UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 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
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 or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
233 North 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)
(Not Applicable)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value-23,863,745 shares as of November 8, 1999
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INDEX
DELTA WOODSIDE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
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Page
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Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
October 2, 1999 and July 3, 1999. . . . . . . . . . . . . . . . . 3-4
Condensed consolidated statements of operations--
Three months ended October 2,1999 and
September 26, 1998. . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed consolidated statements of cash flows
Three months ended October 2, 1999
and September 26, 1998. . . . . . . . . . . . . . . . . . . . . . 6
Notes to condensed consolidated financial
statements-October 2, 1999. . . . . . . . . . . . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 9-11
Item 3. Quantitative and Qualitative Disclosures about Market. . 11
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities and Use of Proceeds. . . . . . . 12
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Securities Holders. 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
October 2, July 3,
1999 1999
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(Unaudited)
(In thousands)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 32,010 $ 14,066
Accounts receivable:
Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . 56,005 66,854
Customers . . . . . . . . . . . . . . . . . . . . . . . . . 308 354
--------------- --------
56,313 67,208
Less allowances for doubtful accounts and returns . . . . . . 139 287
--------------- --------
56,174 66,921
Inventories:
Finished goods. . . . . . . . . . . . . . . . . . . . . . . 9,581 9,122
Work in process . . . . . . . . . . . . . . . . . . . . . . 27,464 28,630
Raw materials and supplies. . . . . . . . . . . . . . . . . 7,159 6,617
--------------- --------
44,204 44,369
Net current assets of discontinued operations . . . . . . . . 50,381 65,709
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 2,186 2,186
Prepaid expenses and other current assets . . . . . . . . . . 967 905
--------------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . 185,922 194,156
PROPERTY, PLANT AND EQUIPMENT
Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,607 166,419
Accumulated depreciation. . . . . . . . . . . . . . . . . . . 68,516 65,864
--------------- --------
98,091 100,555
Noncurrent assets of discontinued operations. . . . . . . . . . 41,441 43,902
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 7,469 7,638
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$ 332,923 $346,251
=============== ========
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET--Continued
October 2, July 3,
1999 1999
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(Unaudited)
(In thousands)
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LIABILITIES
CURRENT LIABILITIES
Short-term bank debt . . . . . . . . . . . . . . . . . . $ 0 $ 1,678
Trade accounts payable . . . . . . . . . . . . . . . . . 11,442 16,233
Accrued and sundry liabilities . . . . . . . . . . . . . 18,069 25,335
Current portion of long-term debt. . . . . . . . . . . . 6,634 6,710
------------ ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . 36,145 49,956
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . 150,071 150,158
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . 4,295 4,295
OTHER LIABILITIES AND DEFERRED CREDITS . . . . . . . . . . 8,227 7,862
SHAREHOLDERS' EQUITY
Common Stock, par value $.01-authorized
50,000,000 shares, issued and outstanding
23,804,000 shares at October 2, 1999 and
23,792,000 shares at July 3, 1999. . . . . . . . . . . 239 238
Additional paid-in capital . . . . . . . . . . . . . . . 160,943 160,863
Accumulated deficit. . . . . . . . . . . . . . . . . . . (26,997) (27,121)
------------ ---------
134,185 133,980
COMMITMENTS AND CONTINGENCIES
$ 332,923 $346,251
============ =========
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
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October 2, September 26,
1999 1998
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(In thousands, except per share data)
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Net Sales. . . . . . . . . . . . . . . . . . . . . $ 57,306 $ 83,223
Cost of goods sold . . . . . . . . . . . . . . . . 51,205 66,344
------------ ---------------
Gross profit on sales . . . . . . . . . . . . . 6,101 16,879
Selling, general and administrative expense. . . . 3,763 4,901
Other income (expense) . . . . . . . . . . . . . . 45 26
------------ ---------------
OPERATING PROFIT . . . . . . . . . 2,383 12,004
Interest expense (income):
Interest expense . . . . . . . . . . . . . . . . 4,542 4,911
Interest (income). . . . . . . . . . . . . . . . (175) (53)
------------ ---------------
4,367 4,858
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES. . . . . . . . . . . . . . . (1,984) 7,146
Income tax expense (benefit) . . . . . . . . . . . (545) 143
------------ ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . (1,439) 7,003
(Loss) on disposal of discontinued operations
less applicable income taxes . . . . . . . . . . $ 0 (4,394)
Income from operations of discontinued operations
less applicable income taxes . . . . . . . . . . 1,563 $ 1,046
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NET INCOME . . . . . . . . . . . . . . . . . . . . $ 124 $ 3,655
============ ===============
Basic and diluted earnings (loss) per share:
Continuing operations. . . . . . . . . . . . . . $ (0.06) $ 0.28
============ ===============
Discontinued operations. . . . . . . . . . . . . $ 0.07 $ (0.13)
============ ===============
Net earnings . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.15
============ ===============
Weighted average shares outstanding. . . . . . . . 23,799 24,657
============ ===============
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See notes to consolidated financial statements.
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
October 2, September 26,
1999 1998
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(In thousands)
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OPERATING ACTIVITIES
Net Income (loss). . . . . . . . . . . . . . . . . $ 124 $ 3,655
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations. . . . . . . . . . . . 16,871 22,722
Depreciation . . . . . . . . . . . . . . . . . 2,653 2,775
Amortization . . . . . . . . . . . . . . . . . 173 173
Other. . . . . . . . . . . . . . . . . . . . . 428 3,158
Changes in operating assets and liabilities. . 1,243 (18,416)
------------ ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . 21,492 14,067
INVESTING ACTIVITIES
Property, plant and equipment purchases. . . . . (1,578) (2,956)
Proceeds of dispositions . . . . . . . . . . . . 1 0
Investing activities of discontinued operations. (44) (2,000)
Other. . . . . . . . . . . . . . . . . . . . . . (4) (375)
------------ ---------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES . . . . . . . . . . . . . . (1,625) (5,331)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit. . . . . 85,520 151,930
Repayments on revolving lines of credit. . . . . (87,198) (158,223)
Scheduled principal payments of long-term debt . (87) (145)
Dividends paid . . . . . . . . . . . . . . . . . 0 (616)
Other. . . . . . . . . . . . . . . . . . . . . . (158) 152
------------ ---------------
NET CASH (USED) BY FINANCING ACTIVITIES. . . . . . (1,923) (6,902)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . 17,944 1,834
Cash and cash equivalents at beginning of year . . 14,066 2,753
------------ ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . $ 32,010 $ 4,587
============ ===============
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See notes to consolidated financial statements.
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DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 2, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Delta
Woodside Industries, Inc. ("the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended October 2, 1999 are not
necessarily indicative of the results that may be expected for the year ending
July 1, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended July 3, 1999.
NOTE B--DISCONTINUED OPERATIONS
On March 3, 1998, the Company made the decision to close its Stevcoknit Fabrics
division and sell its Nautilus International division (fitness equipment).
Accordingly, results of those segments have been reported as discontinued
operations. The Stevcoknit Fabrics division was closed during the fourth quarter
of fiscal 1998 and the Company sold the Nautilus International division during
the third quarter of fiscal 1999. During the first quarter of fiscal year 1999,
the Company increased the estimate of the cost to close discontinued businesses
and recognized a charge of $4.4 million in discontinued operations, including a
tax benefit of $.6 million.
On October 4, 1999, the Company announced its decision to spin-off to its
current shareholders, as separate public companies, its Delta Apparel and Duck
Head Apparel divisions. Since these businesses will no longer be a part of the
Company, the results of these segments have been reclassified and reported as
discontinued operations.
The net assets of discontinued businesses are as follows (in thousands):
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October 2, July 3,
1999 1999
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Accounts Receivable. . . . . . . . . $ 24,015 $ 31,849
Inventories. . . . . . . . . . . . . 44,854 51,754
Other current assets . . . . . . . . 1,122 1,058
Accounts Payable . . . . . . . . . . (10,649) (9,121)
Accrued and sundry liabilities . . . (8,961) (9,831)
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Total net current assets . . . 50,381 65,709
Property, plant and equipment net of
accumulated depreciation . . . . . 40,955 43,361
Intangibles. . . . . . . . . . . . . 123 145
Other noncurrent assets. . . . . . . 363 396
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Total Assets . . . . . . . . . $ 91,822 $109,611
============ =========
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Summarized results of operations for discontinued businesses are as follows (in
thousands):
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Three Months Ended
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October 2, September 26,
1999 1998
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Net Sales . . . . . . . . . . . . . $ 45,114 $ 54,308
Cost and expenses . . . . . . . . . 42,959 52,239
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Income before income taxes. . . . . 2,155 2,069
Income tax. . . . . . . . . . . . . 592 1,023
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Income from discontinued operations $ 1,563 $ 1,046
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Summarized statements of cash flows for discontinued operations are as follows
(in thousands):
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Three Months Ended
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October 2, September 26,
1999 1998
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Net income from discontinued operations. . . $ 1,563 $ 1,046
Depreciation . . . . . . . . . . . . . . . . 2,501 2,807
Amortization . . . . . . . . . . . . . . . . 9,024
Other. . . . . . . . . . . . . . . . . . . . 5 (189)
Changes in operating assets and liabilities. 14,365 11,080
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Subtotal 16,871 22,722
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Net cash provided by operating activities. . 18,434 23,768
Property, plant and equipment purchases. . . (140) (2,797)
Proceeds of dispositions . . . . . . . . . . 95 1,134
Other. . . . . . . . . . . . . . . . . . . . 1 (337)
------------ ---------------
Net cash used by investing activities. . . . (44) (2,000)
Net cash provided by discontinued operations $ 18,390 $ 21,768
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Amortization in the quarter ended September 26, 1999 included $8.9 million in
impairment charges at the Nautilus International division. Changes in operating
assets in the quarter ended September 26, 1999 included $10.9 million in
reductions of accounts receivable and inventory at the Stevcoknit Fabrics
division.
NOTE C-INCOME TAXES
The effective income tax rate on income from continuing operations for the three
months ended October 2, 1999 is 27%, compared to a negative 3% for the fiscal
year ended July 3, 1999. The Company expects that any earnings for fiscal year
2000 will permit it to reduce the valuation allowance against deferred tax
assets, resulting in a lower income tax expense for fiscal year 2000.
NOTE D - LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE
On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc., obtained a
secured five-year $100 million revolving bank credit facility. At each of July
3, 1999 and October 2, 1999, no amounts were outstanding under this facility.
The subsidiary's first fiscal 2000 quarter operating results have caused the
subsidiary not to be in compliance at the end of that quarter with the credit
facility's covenants respecting minimum interest coverage ratio, maximum
leverage ratio and minimum tangible net worth. The same covenants are contained
in, and therefore a default also exists under, operating leases of the
subsidiary with an aggregate outstanding lease balance of approximately $5.5
million. The subsidiary intends to negotiate with its bank lenders amendments
of the applicable covenants (which will correspondingly amend the operating
lease covenants) together with a reduction in the borrowing availability under
the bank credit facility to a level more consistent with the subsidiary's needs
and plans. The Company believes that the subsidiary will be able to enter into
such an agreement on terms satisfactory to it. Accordingly, the Company does
not believe that these credit facility or operating lease covenant defaults will
have a material adverse effect on the Company.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain "forward-looking statements". All
statements, other than statements of historical fact, that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such matters as future revenues, future cost savings,
future capital expenditures, business strategy, competitive strengths, goals,
plans, references to future success and other such information are
forward-looking statements. The words "estimate", "project", "anticipate",
"expect", "intend", "believe" and similar expressions are intended to identify
forward-looking statements.
The forward-looking statements in this Quarterly 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.
On October 4, 1999, the Company announced its decision to spin-off to its
current shareholders, as separate public companies, its Delta Apparel and Duck
Head Apparel divisions. Since these businesses will no longer be a part of the
Company, the results of these segments have been reclassified and reported as
discontinued operations. Accordingly, for financial reporting purposes the
Delta Mills Marketing Company division is the only continuing operating segment
of the Company.
Net sales from continuing operations in the first quarter of fiscal year 2000
were $57.3 million as compared to $83.3 million in the first quarter of the
prior fiscal year, a decrease of 31%.
Gross profit from continuing operations declined to $6.1 million from $16.9
million and the gross margin declined to 10.7% from 20.3%.
Operating profits from continuing operations in the current quarter decreased to
$2.4 million as compared to $12.0 million in the same quarter of the prior
fiscal year. This decline was due to the gross margin decline described above,
somewhat offset by reductions in selling, general and administrative costs
compared to the same quarter of the prior fiscal year.
Income (loss) from continuing operations declined to a loss of $1.4 million in
the current quarter as compared to a profit of $7.0 million in the same quarter
of the prior fiscal year. The decline in operating profits was somewhat offset
by a decrease in interest expense due to lower debt levels. On a per share
basis, loss from continuing operations for the current quarter were $.06 on
23,799,000 average shares outstanding as compared to income of $.28 per share on
the 24,657,000 average shares outstanding in the same quarter of the prior
fiscal year.
During the prior year quarter, the Company recognized a net loss of $4.4 million
on disposal of discontinued operations, which included the recognition of a
reduction in the estimated net proceeds from the anticipated sale of Nautilus,
and a reduction in the estimated costs to close the Stevcoknit Fabrics
operation.
Income from operations of discontinued operations, net of income taxes, was $1.6
million in the current quarter as compared to $1.0 million in the prior year
quarter. Included in operations of discontinued operations, for each of the
current year quarter and the prior year quarter, are the results of the Delta
Apparel and Duck Head Apparel divisions. For the current quarter in
discontinued operations, Delta Apparel had operating profits of $1.8 million,
Duck Head Apparel had operating profits of $.4 million, and total income tax
expense of $.6 million. For the same quarter in the prior fiscal year in
discontinued operations, Delta Apparel had operating profits of $.6 million,
Duck Head Apparel had operating profits of $1.5 million, and total income tax
expense was $1.0 million. The improvement from the same quarter in the prior
year was due to lower selling, general, and administrative costs at Delta
Apparel and a lower effective tax rate offsetting a lower gross profit at the
Duck Head division caused by lower sales.
<PAGE>
Net income in the latest quarter was $.1 million or $.01 per share as compared
to net income of $3.7 million or $.15 per share in the same quarter of the prior
fiscal year.
Delta Mills Marketing Company, which manufactures and sells finished woven
fabrics, had net sales for the first quarter of fiscal year 2000 of $57.3
million as compared to $83.3 million in the same quarter of the prior fiscal
year, a decrease of 31%. Sales decreases were in both cotton and synthetic
fabric volume with the principal decline in synthetic fabric unit sales. The
change in synthetic fabric sales is related to weak market demand as a result of
increased import pressure. The Company is in the process of downsizing this
portion of the business in order to match capacity to current market demand. To
a lesser extent, market demand for cotton twill fabric has also declined.
Management believes this decline in cotton twills, the Company's core product,
is the result of garment manufacturers and the related sector moving through a
backlog of inventory that has resulted in a slow down of replenishment orders to
the fabric supplier. Gross profit as a percent of sales was 10.7% for the first
quarter of fiscal year 2000 compared to 20.3% in the prior year quarter. This
decline was due primarily to the sales volume declines and related manufacturing
efficiency losses. Also contributing to this decline in gross profit were
losses incurred in the first quarter of fiscal year 2000 as downsizing of the
synthetic fabric facilities continued in order to match capacity with reduced
demand. In addition, the prior year quarter included an approximately $1.4
million gain from the USDA cotton rebate program that was not in effect during
the first quarter of the current year. Selling, general and administrative cost
were $2.7 million and 4.8% of sales compared to $3.8 million and 4.6% of sales
in the prior year quarter. The division's, and the Company's, order backlog at
October 2, 1999 was $59.2 million, down from the $93.2 million order backlog at
September 26, 1998. The decline was spread throughout all product lines.
Delta Apparel, the Company's T-shirt and fleece apparel division, had sales for
the first quarter of fiscal year 2000 of $28.7 million as compared to $24.9
million in the same quarter of the prior fiscal year, an increase of 15%. This
increase was due to higher unit volume at lower average selling prices. Gross
profit and gross profit margin for the first quarter of fiscal year 2000 were
$3.7 million and 13.0%, respectively, as compared to $4.1 million and 16.5%,
respectively, in the prior year quarter. The lower average selling prices were
largely offset by lower manufacturing costs although the prior year quarter
included an approximately $.9 million gain from the USDA cotton rebate program
that was not in effect during the first quarter of the current year. For the
first quarter of fiscal 2000, Delta Apparel's selling, general, and
administrative expenses were $1.9 million or 44% lower than the same quarter of
the prior year. This reduction is the result of significant cost cutting
initiatives. These cost reductions more than offset the decline in gross
profit, resulting in an improvement in operating profits from $.6 million in the
first quarter of fiscal year 1999 to $1.8 million in the first quarter of
fiscal 2000.
In Duck Head Apparel Company, the Company's branded apparel business, sales for
the three months ended October 2, 1999 totaled $ 16.4 million, as compared to $
22.5 million for the three months ended September 26, 1998, a decrease of 27%.
The dollar decrease reflected a decrease in unit shipments, which was the result
of the loss of three key "Duck Head" branded customers, reduced volume at other
accounts and the exit from certain segments of the Company's private label
business. There were no sales to the three key lost customers during the three
months ended October 2, 1999. During the three months ended September 26, 1998
sales to these three customers were $1.8 million. Additionally, there was a
decrease in retail sales, which resulted from a combination of a comparable
store sales decrease of 8% and fewer stores being open in the three months ended
October 2, 1999 as compared with the three months ended September 26, 1998.
During the three months ended October 2, 1999 the Company did not open or close
any stores and at October 2, 1999 the Company operated 24 retail outlet stores.
Gross profit and gross profit margin for the three months ended October 2, 1999
were $4.8 million and 29%, respectively, as compared to $7.4 million and 32 %,
respectively, for the three months ended September 26, 1998, a decrease in gross
profit of 35%. This decrease in gross profit was due primarily to the lower
sales described above. During the three months ended October 2, 1999, selling,
general and administrative expenses were $ 4.8 million, as compared to $6.0
million during three months ended September 26, 1998, a decrease of $1.2
million. The dollar decrease was primarily due to reductions in all selling,
general and administrative expense categories, except for marketing related
expenses, which increased. Sales decreased at a higher rate than did selling,
general and administrative expenses, resulting in selling, general and
administrative expenses as a percentage of sales being higher. The Company
expects this lower selling, general and administrative expense level to
continue. As a result of the factors described above, operating earnings for the
division for the three months ended October 2, 1999 were $.4 million, as
compared to $ 1.5 million of operating earnings for three months ended September
26, 1998.
Inventories were unchanged at $44 million at October 2, 1999 as compared to
inventories at July 3, 1999. Accounts receivable declined to $56 million at
October 2, 1999 as compared to $67 million at July 3, 1999. This decline is
directly related to the decline in sales.
<PAGE>
The effective income tax rate on income from continuing operations for the three
months ended October 2, 1999 is 27%, compared to a negative 3% for the fiscal
year ended July 3, 1999. The Company expects that any earnings for fiscal year
2000 will permit it to reduce the valuation allowance against deferred tax
assets, resulting in a lower income tax expense for fiscal year 2000.
The Company has a variety of computers and systems that are subject to Year 2000
issues. The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these programs do not
properly recognize a year that begins with "20" instead of the familiar "19".
If not corrected, many computer applications could fail, or cause erroneous
results. The Company has considered the impact of Year 2000 issues on the
Company's computer information systems and other equipment that use embedded
technology such as micro-controllers, and has developed a remediation plan. The
Company's Year 2000 plan includes 1) Identifying 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
compliance, and testing contingency plans. 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,
which should be in place prior to the end of 1999, is approximately $1.2
million. In addition, the Company spent approximately $150,000 on software
improvements and remediation work in fiscal year 1998, $1.5 million in fiscal
year 1999 and an additional $.3 million in the first quarter of fiscal year
2000. No further significant spending is anticipated for remediation and
software improvements. Most key vendors and customers have documented assurance
of current or planned readiness for the year 2000. The most likely worst-case
scenario is that certain non-critical business systems might fail. The Company
has developed contingency plans for all systems that had not been remediated as
of October 2, 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.
On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc., obtained a
secured five-year $100 million revolving bank credit facility. At each of July
3, 1999 and October 2, 1999, no amounts were outstanding under this facility.
The subsidiary's first fiscal 2000 quarter operating results have caused the
subsidiary not to be in compliance at the end of that quarter with the credit
facility's covenants respecting minimum interest coverage ratio, maximum
leverage ratio and minimum tangible net worth. The same covenants are contained
in, and therefore a default also exists under, operating leases of the
subsidiary with an aggregate outstanding lease balance of approximately $5.5
million. The subsidiary intends to negotiate with its bank lenders amendments
of the applicable covenants (which will correspondingly amend the operating
lease covenants) together with a reduction in the borrowing availability under
the bank credit facility to a level more consistent with the subsidiary's needs
and plans. The Company believes that the subsidiary will be able to enter into
such an agreement on terms satisfactory to it. Accordingly, the Company does
not believe that these credit facility or operating lease covenant defaults will
have a material adverse effect on the Company.
The Company believes that cash flow generated by its operations and funds
available under its current credit facilities will be sufficient to service its
debt, to satisfy its day-to-day working capital requirements, and to fund its
planned capital expenditures.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. Daily price
fluctuations are minimal, yet long-term trends in price movement can result in
unfavorable pricing of cotton. 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.
As of October 2, 1999, a 10% decline in market price of the Company's fixed
price contracts would have had a negative impact of approximately $3.9 million
on the value of the contracts.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings*
Item 2. Changes in Securities and Use of Proceeds*
Item 3. Defaults upon Senior Securities*
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes at the Annual Meeting of the
Company's shareholders held on November 4, 1999:
<TABLE>
<CAPTION>
Election of Broker
Directors For Against Withheld Abstentions Nonvotes
- ----------------- ---------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
W. F. Garrett . . 16,665,409 N/A 4,446,340 N/A N/A
C. C. Guy . . . . 16,665,459 N/A 4,446,290 N/A N/A
J. F. Kane. . . . 16,665,459 N/A 4,446,290 N/A N/A
M. Lennon . . . . 16,665,409 N/A 4,446,340 N/A N/A
E. E. Maddrey, II 16,665,359 N/A 4,446,390 N/A N/A
B. A. Mickel. . . 16,665,116 N/A 4,446,633 N/A N/A
B. C. Rainsford . 16,650,292 N/A 4,461,457 N/A N/A
Ratification of
Appointment of
KPMG LLP
as Independent
Auditors
For Fiscal 2000 . 21,035,826 72,237 N/A 3,686 N/A
</TABLE>
Item 5. Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) The Company filed Form 8-K with date of August 26, 1999. Items
reported were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
Items 1, 2, 3 and 5 are not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Woodside Industries, Inc.
----------------------------------
(Registrant)
Date November 16, 1999 /s/ David R. Palmer
-------------------------- ----------------------
David R. Palmer
Controller
(Authorized signatory and chief
accounting officer)
<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 October
2, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-04-1999
<PERIOD-END> OCT-02-1999
<CASH> 32010
<SECURITIES> 0
<RECEIVABLES> 56313
<ALLOWANCES> 139
<INVENTORY> 44204
<CURRENT-ASSETS> 185922
<PP&E> 166607
<DEPRECIATION> 68516
<TOTAL-ASSETS> 332923
<CURRENT-LIABILITIES> 36145
<BONDS> 150071
0
0
<COMMON> 239
<OTHER-SE> 133946
<TOTAL-LIABILITY-AND-EQUITY> 332923
<SALES> 57306
<TOTAL-REVENUES> 57306
<CGS> 51205
<TOTAL-COSTS> 51205
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4367
<INCOME-PRETAX> (1984)
<INCOME-TAX> (545)
<INCOME-CONTINUING> (1439)
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<NET-INCOME> 124
<EPS-BASIC> .01
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</TABLE>
