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 April 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission File number 1-10095
DELTA WOODSIDE INDUSTRIES, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57- 0535180
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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
- -------------------------------- --------------
(Address of principal executive offices) (Zip Code)
864\232-8301
------------
(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-23,307,645 shares as of May 8, 2000
1
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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--
April 1, 2000 and July 3, 1999 3-4
Condensed consolidated statements of operations--
Three and nine months ended April 1,2000 and
March 27, 1999 5
Condensed consolidated statements of cash flows
Nine months ended April 1, 2000
and March 27, 1999 6
Notes to condensed consolidated financial
statements- April 1, 2000 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about Market 13
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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PART I. FINANCIAL INFORMATION
- --------------------------------
ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
----------- --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,964 $ 14,066
Accounts receivable:
Factor 59,490 66,854
Customers 642 354
--------- --------
60,132 67,208
Less allowances for doubtful accounts and returns 142 287
--------- --------
59,990 66,921
Inventories:
Finished goods 7,326 9,122
Work in process 32,255 28,630
Raw materials and supplies 7,205 6,617
--------- --------
46,786 44,369
Net current assets of discontinued operations 57,547 65,709
Deferred income taxes 0 2,186
Prepaid expenses and other current assets 491 905
--------- --------
TOTAL CURRENT ASSETS 173,778 194,156
PROPERTY, PLANT AND EQUIPMENT
Cost 166,019 166,419
Accumulated depreciation 72,757 65,864
--------- --------
93,262 100,555
Noncurrent assets of discontinued operations 37,727 43,902
Other assets 6,066 7,638
--------- --------
$ 310,833 $346,251
========= ========
</TABLE>
3
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET--Continued
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
--------------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Short-term bank debt $ 8,639 $ 1,678
Trade accounts payable 12,575 16,233
Accrued and sundry liabilities 19,268 25,335
Deferred income taxes 1,650 0
Current portion of long-term debt 0 6,710
--------------- ---------
TOTAL CURRENT LIABILITIES 42,132 49,956
LONG-TERM DEBT 122,505 150,158
DEFERRED INCOME TAXES 0 4,295
OTHER LIABILITIES AND DEFERRED CREDITS 8,266 7,862
SHAREHOLDERS' EQUITY
Common Stock, par value $.01-authorized
50,000,000 shares, issued and outstanding
23,308,000 shares at April 1, 2000 and
23,792,000 shares at July 3, 1999 233 238
Additional paid-in capital 160,074 160,863
Accumulated deficit (22,377) (27,121)
--------------- ---------
137,930 133,980
COMMITMENTS AND CONTINGENCIES
$ 310,833 $346,251
=============== =========
</TABLE>
4
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
------------------- --------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- ---------- --------- ----------
(In thousands, except (In thousands, except
per share data) per share data)
<S> <C> <C> <C> <C>
Net Sales $ 62,146 $ 72,944 $177,534 $ 235,028
Cost of goods sold 52,694 60,438 155,642 190,103
--------- ---------- --------- ----------
Gross profit on sales 9,452 12,506 21,892 44,925
Selling, general and administrative expense 3,795 4,361 12,709 14,191
Other income (expense) (412) 65 (309) 115
--------- ---------- --------- ----------
OPERATING PROFIT 5,245 8,210 8,874 30,849
Interest expense (income):
Interest expense 4,484 4,585 13,621 14,806
Interest (income) (350) (65) (892) (213)
--------- ---------- --------- ----------
4,134 4,520 12,729 11,379
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,111 3,690 (3,855) 16,256
Income tax expense (benefit) (817) 3,495 (408) 4,877
--------- ---------- --------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
1,928 195 (3,447) 11,379
Extraordinary gain less applicable income
taxes
5,550 0 5,550 0
Income (loss) on disposal of discontinued
operations less applicable income taxes 0 1,618 0 (6,245)
Income (loss) from operations of
discontinued operations less applicable
income taxes (502) (4,524) 2,641 (7,030)
--------- ---------- --------- ----------
NET INCOME (LOSS) $ 6,976 $ (2,711) $ 4,744 $ (1,896)
========= ========== ========= ==========
Basic and diluted earnings (loss) per share:
Continuing operations $ 0.08 $ 0.01 $ (0.14) $ 0.47
Extraordinary gain $ 0.24 $ 0.00 $ 0.23 $ 0.00
Discontinued operations $ (0.02) $ ( 0.12) $ 0.11 $ (0.55)
--------- ---------- --------- ----------
Net earnings (loss) $ 0.30 $ ( 0.11) $ 0.20 $ (0.08)
========= ========== ========= ==========
Weighted average shares outstanding 23,514 24,057 23,727 24,301
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months Ended
April 1, March 27,
2000 1999
---------- -----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 4,744 $ (1,896)
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations 13,982 17,575
Depreciation 8,067 8,337
Amortization 501 466
Write off of loan origination costs - line of credit 419 0
Gain on retirement of debt (pre-tax) (5,883) 0
Other 489 1,587
Changes in operating assets and liabilities (2,305) (3,551)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,014 22,518
INVESTING ACTIVITIES
Property, plant and equipment purchases (3,168) (6,085)
Proceeds of dispositions 132 528
Investing activities of discontinued operations (672) 9,550
Other (13) 18
---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES (3,721) 4,011
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 153,246 243,373
Repayments on revolving lines of credit (146,285) (261,001)
Scheduled principal payments of long-term debt (6,882) (429)
Repurchase and retirement of long term debt (20,897) 0
Dividends paid 0 (1,826)
Repurchase common stock (1,030) (1,897)
Other 453 (3,403)
---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES (21,395) (25,183)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,102) 1,346
Cash and cash equivalents at beginning of year 14,066 2,753
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,964 $ 4,099
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 1, 2000
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 nine months ended April 1, 2000 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. The Company increased the estimate of the
after-tax cost to close discontinued businesses and recognized after tax charges
on discontinued businesses 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.
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. In the quarter ended April 1, 2000, the Company
recorded pre-tax expenses related to the spin-off totaling $4.4 million. $1.9
million of those expenses were deferred until the fourth quarter to offset
projected operating profits of Delta Apparel and Duck Head.
The net assets of discontinued businesses are as follows (in thousands):
<TABLE>
<CAPTION>
April 1, July 3,
2000 1999
---------- ---------
<S> <C> <C>
Accounts Receivable $ 24,128 $ 31,849
Inventories 48,424 51,754
Other current assets 1,155 1,058
Accounts Payable (8,002) (9,121)
Accrued and sundry liabilities (10,052) (9,831)
Deferred spin-off costs 1,894 0
---------- ---------
Total net current assets 57,547 65,709
Property, plant and equipment net of
accumulated depreciation 37,438 43,361
Intangibles 79 145
Other noncurrent assets 210 396
---------- ---------
Total Assets $ 95,274 $109,611
========== =========
</TABLE>
7
<PAGE>
Summarized results of operations for discontinued businesses are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
-------------------- --------------------
April 1, March 27, April 1, March 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 41,238 $ 36,563 $121,183 $130,653
Cost and expenses 38,706 43,975 115,851 140,696
--------- --------- --------- ---------
Income (loss) before spin off costs and income taxes 2,532 (7,412) 5,332 (10,043)
Spin off costs (2,532) 0 ( 2,532) 0
Income tax expense (benefit) 502 (2,888) 159 ( 3,013)
--------- --------- --------- ---------
Income (loss) from discontinued operations (502) $(4,524) $ 2,641 $ (7,030)
========= ========= ========= =========
</TABLE>
Net sales for the prior year periods include sales of Stevcoknit Fabrics and
Nautilus International totaling ($0.1) million and $11.8 million for the quarter
and nine month period, respectively.
Summarized statements of cash flows for discontinued operations are as follows
(in thousands):
<TABLE>
<CAPTION>
Nine months Ended
-------------------
April 1, March 27,
2000 999
---------- ----------
<S> <C> <C>
Net income from discontinued operations $ 2,641 (13,275)
Depreciation 6,568 10,642
Amortization 0 9,405
Other (6,207) 5,077
Changes in operating assets and liabilities 13,621 (7,549)
---------- ----------
Subtotal 13,982 17,575
---------- ----------
Net cash provided by operating activities 16,623 4,300
Property, plant and equipment purchases (2,273) (6,056)
Proceeds of dispositions 1,590 13,432
Other 11 2,174
---------- ----------
Net cash provided (used) by investing activities (672) 9,550
Net cash provided by discontinued operations $ 15,951 13,850
---------- ----------
</TABLE>
Amortization in the nine months ended March 27, 1999 included $8.9 million in
impairment charges at the Nautilus International division. Changes in operating
assets in the nine months ended March 27, 1999 included $13.4 million in
reductions of accounts receivable and inventory at the Stevcoknit Fabrics
division. Proceeds from dispositions in the nine months ended March 27, 1999
included $10.2 million from the sale of assets of the Nautilus International
division.
NOTE C-INCOME TAXES
The effective income tax rate on losses from continuing operations for the nine
months ended April 1, 2000 is an 11% benefit, compared to a 3% expense on the
losses from continuing operations for the fiscal year ended July 3, 1999.
Although both periods reflect a pretax loss, a higher benefit results for the
nine months ended April 1, 2000 due to the release of the valuation allowance
which was originally set up against deferred tax assets.
NOTE D-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE
On March 31, 2000 a subsidiary of the Company, Delta Mills, Inc., replaced its
existing bank credit facility with a new revolving bank facility. Borrowings
under the new credit facility will be based on eligible accounts receivable and
inventory of Delta Mills, subject to a maximum availability limit, which is
initially $65 million. The new credit facility has a three year term and is
secured by the accounts receivable, inventory and capital stock of Delta Mills
and Delta Mills Marketing, Inc. (Delta Mills' wholly owned subsidiary). The
8
<PAGE>
interest rate on the new credit facility is based on a spread over either LIBOR
or a base rate. In connection with this new credit facility, Delta Mills
terminated its prior bank credit facility. On April 1, 2000 there were no
borrowings under either the prior credit facility or the new credit facility.
The new credit facility contains restrictive covenants which, among other
matters, requires that Delta Mills' Maximum Leverage Ratio not exceed specified
ratios. The agreement also restricts additional indebtedness, dividends and
capital expenditures. The new credit facility does not contain certain
restrictions that were present in the credit facility it replaces.
During the three months ended April 1, 2000, the Delta Mills, Inc. subsidiary
acquired for $20,897,279 a portion of its 9 5/8% Senior Notes. The aggregate
principal face amount of the acquired Senior Notes was $27,495,000. Subsequent
to the end of the third fiscal quarter, Delta Mills acquired additional senior
notes with an aggregate principal face value of $2,926,000 for the sum of
$2,069,598.
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 costs, future
capital expenditures, business strategy, competitive strengths, competitive
weaknesses, goals, plans, references to future success or difficulties and other
similar information, are forward-looking statements. The words "estimate",
"project", "anticipate", "expect", "intend", "believe" and similar expressions,
and discussions of strategy and intentions, are intended to identify
forward-looking statements.
The forward-looking statements in this Quarterly Report are based on the
Company's expectations and are necessarily dependent upon assumptions, estimates
and data that the Company believes are reasonable and accurate but may be
incorrect, incomplete or imprecise. Forward looking statements are also subject
to a number of business risks and uncertainties, any of which could cause actual
results to differ materially from those set forth in or implied by the
forward-looking statements. These risks and uncertainties include, among
others, changes in the retail demand for apparel products, the cost of raw
materials, competitive conditions in the apparel and textile industries, the
relative strength of the United States dollar as against other currencies,
changes in United States trade regulations and the discovery of unknown
conditions (such as with respect to environmental matters, and similar items).
Accordingly, any forward-looking statements do not purport to be predictions of
future events or circumstances and may not be realized.
The Company does not undertake publicly to update or revise the forward-looking
statements even if it becomes clear that any projected results will not be
realized.
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. On December 30, 1999 the Company announced that the
corporations that will conduct each of these businesses had filed registration
statements under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission (File Numbers 1-15583 and 1-15585). Amended
Registration statements have also been filed on March 30, 2000 and May 3, 2000.
The Company currently anticipates that the record date for these spin-offs will
be a date in June 2000 and that the spin-offs will be completed in June 2000.
Since the Duck Head and Delta Apparel 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 third quarter of fiscal year 2000
were $62.1 million as compared to $72.9 million in the third quarter of the
prior fiscal year, a decrease of 15%. For the nine months ended April 1, 2000,
net sales were $177.5 million, a decline of 24% from $235.0 million in the first
nine months of the prior fiscal year.
Gross profit from continuing operations declined to $9.5 million for the quarter
ended April 1, 2000 from $12.5 million in the third quarter of the prior fiscal
year and the gross margin declined to 15.3% from 17.1%. For the nine months
9
<PAGE>
ended April 1, 2000, gross profit from continuing operations declined to $21.9
million or 12.3% of sales as compared to $44.9 million or 19.1% of sales in the
same period of the prior fiscal year.
Operating profits from continuing operations in the current quarter decreased to
$5.2 million as compared to $8.2 million in the same quarter of the prior fiscal
year. Operating profits from continuing operations in the first nine months of
fiscal 2000 decreased to $8.9 million as compared to $30.8 million in the first
nine months of fiscal 1999. The declines were due to the gross margin declines
described above for both the quarter and the nine month period, somewhat offset,
in the third quarter and nine months periods, by reductions in selling, general
and administrative costs compared to the comparable periods in the prior fiscal
year.
Income from continuing operations increased to a profit of $1.9 million in the
current quarter as compared to a profit of $0.2 million in the same quarter of
the prior fiscal year. The decline in operating profits was offset in the most
recent quarter by a decrease in net interest expense due to lower debt levels
and by a tax benefit as compared to tax expense in the same quarter of the prior
year. On a per share basis, income from continuing operations for the current
quarter was $.08 on 23,514,000 average shares outstanding as compared to income
of $.01 per share on the 24,057,000 average shares outstanding in the same
quarter of the prior fiscal year. For the nine months ended April 1, 2000
income (loss) from continuing operations declined to a loss of $3.4 million as
compared to a profit of $11.4 million in the same period of the prior fiscal
year. On a per share basis, loss from continuing operations for the nine months
of the current fiscal year was $.14 per share on 23.7 million average shares
outstanding as compared to a profit of $.47 per share on 24.3 million average
shares in the nine months of the prior year.
During the quarter ended April 1, 2000, the Company's Delta Mills, Inc.
subsidiary acquired for $20,897,279 a portion of its 9 5/8% Senior Notes. The
aggregate principal face amount of the acquired Senior Notes was $27,495,000.
These acquisitions resulted in an extraordinary gain on the retirement of debt
in the amount of $5.6 million, or $.24 per share. Included in this amount is
the write off of deferred loan cost of $0.7 million and income tax expense of
$0.3 million. Subsequent to the end of the third fiscal quarter, Delta Mills
acquired additional senior notes with an aggregate principal face value of
$2,962,000 for the sum of $2,069,598.
During the prior year quarter, the Company recognized net income of $1.6 million
on disposal of discontinued operations, which reflected an increase in the
anticipated proceeds from the liquidation of Stevcoknit Fabrics Company. The
prior year nine month $6.2 million loss on disposal of discontinued operations
included reductions in the estimated net proceeds from the sale of Nautilus and
a reduction in the estimated costs to close the Stevcoknit Fabrics operation.
Loss from operations of discontinued operations, net of income taxes, was $0.5
million in the current quarter as compared to a loss of $4.5 million in the
prior year quarter. Income from operations of discontinued operations, net of
income taxes, was $2.6 million in the current nine months as compared to a loss
of $7.0 million in the prior year nine months. Included in operations of
discontinued operations, for each of the current year quarter and nine months
and the prior year quarter and nine months, are the results of the Delta Apparel
and Duck Head Apparel divisions. For the current quarter in discontinued
operations, the Company recognized in expense $2.5 million in costs associated
with the spin-off. Excluding this expense, Delta Apparel had operating profits
of $2.9 million and Duck Head Apparel had operating losses of $0.4 million.
Total income tax expense for the quarter was $0.5 million. For the same quarter
in the prior fiscal year in discontinued operations, Delta Apparel had operating
losses of $3.4 million, Duck Head Apparel had operating losses of $4.1 million,
and total income tax benefit was $2.9 million. For the nine months ended April
1, 2000 in discontinued operations, Delta Apparel had operating profits of $5.9
million, Duck Head Apparel had operating losses of $0.6 million, the Company
recognized spin-off expenses of $2.5 million and total income tax expense was
$0.2 million. For the nine months in the prior fiscal year in discontinued
operations, Delta Apparel had operating losses of $4.1 million, Duck Head
Apparel had operating losses of $5.9 million, and total income tax benefit was
$3.0 million.
Net income in the latest quarter was $7.0 million or $.30 per share as compared
to net loss of $2.7 million or $.11 per share in the same quarter of the prior
fiscal year. Net income for the nine months ended April 1, 2000 was $4.7
million or $.20 per share as compared to the net loss of $1.9 million or $.08
per share for the nine months ended March 27, 1999.
Delta Mills Marketing Company, which manufactures and sells finished woven
fabrics, had net sales for the third quarter of fiscal year 2000 of $62.1
million as compared to $72.9 million in the same quarter of the prior fiscal
year, a decrease of 15%. For the nine months ended April 1, 2000, net sales
were $177.5 million as compared to $235.4 million for the same period of fiscal
1999, a decrease of 25%. The decrease in sales over last year's quarter
10
<PAGE>
reflects the elimination of the Company's greige business, the downsizing of the
synthetic product line, and some downward adjustment in cotton product sales
that started in the first half of the year due to lower than expected demand
from certain customers. Sales of cotton products have decreased 15 % over last
year's quarter but are improved over the previous two quarters of the current
year. The improvement in the cotton product sales began in the third quarter
and production for cottons was at or near full capacity for the last two months
of the quarter. The synthetic product lines were running at approximately 90%
of the downsized capacity. Synthetic sales were down approximately 15% over the
last year's quarter. Sales decreases for first nine months of the year were
primarily caused by the same factors discussed above, except that the downward
adjustments were more dramatic in the first half of the year. For the nine
months ended April 1, 2000, cotton sales were down 19% and synthetics sales were
down 44% from the nine months ended March 27, 1999. Gross profit as a percent
of sales was 15.3% for the third quarter of fiscal year 2000 compared to 17.1%
in the prior year quarter. Gross profit as a percentage of sales was 12.3% for
the nine months ended April 1, 2000 as compared to 19.1% for the same period of
fiscal 1999. In addition to the sales volume declines described above, gross
profit declined as a result of some raw material price increases in the
synthetic product line and increased price pressure in the cotton product
category. Selling, general and administrative costs for the third quarter were
$3.0 million and 4.8% of sales compared to $4.0 million and 5.5% of sales in the
prior year quarter. Year to date selling, general and administrative costs for
fiscal 2000 were $8.5 million or 4.8% of sales as compared to $12.0 million or
5.1% of sales for the same period of fiscal 1999. The division's, and the
Company's, order backlog at April 1, 2000 was $79.9 million, down from the $83.7
million order backlog at March 27, 1999. The decline was spread throughout all
product lines.
Delta Apparel, the Company's T-shirt and fleece apparel division, had sales for
the third quarter of fiscal year 2000 of $27.3 million as compared to $20.5
million in the same quarter of the prior fiscal year. Sales for the nine months
ended April 1, 2000 were $77.5 million as compared to $63.3 in the same period
of the prior fiscal year. The increases in both the quarter and the nine month
period were due to significantly higher unit volume at lower average selling
prices. Gross profit and gross profit margin for the third quarter of fiscal
year 2000 were $5.0 million and 18.3%, respectively, as compared to a loss of
$0.7 million and a negative 3.4%, respectively, in the prior year quarter. Gross
profit and gross profit margin for the first nine month period of fiscal year
2000 were $11.7 million and 15.1%, respectively, as compared to $4.6 million and
7.3% respectively, in the prior year nine month period. The third quarter
improvement is partially due to a $2.6 million adjustment to fixed assets
recorded in the third quarter of fiscal 1999. The lower average selling prices
were largely offset by lower costs of raw materials and lower manufacturing
costs, driven by improved manufacturing efficiencies and higher capacity
utilization in the quarter, as well as the nine month period. For the third
quarter of fiscal 2000, selling, general, and administrative expenses were $2.0
million, or 7.3% of sales, a decrease of $0.8 million from the prior year third
quarter's selling, general and administrative expenses of $2.8 million, or 13.7%
of sales. For the nine month period ended April 1, 2000, Delta Apparel's
selling, general, and administrative expenses were $5.7 million, or 7.4% of
sales, a decrease of $2.8 million from the prior year nine month period's
selling, general and administrative expenses of $8.5 million or 13.4% of sales.
These decreases were due to a number of factors, including lower corporate
overhead, reduced bad debt expense, lower commission expense and a reduction in
distribution expense. This lower level of selling, general and administrative
spending is expected to continue in the future. As a result of the factors
described above, operating profits for the third quarter and first nine months
of fiscal year 2000 were $2.9 million and $5.9 million, respectively, as
compared to operating losses of $3.4 million and $4.1 million in the third
quarter and first nine months, respectively, of fiscal year 1999.
In Duck Head Apparel Company, the Company's branded apparel business, sales
totaled $13.9 million and $43.7 million in the third quarter and first nine
months of fiscal 2000, respectively, a decrease of 13.7% and 21.4%,
respectively, from $16.1 million in the same quarter in fiscal 1999 and $55.6
million in the first nine months of the prior year. The dollar decreases
reflect a decrease in unit sales, which was the result of the loss of certain
key "Duck Head" branded customers, reduced volume at other accounts, the exit
from certain portions of the Company's private label business, and higher sales
for the quarter and lower sales for the nine months at the Company's own retail
outlet stores. Gross profit for the third quarter and first nine months of
fiscal year 2000 were $4.6 million and $13.4 million, respectively, as compared
to $3.5 million and $14.2 million for the same periods in fiscal 1999. Gross
profit margin was 33.1% for the third quarter and 30.7% for the first nine
months of fiscal 2000 as compared to gross profit margin of 21.7% and 25.5% for
the third quarter and first nine months, respectively, of fiscal year 1999. The
increase in gross profit and gross profit margin in the third quarter of fiscal
year 2000 as compared to the third quarter of fiscal year 1999 was due to higher
gross profit margins on both wholesale sales and sales through the company's own
retail outlet stores. The lower gross profit during the first nine months of
fiscal year 2000 as compared to the first nine months of fiscal year 1999 was
due to lower sales partially offset by higher gross profit margins. Selling,
general and administrative expenses were $5.0 million and $14.5 million in the
11
<PAGE>
third quarter and first nine months of fiscal year 2000, respectively as
compared to $7.5 million and $20.2 million during the third quarter and first
nine months, respectively, of fiscal year 1999. The decreases were primarily
due to reductions in all selling, general and administrative expense categories.
The Company expects this lower selling, general and administrative expense level
to continue. As a result of the factors described above, operating losses at
Duck Head Apparel Company for the third quarter and first nine months of fiscal
year 2000 were $0.4 million and $0.6 million, respectively, as compared
operating losses of $4.1 million and $5.9 million in the third quarter and first
nine months, respectively, of fiscal year 1999.
Inventories increased to $47 million at April 1, 2000 as compared to inventories
of $44 million at July 3, 1999. Accounts receivable declined to $60 million at
April 1, 2000 as compared to $67 million at July 3, 1999. This decline is
directly related to the decline in sales.
The effective income tax rate on losses from continuing operations for the nine
months ended April 1, 2000 is an 11% benefit, compared to a 3% expense on the
losses from continuing operations for the fiscal year ended July 3, 1999.
Although both periods reflect a pretax loss, a higher benefit results for the
nine months ended April 1, 2000 due to the release of the valuation allowance
which was originally set up against deferred tax assets.
On March 31, 2000 a subsidiary of the Company, Delta Mills, Inc., replaced its
existing bank credit facility with a new revolving bank facility. Borrowings
under the new credit facility will be based on eligible accounts receivable and
inventory of Delta Mills, subject to a maximum availability limit, which is
initially $65 million. The new credit facility has a three year term and is
secured by the accounts receivable, inventory and capital stock of Delta Mills
and Delta Mills Marketing, Inc. (Delta Mills' wholly owned subsidiary). The
interest rate on the new credit facility is based on a spread over either LIBOR
or a base rate. In connection with this new credit facility, Delta Mills
terminated its prior bank credit facility. On April 1, 2000 there were no
borrowings under either the prior credit facility or the new credit facility.
The new credit facility contains restrictive covenants which, among other
matters, requires that Delta Mills' Maximum Leverage Ratio not exceed specified
ratios. The agreement also restricts additional indebtedness, dividends and
capital expenditures. The new credit facility does not contain certain
restrictions that were present in the credit facility it replaces.
On December 13, 1999 the Company announced that its board had approved a plan to
purchase from time to time up to an aggregate of 5,000,000 shares of the
Company's outstanding stock at prices and at times at the discretion of the
Company's top management. This stock repurchase plan replaced the 2,500,000
stock purchase plan announced by the Company in September 1998, pursuant to
which the Company had acquired an aggregate of approximately 979,000 shares.
During the quarter ended April 1, 2000 the Company purchased approximately
556,000 shares at a cost of approximately $1,030,000.
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.
12
<PAGE>
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 April 1, 2000, a 10% decline in market price of the Company's fixed price
contracts would have had a negative impact of approximately $3.2 million on the
value of the contracts.
13
<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*
Item 5. Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
4.1 Amendment No. 1 to Shareholders Rights Agreement, dated as of
March 15, 2000, between the Company and First Union National
Bank: Incorporated by reference to the Company's Current Report
on Form 8-K dated March 15, 2000 and filed with the Securities
and Exchange Commission on April 3, 2000.
10.4.6 Amendment to Stock Option Plan adopted April 25, 2000.
10.16.1 Revolving Credit and Security Agreement, dated as of March 31,
2000, between GMAC Commercial Credit LLC as agent and lender, and
Delta Mills, Inc. as borrower: Incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K dated
March 31, 2000 and filed with the Securities and Exchange
Commission on April 13, 2000.
10.16.2 Guarantee, dated as of March 31, 2000, of Delta Mills
Marketing, Inc. in favor of GMAC Commercial Credit LLC as agent:
Incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K dated March 31, 2000 and filed with
the Securities and Exchange Commission on April 13, 2000.
10.16.3 General Security Agreement, dated as of March 31, 2000,
between Delta Mills Marketing, Inc. and GMAC Commercial Credit
LLC as agent: Incorporated by reference to Exhibit 99.3 to the
Company's Current Report on Form 8-K dated March 31, 2000 and
filed with the Securities and Exchange Commission on April 13,
2000.
10.16.4 Stock Pledge and Security Agreement, dated as of March 31,
2000, by Alchem Capital Corporation in favor of GMAC Commercial
Credit LLC as agent: Incorporated by reference to Exhibit 99.4 to
the Company's Current Report on Form 8-K dated March 31, 2000 and
filed with the Securities and Exchange Commission on April 13,
2000.
10.16.5 Stock Pledge and Security Agreement, dated as of March 31,
2000, by Delta Mills, Inc. in favor of GMAC Commercial Credit LLC
as agent: Incorporated by reference to Exhibit 99.5 to the
Company's Current Report on Form 8-K dated March 31, 2000 and
filed with the Securities and Exchange Commission on April 13,
2000.
(b) The Company filed Form 8-K with date of March 15, 2000. Items reported
were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
The Company filed Form 8-K with date of March 31, 2000. Items
reported were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
*Items 1, 2, 3, 4 and 5 are not applicable
14
<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 May 16, 2000 /s/ David R. Palmer
--------------------- ----------------------
David R. Palmer
Controller
(Authorized signatory and chief
accounting officer)
15
<PAGE>
RESOLUTIONS REGARDING AMENDMENT OF STOCK OPTIONS AND STOCK OPTION PLAN
- -------------------------------------------------------------------------------
WHEREAS, the Company has granted stock options under the Delta Woodside
Industries, Inc. Stock Option Plan (the "DWI Stock Option Plan") that remain
outstanding and have not yet expired;
WHEREAS, the DWI Stock Option Plan is unclear as to the effect of a spin-off of
a subsidiary of the Company as an independent company on outstanding stock
options held by individuals who are employed by the subsidiary that is spun-off;
WHEREAS, the Board has determined that it is in the best interests of the
Company and its shareholders to amend the DWI Stock Option Plan to clarify the
effect of a spin-off on outstanding options held by employees of the subsidiary
that is spun-off;
NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS:
RESOLVED, that Section 10., Exercise of Options, is amended by adding the
following to the end of the third paragraph:
"If a Subsidiary of the Company is spun-off from the Company by means
of (i) a distribution of the stock of the Subsidiary to the shareholders of
the Company or (ii) the distribution of the stock of a direct or indirect
parent corporation of the Subsidiary to the shareholders of the Company, no
employee of such Subsidiary shall be treated as having had his or her
employment with a Subsidiary of the Company terminated solely as a result
of such spin-off."
RESOLVED, that the officers of the Company, and each of them, are authorized and
directed to execute such documents and take such actions as any of them may deem
necessary or appropriate to amend the terms of any and all outstanding stock
options granted pursuant to the DWI Stock Option Plan to conform to the
substance of the foregoing amendment to the DWI Stock Option Plan.
Adopted April 25, 2000.
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