---------------------------------------------------------------------
(a) (1) and (2) Financial Statements and Financial Statement Schedules
-------------------------------------------------------
The response to this portion of Item 14 is set forth on page F-2
included herein, which response is incorporated herein by reference.
(3) Listing of Exhibits:*
---------------------
<TABLE>
<CAPTION>
<S> <C>
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").
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.
3.2 By-laws of the Company, as amended: Incorporated by reference to Exhibit 3.1.1 to the
Form S-4.
18
<PAGE>
Item 14 (Continued)
- ---------- -----------
3.2.1 Amendments to By-laws of the Company: Incorporated by reference to Exhibit 3.2 to the
December 1990 10-Q.
3.2.2 Amendment to By-laws of the Company, adopted as of June 29, 1992: Incorporated by
reference to Exhibit 3.2.2 to the Company's Form 10-K for the fiscal year ended June 27,
1992 (the "1992 10-K").
4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.2, 3.2.1. and 3.2.2.
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 Credit Agreement dated as of August 25, 1997 among Delta Mills, Inc., as Borrower,
certain subsidiaries of the Borrower from time to time party thereto, as guarantors, the
several lenders from time to time party thereto, NationsBank, N.A., as Administrative
Agent, and BNY Financial Corporation, as Collateral Agent, together with forms of certain
related instruments, agreements and documents (excluding schedules): Incorporated by reference
to Exhibit 4.2.4 to Form 8-K/A of the Company with date of September 25, 1997. The Company
agrees to furnish supplementally to the Securities and Exchange Commission a copy of any
omitted schedules to such agreement upon request of the Commission.
4.3.1 First Amendment and Waiver Agreement dated as of May 11, 1998 respecting Credit
Agreement dated as of August 25, 1997: Incorporated by reference to Exhibit 4.2.7 to the
Form 10-Q of the Company for the quarter ended March 28, 1998.
4.3.2 Second Amendment to Credit Agreement dated as of July 29, 1998 respecting Credit Agreement
dated as of August 25, 1997: Incorporated by reference to Exhibit 4.2.4.2 to the Form 10-K
of the Company for the year ended June 27, 1998.
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.
19
<PAGE>
4.5 The Company hereby agrees to furnish to the Commission upon request of the
Commission a copy of any instrument with respect to long-term debt not being registered
in a principal amount less than 10% of the total assets of the Company and its subsidiaries
on a consolidated basis.
10.1 Lease, dated September 1, 1998 and between Hammond Square, Ltd. and the Company.
10.2** Delta Woodside Deferred Compensation Plan for Key Managers, Amended and Restated
Effective January 1, 1998 as amended.
10.3** Incentive Stock Award Plan effective July 1, 1990: Incorporated by reference to Exhibit
10.1 to the Form 10-Q of the Company for the fiscal quarter ended March 31, 1990.
10.3.1** 1995 Amendment to the Incentive Stock Award Plan effective as of November 9, 1995:
Incorporated by reference to Exhibit 10.3.1 to the Form 10-Q of the Company for the
quarterly period ended December 30, 1995 (the "December 1995 10-Q").
10.3.2** 1997 Amendment to Incentive Stock Award 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. 333-45771)
10.4.1** 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.
10.4.2** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the
December 1990 10-Q.
10.4.3** 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").
10.4.4** 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 10-Q.
10.4.5** 1997 Amendment to Stock Option Plan effective as of November 6, 1997: Incorporated
by reference to Exhibit 99.1 to Registration Statement on Form S-8 of Delta Woodside
Industries, Inc. (File No. 333-45767).
20
<PAGE>
10.5 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company
and E. Erwin Maddrey, II: Incorporated by reference to Exhibit 10.2 to the December
1990 10-Q.
10.6 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company
and Bettis C. Rainsford: Incorporated by reference to Exhibit 10.3 to the December 1990
10-Q.
10.7** Summary of Delta Woodside Industries, Inc., Director Charitable Giving Program:
Incorporated by reference to Exhibit 10.11 to the 1992 10-K.
10.7.1** Resolution to amend Directors' Charitable Giving Program dated February 2, 1995:
Incorporated by reference to Exhibit 10.7.1 to the March 1995 10-Q.
10.8.1** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the 1991
10-K.
10.8.2** Amendment of Director Stock Acquisition Plan, dated April 30, 1992: Incorporated by
reference to Exhibit 10.12.2 to the 1992 10-K.
10.9** Delta Woodside Industries, Inc. Long Term Incentive Plan: Incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-4 of Delta Mills, Inc. (File No. 333-
37617).
10.10 Registration Rights Agreement, dated as of August 25, 1997, by and among Delta Mills,
Inc., Delta Mills Marketing, Inc. and NationsBanc Capital Markets, Inc.: Incorporated by
reference to Exhibit 1.2 to Registration Statement on Form S-4 of Delta Mills, Inc. (File
No. 333-376-17).
10.11 Purchase Agreement relating to $150 million 9 5/8% Senior Notes due 2007, dated
August 20, 1997, by and among Delta Mills, Inc., Delta Mills Marketing, Inc. and
NationsBanc Capital Markets, Inc.: Incorporated by reference to Exhibit 1.1 to
Registration Statement on Form S-4 of Delta Mills, Inc. (File No. 333-376-17).
10.12** Letter dated December 14, 1998 to Robert W. Humphreys: Incorporated by reference to
Exhibit 10.10 to the Form 10-Q/A of the Company for the quarterly period ended
December 26, 1998 (the "December 1998 10-Q").
10.12.1 ** Letter dated April 22, 1999 to Robert W. Humphreys.
10.13 ** Letter dated December 14, 1998 to Jane H. Greer: Incorporated by reference to Exhibit
10.11 to the December 1998 10-Q.
21
<PAGE>
10.14 ** Letter dated June 8, 1998 to Douglas J. Stevens.
10.15 See Exhibits 4.3, 4.3.1, 4.3.2, and 4.4.
13 Annual Report to Shareholders of the Company for the fiscal year ended July 3, 1999.
21 Subsidiaries of the Company.
23.1 Report on Schedules and Independent Auditors' Consent for the years ended July 3, 1999,
June 27, 1998 and June 28,1997.
27 Financial Data Schedule.
* 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.
</TABLE>
(b) Reports on Form 8-K
----------------------
The Company filed a Form 8-K with date of June 25, 1999. Items
reported were:
Item 5. Other events
Item 7. Financial statements and exhibits
(c) Exhibits
--------
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
-------------------------------
The response to this portion of Item 14 is submitted as a separate
section of this report.
22
<PAGE>
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.
September 30, 1999 /s/ E. Erwin Maddrey, II
- -------------------- -------------------------------------
Date E. Erwin Maddrey, II
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ C. C. Guy 9/30/99 /s/ E. Erwin Maddrey 9/30/99
- ---------------- ------- --------------------- -------
C. C. Guy Date E. Erwin Maddrey, II Date
Director President, Chief Executive
Officer and Director
/s/ James F. Kane 9/30/99 /s/ Bettis C. Rainsford 9/30/99
- ---------------- ------- ----------------------- -------
James F. Kane Date Bettis C. Rainsford Date
Director Executive Vice President,
Chief Financial Officer, Treasurer
and Director
/s/ William F. Garrett 9/30/99
- --------------------- -------
William F. Garrett Date
Director
/s/ Max Lennon 9/30/99 /s/ Robert W. Humphreys 9/30/99
- ---------------- ------- ----------------------- --------
Max Lennon Date Robert W. Humphreys Date
Director Vice President - Finance
/s/ Buck A. Mickel 9/30/99
- ----------------- -------
Buck A. Mickel Date
Director
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<C> <S>
10.1 Lease, dated September 1, 1998, by and between Hammond
Square, Ltd. and the Company.
10.2 Delta Woodside Deferred Compensation Plan for Key Managers,
Amended and Restated Effective January 1, 1998 as amended.
10.12.1 Letter dated April 22, 1999 to Robert W. Humphreys.
10.14 Letter dated June 8, 1998 to Douglas J. Stevens.
13 Annual Report to Shareholders of the Company for the fiscal year
ended July 3, 1999.
21 Subsidiaries of the Company.
23.1 Report on Schedules and Independent Auditor's Consent.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JULY 3, 1999
DELTA WOODSIDE INDUSTRIES, INC.
GREENVILLE, SOUTH CAROLINA
F-1
<PAGE>
FORM 10-K--ITEM 14(a)(1) AND (2)
DELTA WOODSIDE INDUSTRIES, INC.
LIST OF 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, 1999 are incorporated by reference in
Item 8:
Consolidated balance sheets- July 3, 1999 and June 27, 1998.
Consolidated statements of operations--Years ended July 3, 1999,
June 27, 1998 and June 28, 1997.
Consolidated statements of shareholders' equity--Years ended July 3, 1999,
June 27, 1998 and June 28, 1997.
Consolidated statements of cash flows--Years ended July 3, 1999,
June 27, 1998 and June 28, 1997.
Notes to consolidated financial statements.
The following consolidated financial statement schedules of Delta Woodside
Industries, Inc. are included in Item 14(d):
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
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Columns omitted from schedules filed have been omitted because the information
is not applicable.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS (in thousands)
Delta Woodside Industries, Inc.
July 3, 1999 June 27, 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $3,519 $1,825
Accounts receivable 49 41
Less allowances for doubtful accounts 10 14
----------- -----------
39 27
Prepaid expenses and other current assets 595 827
----------- -----------
TOTAL CURRENT ASSETS 4,153 2,679
PROPERTY, PLANT AND EQUIPMENT, at cost 1,341 1,833
Less accumulated depreciation 1,209 1,497
----------- -----------
132 336
INVESTMENT IN SUBSIDIARIES 74,202 127,842
ADVANCES TO SUBSIDIARIES 73,696 75,790
DEFERRED INCOME TAXES 831
OTHER ASSETS 2,872 2,864
----------- -----------
TOTAL ASSETS $155,055 $210,342
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank debt $1,678 $11,108
Accounts payable and accrued liabilities 17,265 17,643
Deferred income taxes 584 1,148
----------- -----------
TOTAL CURRENT LIABILITIES 19,527 29,899
LONG TERM DEBT
DEFERRED INCOME TAXES 941
OTHER LIABILITIES AND DEFERRED CREDITS 607 876
SHAREHOLDERS' EQUITY
Common Stock -- par value $.01 a
share -- authorized 50,000,000 shares,
issued and outstanding 23,792,000 shares
(1999) and 24,644,000 shares (1998) 238 246
Additional paid-in capital 160,863 165,221
Retained earnings (deficit) (27,121) 14,100
----------- -----------
133,980 179,567
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $155,055 $210,342
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS (in thousands)
Delta Woodside Industries, Inc.
Year Ended
------------------------------------------
July 3, 1999 June 27, 1998 June 28, 1997
----------- ------------- ------------
<S> <C> <C> <C>
Net sales $728 $1,138 $1,305
Cost of goods sold 761 1,075 1,170
----------- ------------- ------------
Gross profit (loss) (33) 63 135
Selling, general and administrative
Expenses 2,977 552 (19)
Equity in income (loss) of subsidiaries (46,140) (41,085) 5,094
Other income 18 107 185
----------- ------------- ------------
OPERATING PROFIT (LOSS) (49,132) (41,467) 5,433
Interest (expense) income:
Interest expense (1,430) (5,218) (22,290)
Interest income 10,011 19,234 19,815
----------- ------------- ------------
8,581 14,016 (2,475)
INCOME (LOSS) BEFORE INCOME TAXES (40,551) (27,451) 2,958
Income tax expense (benefit) (1,156) 16,300 (4,433)
----------- ------------- ------------
NET INCOME (LOSS) (39,395) (43,751) 7,391
Basic and diluted earnings ($1.63) ($1.78) $0.30
(loss) per share
Weighted average number
of shares outstanding 24,149 24,575 24,513
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
Delta Woodside Industries, Inc.
Year Ended
------------------------------------------
July 3, 1999 June 27, 1998 June 28, 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($39,395) ($43,751) $7,391
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net (income) loss 46,140 41,085 (5,094)
Provision for deferred income taxes 1,208 (428) 457
Other 204 168 148
Changes in operating assets and
liabilities (435) 14,927 (4,598)
------------- ------------- -------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 7,722 12,001 (1,696)
INVESTING ACTIVITIES
Dividends received from subsidiaries 7,500 8,000
------------- -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 7,500 8,000
FINANCING ACTIVITIES
Proceeds (repayments) from revolving
lines of credit ($9,430) ($214,392) ($15,796)
Net advances from subsidiaries 2,094 197,008 12,704
Dividends paid (2,419) (2,460)
Repurchase common stock (4,520)
Other 747 411 641
------------- ------------- -------------
NET CASH (USED) BY FINANCING ACTIVITIES (13,528) (19,433) (2,451)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVILENTS 1,694 568 (4,147)
Cash and cash equivalents at beginning
of year 1,825 1,257 5,404
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $3,519 $1,825 $1,257
</TABLE>
See notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTSDelta Woodside Industries, Inc.
The accompanying financial statements of Delta Woodside Industries, Inc. should
be read in conjunction with the consolidated financial statements of Delta
Woodside Industries and its consolidated subsidiaries.
BASIS OF PRESENTATION: Delta Woodside Industries, Inc. is the top parent of
various wholly-owned subsidiaries which are engaged in the manufacture, sale,
and distribution of textile and apparel products. Delta Woodside's investments
in its wholly owned subsidiaries are reported in these condensed financial
statements using the equity method of accounting.
LONG TERM DEBT: A subsidiary of Delta Woodside has unsecured senior notes and a
bank credit facility outstanding. See Note D of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Results of Operations
and Financial Condition - Liquidity and Sources of Capital". The senior notes
and the credit facility contain restrictions which, among other things, limit
the subsidiary from paying cash dividends to Delta Woodside. Generally, with
certain exceptions, dividends and certain other restricted payments are limited
to $12.5 million plus 50% of the cumulative net income of the subsidiary from
the beginning of fiscal 1998. Additionally, dividends and other restricted
payments are not permitted in any instance where such payment would cause
non-compliance with any other restrictive covenant. As of July 3, 1999
approximately $900 thousand was available under the cumulative net income test;
however, payment of any further dividend would have caused a violation of a
covenant regarding minimum tangible net worth. As of July 3, 1999, net assets of
the subsidiary totaling approximately $50 million were restricted from
distribution.
F-2
<PAGE>
<TABLE>
<CAPTION>
Deducted from asset accounts
Allowance for doubtful accounts:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DELTA WOODSIDE INDUSTRIES, INC.
- ------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------- -------------- ----------------------------- ------------ -------------
ADDITIONS
Balance at -----------------------------
DESCRIPTION Beginning (1) (2) Deductions Balance at End
of Period Charged to Charged to Describe of Period
and Expense Accounts-Describe
- -------------------------- -------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended July 3, 1999 $ 6,417,000 $ 6,118,000 $ (579,000)(2) 4,329,000(1) $ 7,627,000
============== ============ =============== ============ =============
Year ended June 27, 1998 $ 5,358,000 $ 2,771,000 $ (333,000)(2) 1,379,000(1) $ 6,417,000
============== ============ =============== ============ =============
Year ended June 28, 1997 $ 6,258,000 $ 1,215,000 $ (171,000)(2) 1,944,000(1) $ 5,358,000
============== ============ =============== ============ =============
Inventory reserves:
Year ended July 3, 1999 $ 9,560,000 $ 6,083,000 $ 15,643,000
============== ============ =============
Year ended June 27, 1998 $ 24,464,000 $14,904,000(3) $ 9,560,000
============== ============ =============
Year Ended June 28, 1997 $ 40,879,000 $16,415,000(3) $ 24,464,000
============== ============ =============
<FN>
NOTES:
(1) Uncollectible accounts written off.
(2) Net change in sales allowances charged to income as a reduction of sales.
(3) Deducted from costs and expenses.
</TABLE>
<PAGE>
LEASE
This lease is made this first day of September 1998, by and between Hammond
Square, Ltd. (hereinafter referred to as "Landlord") and Delta Woodside
Industries, Inc. (hereinafter referred to as "Tenant").
SECTION 1
DEFINITIONS
1.1 Regime. The term "Regime" means all that certain land and all
------
buildings, improvements, equipment and facilities erected thereon known as
HAMMOND SQUARE HORIZONTAL PROPERTY REGIME, located in Greenville, South
Carolina.
1.2 Master Deed. The term "Master Deed" means the Declaration of
------------
Condominium establishing Hammond Square Horizontal Property Regime and the
by-laws of the Association as the same may be amended from time to time.
1.3 Association. The term "Association" means the entity responsible
-----------
for the operation of the condominium regime, Hammond Square Condominium Owners
Association, a non-profit unincorporated association.
1.4 Lease Year. The first lease year shall consist of twelve (12)
-----------
consecutive full calendar months plus the partial month, if any, caused by the
Commencement Date (as defined in Section 2.2) falling on other than the first
day of a calendar month. Each succeeding lease year shall be for a period of
twelve (12) full calendar months.
1.5 Common Areas. The term "Common Areas" means those areas,
-------------
facilities, utilities, improvements, equipment and installations in the Regime
which are from time to time designated for the nonexclusive use or benefit of
other owners or tenants, their employees, agents, customers, licensees and
invitees, and including Common Elements and Commercial Common Elements
designated in the Master Deed.
SECTION 2
DEMISE OF PREMISES AND TERM
2.1 Lease. Landlord hereby leases and demises to Tenant those certain
-----
Premises crosshatched in red on the Floor Plan attached hereto as Exhibit "A"
and by this reference made a part hereof, containing approximately 9,662 square
feet (hereinafter referred to as the "Premises") together with all rights to use
the Common Areas which are associated with or appurtenant to the ownership under
the Master Deed, subject to such reasonable rules and regulations as Landlord
shall adopt. If the Tenant shall perform the obligations set forth herein, the
Tenant shall have and enjoy, during the entire term hereof, the peaceful, quiet
and undisturbed possession of the premises.
1
<PAGE>
2.2 Commencement and Expiration Dates of Term. The term of this Lease
------------------------------------------
and Tenant's obligation to pay rent hereunder shall commence on September 1,
1998. The term shall end, unless sooner terminated as hereinafter provided, on
the last day of the fifth (5th) consecutive lease year following the
Commencement Date.
2.3 Tenant Estoppel Certificate. The parties agree that, promptly upon
---------------------------
the establishment of the Commencement Date, they will execute a stipulation
acknowledging said date which shall be attached to this Lease and made a part
hereof. In addition, within ten (10) days after written request by landlord or
to such other party as may be designated by Landlord, a certificate stating that
this Lease is in full force and effect and has not been modified, supplemented
or amended in any way, except as indicated in such certificate; that all
conditions and agreements hereunder to be performed by Landlord have been
satisfied or performed, except as set forth in said certificate; that Tenant is
not in default in the payment of rent or any of the other obligations required
of Tenant hereunder; and that Tenant has paid Minimum Rent and any Additional
Rent set forth hereunder as of the date set forth in the certificate.
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SECTION 3
RENT
3.1 Minimum Rent. During the initial lease year, Tenant shall pay
-------------
$13.00 per square foot for the 9,662 square feet being leased, or $125,606 per
year, in equal monthly installments. Monthly installments of minimum rent shall
be paid in advance on the first day of each calendar month, without demand,
deduction of set off. In addition, Tenant shall pay monthly to Landlord, the
parking fees charged by the City of Greenville for usage of the Mall 200
parking. The amount shall be the number of spaces multiplied by the rate per
space charged by The City.
The rental rate in subsequent years will be as follows:
Year 2 $13.50/Sq. Ft.
Year 3 $14.00/Sq. Ft.
Year 4 $14.50/Sq. Ft.
Year 5 $15.00/Sq. Ft.
3.2 Operating Costs. The Tenant shall pay to Landlord its prorata
----------------
share of any special or extraordinary assessments which may be assessed against
the Premises pursuant to the provisions of the Master Deed, such prorata share
being determined by a fraction, the numerator of which is the number of years
remaining in the term of this lease and the denominator of which is the useful
life, in years, of the improvement or repair for which the assessment was
levied.
3.3 Common Area Control/Right of Relocation. Landlord and/or the
-------------------------------------------
Association shall have the right at all times, in their sole discretion, to
change the size, location, elevation, nature and/or use of any portion of all
the Common Areas, the Regime or any part thereof as they may from time to time
determine, including the right to change the size thereof, to change the
location and size of the landscaping and buildings on the site, and to make
additions to, subtractions from or rearrangements of said buildings; provided
that no such change shall materially adversely affect the Premises or Tenant's
use thereof.
SECTION 4
USAGE
4.1 Use. Tenant shall use, occupy and operate the Premises solely for
---
the purpose of business offices and for no other purpose whatsoever. Tenant
shall not, without Landlord's prior written consent, keep anything within the
Premises, or use the Premises for any purpose (other than use as business
offices) which increases the insurance premium cost or invalidates any insurance
policy carried on the Premises and Tenant shall pay as rent the amount of any
such increase promptly upon demand by Landlord.
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4.2 Rules and Regulations. Tenant shall observe faithfully and comply
-----------------------
strictly with the Rules and Regulations attached hereto and made a part hereof
by this reference, and with all other Rules and Regulations that Landlord may
from time to time reasonably adopt or that may reasonably be established by the
Association for the safety, operation, care and cleanliness of the Regime or the
preservation of good order therein. Landlord shall not be liable to Tenant for
any violation of the Rules and Regulations, or for the breach of any covenant or
condition in any lease, by any other owner (other than Landlord) or tenant in
the Regime.
SECTION 5
ALTERATION, REPAIR AND MAINTENANCE
5.1 Alterations by Tenant. Except for Tenant improvements to be
-----------------------
constructed pursuant to Section 15.20 (a), Tenant shall not make any alterations
to (including but not limited to alterations to the exterior, the storefront,
signs and/or utility lines or systems within or serving the Premises) not secure
any fixture or apparatus to the Premises without Landlord's prior written
approval, which approval shall not be unreasonably withheld, and Tenant shall
promptly remove upon order from Landlord any decoration or alteration made or
installed upon the Premises without Landlord's written consent, which consent
shall not be unreasonably withheld. All alterations, fixtures, betterments and
improvements made to or installed upon the Premises shall remain upon the
Premises, and shall become Landlord's property upon the expiration or earlier
termination of this Lease unless Landlord shall require Tenant to restore the
Premises to its original condition.
5.2 Repairs by Tenant. The Association (or Landlord if the Association
-----------------
shall fail to do so) shall keep the structural portions of the Premises and the
Common Area of the Regime, as applicable, in reasonable repair, provided that
Tenant shall give Landlord or the Association written notice of the necessity
for such repair as same affects the Premises. Tenant shall keep the interior of
the Premises , together with the storefront and all doors and windows of the
Premises, and all electrical, plumbing, and sprinkler systems located within the
Premises, and any other mechanical installations located within the Premises, in
reasonably good working order and repair, at its expense. Tenant shall also
keep in reasonably good working order and repair the heating, ventilating and
air conditioning systems that separately serve the Premises, whether such
systems are located within the Premises or on the roof or at other locations
within the building or the regime property. It is understood and agreed that
Tenant shall be responsible for all maintenance and repair of the Premises
except that which is the responsibility of the Association under the Master
Deed. Tenant agrees to employ a suitable contractor approved by Landlord, which
approval shall not be unreasonably withheld, to perform Tenant's obligations for
maintenance of the heating, cooling and ventilating units serving the Premises,
including at least annual inspections and cleaning , if necessary, of the system
together with such servicing as each such inspection discloses as being
4
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reasonably necessary or as shall be reasonably required by Landlord. Tenant
shall promptly repair, at its expense, any damage to the Premises caused by
bringing into the Premises any property for Tenant's use, or by the installation
or removal of such property regardless of fault or by whom such damage may be
caused, unless caused solely by the affirmative acts of negligence of Landlord,
its agents or employees. In the event Tenant fails to make such repairs,
Landlord may, at its option, but need not, make same and Tenant agrees to pay
Landlord as additional rent the reasonable cost thereof promptly upon demand by
Landlord. Tenant shall not overload the floor slab, electric wiring or
utilities serving the Premises and shall install at Tenant's sole expense, after
first obtaining Landlord's written approval, which approval shall not be
unreasonably withheld, any additional electric wiring that may reasonably be
required in connection with Tenant's apparatus, equipment or fixtures.
5.3 Liens. Tenant hereby indemnifies Landlord against, and shall keep
-----
the Premises and the Regime free from liens for any work performed, material
furnished, or obligations incurred by the Tenant. Should liens or claims be
filed against the Premises or the Regime by reason of Tenant's acts or
omissions, Tenant shall cause same to be discharged by bond or otherwise within
fifteen (15) days after filing.
5.4 Signs and Displays. Tenant shall not place or have placed and
--------------------
maintained on or within the Premises any sign, awning or advertising visible
from the exterior of the Premises not first approved in writing by Landlord,
which approval shall not be unreasonably withheld. Landlord shall have the
exclusive right to use the roof and Tenant shall not affix any sign or aerial to
the roof of the Premises.
SECTION 6
DAMAGE, DESTRUCTION OR CONDEMNATION
6.1 Casualty. Except as otherwise provided herein, if the Premises are
--------
damaged by fire or other insured casualty, the damage shall be repaired by
Landlord or the Association to the extent of the insurance proceeds available
therefor and the extent to which the Association is otherwise required to repair
pursuant to the Master Deed. Tenant shall restore Tenant's improvements thereto
to the extent of the insurance proceeds therefor immediately upon the completion
of Landlord's work or simultaneously with such work to the extent practicable.
Until repairs to the Premises are completed by the Association or Landlord,
Rentals shall be abated in proportion to the part of the Premises, if any, which
is unusable by Tenant in the conduct of its business, but if the damage is due
to the fault or neglect of Tenant or its employees, agents or invitees, there
shall be no abatement of rent. In the event that the Premises or other portions
of the Regime are damaged to the extent that the Association, pursuant to the
terms of the Master Deed, is not obligated to repair or restore the damage and
the condominium owners do not elect to repair or restore, then this lease shall
be terminated as of the date of such damage.
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If the Association and Landlord should elect or be obligated pursuant to
this Section 6.1 to repair or rebuild because of any damage or destruction,
their obligation shall be limited to the basic building and any other work or
improvements which may have been originally performed or installed at Landlord's
or Association's expense. If the cost of performing Landlord's or Association's
obligation exceeds the actual proceeds of insurance paid or payable to Landlord
or the Association on account of such casualty, together with any contribution
which might be required of the Association or unit owners pursuant to the Master
Deed, Landlord may terminate this Lease unless Tenant, within fifteen (15) days
after demand therefor, deposits with Landlord a sum of money sufficient to pay
the difference between the cost of repair and the proceeds of insurance
available for such purpose. Provided that Landlord or the Association shall
fulfill its repair obligations, Tenant shall replace all work and improvements
originally installed or performed by Tenant at its expense to the extent of the
insurance proceeds therefor.
Upon the termination of this Lease pursuant to the provisions of this
Section 6.1, the parties shall be released thereby without further obligations
to the other party coincident with the surrender of possession of the Premises
to Landlord, except for items which have theretofore accrued and be then unpaid.
In the event of such termination, all of Tenant's insurance proceeds covering
Tenant's leasehold improvements in excess of the book value (net of
amortization) to Tenant of such improvements, but excluding proceeds for trade
fixtures, merchandise, signs and other personal property, shall be disbursed and
paid to Landlord. Any security deposit paid by Tenant shall be refunded to
Tenant.
6.2 Condemnation. If the whole of the Premises, or so much thereof as
-------------
to render the balance unusable by Tenant, shall be taken under power of eminent
domain, or otherwise transferred in lieu thereof, or if so much of the Regime is
taken that the Regime is not restored, then this Lease shall automatically
terminate as of the date possession is taken by the condemning authority. In
the event of a total or partial taking, Landlord agrees to pay to Tenant, from
the award allocable to the Premises, a sum equal to the book value (net of
depreciation) of Tenant's improvements which are taken or rendered unusable. In
addition, in the event of a total taking, there shall be subtracted from the
award allocable to the Premises (a) all indebtedness of Landlord allocable to
the Premises and (b) the book value of the Tenant's improvements. The remaining
balance, if any, shall be divided between Landlord and Tenant as their
respective interests would have appeared prior to any deduction from the award.
Except for payment of the book value of improvements referred to above, there
shall be no apportionment in the event of a partial taking which does not result
in termination of this lease but Rent shall be apportioned according to the part
of the Premises remaining usable by Tenant.
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SECTION 7
UTILITIES
7.1 Payment. Tenant shall promptly pay all charges for utilities and
-------
other services furnished to the Premises whether by Landlord or the applicable
utility Company. Landlord shall not be liable for any interruptions or
curtailment in utility services due to causes beyond the control of Landlord or,
unless avoidable by the exercise of due care by Landlord, due to alteration,
repair or improvement of the Premises or the Regime.
7.2 Utilities. Landlord and the Association shall have the right to
---------
run utility lines, pipes, roof drainage pipes, conduit, wire, ductwork or
sprinkler systems where necessary, through, in or beneath the Premises and to
maintain the same in a manner which does not unduly interfere with Tenant's use
thereof.
SECTION 8
INDEMNIFICATION
Tenant hereby agrees to indemnify and hold Landlord harmless from any and
all claims, damages, liabilities or expenses (not covered by insurance payable
to Landlord) arising out of (a) Tenant's use of the Premises or the Common Area
of the Regime, (b) any and all claims arising from any breach or default in the
performance of any obligation hereunder of Tenant, (c) any act, omission or
negligence of Tenant, its agents or employees. Tenant further releases Landlord
and the Association from liability for any damages sustained by Tenant or any
other person claiming by, through or under Tenant due to the Premises, the
Common Area, or any part thereof or any appurtenances thereto becoming out of
repair, or due to the happening of any accident, including but not limited to
any damage caused by water, snow, windstorm, tornado, gas, steam, electrical
wiring, sprinkler system, plumbing, heating and air conditioning apparatus and
from any acts or omissions of owners or other tenants within the Regime, except,
in all cases, to the extent such damages are caused by Landlord's or
Association's negligence. Landlord shall not be liable for any damage to or
loss of Tenant's personal property, inventory, fixtures or improvements, from
any cause whatsoever except the negligence of Landlord, and then only to the
extent not covered by insurance to be obtained by Tenant in accordance with
Section 10 hereof. Except for matters released by Tenant hereinabove, Landlord
agrees to indemnify and hold Tenant harmless from any and all claims, damages,
liabilities or expenses, not covered by insurance, arising from any default by
Landlord under this lease or from the portion of any claim against Tenant by
third parties resulting from the negligence of Landlord.
SECTION 9
INSURANCE
Tenant shall maintain at its sole expense during the term hereof, public
liability insurance covering the Premises in an amount of $1,000,000.00 for
injury or death to any one person and $3,000,000.00 for injury and/or death to
any number of persons in any one accident and property damage insurance in an
amount of $1,000,000.00 in companies reasonably satisfactory to Landlord in the
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joint names of Landlord and Tenant. Tenant shall also keep in force fire and
extended coverage insurance for the full replacement value of Tenant's
improvements and Tenant's property located in the Premises, including personal
property. If available at reasonable cost, Tenant will cause such insurance
policies to name Landlord as an additional insured and to be written so as to
provide that the insurer waives all right of recovery by way of subrogation
against Landlord in connection with any loss or damage covered by the policy.
In addition, Tenant shall keep in force workman's compensation or similar
insurance to the extent required by law. Tenant shall deliver said policies or
certificates thereof to Landlord within ten (10) days of the commencement of the
term. Should Tenant fail to effect the insurance called for herein, Landlord
may, at its sole option, procure said insurance and pay the requisite premiums,
in which event, Tenant shall pay all sums so expended to Landlord, as additional
rent following invoice. To the extent such endorsement is obtainable at
reasonable cost, each insurer under the policies required hereunder shall agree
by endorsement on the policy issued by it or by independent instrument furnished
to Landlord that it will give Landlord fifteen (15) days prior written notice
before the policy or policies in question shall be altered or canceled.
Landlord agrees to use its best efforts to see that all insurance to be carried
by the Association pursuant to the Master Deed is continually maintained and
that such insurance provides that the insurer waives all rights of recovery by
way of subrogation against Tenant.
SECTION 10
REMEDIES OF LANDLORD
10.1 Default. In the event that Tenant (a) fails to pay all or any
-------
portion of any sum due from Tenant hereunder or pursuant to any exhibit hereto
within five (5) days following notice, (b) fails to cease al all conduct
prohibited hereby immediately upon receipt of written notice from Landlord, (c)
fails to take actions in accordance with the provisions of written notice from
Landlord to remedy Tenant's failure to perform any of the terms, covenants and
conditions hereof; (d) commits an act in violation of this Lease which Landlord
has previously notified Tenant to cease more than once in any year; (e) becomes
bankrupt, insolvent or files any debtor proceeding, makes any petition of
bankruptcy; takes action for the appointment of a receiver for all or a portion
of Tenant's assets, files a petition for a corporate reorganization by reason of
insolvency; or makes an assignment for the benefit of creditors (any or all of
the occurrences in this said Section 10.1 (f) shall be deemed a default on
account of bankruptcy for the purposes hereof and such default on account of
bankruptcy shall apply to and include any Guarantor of this Lease; (f) commits
waste to the Premises; or (g) is otherwise in breach of Tenant's obligations
hereunder and shall not have cured same within ten (10) days following written
notice from Landlord; then Tenant shall be in default hereunder and Landlord
may, at its option and without further notice to Tenant, terminate Tenant's
right to possession of the Premises and without terminating this Lease re-enter
and resume possession of the Premises and/or declare this Lease terminated, and
may thereupon in either event remove all persons and property from the Premises,
with or without resort to process of any court, either by force or otherwise.
Provided, however, that with respect to any non-monetary default mentioned in
Items 10.1(c) - (g) herein the period for curing such default shall be extended
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<PAGE>
to thirty (30) days provided Tenant is diligently attempting to cure same.
Notwithstanding such re-entry by Landlord, Tenant hereby indemnifies and holds
Landlord harmless from any and all loss or damage which Tenant may incur by
reason of the termination of this Lease and/or Tenant's right to possession
hereunder pursuant to this Section 10.1. In no event shall Landlord's
termination of this Lease and/or Tenant's right to possession of the Premises
abrogate Tenant's agreement to pay rent and additional charges due hereunder for
the full term hereof. Following re-entry of the Premises by Landlord, Tenant
shall continue to pay all such rent and additional charges as same become due
under the terms of this Lease, together with all other reasonable expenses
incurred by Landlord in regaining possession until such time, if any, as
Landlord relates same and the Premises are occupied by such successor. Landlord
agrees to use reasonable efforts to relet the premises. Upon reletting, sums
received from such new lessee by Landlord shall be applied first to payment of
reasonable costs incident to reletting; any excess shall then be applied to any
indebtedness to Landlord from Tenant other than for Minimum Rent; and any excess
shall then be applied against the deficiency between all amounts to be received
hereunder and sums received by Landlord on reletting, which deficiency Tenant
shall pay to Landlord in full, within five (5) days of notice of same from
Landlord. Tenant shall have no right to any proceeds of reletting that remain
following application of same in the manner set forth herein.
10.2 Cumulative Remedies. The various rights and remedies herein
--------------------
granted to Landlord shall be cumulative and in addition to any others Landlord
may be entitled to by law or in equity, and the exercise of one or more rights
or remedies shall not impair Landlord's right to exercise any other right or
remedy. In all events, Landlord shall have the right upon notice to Tenant to
cure any breach by Tenant at Tenant's sole cost and expense, and Tenant shall
reimburse Landlord for such expense upon demand.
10.3 Bankruptcy. If Landlord shall not be permitted to terminate this
-----------
Lease as hereinabove provided because of the provisions of Title 11 of the
United States Code relating to Bankruptcy, as amended ("Bankruptcy Code"), then
Tenant as a debtor in possession of any trustee for Tenant agrees promptly,
within no more than fifteen (15) days upon request by Landlord to the Bankruptcy
Court, to assume or reject this Lease and Tenant on behalf of itself and any
trustee agrees not to seek or request any extension or adjournment of any
application to assume or reject this Lease by Landlord with such Court. In such
event, Tenant or any trustee for Tenant may only assume this Lease if (A) it
cures or provides adequate assurance that the trustees will promptly cure any
default hereunder, (B) compensates or provides adequate assurance that Tenant
will promptly compensate Landlord for any actual pecuniary loss to Landlord
resulting from Tenant's defaults, and (C) provides adequate assurance of
performance during the fully stated term hereof of all of the terms, covenants,
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and provisions of this Lease to be performed by Tenant. In no event after the
assumption of this Lease shall any then-existing default remain uncured for a
period in excess of the earlier of ten (10) days or the time period set forth
herein. Adequate assurance of performance of this Lease as set forth
hereinabove shall include, without limitation, adequate assurance (1) of the
source of rent provided for hereunder, and (2) the assumption of this Lease will
not breach any provision hereunder. In the event of a filing of a petition
under the Bankruptcy Code, Landlord shall have not obligation to provide Tenant
with any services or utilities as herein required, unless Tenant shall have aid
and be current in all payments of Operating Costs, utilities or other charges
therefor.
SECTION 11
TRANSFERS, ASSIGNMENT AND SUBLETTING
11.1 Assignment and Subletting. Tenant shall not, either voluntarily
---------------------------
or by operation of law, sell, assign, hypothecate or otherwise transfer this
Lease, or sublet the Premises or any part thereof (all of the foregoing
collectively referred to as a "Transfer"), except that Tenant may, without
violating this Lease, do any of the following: (a) merge or consolidate with,
or transfer all or substantially all of its assets to, another corporation
incorporated in any state of the United States or the District of Columbia,
provided that the resulting or transferee corporation shall have a net worth of
not less than $10,000,000.00 and further provided that such corporation assumes
all the obligations of Tenant hereunder, in which event Tenant shall be relieved
of its obligations hereunder, or (b) sublease all or any part of the Premises to
any other person(s) or entity(ies). Landlord and Tenant acknowledge and agree
that the foregoing restriction on Transfers has been freely negotiated by the
parties hereto and that Landlord would not have entered into this Lease without
Tenant's consent to the terms of this Section 11.2. Any attempted Transfer in
violation hereof shall be void ab initio and, except as otherwise provided
herein, Tenant shall remain primarily liable on this Lease and shall not e
released from performing any of the terms, covenants and conditions of this
Lease. The acceptance by Landlord or payments of Rent or additional rent
following any assignment or transfer prohibited by this Section shall not be
deemed to be a consent by Landlord to any such assignment or other transfer, nor
shall the same be deemed to be a waiver of any right or remedy of Landlord
hereunder.
SECTION 12
SUCCESSION TO LANDLORD'S INTEREST
12.1 Attornment. Tenant shall attorn and be bound to any of Landlord's
----------
successors under all the terms, covenants and conditions of this Lease for the
balance of the remaining term.
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12.2 Subordination. This Lease shall be subordinate to the lien of any
-------------
mortgage or security deed or the lien resulting from any other method of
financing or refinancing now or hereafter in force against the Premises, any
portion thereof, and to any and all advances to be made under such mortgages,
and all renewals, modifications, extensions, consolidations and replacements
thereof. The aforesaid provisions shall be self-operative and no further
instrument of subordination shall be required to evidence such subordination.
Tenant covenants and agrees to execute and deliver, upon demand, such further
instrument or instruments subordinating this Lease on the foregoing basis to the
lien of any such mortgage or mortgages as shall be desired by Landlord and any
mortgages or proposed mortgages, and hereby irrevocably appoints Landlord the
attorney-in-fact of Tenant to execute and deliver such instrument or instruments
within ten (10) days after written notice to do so. Provided, however, that the
subordination described in this Section 12.2 shall be effective only in the
event that the Mortgagee of lien holder shall have agreed in writing not to
disturb the peaceful possession of the Premises by Tenant and to recognize the
Tenant's rights under this lease so long as Tenant is not in default thereunder.
12.3 Mortgagee's Approval. If any mortgagee of the Premises requires
---------------------
any modification of the terms and provisions of this Lease as a condition to
such financing as Landlord may desire, then Landlord shall have the right to
cancel this Lease if Tenant fails or refuses to approve and execute such
modification(s) within thirty (30) days after Landlord's request therefor,
provided said request is made prior to the Commencement Date. Upon such
cancellation by Landlord, this Lease shall be null and void and neither party
shall have any liability either for damages or otherwise to the other by reason
of such cancellation. In no event, however, shall Tenant be required to agree,
and Landlord shall not have any right of cancellation for Tenant's refusal to
agree, to any modification of the provisions of this Lease relating to: the
amount of rent or other charges reserved herein; the size and/or location of the
Premises; the duration and/or Commencement Date of the term; or the construction
of the improvements to be made by Landlord to the Premises prior to delivery of
possession.
SECTION 13
SURRENDER OF PREMISES
At the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord broom clean and in the same condition as when
tendered by Landlord, reasonable wear and tear and insured casualty excepted,
subject to Section 6 hereof. Tenant shall promptly repair any damage to the
Premises caused by the removal of any furniture, trade fixtures or other
personal property placed in the Premises.
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SECTION 14
MISCELLANEOUS
14.1 Attorney's Fees. In the event that it shall be reasonably
-----------------
necessary for any party to engage attorneys for the enforcement of any of the
terms of this lease the defaulting party shall pay to the non-defaulting party
all costs reasonably incurred in connection therewith including reasonable
attorneys fees.
14.2 Late Charges. All sums not paid when due shall bear interest at
--------------
the highest legal rate not to exceed eighteen percent (18%) per annum calculated
from said due date.
14.3 Accord and Satisfaction. No payment by Tenant or receipt by
-------------------------
Landlord of a lesser amount than the charges herein stipulated shall be deemed
to be other than on account of the earliest stipulated charges, nor shall any
endorsement or statement on any check or letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of any
amounts due hereunder or to pursue any other remedy provided herein.
14.4 Time of Essence. TIME IS OF THE ESSENCE OF THIS LEASE.
-----------------
14.5 Holding Over. Should Tenant, with Landlord's written consent,
--------------
hold over at the end of the term, Tenant shall become a Tenant at will and any
such holding over shall not constitute an extension of this Lease. During such
holding over, Tenant shall pay rent and other charges at the highest monthly
rate provided for herein. If Tenant holds over at the end of the term without
Landlord's written consent, Tenant shall pay Landlord as liquidated damages, a
sum equal to twice the rent which would be paid under the prior sentence by
Tenant to Landlord for all the time Tenant shall so retain possession of the
Premises; provided that the exercise of Landlord's rights under this clause
shall not be interpreted as a grant of permission to Tenant to continue in
possession.
14.6 Severability. In the event any provision of this Lease to any
------------
extent be invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and the Lease and its provisions shall be valid and
enforceable to the full extent permitted by law.
14.7 Brokers. Tenant indemnifies Landlord against any claims for
-------
brokerage commissions agreed to by Tenant in connection herewith.
14.8 Waiver. No waiver by Landlord of any provision of this Lease
------
shall be deemed to be a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same provision. Landlord's consent to or
approval of any act by Tenant shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act. No
agreement by Landlord to accept Tenant's surrender of the Premises shall be
valid unless written.
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14.9 Right of Entry. Landlord shall have free access to the Premises
----------------
at all reasonable times to inspect same and to make such repairs, additions,
improvements, changes or alterations to the Premises, as Landlord may reasonably
elect to make. Tenant agrees that on and after ninety (90) days next preceding
the expiration of the term hereof, Landlord or its agents shall have the right
to show the Premises to potential tenants and to place notices offering the
Premises for lease or sale or any part of the Premises.
14.10 Successors and Assigns. Except as otherwise provided herein,
------------------------
this lease shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, executors, successors and
assigns.
14.11 Headings, Captions and References. The section captions
------------------------------------
contained in this Lease are for convenience only and do not in any way limit or
amplify any term or provision hereof. The use of the terms "hereof",
"hereunder" and "herein" shall refer to this Lease as a whole except where noted
otherwise.
14.12 Survival of Obligations. The provisions of this Lease with
-------------------------
respect to any obligation of Tenant or Landlord to pay any sum owing after the
expiration or other termination of this Lease shall survive the expiration or
other termination of this Lease.
14.13 Landlord and Tenant Relationship. Nothing herein contained shall
---------------------------------
be deemed or construed by the parties hereto, nor by any other party, as
creating the relationship of principal and agent or of partnership or of joint
venture between the parties hereto. No estate shall pass from Landlord to
Tenant, and this Lease shall not be subject to levy and/or sale and, except as
otherwise provided herein, shall not e by Tenant.
14.14 Notices. Any notice required or permitted to be given hereunder
-------
shall be in writing and may be given by personal delivery, by U. S. Certified
Mail, postage prepaid, return receipt requested, addressed to Tenant at 233 N.
Main St., Suite 200, Greenville, SC, and to Landlord at 233 N. Main St.,
Greenville, SC (or to such other address as is contained in a notice to the
other Party), or by posting such notice to the Premises. Notices and demands
shall be deemed to have been given (I) upon the date of the executed return
receipt if sent by Certified Mail, provided that if delivery cannot be made or
if any party shall refuse delivery, notices shall be deemed given when mailed,
or (ii) upon delivery if personally delivered, and upon posting if posted to the
Premises.
14.15 Representations. Tenant acknowledges that neither Landlord nor
---------------
Landlord's agents, employees or contractors have made any representations or
promises with respect to the Premises, the Regime or this Lease except as
expressly set forth herein.
14.16 Jurisdictions. The laws of the State of South Carolina shall
-------------
govern the interpretation, validity, performance and enforcement of this Lease.
13
<PAGE>
14.17 Entire Agreement. This Lease constitutes the entire agreement
-----------------
between the parties hereto with respect to the subject matter hereof and no
subsequent amendment of agreement shall be binding upon either party unless it
is signed by each party. The submission of this Lease shall not constitute an
offer to Lease by Landlord and this Lease shall not be binding unless and until
it is signed by Landlord and Tenant.
14.18 Special Stipulations. Insofar as the following Special
---------------------
Stipulations conflict with any of the foregoing provisions, the Special
Stipulations shall apply and control.
IN WITNESS WHEREOF, the parties hereto have executed this Lease this day
and year first above written.
LANDLORD:
--------
HAMMOND SQUARE, LTD.
- ------------------------- -------------------------------
Witness By:
TENANT:
-------
DELTA WOODSIDE INDUSTRIES, INC.
- ------------------------- -------------------------------
Witness By:
14
<PAGE>
DELTA WOODSIDE GROUP
DEFERRED COMPENSATION PLAN
FOR
KEY MANAGERS
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1998
<PAGE>
<TABLE>
<CAPTION>
DELTA WOODSIDE GROUP
DEFERRED COMPENSATION PLAN
FOR
KEY MANAGERS
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1998
TABLE OF CONTENTS
PAGE
<C> <S> <C>
ARTICLE I. REFERENCES, CONSTRUCTION AND DEFINITIONS 1
1.1 Adjustment Date . . . . . . . . . . . . . . . . 1
1.2 Beneficiary . . . . . . . . . . . . . . . . . . 1
1.3 Board . . . . . . . . . . . . . . . . . . . . . 2
1.4 Code. . . . . . . . . . . . . . . . . . . . . . 2
1.5 Committee . . . . . . . . . . . . . . . . . . . 2
1.7 Compensation. . . . . . . . . . . . . . . . . . 2
1.8 Deemed Deferrals. . . . . . . . . . . . . . . . 2
1.9 Deferral Account. . . . . . . . . . . . . . . . 3
1.10 Deferral Election . . . . . . . . . . . . . . . 3
1.11 Disability. . . . . . . . . . . . . . . . . . . 4
1.12 Effective Date. . . . . . . . . . . . . . . . . 4
1.13 Elective Deferrals. . . . . . . . . . . . . . . 4
1.14 Employee. . . . . . . . . . . . . . . . . . . . 4
1.15 Employment Year . . . . . . . . . . . . . . . . 4
1.16 ERISA . . . . . . . . . . . . . . . . . . . . . 4
1.17 Hour of Service . . . . . . . . . . . . . . . . 4
1.18 Installment Account . . . . . . . . . . . . . . 5
1.19 Interest Equivalent . . . . . . . . . . . . . . 5
1.20 Lump Sum Account. . . . . . . . . . . . . . . . 5
1.21 Month of Service. . . . . . . . . . . . . . . . 5
1.22 Named Fiduciary . . . . . . . . . . . . . . . . 5
1.23 Participant . . . . . . . . . . . . . . . . . . 5
1.24 Participating Company . . . . . . . . . . . . . 5
1.25 Plan. . . . . . . . . . . . . . . . . . . . . . 5
1.26 Plan Administrator. . . . . . . . . . . . . . . 5
1.27 Plan Year . . . . . . . . . . . . . . . . . . . 5
1.28 Retirement. . . . . . . . . . . . . . . . . . . 5
1.29 Savings Plan. . . . . . . . . . . . . . . . . . 6
1.30 Termination of Service. . . . . . . . . . . . . 6
<PAGE>
1.31 Trigger Event . . . . . . . . . . . . . . . . . 6
1.32 Year of Service . . . . . . . . . . . . . . . . 6
ARTICLE II. ELIGIBILITY AND PARTICIPATION . . . . . . . 6
2.1 Eligibility . . . . . . . . . . . . . . . . . . 6
2.2 Participation . . . . . . . . . . . . . . . . . 6
2.3 Elective Deferrals. . . . . . . . . . . . . . . 6
2.4 Limitations on Elective Deferrals . . . . . . . 7
2.5 Deemed Deferrals. . . . . . . . . . . . . . . . 7
2.6 Method-of-Payment Election. . . . . . . . . . . 7
ARTICLE III. ACCOUNTS OF PARTICIPANTS . . . . . . . . . 7
3.1 Accounts. . . . . . . . . . . . . . . . . . . . 7
3.2 Accounting of Lump Sum Account. . . . . . . . . 7
3.3 Accounting of Installment Account . . . . . . . 8
ARTICLE IV. VESTING . . . . . . . . . . . . . . . . . . 9
ARTICLE V. BENEFITS . . . . . . . . . . . . . . . . . . 9
5.1 Method and Timing . . . . . . . . . . . . . . . 9
5.2 Payments to Beneficiary . . . . . . . . . . . . 10
5.3 Withholding Taxes; Employment Taxes . . . . . . 10
5.4 Payments To Relieve Financial Hardship. . . . . 11
ARTICLE VI. DESIGNATION OF BENEFICIARIES. . . . . . . . 11
6.1 Beneficiary Designation . . . . . . . . . . . . 11
6.2 Failure to Designate Beneficiary. . . . . . . . 12
ARTICLE VII. COMMITTEE. . . . . . . . . . . . . . . . . 12
7.1 Authority . . . . . . . . . . . . . . . . . . . 12
7.2 Voting. . . . . . . . . . . . . . . . . . . . . 12
7.3 Records . . . . . . . . . . . . . . . . . . . . 12
7.4 Liability . . . . . . . . . . . . . . . . . . . 12
7.5 Ministerial Duties. . . . . . . . . . . . . . . 13
ARTICLE VIII. AMENDMENT AND TERMINATION . . . . . . . . 13
ARTICLE IX. CLAIMS PROCEDURE. . . . . . . . . . . . . . 13
9.1 Filing of a Claim for Benefits. . . . . . . . . 13
9.2 Notification to Claimant of Decision. . . . . . 13
9.3 Procedure for Review. . . . . . . . . . . . . . 14
9.4 Decision on Review. . . . . . . . . . . . . . . 14
9.5 Action by Authorized Representative of Claimant 14
<PAGE>
ARTICLE X. MISCELLANEOUS. . . . . . . . . . . . . . . . 15
10.1 Nonalienation of Benefits . . . . . . . . . . . 15
10.2 No Trust Created. . . . . . . . . . . . . . . . 15
10.3 No Employment Agreement . . . . . . . . . . . . 15
10.4 Funding Policy. . . . . . . . . . . . . . . . . 16
10.5 Binding Effect. . . . . . . . . . . . . . . . . 16
10.6 Entire Plan . . . . . . . . . . . . . . . . . . 16
10.7 Merger or Consolidation . . . . . . . . . . . . 16
10.8 Payment to Incompetent. . . . . . . . . . . . . 16
10.9 No Contributions. . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
DELTA WOODSIDE GROUP
DEFERRED COMPENSATION PLAN
FOR
KEY MANAGERS
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1998
PREAMBLE
The Participating Companies have established this Plan to contribute to their
long-range growth. It is the intention of the parties that the Plan be unfunded
for tax purposes and for purposes of Title I of ERISA. Except as specifically
set forth in Section 10.5 below with respect to Delta Woodside Industries, Inc.,
a Participating Company shall be liable only with respect to obligations
incurred pursuant to this Plan for its own Employees; no Participating Company
shall be liable with respect to benefits due an Employee of any other
Participating Company. Under the Plan, each year, each Participating Company
awards a select group of its key Employees with deferred benefits based on the
Employee's Elective and Deemed Deferrals for the year. Such benefits are
normally payable by that Participating Company to its Employees or their
beneficiaries upon Retirement, Disability, death, or other Termination of
Service. By providing key Employees and their families with additional financial
security, the Plan enables the Participating Companies to attract and to retain
superior key personnel and provides an additional incentive to such Employees to
continue to make that company prosperous.
ARTICLE I. REFERENCES, CONSTRUCTION AND DEFINITIONS
Unless otherwise indicated, all references to articles, sections and subsections
shall be to the Plan as set forth in this Restatement. The Plan and all rights
thereunder shall be construed and enforced in accordance with ERISA and, to the
extent state law is applicable, the laws of the State of South Carolina. The
article titles and the captions preceding sections and subsections have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions. Whenever used herein, the singular includes
the plural, the masculine includes the feminine. Whenever used herein and
capitalized, the following terms shall have the respective meaning indicated
unless the context plainly requires otherwise.
<PAGE>
1.1 ADJUSTMENT DATE. The last day of each calendar quarter, the date of a
Trigger Event, and such other times as the Committee shall establish.
1.2 BENEFICIARY. The beneficiary or beneficiaries designated by a Participant
pursuant to ARTICLE VI to receive the amount, if any, payable under the Plan
upon the death of such Participant, or, where there has been no such designation
or an invalid designation, the individual or entity, or the individuals or
entities, who will receive such amount.
1.3 BOARD. The respective Boards of Directors of each of the Participating
Companies.
1.4 CODE. The Internal Revenue Code of 1986, as now in effect or as hereafter
amended. All citations to sections of the Code are to such sections as they may
from time to time be amended or renumbered.
1.5 COMMITTEE. The committee which administers the Plan and which is more
particularly described in ARTICLE VII below. The Committee shall be constituted
by the individuals who hold the following offices of Delta Woodside Industries,
Inc.: President; Vice-President; and Controller.
1.7 COMPENSATION. Compensation with respect to any Participant means such
Participant's wages as defined in Code 3401(a) and all other payments of
compensation by a Participating Company (in the course of the Participating
Company's business for a Plan Year for which the Participating Company is
required to furnish the Participant a written statement under Code 6041(d),
6051(a)(3) and 6052). The determination of Compensation shall be made by
excluding moving expenses, income from stock options, income from stock awards,
income from incentive stock awards.
1.8 DEEMED DEFERRALS. With respect to a Participant, an amount equal to the SUM
of SUBSECTIONS (A) and (B) below:
(a) During each Plan Year, the difference between:
(i) the Nonelective Contribution and forfeitures allocation for the
Plan Year which would have been credited to the account of the Participant
in the Savings Plan had the Participant's Elective Deferrals under this
Plan counted as compensation under the Savings Plan for the Plan Year
and had there been disregarded the compensation and annual addition
limitations of 401(a)(17) and 415 of the Code and the corresponding
provisions of the Savings Plan, and
<PAGE>
(ii) the Nonelective Contribution and forfeitures for the Plan
Year actually credited to the Participant's account in the Savings
Plan; PLUS
(b) Subject to the limitations set forth in SUBSECTION (B)(II) below, and
less the amount set forth in SUBSECTION (B)(III) below, during each Plan Year
commencing on or after January 1, 1995, the following amount:
(i) an amount equal to the following percentage of the Participant's
Elective Deferrals in the Savings Plan for such Plan Year:
# YEARS OF SERVICE % OF THE PARTICIPANT'S
ELECTIVE DEFERRALS
0-9 15%
10-14 20%
15-19 25%
20-24 30%
25 and over 35%
(ii) The amount computed under SUBSECTION (B)(I) above shall be
limited as follows:
(A) the above percentages shall not be applied to any portion of
the Participant's Elective Deferrals which exceeds four percent (4%)
of the Participant's Compensation, and in computing the
Participant's Compensation, there shall be disregarded any portion of
Compensation which exceeds an amount equal to the compensation
limitation of 401(a)(17) of the Code as adjusted as of the start of
the Plan Year (e.g., $160,000 for 1998);
(B) the above percentages shall not be applied to any portion of
the Participant's Elective Deferrals which exceeds an amount equal to
the amount set forth in Code 402(g)(1) as adjusted as of the
start of the Plan Year (e.g., $10,000 for 1998); and
<PAGE>
(C) for purposes of the above formula, "Years of Service" shall
be calculated from the Participant's most recent date of hire.
(iii) from the amount computed pursuant to SUBSECTION (B)(I) above
(and as limited as provided in SUBSECTION (B)(II) above), the amount of
any matching contribution allocated to the Participant's account under the
Savings Plan for the Plan Year shall be subtracted.
1.9 DEFERRAL ACCOUNT. With respect to each Participant, the separate bookkeeping
account (consisting of the Participant's Lump Sum Account and Installment
Account) to be kept with respect to such Participant.
1.10 DEFERRAL ELECTION. An irrevocable election by a Participant to defer a
portion of Compensation for a Plan Year, such election to be made in the manner
prescribed in SECTION 2.3. Amounts so deferred are "Elective Deferrals."
1.11 DISABILITY. A physical or mental condition under which the Employee
qualifies for disability benefits under the long-term disability plan of the
Participating Company which employs the Employee; provided, however, if the
Employee is not covered by such plan, the Employee shall be under a Disability
if he would have qualified for disability benefits under the plan were he
covered by the plan; provided, further, if there is no such plan, the Employee
shall be under a Disability if by reason of sickness or injury the Employee
cannot, after 60 days following the expiration of any sick pay to which the
Participant may be entitled, perform each of the material duties of the
Employee's regular occupation as the Committee in the exercise of its sole and
absolute discretion shall determine based upon competent medical evidence
satisfactory to the Committee.
1.12 EFFECTIVE DATE. The original Effective Date of this Plan is January 1,
1989. The Effective Date of this amended and restated Plan is January 1, 1998.
1.13 ELECTIVE DEFERRALS. With respect to a Participant for a Plan Year, the
amount of the Participant's Compensation deferred pursuant to a Deferral
Election.
1.14 EMPLOYEE. An individual in the service of the Participating Company if the
relationship between him and the Participating Company is the legal relationship
of employer and employee.
<PAGE>
1.15 EMPLOYMENT YEAR. The 12-month period beginning on the Employee's date of
hire.
1.16 ERISA. The Employee Retirement Income Security Act of 1974, as now in
effect or as hereafter amended. All citations to sections of ERISA are to such
sections as they may from time to time be amended or renumbered.
1.17 HOUR OF SERVICE. An Hour of Service means (1) each hour for which an
Employee is directly or indirectly compensated or entitled to compensation by a
Participating Company for the performance of duties during the applicable
computation period; (2) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by a Participating Company
(irrespective of whether the employment relationship has terminated) for reasons
other than performance of duties (such as vacation, holidays, sickness, jury
duty, disability, lay-off, military duty or leave of absence) during the
applicable computation period; (3) each hour for which back pay is awarded or
agreed to by a Participating Company without regard to mitigation of damages.
These hours will be credited to the Employee for the computation period or
periods to which the award or agreement pertains rather that the computation
period in which the award, agreement or payment is made. The same Hours of
Service shall not be credited both under (1) or (2), as the case may be, and
under (3).
1.18 INSTALLMENT ACCOUNT. With respect to each Participant, the account
described in SECTION 3.3 below.
1.19 INTEREST EQUIVALENT. With respect to each Adjustment Date, the dollar
amount to be added to the Participant's Lump Sum Account or Installment Account,
as the case may be, equal to the product of the amount credited to the account
as of the next preceding Adjustment Date reduced by one-half of the amount of
benefit payments made since the next preceding Adjustment Date (i.e., during the
"current calendar quarter") and increased by one-half of the Elective and Deemed
Deferrals for the "current calendar quarter" allocable to such account, times
THE GREATER OF (I) the Average AAA Corporate Bond Yield last published by
Moody's Bond Survey before the next preceding Adjustment Date or (II) such other
interest or yield rate as the Committee may designate for the Plan Year ending
on such Adjustment Date.
1.20 LUMP SUM ACCOUNT. With respect to each Participant, the account described
in SECTION 3.2 below.
<PAGE>
1.21 MONTH OF SERVICE. A Month of Service means a calendar month during any part
of which an Employee completed an Hour of Service. Except, however, a
Participant shall be credited with a Month of Service for each month during the
12 month computation period in which he has not incurred a 1-Year Break in
Service.
1.22 NAMED FIDUCIARY. Delta Woodside Industries, Inc.
1.23 PARTICIPANT. An Employee who has been notified pursuant to SECTION 2.1 that
he is eligible to participate in the Plan and who has made a Deferral Election
and any former Employee who has a Deferral Account under the Plan.
1.24 PARTICIPATING COMPANY. Delta Woodside Industries, Inc.; Delta Mills, Inc.;
Delta Mills Marketing, Inc., Delta Consolidated Corporation; Duck Head Apparel
Company, Inc.; Nautilus International, Inc.; Delta Merchandising, Inc.; and
International Apparel Marketing Corporation. The term "Participating Company"
shall be construed as if the Plan were solely the Plan of such Participating
Company, unless the context plainly requires otherwise. Notwithstanding
anything herein to the contrary, with the consent of Delta Woodside Industries,
Inc., any other corporation or entity, whether an affiliate or subsidiary or
not, may adopt this plan and all of the provisions hereof, and participate
herein and be known as a Participating Company.
1.25 PLAN. The Delta Woodside Group Deferred Compensation Plan for Key Managers
as contained herein and as may be amended from time to time hereafter.
1.26 PLAN ADMINISTRATOR. The Committee.
1.27 PLAN YEAR. The period commencing January 1 and ending on the first December
31 thereafter.
1.28 RETIREMENT. Termination of Service, other than on account of death, after
attaining age 62.
1.29 SAVINGS PLAN. The Delta Woodside Industries, Inc. Savings and Investment
Plan, a 401(k) profit sharing plan qualified under 401(a) of the Code, and any
successor plan.
1.30 TERMINATION OF SERVICE. Termination of the Participant's employment with a
Participating Company for any reason; provided, however, that the transfer of an
Employee from employment by one Participating Company or affiliated company to
<PAGE>
employment by another Participating Company or affiliated company shall not
constitute a Termination of Service.
1.31 TRIGGER EVENT. Any event designated as a "Trigger Event" by action of the
Board of a Participating Company in the exercise of its sole and absolute
discretion.
1.32 YEAR OF SERVICE. Any twelve consecutive Months of Service. For vesting
purposes, the computation period shall be the Employment Year. For purposes of
Deemed Deferrals only, the computation period shall be the Employment Year;
however, only Years of Service from the Participant's most recent date of hire
shall be considered. For all other purposes, the computation period shall be the
Plan Year.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. Such Employees as the Committee designates shall be eligible to
participate in this Plan; provided, however, that no Employee who is not a
member of the "select group of management" or a "highly compensated employee,"
as defined in 201(2), 301(a)(3) and 401(a) of ERISA shall be eligible to
become a Participant.
2.2 PARTICIPATION. The Committee shall notify each Employee selected to be a
Participant of the Employee's eligibility, and an Employee so notified shall
become a Participant by making a Deferral Election.
2.3 ELECTIVE DEFERRALS. For each Plan Year, each eligible Employee is entitled
to make a Deferral Election, in such manner and form as the Committee
prescribes, to defer Compensation for the Plan Year. Except in the case of an
"unforeseeable emergency" as defined in Section 5.4 below, such election shall
be irrevocable during the Plan Year. Deferral Elections shall be made as
follows: (A) within 30 days following the adoption of this Plan to defer
Compensation to be earned subsequent to the Deferral Election for the remainder
of such Plan Year; (B) within 30 days following the date on which an Employee
first becomes eligible to participate in this Plan to defer compensation to be
earned subsequent to the Deferral Election for the remainder of such Plan Year;
or (C) in all other cases on or before December 31 to defer compensation to be
<PAGE>
earned in succeeding Plan Years. The foregoing notwithstanding, each eligible
Employee may make a special Deferral Election with respect to each bonus to
which the Employee becomes entitled, provided that such Deferral Election is
made before the Employee earns such bonus.
2.4 LIMITATIONS ON ELECTIVE DEFERRALS. The maximum amount of Elective Deferrals
a Participant may make for a Plan Year shall be One Hundred percent (100%) of
the Participant's Compensation which would otherwise be paid to the Participant
during the Plan Year and which is not subject to another deferral agreement or
other withholding.
2.5 DEEMED DEFERRALS. In addition to any Elective Deferrals, for each Plan Year
for which a Participant has made a Deferral Election, the Participant shall
receive credit for Deemed Deferrals.
2.6 METHOD-OF-PAYMENT ELECTION. Contemporaneously with the making of each
Deferral Election, the Participant shall designate on a form prescribed by the
Committee for such purpose whether the benefits pursuant to such Deferral
Election are to be paid in a single sum or installments, as provided in SECTION
5.1(A). If a Participant fails to make such method-of-payment election, the
Participant shall be deemed to have elected installment payments.
ARTICLE III. ACCOUNTS OF PARTICIPANTS
3.1 ACCOUNTS. The Committee shall establish and cause to be maintained two
separate accounts for each Participant to be known respectively as the
Participant's "LUMP SUM ACCOUNT" and "INSTALLMENT ACCOUNT".
3.2 ACCOUNTING OF LUMP SUM ACCOUNT. As of each Adjustment Date, the Committee
shall debit and credit each Participant's Lump Sum Account in the following
order:
(a) PAYMENTS. There shall be debited the amount of benefit payments made to
or on behalf of the Participant or the Participant's Beneficiary during the Plan
Year ending on the Adjustment Date (i.e., the "CURRENT CALENDAR QUARTER") and
allocable to such Lump Sum Account.
(b) INTEREST EQUIVALENT. The Committee, in the exercise of its sole and
absolute discretion, shall determine the Interest Equivalent for the "current
calendar quarter" and there shall be credited the Interest Equivalent, if any,
for such Lump Sum Account.
<PAGE>
(c) ELECTIVE DEFERRALS. If the Participant elected pursuant to SECTION 2.6
for benefits payable under a Deferral Election for the "current Plan Year" to be
paid in a single sum, then there shall be credited the Participant's Elective
Deferrals made pursuant to such Deferral Election for the "current Plan Year."
(d) DEEMED DEFERRALS. If the Participant elected pursuant to SECTION 2.6
for benefits payable under a Deferral Election for the "current Plan Year" to be
paid in a single sum, then there shall be credited the Participant's Deemed
Deferrals relating to such Deferral Election.
(e) ADMINISTRATIVE EXPENSES. The Committee, in the exercise of its sole and
absolute discretion, shall determine the amount of the expenses each
Participating Company incurred for the "current Plan Year" in administering the
Plan. There shall be debited such portion of the amount of such administrative
expenses as the Committee determines, in the exercise of its sole and absolute
discretion, to be equitable.
3.3 ACCOUNTING OF INSTALLMENT ACCOUNT. As of each Adjustment Date, the Committee
shall debit and credit each Participant's Installment Account in the following
order:
(a) PAYMENTS. There shall be debited the amount of benefit payments made to
or on behalf of the Participant or the Participant's Beneficiary during the Plan
Year ending on the Adjustment Date (i.e., the "CURRENT CALENDAR QUARTER") and
allocable to such Installment Account.
(b) INTEREST EQUIVALENT. The Committee, in the exercise of its sole and
absolute discretion, shall determine the Interest Equivalent for the "current
calendar quarter" and there shall be credited the Interest Equivalent, if any,
for such Installment Account on the last day of the calendar quarter.
(c) ELECTIVE DEFERRALS. If the Participant elected pursuant to SECTION 2.6
for benefits payable under a Deferral Election for the "current Plan Year" to be
paid in installments, then there shall be credited the Participant's Elective
Deferrals made pursuant to such Deferral Election for the "current Plan Year."
(d) DEEMED DEFERRALS. If the Participant elected pursuant to SECTION 2.6
for benefits payable under a Deferral Election to be paid in installments, then
there shall be credited for the "current Plan Year" the Participant's Deemed
Deferrals relating to such Deferral Election.
<PAGE>
(e) ADMINISTRATIVE EXPENSES. The Committee, in the exercise of its sole and
absolute discretion, shall determine the amount of the expenses each
Participating Company incurred for the "current Plan Year" in administering the
Plan. There shall be debited such portion of the amount of such administrative
expenses as the Committee determines, in the exercise of its sole and absolute
discretion, to be equitable.
ARTICLE IV. VESTING
Participants are always One Hundred percent (100%) vested in the portion of
their Deferral Accounts attributable to Elective Deferrals. Each Participant
shall vest in that portion of the Participant's Deferral Account attributable to
Deemed Deferrals (the "DEEMED DEFERRAL BENEFIT") at the same rate as the
Participant vests in the Participant's account balance in the Savings Plan,
except that upon, and at all times following, a Trigger Event, Participants of
the Participating Company which has incurred such Trigger Event shall be One
Hundred percent (100%) vested in their Deemed Deferral Benefits. If as of a
Participant's Termination of Service the Participant is not fully vested in the
Participant's account in the Savings Plan and a Trigger Event has not occurred,
then the Participant shall forfeit the percentage of the Participant's Deemed
Deferral Benefit equal to the percentage of the account in the Savings Plan in
which the Participant is not vested as of such Termination of Service.
ARTICLE V. BENEFITS
5.1 METHOD AND TIMING.
(A) RETIREMENT, DISABILITY OR DEATH.
(i) LUMP SUM PAYMENT. On the January 1st following the Participant's
Retirement or Termination of Service on account of Disability or death, the
Participating Company which is the employer of such Participant shall pay in a
single sum to the Participant or the Participant's Beneficiary, as the case may
be, an amount equal to the vested amount credited to the Participant's Lump Sum
Account adjusted in accordance with SECTION 3.1 as of the last Adjustment Date
preceding such payment.
(ii) INSTALLMENTS. After the Participant's Retirement or Termination
of Service on account of Disability or death, the Participating Company which is
the employer of such Participant shall pay in 120 monthly installments the
vested amount credited to the Participant's Installment Account. Payment shall
commence on the first January 1st following such Retirement or Termination of
<PAGE>
Service, and shall continue on the first day of each month thereafter until 120
monthly payments have been made. The amount of each monthly installment payable
during a Plan Year shall equal the quotient obtained by DIVIDING (1) the balance
credited to the Participant's Installment Account as of the Adjustment Date next
preceding the Plan Year BY (2) the number of installments remaining as of such
Adjustment Date. As provided by and in accordance with ARTICLE III, during the
period of payment of such installments the Participant's Installment Account
shall continue to be credited with its Interest Equivalent.
(iii) DISCRETIONARY PAYMENT UPON DEATH. Notwithstanding the provisions
of SECTIONS 5.1(A)(I) and (II) above, upon a Participant's death, the
Participating Company which is the employer of such Participant may, in the
exercise of its absolute and sole discretion, pay in a single sum to the
Participant's Beneficiary an amount equal to the vested amount credited to the
Participant's Lump Sum Account and Installment Account adjusted in accordance
with SECTION 3.1 as of the Adjustment Date next preceding such payment. Such
lump sum payment shall discharge the Participating Company's obligation to pay
benefits under this Plan to such Beneficiary.
(b) OTHER TERMINATION OF SERVICE. On the first January 1st following the
Participant's Termination of Service other than on account of Retirement,
Disability or death, the Participating Company which is the employer of such
Participant shall pay in a single sum to the Participant or the Participant's
Beneficiary, as the case may be, an amount equal to the vested amount credited
to the Participant's Lump Sum Deferral Account and Installment Deferral Account,
both adjusted in accordance with ARTICLE III as of the last Adjustment Date
preceding such January 1st.
(c) TRIGGER EVENT. Upon the happening of a Trigger Event, the Participating
Company which is subject to such Trigger Event shall immediately pay to each
Participant which is its Employee, in a single sum, the amount credited to the
Participant's Deferral Account adjusted in accordance with ARTICLE III as of the
date of the Trigger Event.
5.2 PAYMENTS TO BENEFICIARY. In the event a Participant dies prior to full
payment of the Participant's Deferral Account under this ARTICLE V, all
remaining payments due hereunder shall be made to such Participant's
Beneficiary; provided, however, if the Committee so directs in the exercise of
its sole discretion, the Participating Company shall pay the remainder of the
<PAGE>
Deferral Account in one single sum. In the event the Beneficiary survives the
Participant but dies prior to full payment of benefits hereunder, all remaining
payments shall be made to the Beneficiary's estate.
5.3 WITHHOLDING TAXES; EMPLOYMENT TAXES. Any amounts paid to a Participant or
Beneficiary shall be reduced by the amount of taxes required by law to be
withheld. The Participating Company which is the employer of the Participant
shall timely furnish the Participant and Beneficiary with the appropriate tax
information form evidencing such payment and the amount thereof. Each
Participating Company shall be solely responsible for paying employment taxes
(e.g., FICA, FUTA, state unemployment), if any, attributable to payments to
Participants and Beneficiaries which are its Employees.
5.4 PAYMENTS TO RELIEVE FINANCIAL HARDSHIP. Notwithstanding any provision in
this Plan to the contrary, the Committee in the exercise of its sole and
absolute discretion shall have the power and authority to direct a Participating
Company to pay to a Participant or the Participant's Beneficiary such amount as
is necessary to enable the Participant or Beneficiary to relieve or mitigate an
"unforeseeable emergency". For purposes of the foregoing, an "UNFORESEEABLE
EMERGENCY" shall have the meaning set forth in Internal Revenue Code Regulation
1.457-2(h)(4) and (5) and shall include a severe financial hardship to the
Participant or Beneficiary resulting from a sudden and unexpected illness or
accident of the Participant or Beneficiary or of a dependent (as defined in Code
152(a)) of the Participant or Beneficiary, loss of the Participant's or
Beneficiary's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant or Beneficiary. The circumstances that will constitute an
"unforeseeable emergency" will depend upon the facts of each case, but, in any
case, payment may not be made to the extent that such hardship is or may be
relieved --
(a) through reimbursement or compensation by insurance or otherwise;
(b) by liquidation of the Participant's or Beneficiary's assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship; or
(c) by cessation of deferrals under this Plan.
<PAGE>
College tuition or the costs of purchasing a home are not considered
"unforeseeable emergencies." Withdrawals of amounts because of an "unforeseeable
emergency" will only be permitted to the extent reasonably needed to satisfy the
emergency need. The amount of any such payment shall be debited to the
Participant's Lump Sum Account and Installment Account in such order as the
Committee elects and shall not exceed the amount credited to the Deferral
Account determined as of the Adjustment Date next following such payment and
without regard to such payment.
ARTICLE VI. DESIGNATION OF BENEFICIARIES
6.1 BENEFICIARY DESIGNATION. Every Participant shall file with the Committee a
written designation of one or more persons as the Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon his death. A
Participant may from time to time revoke or change his Beneficiary designation
without the consent of any prior Beneficiary by filing a new designation with
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt. All decisions of the Committee concerning the effectiveness of any
Beneficiary designation and the identity of any Beneficiary shall be final. If a
Beneficiary shall die after the death of the Participant and prior to receiving
the distribution that would have been made to such Beneficiary had such
Beneficiary's death not occurred, and no alternate Beneficiary has been
designated, then for the purposes of the Plan the distribution that would have
been received by such Beneficiary shall be made to the Beneficiary's estate.
6.2 FAILURE TO DESIGNATE BENEFICIARY. Subject to SECTION 6.1, if no Beneficiary
designation is in effect at the time of a Participant's death, the payment of
the amount, if any, payable under the Plan upon his death shall be made to the
Participant's surviving spouse, if any, or if the Participant has no surviving
spouse, to the Participant's estate. If the Committee is in doubt as to the
right of any person to receive such amount, the Committee may direct the
Participating Company to withhold payment without liability for any interest
thereon, until the rights thereto are determined, or the Committee may direct
the Participating Company to pay any such amount into any court of appropriate
jurisdiction, and such payment shall be a complete discharge of the liability of
the Participating Company therefor.
<PAGE>
ARTICLE VII. COMMITTEE
7.1 AUTHORITY. The Committee shall be responsible for the administration and
interpretation of the Plan, shall act as the Plan Administrator and shall have
all powers necessary to enable it to carry out its duties in the administration
and interpretation of the Plan, and shall have the duty and power to determine,
in the exercise of its sole and absolute discretion, all questions that may
arise hereunder as to the status and rights of Participants and Beneficiaries in
the Plan and as to the right of any individual to a benefit.
7.2 VOTING. The Committee shall act by a majority of the number then
constituting the Committee, and such action may be taken either by vote at a
meeting or in writing without a meeting.
7.3 RECORDS. The Committee shall keep a complete record of all its proceedings
and all data relating to the administration of the Plan. The Committee shall
make such rules and regulations for the conduct of its business as it shall deem
advisable.
7.4 LIABILITY. No member of the Committee shall be personally liable for any
actions taken or omitted by the Committee unless the member's action or inaction
involves willful misconduct. To the extent permitted by applicable law, each
Participating Company shall indemnify and hold harmless each member of the
Committee and each employee of the Participating Company acting pursuant to the
direction of the Committee from and against any and all liability, claims,
demands, costs and expenses (including reasonable attorneys' fees) arising out
of or incident to any act or failure to act in connection with the
administration of the Plan, except for any such act or failure to act that
involves willful misconduct.
7.5 MINISTERIAL DUTIES. The Committee may appoint one of its members to perform
such ministerial duties as the Committee delegates.
ARTICLE VIII. AMENDMENT AND TERMINATION
Each Participating Company reserves the right, at any time and from time to
time, by action of its Board to amend or terminate the Plan with respect to
itself and the Participants employed by it; provided, however, no such amendment
<PAGE>
or termination shall either (a) reduce the amount of any Deferral Account,
determined as of the Adjustment Date coincident with or next preceding the
amendment or termination, or (b) defer payment of such Deferral Account.
ARTICLE IX. CLAIMS PROCEDURE
The following claims procedure shall apply with respect to the Plan:
9.1 FILING OF A CLAIM FOR BENEFITS. If a Participant or Beneficiary (the
"CLAIMANT") believes that he is entitled to benefits under the Plan which are
not being paid to him, he shall file a written claim therefor with the Plan
Administrator. In the event a member of the Plan Administrator shall be the
claimant, all actions which are required to be taken by the Plan Administrator
pursuant to this ARTICLE IX shall be taken instead by the remaining members of
the Plan Administrator.
9.2 NOTIFICATION TO CLAIMANT OF DECISION. The following provisions are part of
this Plan and are intended to meet the requirements of Part 5 of Title I of
ERISA. Within 90 days after receipt of a claim by the Plan Administrator (or
within 180 days if special circumstances require an extension of time), the Plan
Administrator shall notify the claimant of his decision with regard to the
claim. In the event of such special circumstances requiring an extension of
time, there shall be furnished to the claimant prior to expiration of the
initial 90-day period written notice of the extension, which notice shall set
forth the special circumstances and the date by which the decision shall be
furnished. If such claim shall be wholly or partially denied, notice thereof
shall be in writing and worded in a manner calculated to be understood by the
claimant, and shall set forth: (a) the specific reason or reasons for the
denial; (b) specific reference to pertinent provisions of the Plan on which the
denial is based; (c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and (d) an explanation of the procedure
for review of the denial. If the Plan Administrator fails to notify the claimant
of the decision in timely manner, the claim shall be deemed denied as of the
close of the initial 90-day period (or the close of the extension period, if
applicable).
9.3 PROCEDURE FOR REVIEW. Within 60 days following receipt by the claimant of
notice denying his claim in whole or in part or, if such notice shall not be
given, within 60 days following the latest date on which such notice could have
been timely given, the claimant shall appeal denial of the claim by filing a
written application for review with the Plan Administrator. Following such
<PAGE>
request for review, the Plan Administrator shall fully and fairly review the
decision denying the claim. Prior to the decision of the Plan Administrator, the
claimant shall be given an opportunity to review pertinent documents and to
submit issues and comments in writing.
9.4 DECISION ON REVIEW. The decision on review of a claim denied in whole or in
part by the Plan Administrator shall be made in the following manner:
(A) Within 60 days following receipt by the Plan Administrator of the
request for review (or within 120 days if special circumstances require an
extension of time), the Plan Administrator shall notify the claimant in writing
of its decision with regard to the claim. In the event of such special
circumstances requiring an extension of time, written notice of the extension
shall be furnished to the claimant prior to the commencement of the extension.
If the decision on review is not furnished in a timely manner, the claim shall
be deemed denied as of the close of the initial 60-day period (or the close of
the extension period, if applicable).
(B) With respect to a claim that is denied in whole or in part, the
decision on review shall set forth specific reasons for the decision, shall be
written in a manner calculated to be understood by the claimant, and shall cite
specific references to the pertinent plan provisions on which the decision is
based.
(C) The decision of the Plan Administrator shall be final and conclusive.
9.5 ACTION BY AUTHORIZED REPRESENTATIVE OF CLAIMANT. All actions set forth in
this ARTICLE IX to be taken by the claimant may likewise be taken by a
representative of the claimant duly authorized by him to act in his behalf on
such matters. The Plan Administrator may require such evidence as it may
reasonably deem necessary or advisable of the authority to act of any such
representative.
ARTICLE X. MISCELLANEOUS
10.1 NONALIENATION OF BENEFITS. No right or benefit under the Plan shall be
subject to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, garnishment or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, attach, garnish or charge
any right or benefit under the Plan shall be void. No right or benefit hereunder
shall in any manner be liable for or subject to the debts, contracts,
liabilities or torts of the person entitled to such benefit. If a Participant or
Beneficiary hereunder shall become bankrupt, or attempt (voluntarily or
<PAGE>
involuntarily) to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge any right hereunder, or if any creditor shall attempt to
attach, garnish, levy on or otherwise alienate or affect the right or benefit of
any Participant or Beneficiary hereunder, then such right or benefit shall, in
the discretion of the Committee, cease and terminate, and in such event, the
Committee may hold or apply the same, or any part thereof, for the benefit of
the Participant or Beneficiary in such manner and in such amounts and
proportions as the Committee may deem proper.
10.2 NO TRUST CREATED. The Plan constitutes a mere promise by a Participating
Company to make benefit payments in the future. The obligation of a
Participating Company to make a payment hereunder shall constitute only a
liability of such Participating Company to the Participant, and no Participating
Company shall be liable to make a payment to any Participant who is not its
Employee. Each such payment shall be made from the general funds of the
Participating Company, and no Participating Company shall be required to
establish or maintain any special or separate fund, or to purchase or acquire
life insurance on a Participant's life, or otherwise to segregate assets to
assure that such payments shall be made. Neither a Participant nor a Beneficiary
shall have any interest in any particular asset of a Participating Company by
reason of its obligations hereunder, and the right of a Participant to receive
payments under this Plan shall be merely the right of a general unsecured
creditor of the Participating Company which is his employer. Nothing contained
in the Plan shall create or be construed as creating a trust of any kind or any
other fiduciary relationship between a Participating Company and a Participant
or Beneficiary.
10.3 NO EMPLOYMENT AGREEMENT. Neither the execution of this Plan nor any action
taken by a Participating Company pursuant to this Plan shall be held or
construed to confer on a Participant any legal right to be continued as an
employee of the Participating Company. This Plan shall not be deemed to
constitute a contract of employment between a Participating Company and a
Participant, nor shall any provision herein restrict the right of any
Participant to terminate his employment with a Participating Company.
10.4 FUNDING POLICY. This Plan is unfunded, and benefits shall be paid from the
general assets of the Participating Company which is the employer of the
Participant. However, a Participating Company may reserve such funds, make such
investments or purchase such insurance policies as it may from time to time
choose to provide a source for payments under the Plan. The Participants and
Beneficiaries shall have no claims to any such funds, investments or policies.
<PAGE>
10.5 BINDING EFFECT. A Participating Company shall be liable only with
respect to obligations incurred pursuant to this Plan for its own Employees; no
Participating Company shall be liable with respect to benefits due an Employee
of any other Participating Company. Notwithstanding the foregoing, Delta
Woodside Industries, Inc., as direct or indirect parent of each of the other
Participating Companies, guarantees payment and performance of the obligations
of each of the other Participating Companies hereunder. Benefits under the Plan
shall inure to the benefit of the Participant and the Participant's Beneficiary.
10.6 ENTIRE PLAN. This document and any amendments hereto contain all the terms
and provisions of the Plan and shall constitute the entire Plan, any other
alleged terms or provisions being of no effect.
10.7 MERGER OR CONSOLIDATION. In the event of a merger or a consolidation of a
Participating Company with another corporation or entity, or the acquisition of
substantially all of the assets or outstanding stock of a Participating Company
by another corporation or entity, then and in such event the obligations and
responsibilities of such merged or acquired corporation under this Plan shall be
assumed by any such successor or acquiring corporation or entity, and all of the
rights, privileges and benefits of the Participants hereunder shall continue.
10.8 PAYMENT TO INCOMPETENT. Payments of benefits shall be made directly to a
Participant or Beneficiary entitled thereof, or if such Participant or
Beneficiary has been determined by a court of competent jurisdiction to be
mentally or physically incompetent, then payment shall be made to the duly
appointed guardian, conservator or other authorized representative of such
Participant or Beneficiary. The Participating Company shall have the right to
make payment directly to a Participant or Beneficiary until it has received
actual notice of the physical or mental incapacity of such Participant or
Beneficiary and notice of the appointment of a duly authorized representative of
his estate. Any such payment to an authorized representative for the benefit of
a Participant or Beneficiary shall be a complete discharge of all liability of
the Participating Company therefor.
10.9 NO CONTRIBUTIONS. The Participant shall not be permitted to make any
contributions to this plan.
[SIGNATURES ON THE FOLLOWING PAGES]
<PAGE>
Executed as of December 31, 1997.
DELTA WOODSIDE INDUSTRIES, INC.
By: /s/ Jane H. Greer
Its: Vice President
DELTA MILLS, INC.
By: /s/ Jane H. Greer
Its: Vice President
DELTA CONSOLIDATED CORPORATION
By: /s/ Jane H. Greer
Its: Vice President
DUCK HEAD APPAREL COMPANY, INC.
By: /s/ Jane H. Greer
Its: Vice President
NAUTILUS INTERNATIONAL, INC.
By: /s/ Jane H. Greer
Its: Vice President
DELTA MERCHANDISING, INC.
By: /s/ Jane H. Greer
Its: Vice President
<PAGE>
INTERNATIONAL APPAREL MARKETING CORPORATION
By: /s/ Jane H. Greer
Its: Vice President
DELTA MILLS MARKETING, INC.
By: /s/ Jane H. Greer
Its: Vice President
FIRST AMENDMENT TO THE
DELTA WOODSIDE GROUP
DEFERRED COMPENSATION PLAN
FOR KEY MANAGERS
BY THIS AGREEMENT, Delta Woodside Group Deferred Compensation Plan for Key
Managers (the "Plan") is hereby amended as follows, effective April 1, 1998:
Section 5.1(b) is amended by addition of the following to the end of such
section:
Notwithstanding the foregoing, if a Participant's employment is
terminated as a result of the sale or closure of a Participating
Company, or of a subsidiary or division of a Participating Company,
the Participating Company which is the employer of such Participant
shall pay in a single sum to the Participant or the Participant's
Beneficiary, as the case may be, an amount equal to the vested
amount credited to the Participant's Lump Sum Deferral Account and
Installment Deferral Account, both adjusted in accordance with
ARTICLE III as of the last Adjustment Date preceding such sale or
closure, such payment or payments to begin as soon as
administratively feasible after such sale or closure.
IN WITNESS WHEREOF, this amendment has been executed as of this 7th day of
May, 1998.
DELTA WOODSIDE INDUSTRIES, INC. DELTA MILLS, INC.
By: E. Erwin Maddrey II By: E. Erwin Maddrey II
-------------------------- --------------------------
Its: President & CEO Its: President & CEO
<PAGE>
DELTA CONSOLIDATED CORPORATION DUCK HEAD APPAREL COMPANY, INC.
By: E. Erwin Maddrey II By: E. Erwin Maddrey II
-------------------------- --------------------------
Its: President & CEO Its: President & CEO
NAUTILUS INTERNATIONAL, INC. DELTA MERCHANDISING, INC.
By: E. Erwin Maddrey II By: E. Erwin Maddrey II
-------------------------- --------------------------
Its: President & CEO Its: President & CEO
DELTA MILLS MARKETING, INC.
By: E. Erwin Maddrey II
-------------------------
Its: President & CEO
<PAGE>
April 22, 1999
Mr. Robert W. Humphreys
Delta Woodside Industries, Inc.
233 N. Main Street, Suite 200
Greenville, SC 29601
Dear Bob:
This letter is to confirm our discussion concerning your new assignment as
President & Chief Executive Officer of Delta Apparel. Congratulations. We
believe that you are the right person to lead Delta Apparel, and begin getting a
proper return for our stockholders.
Your salary will be $300,000, and will be effective with the pay period
beginning April 26, 1999.
You will be guaranteed a bonus of $300,000 for the fiscal year July 4, 1999 -
July 1, 2000. You must be on this job during this period. For fiscal 1999,
you will be on the corporate bonus plan for the first ten months, then at the
guaranteed annual $300,000 rate for the eleventh and twelfth months of fiscal
1999. As the CEO of Delta Apparel, we will want you to develop a year 2000
bonus plan for the division, to be approved by the new Board of Delta Apparel.
Beginning with the 2001 fiscal year, you will be a participant in the Delta
Apparel Bonus Plan. To receive any of the above, you must be on the job as
President & CEO of Delta Apparel at that time.
You do not want to move to the Duluth area. If you change your mind, we will
move you. In the interim, we will pay your commutation costs from Greenville.
It may make economic sense to rent an apartment in Duluth rather than pay motel
rates, or lease a car for you rather than pay mileage.
<PAGE>
Mr. Robert W. Humphreys
Page 2
April 22, 1999
The post spin-off Delta Apparel will have an Incentive Shares Plan that will be
the same as, or very similar to, the existing Delta Woodside Plan.
In addition, the new company will have an initial performance based Stock Option
Plan, with 500,000 shares (assuming a 10-1 reverse split on the existing
shares). Twenty-five percent of these shares will be reserved for you. To
exercise this option, you must be on the job as President & CEO of Delta
Apparel. The remaining shares will be available for you to distribute to other
members of the Delta Apparel management employees.
On December 14, 1998, I gave you a letter advising you that, "if your job is
eliminated because of downsizing, restructuring, or a change of control before
December 2000, you will be paid a bonus to stay of two years' salary, plus your
regular severance. Since you have satisfactorily completed your part of this
agreement, we will pay you the two years bonus to stay at your Financial Vice
President's salary rate of $200,000. Since you are now employed at Delta
Apparel, your regular severance will not be paid. With this payment, my letter
of December 14, 1998, will no longer be in effect.
This letter is written in anticipation of the restructuring/spin-offs occurring
as planned. If they do not, then you will be the President & CEO of Delta
Apparel, a division of Delta Woodside, and you will be elected a Director of
Delta Woodside.
Bob, congratulations, again. We are looking forward to working with you in the
future.
Best regards.
Sincerely yours,
E. Erwin Maddrey, II
President & CEO
EEM:hw
cc: Ms. J. H. Greer
<PAGE>
June 8, 1998
Mr. Douglas J. Stevens
Delta Woodside Industries, Inc.
233 N. Main St., Suite 200
Greenville, SC 29601
Dear Doug:
This letter is to cover your planned work schedule/beginning of retirement over
the next three years.
Starting with the 1999 fiscal year which begins June 28, 1998, you will begin to
work about "half time". Because of the scheduling that may be required for a
lengthy trip, "half time" could have several definitions. For example, if you
are in town a week, you may prefer to work 2-1/2 days that week. If you take a
trip that requires you to be gone for a week, you may want to take a week off,
etc. In other words, this is a flexible schedule. You will be a full time
employee of Delta Woodside and will serve as Vice President - International.
You will report to me, but will be responsible for assisting the Presidents of
Delta Mills Marketing, Duck Head and Delta Apparel in their international
efforts. We expect your work schedule and plans to be developed in conjunction
with these Division Presidents.
Your salary will be $87,500 per year. All benefit programs in which you
participate will remain in place. It is our intention to extend your
participation in the Incentive Shares Plan and Stock Option Program when they
come up for renewal at one-half the current level.
An annual bonus plan for you for international development will be developed
between the three Division Presidents, you and me.
If the workload becomes such that the job cannot be done on a "half time" basis,
then we will pay you at the rate of $85.00 per hour for the time required above
"half time". All expenses will be paid by Delta Woodside. We expect you to
have all time, expenses, etc., approved in advance by the appropriate Division
President.
<PAGE>
Mr. Douglas J. Stevens
Page 2
June 8, 1998
If you decide not to continue with this work schedule, or if you are unable to
do so due to disability or death, or if Delta Woodside decides not to continue
it, then you will be paid a severance of $150,000 if this should occur at the
end of the first year, or $75,000 if this should occur at the end of the second
year. We would pro-rate for months in between.
If this should occur, you will be allowed to continue your insurance for one
year as an active employee, then be covered under the Retiree Insurance Plan.
As a corporate officer, we would like for you to attend the two Managers
Meetings, the Planning Meetings and have an open invitation to the Quarterly
Review Meetings and the Presidents Meetings. You can attend when your schedule
permits or at your convenience. We'll probably want you to brief the Board once
a year on our international progress.
Although your schedule will be "half time", you know that we consider you a full
time member of our corporate management group.
Best regards.
Sincerely yours,
E. Erwin Maddrey, II
President & CEO
EEM:hw
cc: Ms. J. H. Greer
<PAGE>
1999 ANNUAL REPORT
(Delta Woodside logo appears here)
CONTENTS
Common Stock Market Prices and
Dividends.............................................Inside Front Cover
Selected Financial Data...............
Letter to Shareholders................
Management's Discussion and
Analysis............................
Operations by Industry
Segment.............................
Report of KPMG LLP....................
Consolidated Financial
Statements..........................
Corporate
Directory..............................................Inside Back Cover
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol DLW. The stock transfer agent for Delta Woodside Industries,
Inc. is First Union National Bank of North Carolina, Shareholder Services Group,
Two First Union Center, Charlotte, North Carolina 28288-1154.
The following table presents a two-year history of the high and low stock
sales prices for the Common Stock, as reported by the New York Stock Exchange
composite tape.
FISCAL QUARTERS:
1999 1998
High Low High Low
First Quarter 5 13/16 3 3/8 6 3/4 5 5/16
Second Quarter 6 1/4 3 15/16 6 5/16 4 3/4
Third Quarter 7 1/4 4 9/16 5 9/16 4 5/16
Fourth Quarter 7 1/4 4 13/16 6 3/8 4 7/8
Fiscal Year: The Company's operations are based on a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to June 30. The fiscal year 1999
was a fifty-three week year. The fiscal 1998 and 1997 years were fifty-two week
years.
As of September 17, 1999 there were approximately 2523 holders of record of the
Company's Common Stock.
During fiscal 1999 and 1998, the Company paid quarterly dividends of $.025 per
share. Dividend payments depend upon the Company's earnings, financial
condition, capital requirements, compliance with loan covenants and other
relevant factors. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Sources of Capital." During
the first quarter of fiscal 2000, the Company suspended payments of dividends.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
In Thousands, Except Ratios, Percentages, Number of Shareholders and Per Share
Data
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operations
Net sales $493,027 $535,460 $530,278 $487,450 $467,202
Cost of goods sold 420,763 439,300 432,567 451,216 387,215
Gross profit 72,264 96,160 97,711 36,234 79,987
Operating profit (loss) excluding
litigation, restructuring and
plant closing charges 1,794 35,233 46,644 (20,018) 25,272
Litigation (Credit) (9,000) (7,000)
Restructuring and Plant Closing
Charges (Credits) 13,996 8,895 8,259 (263)
Operating profit (loss) (12,202) 26,338 46,644 (19,277) 32,535
Earnings (loss) before interest
& taxes (12,202) 26,338 46,644 (19,277) 34,739
Interest expense 19,929 23,395 23,354 18,993 13,646
Income (loss) from continuing
operations before income taxes (31,664) 3,500 24,042 (37,822) 21,142
Income tax expense (benefit) 825 884 9,256 (14,561) 12,791
Income (loss) from continuing
operations (32,489) 2,616 14,786 (23,261) 8,351
Income (loss) from discontinued
operations (6,906) (46,367) (7,395) (39,378) 1,747
Net income (loss) (39,395) (43,751) 7,391 (62,639) 10,098
Financial data
Cash flow (Net income (loss) from
continuing operations plus
depreciation and amortization) 9,699 33,173 37,404 1,337 25,484
Capital expenditures 14,766 16,789 17,059 59,512 40,559
Depreciation and amortization 42,188 30,557 22,618 24,598 17,133
Working capital 144,200 170,761 229,568 (32,648) 286,887
Long term debt & leases 150,158 183,535 227,516 283 219,119
Funded debt 158,546 195,253 233,597 242,644 219,395
Shareholder's Equity 133,980 179,567 225,367 217,335 286,499
Capital employed 292,526 374,820 458,964 459,979 505,894
Total assets 365,203 474,042 557,940 537,716 610,296
Financial ratios
Net sales divided by inventory 5.1 4.7 4.0 4.0 2.4
Net sales divided by accounts
receivable 5.0 4.5 4.7 5.1 4.9
Net sales divided by capital employed 1.7 1.4 1.2 1.1 0.9
Operating profit (loss) as % of
capital employed (4.2) 7.0 10.2 (4.2) 6.4
Current ratio 3.1 2.8 3.8 0.9 4.8
Interest coverage ratio (0.6) 1.1 2.0 (1.0) 2.5
Gross profit as % of sales 14.7 18.0 18.4 7.4 17.1
Income (loss) from continuing operations before
income taxes as % of sales (6.4) 0.7 4.5 (7.8) 4.5
Income (loss) from continuing operations as % of
sales (6.6) 0.5 2.8 (4.8) 1.8
Income (loss) from continuing operations as % of
beginning equity (18.1) 1.2 6.8 (8.1) 2.9
<PAGE>
Common Stock Data (Per Share)
Net income (loss) from continuing
operations (1.35) 0.11 0.60 (0.95) 0.34
Net income (loss) (1.63) (1.78) 0.30 (2.56) 0.42
Dividends 0.10 0.10 0.30 0.40
Book value 5.55 7.29 9.19 8.89 11.76
Price range -- High 7 1/4 6 3/4 8 9 3/4 12
-- Low 3 3/8 4 5/16 4 5/8 4 3/8 7 5/8
Weighted average shares outstanding 24,149 24,575 24,513 24,443 24,317
Approximate number of shareholders 2,523 1,857 1,939 2,081 2,154
<FN>
(1) The amounts presented for periods prior to fiscal 1998 have been restated to
conform to the fiscal 1998 and fiscal 1999 presentation of discontinued
operations. The Stevcoknit knitted fabrics business and the Nautilus
International fitness equipment business are presented above as part of
discontinued operations.
(2) Capital Employed includes shareholders' equity and funded debt.
(3) Depreciation and amortization include certain write-downs of property and
equipment and reductions of excess of cost over assigned value of net assets
acquired of $14 million, $7 million and $15 million in fiscal years 1999, 1998
and 1997, respectively.
</TABLE>
TO OUR FELLOW SHAREHOLDERS
To Our Shareholders:
Fiscal 1999 was a difficult year for the Company. Sales volume was down 8% to
$493 million and the Company reported a pre-tax loss from continuing operations
of $31.7 million as compared to a pre-tax profit of $3.5 million in fiscal 1998.
Sales volume at Duck Head Apparel, our branded apparel division, was down 16%
from fiscal 1998, and operating losses in this division increased by $38 million
from fiscal 1998. The decrease in sales at Duck Head was primarily due to the
loss of a key account due to its acquisition by another retailer. The increase
in operating losses was due primarily to a write-off of goodwill, increased
advertising expenses, increased inventory reserves necessitated by the reduced
volume, and changes in the estimated useful lives of certain asset categories.
During the year, the Company announced plans to seek a buyer for the Duck Head
division. The efforts to market this business resulted in no offers reflecting
the value of this business, so the decision was made to retain Duck Head.
Subsequent to the decision to retain the business, we hired Mr. Robert D. Rockey
as President of Duck Head. Mr. Rockey has extensive experience in the branded
apparel industry, primarily with Levi Strauss. We believe that Mr. Rockey's
experience and expertise will enable Duck Head to return to profitability.
<PAGE>
Delta Mills Marketing Company, our woven textile division, had sales of $314
million, down from a record $342 million in fiscal 1998. Operating profits also
fell to $40 million from $46 million in fiscal 1998. The reduction in both sales
and operating profits was due primarily to a reduction in volume in the
synthetics portion of this business. Volume also continued to fall in the sales
of unfinished fabrics. We are in the process of converting certain assets used
in the production of unfinished fabrics to the production of finished cotton
fabrics, where demand remains good. We expect the results of the conversion of
these assets to begin favorably impacting results in the second fiscal quarter
of 2000. We have also reduced overhead costs associated with the synthetics
business to more closely reflect our ongoing reduced volume in that product
category.
Delta Apparel, our knit activewear division, had sales of $106 million, which
was unchanged from fiscal 1998. Operating losses in fiscal 1999 narrowed to $10
million from $18 million in fiscal 1998. While these results are far from
satisfactory, we are encouraged by the improvements in this business. During the
year, Mr. Robert W. Humphreys was named President of Delta Apparel. Mr.
Humphreys has been with the Company for over 12 years, most recently as Vice
President of Finance of Delta Woodside Industries. We are confident in Mr.
Humphreys' ability to continue the improvement in this business.
During the year, we completed the previously announced sale of the Nautilus
International business, our fitness equipment division, and we essentially
completed the liquidation of the Stevcoknit Fabrics division. These disposals,
combined with our continued focus on inventory management, allowed the Company
to reduce outstanding debt by nearly $37 million during fiscal 1999.
During the third quarter of fiscal 1999, the Company announced that it was
exploring alternatives to its current structure and capitalization. This process
has led to the elimination of several options, but our review continues. It
remains our belief that the best strategy for the Company and its shareholders
will involve the separation of our three businesses into independent companies.
Accordingly, we are in the process of developing a plan of action to address
this concern. It is our belief that in the coming months, a definitive plan will
be announced and implemented.
Effective October 1, 1999, Mr. Bettis C. Rainsford resigned his position as
Executive Vice President, Treasurer and Chief Financial Officer to pursue
personal business interests. Mr. Rainsford will remain as a Director of the
Company.
Bettis and I founded the Company in 1983. Since that time he has provided
invaluable service in a wide range of areas including the development and
implementation of appropriate capitalization and business structures. The board
and I will miss Bettis' contributions as an officer and we want to thank him for
his years of service with Delta Woodside. We wish him well in his new endeavors.
(Signature of E. Erwin Maddrey, II)
E. Erwin Maddrey, II
President and
Chief Executive Officer
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The foregoing letter to shareholders and the following discussion contain
certain "forward-looking statements". All statements, other than statements of
historical fact, that address activities, events, or developments that the
Company expects or anticipates will or may occur in the future, including such
matters as future revenues, future cost savings, future capital expenditures,
business strategy, competitive strengths, goals, plans, references to future
success and other such information are forward-looking statements. The words
"estimate", "project", "anticipate", "expect", "intend", "believe", and similar
expressions are intended to identify forward-looking statements.
The forward-looking statements in this Annual Report are based on the Company's
expectations and are subject to a number of business risks and uncertainties,
any of which could cause actual results to differ materially from those set
forth in or implied by the forward looking statements. These risks and
uncertainties include, among others, changes in the retail demand for apparel
products, the cost of raw materials, competitive conditions in the apparel and
textile industries, the relative strength of the United States dollar as against
other currencies, changes in United States trade regulations and the discovery
of unknown conditions (such as with respect to environmental matters, Year 2000
readiness, and similar items). The Company does not undertake publicly to update
or revise the forward-looking statements even if it becomes clear that any
projected results will not be realized.
CONSOLIDATED COMPANY RESULTS
FISCAL 1999 VERSUS FISCAL 1998
During the third quarter of fiscal 1999, the Company announced a plan to
spin-off the Duck Head and Delta Apparel divisions to the Company's shareholders
and to sell for cash the remaining company. Due to a lack of adequate offers for
the remaining company, this plan was subsequently terminated. At the time of the
announcement of the termination of that plan, the Company announced that it was
exploring other alternatives, including a recapitalization of Delta Mills which
would involve a spin-off of the Duck Head and Delta Apparel divisions and a cash
distribution to the Company's shareholders. Due to softness in the bond markets,
particularly for textile and apparel issuers, this plan was also terminated. It
is the Company's belief that the best strategy for the Company and its
shareholders will involve the separation of the Company's three divisions into
independent companies. Accordingly, the Company is in the process of developing
a plan of action to address this concern.
During fiscal 1999 the Company recognized impairment of the excess of cost over
assigned value of net assets acquired in the Duck Head Apparel division and of
certain real property in the Delta Apparel division, resulting in pretax charges
totaling $14 million. Also in fiscal 1999, the Duck Head Apparel division took
pretax charges of $14.7 million resulting from reducing the estimated useful
lives of certain categories of assets to more closely reflect current industry
standards, increasing inventory reserves due to poor sales levels, writing off
store fixtures at former customers' premises, and reducing production capacity
to more closely match reduced sales levels. During fiscal 1999, the Delta
Apparel division took pretax charges of $3.1 million to increase reserves on
certain discontinued and slow moving inventory categories, and to increase
accounts receivable reserves and recorded a $2.6 million pretax charge to adjust
the carrying value of certain plant assets.
<PAGE>
Consolidated net sales for fiscal year 1999 were $493 million compared to $535
million from continuing operations for the fiscal year ended June 27, 1998. Net
sales decreased in Delta Mills Marketing and in Duck Head Apparel, while net
sales in Delta Apparel were unchanged.
Consolidated gross profit margin for fiscal 1999 was down from the prior fiscal
year. Margins decreased significantly in Duck Head Apparel, increased in Delta
Apparel, and were down slightly in Delta Mills Marketing.
Consolidated selling, general, and administrative expense for fiscal 1999
totaled $ 69 million, or 14% of net sales compared to $ 61 million or 11% of net
sales in the prior fiscal year. These expenses increased at Duck Head Apparel,
decreased at Delta Mills Marketing, and were unchanged at Delta Apparel. In
addition, the Company incurred expenses totaling $3.6 million that were not
allocated to the segments. These expenses include severance costs, professional
fees, and other costs associated with the Company's actions regarding the
previously discussed plans for restructuring of the Company.
For fiscal year 1999, the Company reported an operating loss of $12 million, as
compared to an operating profit of $26 million in the prior fiscal year.
Operating results were lower due to lower sales volume, lower margins, increased
selling, general, and administrative expenses, and as a result of impairment
charges at Duck Head Apparel and Delta Apparel.
Interest expense was down 15% in fiscal year 1999 compared to fiscal 1998 due to
a decrease in net borrowings.
The effective tax rate on income from continuing operations for fiscal 1999 was
a negative 3% as compared to 25% for fiscal 1998. The 1999 tax rate is the
result of valuation allowances offsetting the tax benefit of the pretax losses,
and state franchise and income tax expenses.
Inventories were $96 million at July 3, 1999 compared to $114 million at June
27, 1998. Inventories decreased at all divisions.
The Company's order backlog at July 3, 1999 was $98 million as compared to $158
million at June 27,1998. Order backlogs were down at all divisions, with the
largest decline occurring at the Delta Mills Marketing division, primarily due
to a decline in blanket contracts when specific color requirements are unknown
related to a change in customer practices and a decline in orders as a result of
market conditions, particularly in the synthetics business.
CONSOLIDATED COMPANY RESULTS
FISCAL 1998 VERSUS FISCAL 1997
As a result of the history of operating losses at Stevcoknit Fabrics' knitting
and knit finishing plants, and at the Nautilus fitness equipment business, the
Company made the decision on March 3, 1998 to close its Stevcoknit Fabrics
division and to sell its Nautilus International division (fitness equipment).
Accordingly, operating results for those segments have been reported as
discontinued operations. Most of the liquidation of the Stevcoknit Fabrics
business was completed in fiscal 1998. The Company sold its Nautilus
International business in January 1999.
<PAGE>
Net sales from continuing operations for fiscal year 1998 were $535 million
compared to $530 million for the fiscal year ended June 28, 1997. Net sales
increases in Delta Mills Marketing and in Duck Head Apparel were offset somewhat
by a sales decrease at Delta Apparel.
Gross margin for fiscal 1998 was down slightly, from the prior fiscal year. All
of the Company's businesses experienced a decline in gross margin.
Selling, general, and administrative expense for fiscal 1998 totaled $61
million, or 11% of net sales compared to $53 million or 10% of net sales in the
prior fiscal year. SG&A cost increased at Delta Mills Marketing Company due to
increased spending on data processing systems, at Duck Head Apparel Company due
to higher cost of in store shops and management salaries, and at Delta Apparel
due to several factors including an increase in bad debt expense.
The Company reported operating earnings of $26 million or 5% of net sales
compared to $47 million or 8.8% of sales for the prior fiscal year. During
fiscal 1998, operating profits decreased in all of the Company's segments due to
lower margins, increased selling, general and administrative expenses and
certain restructuring charges at Delta Apparel and Duck Head Apparel.
Interest expense increased slightly in fiscal 1998 compared to fiscal 1997; net
borrowings decreased, but interest rates increased. The interest rate on the
senior notes issued on August 25, 1997 is higher than the interest rate on the
prior revolving credit facility.
The effective tax rate on income from continuing operations for fiscal 1998 was
25% as compared to 38% for fiscal 1997. The lower tax rate was a result of a
reduction in valuation allowances recognized in the prior fiscal year.
Inventories were $114 million at June 27, 1998 compared to $134 million at June
28, 1997. The decrease in inventory occurred primarily at Duck Head Apparel and
at Delta Apparel.
SEGMENT RESULTS
DELTA MILLS MARKETING COMPANY
FISCAL 1999 VERSUS FISCAL 1998
Delta Mills Marketing manufactures and sells finished woven fabrics principally
to manufacturers of apparel products. The segment also sells unfinished fabrics
to converters for various end uses. Delta Mills Marketing operated at less than
full capacity during fiscal 1999 primarily due to less demand for synthetic
finished apparel fabrics and unfinished fabrics sold to converters. These trends
are expected to continue at least through the first half of fiscal year 2000.
Consequently, the synthetic operations have been downsized to more closely match
capacity with market demand and the unfinished fabrics production is being
replaced with the more profitable finished cotton fabrics product lines. These
changes are expected to position this segment to maintain profitability in the
future. Generally, profitability of this segment is enhanced by increases in the
use of its manufacturing capacity and is affected by the relative mix of more or
less profitable goods being produced and the cost and availability of raw
materials.
Net sales for fiscal year 1999 totaled $314 million, as compared to $342 million
for fiscal 1998 a decrease of 8.2%. Sales of synthetic fabrics declined 30% and
accounted for the majority of the decline in sales. Sales of finished woven
cotton fabrics to commercial accounts increased while government accounts
<PAGE>
decreased due to decreased demand. Sales of unfinished fabrics sold to
converters continued to decline and will be replaced with more profitable
product lines in fiscal year 2000.
Gross profit in fiscal year 1999 was $57 million, as compared to $63 million in
fiscal year 1998 and was approximately the same as a percent of sales for both
fiscal years. The gross profit decline was due principally to the decline in the
finished synthetic fabric business in both volume and capacity utilization.
Operating earnings for fiscal year 1999 were $40 million as compared to $46
million in fiscal year 1998. The decline in operating earnings is primarily a
result of the decline in gross profit and was somewhat offset by a reduction in
selling, general and administrative expenses.
Inventories at July 3, 1999 totaled $44.4 million, compared to $53.4 million at
June 27, 1998.
Capital expenditures in fiscal 1999 were $8.7 million as compared to $5.2
million in fiscal 1998.
DELTA MILLS MARKETING COMPANY
FISCAL 1998 VERSUS FISCAL 1997
Net sales for fiscal year 1998 totaled $342 million, as compared to $336 million
for fiscal year 1997, an increase of 2%. Sales of finished woven fabrics to
commercial accounts and government accounts increased due to increased demand.
These increases were largely offset by a sharp, 32% decline in sales of
unfinished woven fabrics due to decreased demand.
Gross profit in fiscal year 1998 was $63 million, as compared to $65 million in
fiscal year 1997. The gross profit decline was due principally to the decline in
the unfinished woven fabrics business in both volume and price.
Operating earnings for fiscal year 1998 were $46 million, as compared to $51
million in fiscal year 1997. The decline in operating earnings is primarily a
result of the decline in gross margins and due to increased selling, general,
and administrative expenses attributable in part to information technology
project expenditures.
Inventories at June 27, 1998 totaled $53.4 million, compared to $53.6 million at
June 28, 1997.
Capital expenditures in fiscal 1998 were $5.2 million as compared to $12.0
million in fiscal 1997.
DELTA APPAREL COMPANY
FISCAL 1999 VERSUS FISCAL 1998
Delta Apparel manufactures and sells T-shirts, fleece goods and sportswear to
distributors, screen printers and private label accounts. Operating results are
dependent in large part on orders from retailers, distributors, and screen
printers who supply finished garments to retailers. Generally, when retail sales
of apparel are strong, Delta Apparel benefits. Its operating results are also
dependent on the utilization of its manufacturing facilities. Delta Apparel
operated its facilities near full capacity during fiscal 1999. The Company
believes that Delta Apparel will operate its facilities at or near full capacity
during fiscal 2000.
<PAGE>
Net sales for fiscal year 1999 were $106 million, which was consistent with net
sales of $106 million in fiscal year 1998. Fiscal year 1999 net sales were the
result of increased unit sales offset by lower unit prices as compared to fiscal
year 1998.
Gross profit increased from $3.9 million in fiscal year 1998 to $5.7 million in
fiscal year 1999 as a result of lower raw material costs and better
manufacturing efficiencies. In fiscal year 1999 a charge of $2.6 million is
included in gross profit to adjust the carrying value of certain plant assets.
Also included in fiscal year 1999 is a charge of $1.7 million to increase
reserves on certain discontinued and slow moving inventory categories.
The fiscal year 1999 operating loss was $10 million, compared to an operating
loss of $18 million in fiscal 1998. Delta Apparel's improved gross profit
contributed to the reduction in operating losses for fiscal year 1999. The 1999
operating loss includes an impairment charge of $1.4 million to write down
certain real property. The 1999 operating loss also includes a charge of $1.4
million to selling, general and administrative expenses to increase accounts
receivable reserves. The fiscal 1998 operating loss includes an impairment
charge of $7.5 million that was recorded to write off the excess of cost over
assigned value of net assets acquired.
Inventories at Delta Apparel at July 3, 1999 totaled $27 million, compared to
$32 million at June 27, 1998.
Capital expenditures in fiscal 1999 were $3.6 million as compared to $4.1
million in fiscal 1998.
DELTA APPAREL COMPANY
FISCAL 1998 VERSUS FISCAL 1997
Net sales for fiscal year 1998 were $106 million, a decline of 5.4% from sales
of $112 million in fiscal year 1997. The decline in sales was due both to lower
unit prices and to fewer units being shipped as compared to fiscal year 1997.
Gross profit declined from $4.3 million in fiscal year 1997 to $3.9 million in
fiscal year 1998, as a result of increased competition.
During the third quarter of fiscal 1998, Delta Apparel determined that the
excess of cost over assigned value of net assets acquired in a prior
acquisition, was impaired. Accordingly, a charge of $7.5 million was taken to
write-off the excess of cost over assigned value of net assets acquired at Delta
Apparel.
The fiscal year 1998 operating loss, including the impairment of the excess of
cost over assigned value of net assets acquired, was $18 million compared to an
operating loss of $5.4 million in the prior fiscal year. The increased operating
loss was primarily a result of the impairment charge, but was also due to an
increase in selling, general and administrative expenses.
Inventories at Delta Apparel at June 27, 1998 totaled $32 million, compared to
$41 million at June 28, 1997.
<PAGE>
Capital expenditures in fiscal 1998 were $4.1 million as compared to $2.4
million in fiscal 1997.
DUCK HEAD APPAREL COMPANY
FISCAL 1999 VERSUS FISCAL 1998
The Company's Duck Head Apparel segment manufactures and sells woven and knitted
apparel under the Duck Head label primarily to retailers and through the
company's own outlet stores. Duck Head's operating results are dependent in a
large part on orders from retailers. Generally, Duck Head benefits when retail
sales of apparel are strong. Operating results are also dependent on the
utilization of its leased manufacturing facility. This facility was not fully
utilized in fiscal 1999 and the Company does not believe that the facility will
be fully utilized during fiscal 2000. Duck Head Apparel closed a manufacturing
facility in fiscal 1999 and in fiscal 1999 two facilities which were closed in
fiscal 1998 were sold. The facility closed in fiscal 1999 is expected to be sold
in fiscal 2000.
Net sales in the Duck Head Apparel segment decreased by $14.1 million to $72.3
million in fiscal 1999. Sales to retail accounts and sales from the Company's
own stores both decreased. The decrease in sales to retailers was due primarily
to the loss of a key account due to its being acquired by another retailer. The
decrease in sales through the Company's own stores was due primarily to fewer
stores being open in fiscal 1999 versus fiscal 1998.
Gross profit in the Duck Head Apparel segment decreased by $18.9 million to $9.9
million in fiscal 1999. This change was principally due to $7.7 million of
increased reserve charges taken on excess inventories and the decline in sales
volume from fiscal year 1998. Also included in fiscal 1999 are charges totaling
$1.5 million to reduce production capacity to more closely reflect reduced sales
levels.
Selling, general and administrative expenses in the Duck Head Apparel segment
totaled $35.4 million in fiscal 1999, an increase of 27% from fiscal 1998. The
increase was primarily due to increased marketing expenses and $5.6 million in
accelerated amortization of in-store shops and computer equipment.
Fiscal 1999 operating losses in Duck Head Apparel totaled $39.3 million as
compared to a $.9 million operating loss in fiscal 1998. Included in the fiscal
1999 operating losses is a $12.6 million charge for the impairment of the excess
of cost over assigned value of net assets acquired. Included in the fiscal 1998
operating losses are $1.4 million of restructuring charges related to the
closing of two of the division's sewing plants in Costa Rica and for closing of
additional retail outlet stores.
Inventories at Duck Head Apparel at July 3, 1999 totaled $24.7 million compared
to $28.3 million at June 26,1998. The net decrease in inventories reflects
decreases in older obsolete inventory, partially offset by increases in both
recent season closeouts and in the core inventory.
Capital expenditures at Duck Head were $ 2.4 million and $7.4 million for fiscal
years 1999 and 1998, respectively. The expenditures were primarily for fixtures
for in-store shops and focal areas placed in major retailers and for hardware
and software related to the company's information technology programs.
<PAGE>
DUCK HEAD APPAREL COMPANY
FISCAL 1998 VERSUS FISCAL 1997
Net sales in the Duck Head Apparel segment increased by $5.0 million to $86
million in fiscal 1998. Sales to retail accounts increased while sales from the
company's own stores decreased. The increase in sales to retailers was due
primarily to increases in sales to the same accounts, as compared to fiscal
1997.
Gross profit margins at Duck Head Apparel decreased slightly in fiscal 1998, due
principally to inventory reduction programs.
Fiscal 1998 operating losses at Duck Head Apparel totaled $.9 million as
compared to a $1.4 million operating profit in fiscal 1997. Included in the
fiscal 1998 operating losses are $1.4 million of restructuring charges related
to the closing of two sewing plants in Costa Rica and the closing of certain
retail outlet stores. Selling, general, and administrative expenses increased 9%
from fiscal 1997, primarily due to increased merchandising and marketing
expenses.
Inventories at Duck Head Apparel decreased $8.6 million during fiscal 1998
resulting from a reduction in older obsolete inventory and lower levels of core
and recent season close-outs.
Higher capital expenditures during fiscal 1998 were primarily for in-store shops
and focal areas placed in major retailers.
LIQUIDITY AND SOURCES OF CAPITAL
During fiscal 1999, the Company financed its capital expenditures through
proceeds from the sale of discontinued operations and cash generated from
operations. In addition, during fiscal 1999, proceeds from the sale of the
assets of Nautilus International and the proceeds from the current assets of
Stevcoknit Fabrics, both discontinued operations, were used to reduce debt.
The Company generated operating cash flows of $54, $51 and $26 million for the
1999, 1998 and 1997 fiscal years, respectively. Cash generated from operations
has been used primarily to finance capital expenditures and to reduce debt.
On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc., "DMI" issued
$150 million of unsecured ten-year senior notes, and obtained a secured
five-year $100 million revolving line of credit subject to borrowing base
limitations. At the same time, the Company obtained a separate, $20 million line
of credit due October 31, 1998. The $100 million revolving line of credit is
backed by certain accounts receivable and inventory of DMI with a carrying value
of $129 million at July 3, 1999. At July 3, 1999 interest rates on the senior
notes and the $100 million revolving line of credit were 9.625% and 6.93%
respectively.
In May 1998, the Company replaced the above referenced $20 million line of
credit with a short-term $30 million revolving credit facility (subject to
borrowing base limitations) which was originally due in May of 1999. The term of
this facility has subsequently been extended until December 1999. This credit
facility is backed by certain accounts receivable and inventory of Delta Apparel
and Duck Head Apparel with a carrying value of $79 million at July 3, 1999. This
credit facility carries an interest rate that is two percentage points above the
London Interbank Borrowing Rate.
<PAGE>
Loan covenants in the senior notes and the DMI revolving credit facility, among
other matters, limit the Company's ability to use cash generated by DMI to fund
operations in the rest of the Company. At July 3, 1999, the most restrictive of
these covenants required DMI's tangible net worth to be $45 million. At July 3,
1999, pursuant to this covenant, no funds were available for distribution by DMI
to the rest of the Company. At July 3, 1999 approximately $99 million was
available under the DMI revolving credit agreement and approximately $25 million
was available under the Company's separate short-term $30 million line of
credit. The revolving credit facilities and the senior notes contain other
restrictive covenants which include certain other required minimum financial
ratios. The agreements also restrict additional indebtedness, dividends, and
capital expenditures.
On September 15, 1998, the Company announced a plan to repurchase, from time to
time, up to 2.5 million shares of the Company's outstanding stock at prices and
at times in the discretion of the Company's top management. Through July 3,
1999, the Company had purchased for retirement approximately one million shares
of its common stock at a total cost of about $4.5 million.
During fiscal 2000, the Company plans to spend approximately $12 million for
capital improvements and new equipment. The Company believes that its equipment
and facilities are generally adequate to remain competitive with its principal
competitors.
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At July 3, 1999 minimum payments
under these contracts with noncancelable contract terms were $42 million in
fiscal 2000.
The Company believes that cash flow generated from its operations, along with
funds available under its credit lines, should be sufficient to service its
debt, to satisfy its day-to-day working capital needs, and to fund its planned
capital expenditures.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk Sensitivity
As a part of the Company's business of converting fiber to finished fabric, the
Company makes raw cotton purchase commitments and then fixes prices with cotton
merchants who buy from producers and sell to textile manufacturers. The Company
may seek to fix prices up to 18 months in advance of delivery. Daily price
fluctuations are minimal, yet long-term trends in price movement can result in
unfavorable pricing of cotton for the Company. Before fixing prices, the Company
looks at supply and demand fundamentals, recent price trends and other factors
that affect cotton prices. The Company also reviews the backlog of orders from
customers as well as the level of fixed price cotton commitments in the industry
in general. At July 3, 1999, a 10% decline in the market price of the cotton
covered by the Company's fixed price contracts would have a negative impact of
approximately $4.2 million on the value of the contracts. At the end of fiscal
1998, a 10% decline in the market price of the Company's fixed price contracts
would have had a negative impact of approximately $5.6 million on the value of
the contracts. The decline in the potential negative impact from 1998 to 1999 is
due principally to current cotton commitments being at significantly lower
average prices than in fiscal 1998.
<PAGE>
Interest Rate Sensitivity
The following debt obligations are sensitive to changes in interest rates:
$150 million of unsecured ten year senior notes due 2007 at a
fixed rate of 9.625%.
$100 million of secured five year revolving credit facility expiring
2002 with interest of 6.93% at July 3, 1999. Interest is based on LIBOR.
$30 million of short-term secured revolving credit facility expiring
December 2000 with interest of 7.22% at July 3, 1999. Interest is based
on LIBOR.
An interest rate change would not have an impact on the fixed rate ten year
senior notes totaling $150 million. An interest rate change would have a
negative impact to the extent the Company increases borrowings against the
revolving credit facilities. The impact would be dependent on the level of
borrowings incurred. During fiscal years 1999 and 1998, based on the average
principal balance outstanding, a 1% increase in interest rates would have
resulted in increased interest expense of approximately $533,000 and $879,000,
respectively. In fiscal year 2000, as of this date, the Company has no
outstanding borrowings against the revolving credit facilities.
YEAR 2000 COMPLIANCE
The Company has a variety of computers and systems that are subject to Year 2000
issues. The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these programs do not
differentiate between a year that begins with "20" instead of the familiar "19".
If not corrected, many computer applications could fail, or cause erroneous
results. The Company has considered the impact of Year 2000 issues on the
Company's computer information systems and other equipment that use embedded
technology such as micro-controllers, and has developed and implemented a
remediation plan. The Company's Year 2000 plan includes 1) Identification of
year 2000 issues, 2) Assessment and prioritization of issues, 3) Remediation,
and 4) Testing for Year 2000 compliance. Because the Company has a wide variety
of systems and equipment at various locations affected by the Year 2000 issue,
various aspects of the Company's Year 2000 efforts are at different stages of
progress. Most of the work now being done involves testing of Year 2000
solutions, tracking key vendor Year 2000 compliance, and testing contingency
plans. Expenditures in fiscal 1998 for the Year 2000 project amounted to
approximately $150,000. As a part of its plan to achieve Year 2000 compliance,
the Company decided to accelerate the schedule for implementation of certain
data collection systems. The cost of these systems is approximately $1.2
million. The Company spent approximately $1.5 million on software improvements
and remediation work in fiscal year 1999, and expects to spend an additional $.4
million in fiscal year 2000, with completion expected by the first quarter of
fiscal year 2000. Most key vendors and customers have documented assurance of
current or planned readiness for the year 2000. The most likely worst-case
scenario is that certain non-critical business systems might fail. The Company
has developed contingency plans for all systems that had not been remediated as
<PAGE>
of July 3, 1999. Contingency plans include the option to disable certain systems
or to use alternate methods of providing the same or similar service. The
Company does not believe that these non-critical systems will have a material
adverse impact on the Company's ability to generate revenue. In the event that
the Company is unable to implement all or a part of its Year 2000 plan, then
some of the Company's computer systems could fail. Any liability or lost revenue
associated with systems failure cannot be reasonably estimated at this time.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, and local environmental laws
and regulations concerning, among other things, wastewater discharges, storm
water flows, air emissions, ozone depletion, and solid waste disposal. The
Company's plants generate very small quantities of hazardous waste which are
either recycled or disposed of off site. Most of its plants are required to
possess one or more discharge permits.
The Company believes that it is in compliance in all material respects with
federal, state, and local environmental statutes and requirements.
Two of Delta Mills Marketing Company's South Carolina plants, the Delta 2 and 3
finishing plants, have been unable to comply with certain toxicity and other
permit-related limits contained in a National Pollutant Discharge Elimination
System ("NPDES") permit held by the Company. Additionally, high nitrate levels
have been observed at the spray field for these plants. To attempt to achieve
compliance with the non-toxicity NPDES permit limits, the Company completed
certain upgrades in October 1998 at a cost of approximately $2.3 million. Since
then, the Company has had two non-toxicity permit violations resulting in the
payment of a de minimis penalty. The Company believes that it will be able to
comply with the non-toxicity permit limits. The Company is working with the
appropriate state agency to address the toxicity and nitrate issues. Although
there is no assurance that the Company will be successful, and it could face
additional administrative penalties if it is not, the Company does not currently
believe that these matters will have a material adverse impact on the Company.
The Company is currently assessing groundwater contamination at its discontinued
Greensboro, North Carolina plant. The Company believes, however, that the source
of the contamination was removed several years ago by the prior owner and the
Company currently has no plans to remediate any groundwater contamination.
Although no assurance can be provided, the Company does not currently believe
that this matter will have a material adverse impact on the Company.
OPERATIONS BY INDUSTRY SEGMENT
In the third quarter of fiscal year 1998, the Company adopted the segment
reporting provisions of Financial Accounting Standard 131. This standard
requires the Company to report segment information for divisions which engage in
business activity, whose operating results are regularly reviewed by the chief
operating officer. The Company has three segments in continuing operations:
Delta Mills Marketing Company, Delta Apparel and Duck Head Apparel. Delta Mills
Marketing Company manufactures and sells woven fabrics for apparel and home
furnishing manufacturers. Delta Apparel manufactures and sells T-shirts, fleece
<PAGE>
goods, and sportswear. Duck Head Apparel manufactures and sells casual apparel
under the brand name "Duck Head" to department stores and specialty retailers.
Operating profit does not include interest expense or interest income. The
Company had two segments which are presented as discontinued operations:
Stevcoknit Fabrics Company and Nautilus International. Stevcoknit Fabrics
Company manufactured and sold knitted fabrics, and Nautilus International
manufactured and sold fitness equipment.
Intersegment sales and profit are not significant and are not included in the
accompanying segment information. Delta Mills Marketing Company had intersegment
sales of $662,000, $417,000 and $5,000 for fiscal years 1999, 1998 and 1997,
respectively. Delta Apparel Company had intersegment sales of $467,000,
$2,192,000 and $403,000 for fiscal years 1999, 1998 and 1997, respectively.
Operating profit is total revenue less operating expenses, excluding interest
expense and interest income. During the fourth quarter of fiscal 1999, Duck Head
Apparel took a $12.6 million impairment charge to write off the excess of cost
over assigned value of net assets acquired and Delta Apparel took a $1.4 million
impairment charge to write down certain real property. Depreciation and
amortization include certain write-downs of property, equipment and excess of
cost over assigned value of net assets acquired. Identifiable assets are those
assets that are used in the operations of each segment. At July 3, 1999, other
identifiable assets include cash and insurance policies of $15.4 million and
deferred loan costs of $4.8 million.
During the third quarter of fiscal 1998, Delta Apparel took a $7.5 million
impairment charge to write-off the excess of cost over assigned value of net
assets acquired. In the same quarter, Duck Head Apparel recognized a charge of
$1.4 million primarily associated with the closing of two of the division's
sewing plants in Costa Rica and the closing of certain retail stores.
Capital expenditures include related accounts payable of $2,154,000, $2,321,000,
and $1,228,000 for the 1999, 1998 and 1997 fiscal years, respectively.
<TABLE>
<CAPTION>
July 3, 1999 June 27, 1998 June 28, 1997
<S> <C> <C> <C>
Net Sales:
Delta Mills Marketing Company $314,162,000 $342,439,000 $336,181,000
Delta Apparel Company......... 106,313,000 106,298,000 112,311,000
Duck Head Apparel Company..... 72,259,000 86,332,000 81,313,000
Other......................... 293,000 391,000 473,000
------------- ------------- -------------
Total..................... $493,027,000 $535,460,000 $530,278,000
============= ============= =============
Gross Profit:
Delta Mills Marketing Company. $56,745,000 $ 63,433,000 $ 65,058,000
Delta Apparel Company......... 5,665,000 3,890,000 4,343,000
Duck Head Apparel Company..... 9,888,000 28,775,000 28,174,000
Other......................... (34,000) 62,000 136,000
------------- ------------- -------------
Total..................... $72,264,000 $ 96,160,000 $97,711,000
============= ============= =============
<PAGE>
Operating Profit (Loss):
Delta Mills Marketing Company. $40,486,000 $ 46,377,000 $50,580,000
Delta Apparel Company......... (9,829,000) (17,739,000) (5,391,000)
Duck Head Apparel Company..... (39,269,000) (935,000) 1,431,000
Other......................... (3,590,000) (1,365,000) 24,000
------------- ------------- -------------
Total Operating Profit (Loss) (12,202,000) 26,338,000 46,644,000
Interest expense.............. (19,929,000) (23,395,000) (23,354,000)
Interest income............... 467,000 557,000 752,000
------------- ------------- -------------
Income (Loss) From Continuing
Operations Before Income Tax ($31,664,000) $ 3,500,000 $24,042,000
============= ============= =============
Identifiable Assets:
Delta Mills Marketing Company. $213,874,000 $239,974,000 $247,915,000
Delta Apparel Company......... 85,483,000 98,257,000 120,366,000
Duck Head Apparel Company..... 46,209,000 75,383,000 83,980,000
Other......................... 18,535,000 12,308,000 8,099,000
------------- ------------- -------------
364,101,000 425,922,000 460,360,000
Discontinued operations....... 1,102,000 48,120,000 97,580,000
------------- ------------- -------------
Total..................... $365,203,000 $474,042,000 $557,940,000
============= ============= =============
Depreciation and Amortization:
Delta Mills Marketing Company. $ 10,871,000 $ 9,921,000 $10,101,000
Delta Apparel Company......... 9,224,000 15,252,000 7,788,000
Duck Head Apparel Company..... 21,229,000 4,039,000 3,668,000
Other......................... 864,000 1,345,000 1,061,000
------------- ------------- -------------
Total..................... $ 42,188,000 $ 30,557,000 $22,618,000
============= ============= =============
Capital Expenditures:
Delta Mills Marketing Company. $ 8,699,000 $ 5,181,000 $12,042,000
Delta Apparel Company......... 3,580,000 4,141,000 2,396,000
Duck Head Apparel Company..... 2,444,000 7,427,000 2,510,000
Other......................... 43,000 40,000 111,000
------------- ------------- -------------
Total..................... $ 14,766,000 $ 16,789,000 $ 17,059,000
============= ============= =============
</TABLE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
DELTA WOODSIDE INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of Delta Woodside
Industries, Inc. as of July 3, 1999 and June 27, 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended July 3, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
<PAGE>
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Delta Woodside
Industries, Inc. at July 3, 1999 and June 27, 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended July 3, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Greenville, South Carolina
August 13, 1999
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Delta Woodside Industries, Inc.
July 3, 1999 June 27, 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $14,066,000 $2,753,000
Accounts receivable:
Factor................................. 66,854,000 81,256,000
Customers.............................. 38,112,000 41,253,000
------------- ------------
104,966,000 122,509,000
Less allowances for doubtful accounts 6,959,000 3,309,000
And returns
============= ============
Inventories
Finished goods......................... 46,459,000 52,219,000
Work in process........................ 39,570,000 48,814,000
Raw materials and supplies............. 10,094,000 12,925,000
------------- ------------
96,123,000 113,958,000
Current assets of discontinued operations 780,000 25,797,000
Deferred income taxes..................... 2,186,000 861,000
Prepaid expenses and other current
assets. 1,946,000 2,962,000
------------- ------------
TOTAL CURRENT ASSETS 213,108,000 265,531,000
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and land improvements............. 4,824,000 5,062,000
Buildings.............................. 62,146,000 66,995,000
Machinery and equipment................ 188,930,000 192,295,000
Furniture and fixtures................. 10,540,000 11,749,000
Leasehold improvements................. 2,869,000 3,068,000
Construction in progress............... 4,583,000 9,131,000
------------- ------------
273,892,000 288,300,000
Less accumulated depreciation.......... 129,976,000 123,537,000
------------- ------------
143,916,000 164,763,000
<PAGE>
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS............................... 322,000 22,323,000
INTANGIBLE ASSETS, less accumulated
amortization of $1,859,000 (1999)
and $5,515,000 (1998) 4,900,000 18,290,000
OTHER ASSETS................................ 2,957,000 3,135,000
------------- ------------
$365,203,000 $474,042,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank debt $1,678,000 $11,108,000
Trade accounts payable.................... 25,354,000 41,592,000
Accrued employee compensation............. 7,772,000 8,278,000
Accrued and sundry liabilities............ 26,276,000 23,059,000
Accrued restructuring charges............. 1,118,000 10,123,000
Current portion of long-term debt......... 6,710,000 610,000
------------- ------------
TOTAL CURRENT LIABILITIES 68,908,000 94,770,000
LONG-TERM DEBT.............................. 150,158,000 183,535,000
DEFERRED INCOME TAXES....................... 4,295,000 3,716,000
OTHER LIABILITIES AND DEFERRED CREDITS...... 7,862,000 12,454,000
SHAREHOLDERS' EQUITY
Common Stock -- par value $.01 a share -- authorized
50,000,000 shares, issued and outstanding 23,792,000
shares (1999) and 24,644,000 shares (1998) 238,000 246,000
Additional paid-in capital................ 160,863,000 165,221,000
Retained earnings (deficit)............... (27,121,000) 14,100,000
------------- ------------
133,980,000 179,567,000
COMMITMENTS AND CONTINGENCIES
$365,203,000 $474,042,000
============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Delta Woodside Industries, Inc.
July 3, 1999 June 27, 1998 June 28, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales............................... $493,027,000 $535,460,000 $530,278,000
Cost of goods sold....................... 420,763,000 439,300,000 432,567,000
------------- ------------- -------------
Gross profit............................. 72,264,000 96,160,000 97,711,000
Selling, general and administrative 69,175,000 60,738,000 52,697,000
expenses
Restructuring and impairment charge...... 13,996,000 8,895,000
Other income (expense)................... (1,295,000) (189,000) 1,630,000
------------- ------------- -------------
OPERATING PROFIT (LOSS)................ (12,202,000) 26,338,000 46,644,000
Interest (expense) income:
Interest expense....................... (19,929,000) (23,395,000) (23,354,000)
Interest income........................ 467,000 557,000 752,000
------------- ------------- -------------
(19,462,000) (22,838,000) (22,602,000)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (31,664,000) 3,500,000 24,042,000
Income tax expense ...................... 825,000 884,000 9,256,000
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................. (32,489,000) 2,616,000 14,786,000
Discontinued Operations:
(Loss) on disposal of discontinued
operations less applicable
income taxes.......................... ($6,906,000) ($37,042,000)
(Loss) from operations of discontinued businesses less
applicable income taxes.............. (9,325,000) (7,395,000)
------------- ------------- -------------
(6,906,000) (46,367,000) (7,395,000)
NET INCOME (LOSS)...................... ($39,395,000) ($43,751,000) $ 7,391,000
============= ============= =============
Basic and diluted earnings (loss) per share:
Continuing operations.................. ($1.35) $0.11 $0.60
Discontinued operations................ (0.28) (1.89) (0.30)
------------- ------------- -------------
Net earnings (loss).................... ($1.63) ($1.78) $0.30
============= ============= =============
Weighted average number
of shares outstanding.................. 24,149,000 24,575,000 24,513,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Delta Woodside Industries, Inc.
Additional Retained Total
Common Stock Paid-In Earnings Shareholders'
Shares Amount Capital (Deficit) Equity
<S> <C> <C> <C>
Balance at
June 29, 1996 24,459,651 $245,000 $164,170,000 $ 52,920,000 $217,335,000
Incentive stock award
plan, shares issued 54,348 608,000 608,000
Stock Option Plan,
shares issued 4,669 35,000 35,000
Net income.......... 7,391,000 7,391,000
Other............... (263) (2,000) (2,000)
------------ --------- ------------- ------------- -------------
Balance at
June 28, 1997........ 24,518,405 245,000 164,811,000 60,311,000 225,367,000
Incentive stock award
plan, shares issued 112,403 1,000 575,000 576,000
Stock Option Plan,
shares issued 11,255 75,000 75,000
Tax benefits of
stock plans... (253,000) (253,000)
Net (loss)..... (43,751,000) (43,751,000)
Cash dividends paid
-- $.10 a share (2,460,000) (2,460,000)
Other............... 2,026 13,000 13,000
------------ --------- ------------- ------------- -------------
BALANCE AT
JUNE 27, 1998........ 24,644,089 246,000 165,221,000 14,100,000 179,567,000
Incentive stock award
plan, shares issued 72,435 1,000 344,000 345,000
Stock Option Plan,
shares issued 56,751 411,000 411,000
Net (loss)........ (39,395,000) (39,395,000)
Cash dividends paid
-- $.10 a share (593,000) (1,826,000) (2,419,000)
Share repurchases (978,647) (9,000) (4,511,000) (4,520,000)
Other............... (3,119) (9,000) (9,000)
------------ --------- ------------- ------------- -------------
BALANCE AT
JULY 3, 1999........ 23,791,509 $238,000 $160,863,000 ($27,121,000) $133,980,000
============ ========= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Woodside Industries, Inc.
Year Ended
July 3, 1999 June 27, 1998 June 28, 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................... ($39,395,000) ($43,751,000) $7,391,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Discontinued operations............ 35,450,000 41,548,000 389,000
Depreciation....................... 26,984,000 22,033,000 20,715,000
Amortization....................... 1,207,000 1,789,000 1,903,000
Write-down of property and equipment 1,416,000
Reduction in excess of cost over assigned value of
net assets acquired............... 12,581,000 6,735,000
Provision for losses on accounts
Receivable 3,650,000 457,000 (1,148,000)
Provision for deferred income taxes. (1,175,000) 294,000 6,456,000
Losses (gains) on disposition of property
and equipment.................... 3,129,000 (46,000) (1,420,000)
Compensation under stock plans...... 748,000 664,000 643,000
Deferred compensation............... 48,000 244,000 730,000
Other............................... (21,000) 30,000 (327,000)
Changes in operating assets and liabilities:
Accounts receivable.............. 17,543,000 (7,126,000) (15,557,000)
Inventories...................... 17,836,000 19,843,000 (11,597,000)
Other current assets............. 913,000 (850,000) 7,610,000
Accounts payable and accrued expenses (26,445,000) 10,037,000 10,339,000
------------- ------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 54,469,000 51,901,000 26,127,000
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases........................... (14,933,000) (15,526,000) (20,510,000)
Proceeds of dispositions............ 3,571,000 528,000 3,653,000
Net (investing) divesting activities of discontinued
operations.......................... 12,140,000 10,574,000 (2,613,000)
Other.................................. 516,000 (296,000) (510,000)
------------- ------------- ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 1,294,000 (4,720,000) (19,980,000)
FINANCING ACTIVITIES
Proceeds from revolving credit.................. $297,434,000 $293,262,000 $68,904,000
Repayments on revolving credit. (333,499,000) (481,019,000) (85,134,000)
Scheduled principal payments of long-term
Debt (514,000) (682,000) (405,000)
Proceeds from issuance of long-term
Debt 145,688,000 6,915,000
Dividends paid......................... (2,419,000) (2,460,000)
Repurchase common stock................. (4,520,000)
Other................................... (932,000) (1,913,000) (2,000)
------------- ------------- ------------
NET CASH (USED) BY FINANCING
ACTIVITIES (44,450,000) (47,124,000) (9,722,000)
------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVILENTS 11,313,000 57,000 (3,575,000)
Cash and cash equivalents at beginning
year 2,753,000 2,696,000 6,271,000
------------- ------------- ------------
CASH AND CASH EQUIVALENTS $14,066,000 $2,753,000 $ 2,696,000
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Delta Woodside Industries, Inc.
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Delta Woodside Industries, Inc. (the "Company") and its subsidiaries
(all of which are wholly-owned, except for International Apparel Marketing
Corporation which was 70% owned for the two years ending June 27, 1998, and
wholly owned for the period ended July 3, 1999). All significant intercompany
balances and transactions have been eliminated. Certain amounts for the 1998 and
1997 fiscal years have been reclassified to conform to the 1999 presentation.
CASH EQUIVALENTS: The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market determined
using both first-in, first-out (FIFO) and last-in, first-out (LIFO) methods.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the
basis of cost. Depreciation is computed by the straight-line method for
financial reporting based on estimated useful lives of two to thirty-two years,
but predominantly over seven to ten years, and by accelerated methods for income
tax reporting.
INTANGIBLE ASSETS: Amortization is computed using the straight-line method. The
excess of cost over assigned value of net assets acquired relating to certain
business combinations has been amortized to expense over 40 years. As of July 3,
1999, all such assets had been either disposed of or written down to zero value
due to impairment. Other intangible assets are being amortized over periods of 5
to 10 years, but primarily over 10 years.
IMPAIRMENT OF LONG-LIVED ASSETS: When required by circumstances, the Company
evaluates the recoverability of its long-lived assets by comparing estimated
future undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required.
REVENUE RECOGNITION: Sales are recorded upon shipment or designation of specific
goods for later shipment at customers' request with related risk of ownership
passing to such customers.
INCOME TAXES: Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS PER COMMON SHARE: Per share data are computed based on the weighted
average number of shares of Common Stock and Common Stock Equivalents
outstanding during each period. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, during fiscal 1998. The statement
requires companies to present basic and diluted earnings per share. Common stock
equivalents are approximately .2% to .3% of weighted average shares outstanding
for the periods presented, and do not affect the calculation of earnings per
share. These common stock equivalents are attributable to the stock option plan
where the options have vested, but have not yet been exercised.
ENVIRONMENTAL COSTS: Environmental compliance costs, including ongoing
maintenance, monitoring and similar costs, are expensed as incurred.
Environmental remediation costs are accrued, except to the extent costs can be
capitalized, when remedial efforts are probable, and the cost can be reasonably
estimated.
<PAGE>
COTTON PROCUREMENT: The Company contracts to buy cotton with future delivery
dates at fixed prices in order to reduce the effects of fluctuations in the
prices of cotton used in the manufacture of its products. These contracts permit
settlement by delivery and are not used for trading purposes. The Company
commits to fixed prices on a percentage of its cotton requirements up to
eighteen months in the future. If market prices for cotton fall below the
Company's committed fixed costs and it is estimated that the costs of cotton are
not recoverable in future sales of finished goods, the differential is charged
to income at that time.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL YEAR: The Company's operations are based on a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to June 30. Fiscal years 1998
and 1997 each consisted of 52 weeks and 1999 consisted of 53 weeks.
NOTE B -- ACCOUNTS RECEIVABLE
Delta Mills Marketing assigns a substantial portion of its trade accounts
receivable to a bank under a factor agreement. The assignment of these
receivables is primarily without recourse, provided that customer orders are
approved by the bank prior to shipment of goods, up to a maximum for each
individual account.
The Company's accounts receivable are due from many customers that market and
produce apparel, home furnishings and other products, and from department stores
and specialty apparel retailers located throughout the United States. The many
customers represented in the Company's accounts receivable limits to a certain
extent the concentration of credit risk. The Company generally does not require
collateral for its accounts receivable. One customer accounted for 15%, 12%, and
15% of sales for fiscal years 1999, 1998 and 1997, respectively.
NOTE C -- INVENTORIES
As of July 3, 1999 and June 27, 1998, cost for certain inventories at Delta
Apparel and Duck Head Apparel is determined under the LIFO method representing
41% and 44%, respectively, of the cost of consolidated inventories. The balance
of the cost of consolidated inventories is determined under the FIFO method. If
these inventories had been determined by the FIFO method, they would have been
approximately the same as the reported amounts.
NOTE D -- LONG-TERM DEBT, CREDIT ARRANGEMENTS AND NOTES PAYABLE
<PAGE>
<TABLE>
<CAPTION>
Long-term debt consists of:
July 3, 1999 June 27, 1998
------------ ------------
<S> <C> <C>
Senior notes (9.625%), with interest payable
semiannually $150,000,000 $150,000,000
Revolving Credit Facility (6.93% at July 3, 1999), with
interest payable monthly or semiannually....... 26,635,000
Industrial Revenue Bond payable monthly, through 2001 at
80% of a bank's base rate...................... 339,000 578,000
Note to a bank payable monthly with interest at prime
Plus 1% 6,415,000 6,712,000
Other............................................. 114,000 220,000
------------ ------------
156,868,000 184,145,000
Less current portion.............................. 6,710,000 610,000
------------ ------------
$150,158,000 $183,535,000
============ ============
</TABLE>
On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc., "DMI" issued
$150 million of unsecured ten-year senior notes, and obtained a secured
five-year $100 million revolving line of credit. The $100 million revolving line
of credit is backed by certain accounts receivable and inventory of DMI with a
carrying value of $129 million at July 3, 1999.
In May 1998, the Company obtained a short-term $30 million revolving credit
facility (subject to borrowing base limitations) which is due in December of
1999. This credit facility is backed by certain accounts receivable and
inventory of Delta Apparel and Duck Head Apparel with a carrying value of $79
million at July 3, 1999. This credit facility carries an interest rate that is
two percentage points above the London Interbank Borrowing Rate.
Loan covenants in the senior notes and the DMI revolving credit facility limit
the Company's ability to use cash generated by DMI to fund operations in the
rest of the Company. On July 3, 1999 approximately $99 million was available
under the DMI revolving credit agreement, and approximately $25 million was
available under the separate short-term $30 million line of credit. The credit
facilities and the senior notes also contain other restrictive covenants which
include required minimum tangible net worth and certain other required minimum
financial ratios. The agreements also restrict additional indebtedness,
dividends and capital expenditures. At July 3, 1999, the net assets of the
Company include net assets of the wholly owned subsidiary DMI of approximately
$50 million which are subject to the restrictions described above.
Total interest expense incurred by the Company was $19,929,000, $23,395,000 and
$23,656,000 in fiscal years 1999, 1998 and 1997, respectively, of which $302,000
was capitalized in fiscal year 1997. Total interest paid during fiscal years
1999, 1998 and 1997 was $18,021,000, $ 21,568,000, and $17,546,000,
respectively.
During fiscal year 1997, the Company acquired certain machinery and equipment
under non-cancelable operating leases in connection with the modernization
project in the woven fabrics division. The terms provide for total lease
payments of $14 million over a period of five years.
Rent expense relating to all operating leases of the Company was approximately
$6,820,000, $7,471,000, $7,179,000 for fiscal 1999, 1998 and 1997, respectively.
The carrying value of the Company's revolving credit agreements approximate fair
value since the rates are tied to floating rates. At July 3, 1999 the carrying
value of the senior notes was $150,000,000 and the fair value, based on quoted
market prices was $142,500,000.
<PAGE>
Aggregate principal maturities of all long-term debt and minimum payments under
operating leases are as follows:
<TABLE>
<CAPTION>
Long-term Operating
Fiscal Year Debt Leases
<S> <C> <C>
2000...... $ 6,710,000 $ 6,092,000
2001...... 144,000 4,839,000
2002...... 14,000 2,995,000
2003...... 722,000
Later year 150,000,000 754,000
------------ -----------
$156,868,000 $15,402,000
============ ===========
</TABLE>
NOTE E -- SHAREHOLDERS' EQUITY
The Stock Option Plan was approved by the shareholders in fiscal 1991, and
amended in fiscal 1996 and fiscal 1998. The Plan gives the Company the right to
grant options for up to 800,000 shares of Common Stock to employees. Prior to
the fiscal 1996 and 1998 amendments, the Company could grant options for up to
300,000 and 600,000 shares, respectively. Transactions under the Stock Option
Plan are as follows:
<TABLE>
<CAPTION>
Prices Outstanding Exercisable
<S> <C> <C> <C>
June 29, 1996 3.06-9.94 327,300 41,875
Granted 2.50-3.56 49,000
Became
exercisable 3.38-7.68 25,750
Exercised 3.38-5.88 (4,669) (4,669)
Canceled 3.38-9.94 (30,125) (12,000)
----------- ------------- ----------
June 28, 1997 2.50-7.68 341,506 50,956
Granted 2.22-3.38 148,000
Became
exercisable 2.50-5.88 128,340
Exercised 2.50-3.38 (11,375) (11,375)
Canceled 3.06-7.68 (20,750) (16,625)
----------- ------------- ----------
June 27, 1998 2.22-5.88 457,381 151,296
Granted 2.47-2.50 55,500
Became
exercisable 2.44-5.88 117,604
Exercised 2.91-5.88 (56,751) (56,751)
Canceled 2.22-5.13 (38,187) (250)
----------- ------------- ----------
July 3, 1999 2.44-5.88 417,943 211,899
=========== ============= ==========
</TABLE>
The weighted average exercise price for all options outstanding was $3.20 per
share at July 3, 1999. These options expire on various dates beginning August
1999 and ending in August 2003. The options generally become exercisable in
equal amounts on the first through fourth anniversaries of the date of grant and
remain exercisable until the fifth anniversary of the date of grant. The excess
of the fair market value of the stock over the exercise price at the date of
<PAGE>
grant is recognized as compensation expense over the period during which the
options become exercisable. Related compensation expense was $308,000,$223,000,
and $223,000 during fiscal 1999, 1998 and 1997, respectively. Options available
for grant at July 3, 1999, June 27, 1998 and June 28, 1997 and were 127,887,
221,700, and 72,450, respectively.
The Incentive Stock Award Plan was approved by the shareholders in fiscal 1991,
and amended in fiscal 1996 and fiscal 1998. The Plan gives the Company the right
to grant awards for up to 1,100,000 shares of Common Stock to employees. Prior
to the fiscal 1996 and 1998 amendments, the Company could grant awards for up to
300,000 and 800,000 shares, respectively.
Under the Incentive Stock Award Plan awards are granted for the right to
purchase shares for $.01 per share. Awards were granted to purchase up to 2,950,
36,791, and 282,481 during fiscal 1999, 1998 and 1997, respectively. During
fiscal 1999, rights to purchase 24,833 shares were cancelled. Generally, each
award vests based in part on service and in part on achievement of certain
performance goals over a three-year period. Compensation expense for the service
portion is based on the market price of the stock on the date of award.
Compensation expense for the performance portion is based on the prevailing
market price of the stock. Tax benefits arising from the difference in market
value between the date of grant and the date of issuance of Common Stock are
recorded as an adjustment to additional paid-in capital. Compensation expense
for the Company's incentive stock award plan including related tax assistance
was $977,000, $775,000 and $612,000 for the fiscal years 1999, 1998 and 1997,
respectively. Shares available for grant at July 3, 1999 were 180,002.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." If
compensation cost for the Company's two stock plans, described above, had been
determined based on the provisions of SFAS No. 123, net income would have been
approximately the same as that reported by the Company.
On September 15, 1998, the Company announced a plan to repurchase, from time to
time, up to 2.5 million shares of the Company's outstanding stock at prices and
at times in the discretion of the Company's top management. Through July 3,
1999, the Company had purchased for retirement approximately one million shares
of its common stock at a total cost of about $4.5 million.
The shareholders have authorized the Board of Directors to issue up to 10
million shares of preferred stock with a maximum aggregate par value of $250
million, and to establish the particular terms including dividend rates,
conversion prices, voting rights, redemption prices and similar matters. No
shares of preferred stock have been issued.
NOTE F -- INCOME TAXES
For fiscal 1999, the Company had a regular tax loss of $11 million and an
alternative minimum tax (AMT) tax loss of $12 million. At July 3, 1999, the
Company had regular tax loss carry-forwards of $66 million for federal purposes
and $157 million for state purposes. Of the federal loss carry-forward, $9.2
million resulted from the 1988 acquisition of Stanwood Corporation and will
expire in years 2002 and 2003.
<PAGE>
The Company's gross deferred tax assets are reduced by a valuation allowance to
net deferred tax assets considered by management to be more likely than not
realizable. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. The valuation allowance increased
$8,744,000 during fiscal 1999.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
Net operating loss
Carry-forward.................$32,223,000 $26,478,000
Inventory....................... 6,625,000 3,907,000
Restructuring reserves.......... 676,000 5,491,000
Tax credit carry-forward........ 3,738,000 3,738,000
Deferred compensation........... 3,027,000 3,009,000
Health claims................... 2,521,000 2,388,000
Accrued bonuses & vacation...... 533,000 535,000
Stock compensation accruals..... 802,000 743,000
Workers' compensation........... 239,000 293,000
Other........................... 2,248,000 1,338,000
------------ ------------
Deferred tax assets 52,632,000 47,920,000
Valuation allowance.............(34,640,000) (25,896,000)
Net deferred tax assets......... 17,992,000 22,024,000
Liabilities
Depreciation.................... 17,616,000 20,041,000
Inventory --
LIFO basis difference......... 2,109,000 2,855,000
Intangibles..................... 0 857,000
Accounts receivable write-down.. 329,000 1,017,000
Other........................... 47,000 109,000
------------ ------------
Deferred tax liabilities........ 20,101,000 24,879,000
------------ ------------
Net deferred
tax liabilities........... $2,109,000 $ 2,855,000
============ ============
</TABLE>
Significant components of the provision for income taxes are as follows:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal income taxes.......... $265,000 $ 120,000 $560,000
State income taxes............ 1,735,000 470,000 2,240,000
----------- ------------ ------------
Total current............... 2,000,000 590,000 2,800,000
Deferred:
Federal income taxes 730,000 253,000 5,550,000
State income taxes (benefits). (1,905,000) 41,000 906,000
----------- ------------ ------------
Total deferred.............. (1,175,000) 294,000 6,456,000
Total provision for continuing
operations................. $825,000 $884,000 $ 9,256,000
----------- ------------ ------------
The total provision for income taxes related to:
Discontinued Operations ($460,000) ($1,557,000) ($7,286,000)
----------- ------------ ------------
Total provision for income taxes $365,000 ($673,000) $ 1,970,000
=========== ============ ============
</TABLE>
The reconciliation of income tax expense (benefit) computed at the Federal
statutory tax rates for continuing and discontinued operations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------ ------------- -------------
Income tax expense (benefit) at
statutory rates................ (13,664,000) ($15,574,000) $3,276,000
State taxes, net of federal
benefit......................... 374,000 189,000 655,000
Amortization of excess of cost over assigned
value of net assets acquired 5,900,000 2,799,000 291,000
Foreign subsidiary loss 358,000 175,000 341,000
Valuation allowance adjustments. 8,744,000 11,983,000 (1,268,000)
Other........................... (1,347,000) (245,000) (1,325,000)
------------ ------------- -------------
$ 365,000 ($673,000) $1,970,000
============ ============= =============
</TABLE>
<PAGE>
The Company made no estimated income tax payments for fiscal 1999, 1998 or 1997.
The carry-back of net operating losses for fiscal 1997 resulted in a tax refund
of $2.2 million in fiscal 1998. A tax refund of $600 thousand was received in
fiscal 1999 as a result of a federal examination of previous tax years.
NOTE G -- OPERATIONS BY INDUSTRY SEGMENT
Industry segment information for the Company presented on page 8 of this Annual
Report is an integral part of these financial statements.
NOTE H -- DISCONTINUED OPERATIONS AND RESTRUCTURING AND IMPAIRMENT CHARGES
DISCONTINUED OPERATIONS
As a result of the history of operating losses at Stevcoknit Fabrics' knitting
and knit finishing plants, and at the Nautilus International fitness equipment
business, the Company made the decision on March 3, 1998 to close its Stevcoknit
Fabrics division and to sell its Nautilus International division (fitness
equipment). Accordingly, operating results for those segments have been
reclassified and reported as discontinued operations.
In connection with the decision to discontinue these businesses, the Company, in
fiscal 1998, recognized an estimated loss on disposal of discontinued operations
of $37 million including a provision of $8.0 million for losses during the
phase-out period and an income tax benefit of $1.2 million. In fiscal 1999, the
Company increased the estimate of the after-tax cost to discontinue these
businesses and recognized after tax charges of $4.4 million and $3.5 million
during the first and second quarters of fiscal year 1999, respectively, and
decreased the estimate by $1.6 million in the third quarter of fiscal 1999. In
the fourth quarter of fiscal 1999, the company adjusted the estimated tax impact
of these disposals, resulting in a $.7 million charge. Proceeds from the
liquidation of these divisions have been used to reduce indebtedness and to make
capital expenditures.
The assets of discontinued businesses at July 3, 1999 and June 27, 1998, are as
follows:
<TABLE>
<CAPTION>
July 3, 1999 June 27, 1998
----------- -----------
<S> <C> <C>
Accounts Receivable ...................... $763,000 $19,450,000
Inventory................................... 0 6,104,000
Other current assets........................ 17,000 243,000
----------- -----------
Total current assets....................... $780,000 $25,797,000
=========== ===========
Property, plant and equipment net
of accumulated depreciation............... $11,535,000
Other Assets ............................... 322,000 10,788,000
----------- -----------
Total Non-current Assets 322,000 22,323,000
----------- -----------
Total Assets.......................... $1,102,000 $48,120,000
=========== ===========
</TABLE>
Summarized results of operations for discontinued businesses are as
follows:
<TABLE>
<CAPTION>
July 3, 1999 June 27, 1998 June 28, 1997
------------ ------------- -------------
<S> <C> <C> <C>
Net Sales $ 11,792,000 $109,452,000 $121,540,000
Costs and expenses net of charges
to reserve 11,792,000 119,090,000 136,221,000
------------ ------------- -------------
(Loss) before income taxes 0 (9,638,000) (14,681,000)
Income tax expense (benefit) (313,000) (7,286,000)
------------ ------------- -------------
(Loss) from operation of discontinued
businesses $ 0 ($9,325,000) ($7,395,000)
============ ============= =============
</TABLE>
RESTRUCTURING AND IMPAIRMENT CHARGES
During fiscal 1999, the Company recognized the impairment of the excess of cost
over assigned value of net assets acquired in the Duck Head Apparel division by
charging pretax income for $12.6 million. The Company also took an impairment
charge to write down certain real property in the Delta Apparel division.
During fiscal 1998, the Company recognized the impairment of the excess of cost
over assigned value of net assets acquired in the Delta Apparel division by
charging pretax income for $7.5 million. The Company also took a restructuring
charge related to the closure of two sewing plants in Costa Rica and certain
retail outlet stores in its Duck Head Apparel division.
<PAGE>
NOTE I -- EMPLOYEE BENEFIT PLANS
On September 27, 1997 the Delta Woodside Industries Employee Retirement Plan
merged into the Delta Woodside Employee Savings and Investment Plan (401(k)).
Future contributions to the 401(k) plan in lieu of a contribution to the
Retirement Plan will be made in cash and not in stock. In the 401(k) plan
employees may elect to convert Delta Woodside Industries stock to other funds,
but may not increase the amount of stock in their account. Each participant has
the right to direct the trustee as to the manner in which shares held are to be
voted. The Retirement Plan qualified as an Employee Stock Ownership Plan
("ESOP") under the Internal Revenue Code as a defined contribution plan.
Contributions of $328,000 and $400,000 were allocated to participants in fiscal
1998 and fiscal 1997, respectively. During fiscal 1999, 1998 and 1997, the
Company contributed $736,000, $615,000 and $648,000, respectively, to the 401(k)
plan to match employee contributions. In addition to the matching contributions,
the Company also made a discretionary contribution of $434,000 to the 401(k)
plan in fiscal 1999.
The Company also maintains a 501(c)(9) trust, the Delta Woodside Employee
Benefit Plan and Trust ("Trust"). The Trust collects both employer and employee
contributions from the Company and makes disbursements for health claims and
other qualified benefits.
The Company has a Deferred Compensation Plan which permits certain management
employees to defer a portion of their compensation. Deferred compensation
accounts are credited with interest and are distributable after retirement,
disability or employment termination. As of July 3, 1999 and June 27, 1998, the
total liability amounted to $7,862,000 and $7,204,000, respectively. The Company
insured the lives of certain management employees to assist in funding of the
deferred compensation liability. The Company is the owner and beneficiary of the
insurance policies.
NOTE J -- AFFILIATED PARTY TRANSACTIONS
The Company leases its corporate office space from a corporation whose stock is
owned one-half each by the president and a vice president of the Company.
Additional office space and retail store space is leased from the executive vice
president. Under the leases, the Company made payments of approximately
$169,000, $248,000 and $254,000 for the 1999, 1998 and 1997 fiscal years,
respectively.
NOTE K -- COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At July 3, 1999 minimum payments
under these contracts with non-cancelable contract terms were $42 million.
During fiscal 2000, the Company plans to spend approximately $12 million for
capital improvements and to maintain its existing facilities.
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.
<PAGE>
At the North Carolina site, the Selling Corporations 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. At the Mississippi site, the PRP group
has completed the surface removal action and is investigating 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, latest estimates of costs to clean
up the site range up to $4 million. Trichlomethane, one of the substances
delivered by the Selling Corporation to the site, has been found in the site's
groundwater and at nearby residential drinking water wells.
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.
Two of Delta Mills Marketing Company's South Carolina plants, the Delta 2 and 3
finishing plants, have been unable to comply with certain toxicity and other
permit-related limits contained in a National Pollutant Discharge Elimination
System ("NPDES") permit held by the Company. Additionally, high nitrate levels
have been observed at the spray field for these plants. To attempt to achieve
compliance with the non-toxicity NPDES permit limits, the Company completed
certain upgrades in October 1998 at a cost of approximately $2.3 million. Since
then, the Company has had two non-toxicity permit violations resulting in the
payment of a de minimis penalty. The Company believes that it will be able to
comply with the non-toxicity permit limits. The Company is working with the
appropriate state agency to address the toxicity and nitrate issues. Although
there is no assurance that the Company will be successful, and it could face
additional administrative penalties if it is not, the Company does not currently
believe these matters will have a material adverse impact on the Company.
The Company is currently assessing groundwater contamination at its discontinued
Greensboro, North Carolina plant. The Company believes, however, that the source
of the contamination was removed several years ago by the prior owner and the
Company currently has no plans to remediate any groundwater contamination.
Although no assurance can be provided, the Company does not currently believe
that this matter will have a material adverse impact on the Company.
From time to time the Company and its subsidiaries are defendants in legal
actions involving claims arising in the normal course of business, including
product liability claims. The Company believes that, as a result of legal
defenses, insurance arrangements and indemnification provisions with parties
believed to be financially capable, none of these actions should have a material
effect on its operations or financial condition.
<PAGE>
NOTE L -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the years
ended July 3, 1999 and June 27, 1998.
<TABLE>
<CAPTION>
1999 Quarter Ended
September 26 December 26 March 27 July 3
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................... $ 130,622 $ 113,760 $109,507 $ 139,138
Gross profit.................. 28,351 19,998 15,329 8,586
Income (loss) from continuing
operations 8,049 629 (4,329) (36,838)
Net income (loss)............. 3,655 (2,840) (2,711) (37,499)
Earnings (loss) from continuing operations
per share of Common Stock.. 0.33 0.03 (0.18) (1.55)
Earnings (loss) per share of
Common Stock... 0.15 (0.12) (0.11) (1.58)
1998 Quarter Ended
September 27 December 27 March 28 June 27
(In thousands, except per share data)
Net sales.................... $139,142 $124,927 $121,516 $149,875
Gross profit................. 25,217 21,667 23,915 25,361
Income (loss) from continuing
operations 3,418 1,701 (4,273) 1,770
Net income (loss)............ 666 (570) (45,617) 1,770
Earnings (loss) from continuing operations
per share of Common Stock.. 0.14 0.07 (0.17) 0.07
Earnings (loss) per share of
Common Stock... 0.03 (0.02) (1.86) 0.07
</TABLE>
During the fourth quarter of fiscal 1999, the Company recognized impairment of
the excess of cost over assigned value of net assets acquired in the Duck Head
Apparel division and of certain real property in the Delta Apparel Division,
resulting in pretax charges totaling $14 million. In the same quarter, the Duck
Head Apparel division also took pretax charges of $14.7 million resulting from
reducing the estimated useful lives of certain categories of assets to more
closely reflect current industry standards, increasing inventory reserves due to
poor sales levels, writing off store fixtures at former customers' premises, and
reducing production capacity to more closely match reduced sales levels. Also in
the fourth quarter, the Delta Apparel division took pretax charges of $3.1
million to increase reserves on certain discontinued and slow moving inventory
categories, and to increase accounts receivable reserves.
During the third quarter of fiscal 1999, the Company recorded a $2.6 million
pre-tax charge to adjust the carrying value of certain plant assets.
The quarterly impact of discontinued operations is discussed in Note H above.
During the fourth quarter of fiscal 1998, the Company made certain adjustments
resulting from changes in estimates of inventory losses that were material to
the results of operations. These changes resulted in a reduction in net income
of $1.7 million for the fourth quarter of fiscal 1998.
<PAGE>
During the third quarter of fiscal 1998, the Company recognized restructuring
and impairment charges of $37 million in connection with discontinued operations
described in Note H. In addition, the Company recognized impairment of cost over
assigned value of net assets in the Delta Apparel division by charging pre-tax
income for $7.5 million. In the same quarter, the Company also recognized
pre-tax restructuring charges of $1.6 million primarily related to closure of
certain facilities at Duck Head Apparel.
CORPORATE DIRECTORY
OPERATING COMPANIES OF
DELTA WOODSIDE INDUSTRIES, INC.
DELTA MILLS MARKETING COMPANY
P.O. Box 6126, Station B
100 Augusta Street
Greenville, SC 29606
DUCK HEAD APPAREL COMPANY
P.O. Box 688
1020 Barrow Industrial Parkway
Winder, GA 30680-0688
DELTA APPAREL COMPANY
3355 Breckinridge Boulevard
Suite 100
Duluth, GA 30136
BOARD OF DIRECTORS
* C. C. GUY**
Retired businessman
WILLIAM F. GARRETT
President
Delta Mills Marketing Company
* DR. JAMES F. KANE**
Dean Emeritus, College of Business
University of South Carolina
* DR. MAX LENNON**
President
Mars Hill College
E. ERWIN MADDREY, II
President and
Chief Executive Officer
Delta Woodside Industries, Inc.
BUCK A. MICKEL**
Vice President and Director
Micco Corporation
(Real estate and business investments)
BETTIS C. RAINSFORD
President
The Rainsford Development Corporation
(General business development activities)
* Member Audit Committee
** Member Compensation Committee
<PAGE>
CORPORATE OFFICERS
E. ERWIN MADDREY, II
President and Chief Executive Officer
JANE H. GREER
Vice President and Secretary
ROBERT W. HUMPHREYS
Vice President and Assistant Secretary
BRENDA L. JONES
Assistant Secretary
FORM 10-K
Upon written request, the Company will furnish without charge to any Delta
Woodside Shareholder a copy of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1999 including financial statements and schedules, but
excluding exhibits. Requests should be directed to: Jane H. Greer, Vice
President and Secretary, Delta Woodside Industries, Inc., 233 North Main Street,
Suite 200, Greenville, South Carolina 29601.
ANNUAL MEETING
The Annual Meeting of Shareholders of
Delta Woodside Industries, Inc. will be
held on Thursday, November 4, 1999, at
10:30 a.m., at the Hyatt Regency Hotel, 220
North Main Street, Greenville,
South Carolina.
DELTA WOODSIDE INDUSTRIES, INC.
233 N. Main Street
Suite 200
Greenville, SC 29601
(864) 232-8301
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT
Jurisdiction % Of
Names Under of Stock Owned Other
Name of Subsidiary Incorporation By Parent Which Do Business
- --------------------------- ------------- ---------------------------- --------------------------
<S> <C> <C> <C>
Alchem Capital DE 100% owned
Corporation by Delta Woodside
Industries, Inc.
Delta Mills, Inc. DE 100% owned by Alchem Delta Mills Marketing
Capital Corporation Company; Stevcoknit
Fabrics Company;
Woodside Mills
Delta Merchandising, Inc. SC 100% owned by Duck Head Outlet Stores
Alchem Capital Corporation Duck Head Clearance Stores
Duck Head Apparel TN 100% owned by Duck Head Apparel Company
Company, Inc. Alchem Capital Delta Apparel
Corporation
Delta Consolidated NY 100% owned by Delta Apparel Marketing
Corporation Alchem Capital Corporation Duck Head Marketing.
Cargud, Sociedad Costa Rica 100% owned by
Anonima Duck Head Apparel
Company, Inc.
Armonia Textil, S.A. Costa Rica 100% owned by
Cargud, Sociedad
Anonima
Delta Apparel Honduras, Honduras 96% owned by Duck Head
S. A. Apparel Company, Inc.,
and 1% each owned by
Alchem Capital Corporation,
Delta Woodside Industries,
Inc., Delta Consolidated
Corporation and Cargud, S.A.
Nautilus VA 100% owned by
International, Inc. Alchem Capital Corporation
International Apparel NY 100% owned by Alchem
Marketing Corporation. Capital Corporation
Delta Mills Marketing, Inc. DE 100% owned by Delta Mills Sales Co.
Delta Mills, Inc. Stevcoknit Marketing Co.
</TABLE>
<PAGE>
REPORT ON SCHEDULES
-------------------
The Board of Directors
Delta Woodside Industries, Inc.
Under date of August 13, 1999, we reported on the consolidated balance sheets of
Delta Woodside Industries, Inc. as of July 3, 1999 and June 27, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended July 3, 1999, as
contained in the 1999 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K. In connection with our audit of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules for each of the years in the three-year period
ended July 3, 1999, as listed on in Item 14(d) of Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedules
based on our audit.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ KPMG LLP
---------------
Greenville, South Carolina KPMG LLP
August 13, 1999
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Delta Woodside Industries, Inc.
We consent to the incorporation by reference in the registration statements
(Delta Woodside Industries, Inc. Stock Option Plan - Nos. 33-38930, 333-01381
and 333-45767; Delta Woodside Industries, Inc. Incentive Stock Award Plan -
Nos. 33-38931, 333-01383 and 333-45771; Delta Woodside Industries, Inc.
Long-term Incentive Stock Award Plan No. 333-45769) on Form S-8 of Delta
Woodside Industries, Inc., of our reports dated August 13, 1999, relating to the
consolidated balance sheets of Delta Woodside Industries, Inc. as of July 3,
1999 and June 27, 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended July 3, 1999, and related schedules, which reports are incorporated
by reference or appear in the 1999 annual report on Form 10-K of Delta Woodside
Industries, Inc.
/s/ KPMG LLP
---------------
Greenville, South Carolina KPMG LLP
September 29, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrants consolidated financial statements for the fiscal year ended July 3,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> JUL-03-1999
<CASH> 14066
<SECURITIES> 0
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<ALLOWANCES> 6959
<INVENTORY> 96123
<CURRENT-ASSETS> 213108
<PP&E> 273892
<DEPRECIATION> 129976
<TOTAL-ASSETS> 365203
<CURRENT-LIABILITIES> 68908
<BONDS> 150158
0
0
<COMMON> 238
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<TOTAL-LIABILITY-AND-EQUITY> 365203
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<INTEREST-EXPENSE> 19929
<INCOME-PRETAX> (31664)
<INCOME-TAX> 825
<INCOME-CONTINUING> (32489)
<DISCONTINUED> (6906)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39395)
<EPS-BASIC> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>
