[DELTA WOODSIDE LOGO APPEARS HERE]
Delta Woodside Industries
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2000 Annual Report
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Contents
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Selected Financial Data .............................................1
Letter to Shareholders ............................................2-3
Management's Discussion and
Analysis ........................................................5-11
Report of KPMG LLP .................................................12
Consolidated Financial
Statements ........................................................13
Corporate Directory .................................Inside Back Cover
Common Stock Market Prices and
Dividends ..........................................Inside Back Cover
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Dress Casual Cotton Twill
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Business Casual
Lyocell/Polyester/Nylon
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SELECTED FINANCIAL DATA
In thousands except per share data
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2000 1999 1998 1997 1996
Operating data ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $249,115 $ 314,455 $ 342,913 $ 315,166 $ 305,408
Gross profit 33,548 56,711 63,577 65,191 33,598
Selling, general and administrative expenses 17,950 19,939 18,617 16,330 14,965
Restructuring and plant closing charges 1,596
Other income (loss) 475 126 249 1,738 (790)
Operating income 16,073 36,898 45,209 50,599 16,247
Interest expense, net 16,094 19,462 22,838 22,603 18,544
Income (loss) from continuing operations before income taxes and
extraordinary item (21) 17,436 22,371 27,996 (2,297)
Income tax expense (benefit) (6,229) 202 671 5,788 (852)
Income (loss) from continuing operations before extraordinary item 6,208 17,234 21,700 22,208 (1,445)
Extraordinary gain (net of taxes) 8,062
Income (loss) from discontinued operations (net of taxes) 7,371 (56,629) (65,453) (14,817) (61,194)
Net income (loss) 21,641 (39,395) (43,753) 7,391 (62,639)
Financial data
Long term debt & leases 115,078 150,158 183,535 227,516 283
Total debt 115,078 158,546 195,523 233,597 242,644
Shareholders equity 80,905 133,980 179,567 225,367 217,335
Total assets 237,846 346,251 448,636 536,338 511,100
Common stock data (per share)
Basic and diluted earnings per share:
Continuing operations 0.26 0.71 0.88 0.91 (0.06)
Extraordinary gain 0.34 0.00 0.00 0.00 0.00
Discontinued operations 0.31 (2.34) (2.66) (0.60) (2.50)
Net earnings (loss) 0.91 (1.63) (1.78) 0.30 (2.56)
Dividends per share 0.00 0.10 0.10 0.00 0.30
Weighted average shares outstanding 23,651 24,149 24,575 24,513 24,443
Ending shares outstanding 23,999 23,792 24,644 24,518 24,460
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</TABLE>
The amounts presented for periods prior to fiscal 2000 have been restated to
conform to the fiscal 2000 presentation of discontinued operations. The Delta
Apparel Company division, the Duck Head Apparel Company division, the
Stevcoknit Fabrics division and the Nautilus International division are
presented above as part of discontinued operations.
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TO OUR FELLOW SHAREHOLDERS
[PICTURE APPEARS HERE]
William F. Garrett
President and Chief Executive Officer
Fiscal year 2000 was a year of change for Delta Woodside. The spin-off of the
two apparel divisions was completed on June 30, 2000 with the creation of three,
separate public companies. The woven apparel fabric division, Delta Mills, is
now the single operating company of Delta Woodside Industries, Inc. With the
spin-off behind us we are now able to focus our full attention on the operations
of Delta Mills. Our message to you is centered on Delta Mills, the events of
fiscal year 2000 and our plans going forward.
During fiscal year 2000 we saw a weakening in the textile sector that resulted
in a decline in sales in both our synthetic and cotton product lines. Cotton
products suffered from excess retail inventories in the first half of the year
as twills moved to a replenishment business. Cottons rebounded in the second
half of the year and production returned to near full capacity. However, as
garment manufacturers expanded their supplier base to gain a more competitive
price we experienced more pressure on our cotton margins. Our synthetic product
lines were hard hit by imports in fiscal year 2000. Consequently we downsized
the synthetic production while developing a more fashion driven product offering
to meet the demand for the new dress casual clothing category. These events
resulted in improved performance, giving us encouragement and added confidence
that our business plan for fiscal year 2001 will materialize.
We are also pleased to report that we maintained strong liquidity and improved
our debt structure during fiscal year 2000. Our long-term debt of $150 million
in senior notes was reduced to $115 million and our $100 million revolving
credit facility was replaced with a $50 million facility that better fits our
needs. We also converted unused assets to cash with the sale of the abandoned
Haynsworth and Greensboro facilities and, as result of the spin-off
transaction, we sold the Rainsford plant that was operated by the Delta Apparel
division. As a result of these moves, coupled with a positive cash flow from
operations, our credit facility remained unused, our net interest cost was
reduced by approximately $3.4 million and we started fiscal year 2001 with a
strong cash position. This has allowed us to further reduce our senior notes to
approximately $99 million at the end of the first quarter of fiscal year 2001.
In a period of uncertainty and volatility in the textile industry, we believe
our strong balance sheet will allow us the time and flexibility needed to make
the right decision in setting our short-term goals and more importantly to
develop a long term strategy that will allow us to remain competitive and
perform at the top of the industry. Short term, we have developed a plan for
expanding our cotton business. This project will take the balance of fiscal
year 2001 to complete and falls well within our capital expenditure plan, which
is less than depreciation for fiscal 2001. Development of our long-term
strategy is also under way but will take longer to complete. As we move closer
to our chosen path for our long-term plan, we will keep you informed.
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Another item in our capital plan for fiscal 2001 is the replacement of our
computer systems with new technology designed to enhance customer
relationships. We have engaged J.D. Edwards and IBM to complete this
initiative, and work is now underway. This new technology will strengthen
customer relationships and will provide an e-business platform for meeting
future needs of both customers and suppliers in the new information age.
In conclusion, we wish to thank our employees, customers, shareholders, and
suppliers for their support through a difficult year. With your continued
support, we are committed to bringing about positive change to Delta Woodside
and position our company for leadership in the future.
/s/ William F. Garrett
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William F. Garrett
President and Chief Executive Officer
[PICTURE APPEARS HERE]
W. H. Hardman, Jr.
Vice President -- Chief
Financial Officer,
Treasurer and Secretary
[PICTURE APPEARS HERE]
Donald C. Walker
Vice President, Controller and
Assistant Secretary
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[PICTURE APPEARS HERE]
Beattie Plant, Simpsonville, S.C.
[PICTURE APPEARS HERE]
Open End Spinning
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Delta Woodside, through its Delta Mills operating division, sells a broad range
of finished apparel fabrics primarily to branded apparel manufacturers and
resellers, including The Gap, Levi Strauss, Haggar Corp., the Wrangler(R) and
Lee(R) 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.
Delta Mills represents the only business segment of the Company. During fiscal
years 2000, 1999 and 1998, approximately 83%, 78% and 70%, respectively, of the
Company's finished woven fabric sales are of fabrics made from cotton or
cotton/synthetic blends, while approximately 17%, 22% and 30%, respectively, of
such sales are of fabrics made from spun synthetics and other natural fibers,
including various blends of rayon, polyester and wool.
The foregoing letter to shareholders and the following discussion contain
various "forward-looking statements". All statements, other than statements of
historical fact, that address activities, events, or developments that the
Company expects or anticipates will or may occur in the future, 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
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. This transaction was completed on June 30, 2000 and
resulted for financial reporting purposes in a net dividend to reflect the
spin-off transactions of $74,960,000. Since these businesses are no longer a
part of the Company, the results of these segments have been reclassified and
reported as discontinued operations for all years presented. During fiscal year
2000, the Company recorded pre-tax expenses related to the spin-off totaling
approximately $5.0 million.
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 reclassified and
reported as discontinued operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
RESULTS OF OPERATIONS
Fiscal 2000 Versus Fiscal 1999
Net Sales. Consolidated net sales for the year ended July 1, 2000 totaled
$249.1 million, as compared to $314.5 million for the year ended July 3, 1999,
a decrease of 20.8% resulting from a decrease in unit sales and in prices. The
sales of finished synthetic products decreased 28% caused mainly by the
Company's decision to downsize the finished synthetic business in order to
concentrate on a more fashion driven product line. The sale of cotton fabric
decreased 16% due to inventory adjustments by the Company's customers. Sales of
greige fabric decreased 84% as the Company exited the greige goods business.
[BAR CHART APPEARS HERE]
SALES PER EMPLOYEE
(Thousands $)
109 130 132 128 113
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1996 1997 1998 1999 2000
Gross Profit. Consolidated gross profit margin as a percent of sales for the
year ended July 1, 2000 was 13.5%, as compared to 18.0% for the year ended July
3, 1999. The decline in gross profit for the year was the result of reduced
volume and price along with a change in product mix. In addition to a general
market decline, these reductions were caused by cotton garment manufacturers
expanding their supplier base to gain a more competitive price and by increased
import pressure on synthetic products. Manufacturing cost increases caused by
reduced operating schedules in the first and second quarters of fiscal year 2000
also contributed to the decline in gross profit. The gross profit margin
improved in the third and fourth quarters as sales and operating schedules
improved.
Selling, General and Administrative Expenses. During the year ended July 1,
2000, selling, general and administrative expenses were $17.9 million, as
compared to $19.9 million during the year ended July 3, 1999, a decrease of $2.0
million or 10.1%. The decrease was due primarily to the elimination of certain
costs in the prior year period relating to the reorganization of the Company.
Expenses in this category were 7.2% of sales in fiscal 2000 as compared to 6.3%
in fiscal 1999. Management believes that, with the completion of the
reorganization of the Company and the elimination of costs associated with
managing a multi-divisional operation, selling, general and administrative
expenses will be at a reduced level in the future.
Operating Earnings. Operating earnings for the year ended July 1, 2000 were
$16.1 million, as compared to $36.9 million for the year ended July 3, 1999. The
decline in operating earnings was due to the factors described above.
Net Interest Expense. For the year ended July 1, 2000, net interest expense
was $16.1 million, as compared to $19.5 million for the year ended July 3,
1999. The decrease in interest expense resulted from the reduction of debt that
occurred because of the Company's positive operating cash flow from its
continuing as well as discontinued operations.
Taxes. For the year ended July 1, 2000, the Company recorded tax benefits of
$6.2 million for continuing operations related to changes in assumptions
concerning projected future earnings. These changes resulted in a reduction of
the valuation allowance associated with the Company's net loss carry forward.
For the year ended July 3, 1999, the Company recorded tax expense of $0.2
million for continuing operations resulting mainly from state franchise and
income tax expenses.
Income from Continuing Operations. Income from Continuing Operations for the
year ended July 1, 2000 was $6.2 million, as compared to $17.2 million for the
year ended July 3, 1999. The decrease was due to the factors described above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
Extraordinary gain, net of taxes. During fiscal 2000, the Company's Delta
Mills, Inc. subsidiary purchased $34.9 million of face amount of its 9 5/8%
Senior Notes for $26.6 million. The Company recognized an extraordinary gain of
$8.1 million after a tax benefit of $0.6 million.
Order Backlog. The Company's order backlog at July 1, 2000 was $78.8 million,
a 24.5% increase from the $63.3 million order backlog at July 3, 1999. The
Company believes that backlog orders can give a general indication of future
sales.
Adoption of Accounting Standards. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This standard, as subsequently amended by SFAS Nos. 137 and 138, requires the
recognition of all derivatives as either assets or liabilities in the statement
of financial position and the measurement of those instruments at fair value.
Historically, the Company has not entered into any derivative contracts, as
defined by SFAS No. 133 and its subsequent amendments. Accordingly, adoption of
the new standard on July 2, 2000 will not have an effect upon the Company's
consolidated financial statements, unless the Company enters into any
derivative contracts in the future.
RESULTS OF OPERATIONS
Fiscal 1999 Versus Fiscal 1998
Net Sales. Consolidated net sales for the year ended July 3, 1999 totaled
$314.5 million, as compared to $342.9 million for the year ended June 27, 1998,
a decrease of 8.3% resulting from a decrease in unit sales. The decrease came
from the sales of finished synthetic fabric and greige sales to converters. The
principal decline in sales was from the sale of finished synthetic fabric,
which declined 30% from the prior year. These decreases were somewhat offset by
an increase in finished cotton fabric.
Gross Profit. Consolidated gross profit margin for the year ended July 3,
1999 was 18.0%, as compared to 18.5% for the year ended June 27, 1998. The
decline in finished fabric sales accounted for the majority of the decline in
gross profit percent. As a result of the declining market for synthetic and
greige sales, the synthetic business has been downsized to better match
capacity with market demand and the greige business assets have been converted
to the more profitable finished cotton fabrics product lines. The movement away
from the greige business was substantially completed during fiscal 1999.
Selling, General and Administrative Expenses. During the year ended July 3,
1999, selling, general and administrative expenses were $19.9 million, as
compared to $18.6 million during the year ended June 27, 1998, an increase of
$1.3 million or 7%. The increase was primarily attributable to costs associated
with the restructuring of the Company.
Operating Earnings. Operating earnings for the year ended July 3, 1999 were
$36.9 million, as compared to $45.2 million for the year ended June 27, 1998.
The decline in operating earnings was due to the factors described above.
Net Interest Expense. For the year ended July 3, 1999, net interest expense
was $19.5 million, as compared to $22.8 million for the year ended June 27,
1998. The decrease in interest expense resulted from reductions in debt
primarily due to the liquidation of the assets of the discontinued Stevcoknit
and Nautilus divisions.
Taxes. For the year ended July 3, 1999, the Company recorded tax expense of
$0.2 million for continuing operations resulting mainly from state franchise
and income tax expenses. For the year ended June 27, 1998, the Company recorded
tax expense of $0.7 million for continuing operations which was also the result
of state franchise and income tax expenses.
Income from Continuing Operations. Income from Continuing Operations for the
year ended July 3, 1999 was $17.2 million, as compared to $21.7 million for the
year ended June 27, 1998. The decrease was due to the factors described above.
Order Backlog. The Company's order backlog at July 3, 1999 was $63.3 million,
a 40.6% decrease from the $106.6 million order backlog at June 27, 1998. The
majority of this decrease was in finished woven fabrics due in part to a
decline in blanket contracts (contracts without specific color requirements).
The decline in blanket contracts accounted for approximately 45% of the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
overall decline in the order backlog. Many customers have discontinued the
practice of issuing blanket contracts when specific color requirements are
unknown. Management believes this is an industry trend that will continue. The
balance of the decline is a result of market conditions, particularly in the
synthetics business.
LIQUIDITY AND SOURCES OF CAPITAL
During fiscal 2000, the Company financed its capital expenditures primarily
through cash generated from operations.
The Company generated operating cash flows of $32.3, $54.5, and $51.9 million
for the 2000, 1999 and 1998 fiscal years, respectively. Cash generated in
fiscal year 2000 from both continuing and discontinued operations was used
primarily to finance capital expenditures, including equipment purchases, and
to reduce indebtedness.
[BAR CHART APPEARS HERE]
DMI INVENTORY
(Millions $)
46 46 48 44 46
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1ST 2ND 3RD 4TH 1ST
FY2000 FY2001
On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc. (DMI), which
currently owns all the Company's operating assets, issued $150 million of
unsecured ten-year senior notes at an interest rate of 9.625%, and obtained a
secured five-year $100 million revolving line of credit subject to borrowing
base limitations. The $100 million revolving line of credit was replaced by a
new credit facility on March 31, 2000. Borrowings under the new credit facility
are based on eligible accounts receivable and inventory of the DMI, subject to a
maximum $50 million availability limit. The facility has a three-year term and
is secured by the accounts receivable, inventory and capital stock of DMI. The
interest rate on the credit facility is based on a spread over either LIBOR or a
base rate. On July 1, 2000, there were no borrowings, and approximately $50
million was available for borrowing, under this credit facility.
The credit facility contains restrictive covenants which require that DMI's
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 which were present in the credit
facility which it replaced. The payment of dividends with respect to Delta Mills
stock is permitted by the credit facility if there is no event of default and
there is at least $1 of undrawn availability under the facility.
In May 1998, the Company obtained a short-term $30 million revolving line credit
facility (subject to borrowing base limitations) which was originally due in May
of 1999. The term of this facility was subsequently extended and was terminated
in May 2000.
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 or to pay dividends to the Company's
stockholders. At July 1, 2000, under the most restrictive of these covenants
$1.8 million was available for distribution by DMI to the rest of the Company.
During the year the Company acquired for $26,615,179 a portion of its 9 5/8%
Senior Notes. The aggregate principal face amount of the acquired Senior Notes
was $34,922,000. In July, August and through September 18, 2000, the Company
acquired for the sum of $14,270,000 an additional portion of its 9 5/8% Senior
Notes, the aggregate principal face amount of which was $15,653,000. The future
annual reduction in the Company's interest expense because of these Senior Note
repurchases will be $4,867,844.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
[BAR CHART APPEARS HERE]
DWI DEBT
(Millions $)
157 157 131 115 99
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1ST 2ND 3RD 4TH 1ST
FY2000 FY2001
[BAR CHART APPEARS HERE]
DWI INTEREST EXPENSE
(Millions $)
4.4 4.2 4.1 3.4 2.8
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1ST 2ND 3RD 4TH 1ST
FY2000 FY2001
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
share 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 fiscal 2000 the Company purchased approximately 556,000 shares at a cost
of approximately $1,030,000.
During fiscal 2000, the Company had capital expenditures of approximately $4.2
million primarily for capital improvements, new equipment, and computer system
upgrades. During fiscal 2001, the Company plans to spend approximately $10
million for capital improvements, new equipment, and computer system upgrades.
The Company believes that its equipment and facilities are generally adequate
to allow it 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 1, 2000 minimum
payments under these contracts with non-cancelable contract terms were $25
million.
The Company believes that the cash flow generated by its operations and funds
available under DMI's credit line should be sufficient to service its debt, to
satisfy its day-to-day working capital needs and to fund its planned capital
expenditures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
[PICTURE APPEARS HERE]
Automated Cotton Opening
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk Sensitivity
As a part of Delta Woodside'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 1, 2000, 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 $2.5 million on the value of the contracts. At
the end of fiscal 1999, a 10% decline in the market price of the Company's
fixed price contracts would have had a negative impact of approximately $4.2
million on the value of the contracts. The decline in the potential negative
impact from 1999 to 2000 is due principally to current cotton commitments being
at significantly lower average prices than in fiscal 1999.
Interest Rate Sensitivity
The $50 million secured three year revolving credit facility expiring in 2003
is sensitive to changes in interest rates. Interest is based on a spread over
LIBOR or a base rate. An interest rate change would have a negative impact to
the extent the Company borrows against the revolving credit facility. The
impact would be dependent on the level of borrowings incurred. In fiscal year
2001, as of the date of this Annual Report, the Company has not borrowed
against the revolving credit facility. An interest rate change would not have
an impact on the fixed rate ten-year senior notes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION -- CONTINUED
ENVIRONMENTAL MATTERS
Prior to fiscal year 2001, two of the Company's South Carolina plants, the
Delta 2 & 3 finishing plants, had 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 had been observed at the spray field for those plants. 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. On June 30, 2000 the Company
was issued a discharge permit without toxicity limits. The Company is required
to monitor the toxicity level and report the results annually. The effective
date of this permit is August 1, 2000, and is in effect until March 31, 2004.
On June 30, 2000 the Company sold its Greensboro, North Carolina plant to the
City of Greensboro. The Company had been working with environmental consultants
in assessing groundwater contamination. Because of these studies, one half of
the proceeds from the sale of the plant was placed in an escrow account to
cover expenses related to this contamination. The Company has recorded the sale
net of estimated costs to remediate the property.
[PICTURE APPEARS HERE]
Delta Finishing Complex, Cheraw, S.C.
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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 1, 2000 and July 3, 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended July 1, 2000. 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 1, 2000 and July 3, 1999, and the results of its
operations and its cash flows for each of the years in the three-year period
ended July 1, 2000, in conformity with accounting principles generally accepted
in the United States of America.
KPMG LLP
Greenville, South Carolina
August 4, 2000, except as to Note K (b),
which is as of September 18, 2000
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CONSOLIDATED BALANCE SHEETS
Delta Woodside Industries, Inc.
<TABLE>
<CAPTION>
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July 1, 2000 July 3, 1999
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 19,385,000 $ 14,066,000
Accounts receivable:
Factor 70,299,000 66,854,000
Customers 1,598,000 354,000
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71,897,000 67,208,000
Less allowances for doubtful accounts and returns 173,000 287,000
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71,724,000 66,921,000
Inventories
Finished goods 4,916,000 9,122,000
Work in process 31,324,000 28,630,000
Raw materials and supplies 7,679,000 6,617,000
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43,919,000 44,369,000
Current assets of discontinued operations 0 65,709,000
Deferred income taxes 3,288,000 2,186,000
Prepaid expenses and other current assets 537,000 905,000
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Total current assets 138,853,000 194,156,000
Property, plant and equipment, at cost
Land and land improvements 2,068,000 2,075,000
Buildings 36,635,000 40,154,000
Machinery and equipment 120,740,000 116,671,000
Furniture and fixtures 2,201,000 2,189,000
Leasehold improvements 967,000 967,000
Construction in progress 401,000 4,363,000
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163,012,000 166,419,000
Less accumulated depreciation 71,632,000 65,864,000
------------ -------------
91,380,000 100,555,000
Noncurrent assets of discontinued operations 0 43,902,000
Intangible assets, less accumulated amortization of $3,207,000 (2000) and
$1,288,000 (1999) 2,886,000 4,755,000
Noncurrent deferred income taxes 3,407,000
Other assets 1,320,000 2,883,000
------------ -------------
$237,846,000 $ 346,251,000
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank debt $ 0 $ 1,678,000
Trade accounts payable 14,611,000 16,233,000
Accrued employee compensation 3,649,000 4,802,000
Accrued and sundry liabilities 17,478,000 20,533,000
Current portion of long-term debt 0 6,710,000
------------ -------------
Total current liabilities 35,738,000 49,956,000
Long-term Debt 115,078,000 150,158,000
Deferred income taxes 0 4,295,000
Deferred compensation 6,125,000 7,862,000
Shareholders' equity
Preferred Stock 0 0
Common Stock - par value $.01 a share-authorized 50,000,000 shares, issued and
outstanding 23,999,000 shares (2000) and 23,792,000 shares (1999) 240,000 238,000
Additional paid-in capital 86,145,000 160,863,000
Retained earnings (deficit) (5,480,000) (27,121,000)
------------ -------------
80,905,000 133,980,000
------------ -------------
Commitments and contingencies $237,846,000 $ 346,251,000
============ =============
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
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CONSOLIDATED STATEMENTS OF OPERATIONS
Delta Woodside Industries, Inc.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Year Ended
--------------------------------------------------
July 1, 2000 July 3, 1999 June 27, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $ 249,115,000 $314,455,000 $342,913,000
Cost of goods sold 215,567,000 257,744,000 279,336,000
------------- ------------ ------------
Gross profit 33,548,000 56,711,000 63,577,000
Selling, general and administrative expenses 17,950,000 19,939,000 18,617,000
Other income 475,000 126,000 249,000
------------- ------------ ------------
Operating profit 16,073,000 36,898,000 45,209,000
Interest (expense) income:
Interest expense (17,312,000) (19,929,000) (23,395,000)
Interest income 1,218,000 467,000 557,000
------------- ------------ ------------
(16,094,000) (19,462,000) (22,838,000)
------------- ------------ ------------
Income (loss) from continuing operations before income taxes and
extraordinary item (21,000) 17,436,000 22,371,000
Income tax expense (benefit) (6,229,000) 202,000 671,000
------------- ------------ ------------
Income from continuing operations before extraordinary item 6,208,000 17,234,000 21,700,000
Extraordinary gain (net of taxes) 8,062,000
Discontinued Operations:
(Loss) on disposal of discontinued operations net of applicable income
taxes 0 (7,387,000) (37,509,000)
Income (loss) from operations of discontinued businesses net of applicable
income taxes 7,371,000 (49,242,000) (27,944,000)
------------- ------------ ------------
Total discontinued operations 7,371,000 (56,629,000) (65,453,000)
------------- ------------ ------------
Net income (loss) $ 21,641,000 ($ 39,395,000) ($ 43,753,000)
============= ============ ============
Basic and diluted earnings (loss) per share:
Continuing operations $ 0.26 $ 0.71 $ 0.88
Extraordinary gain $ 0.34
Discontinued operations 0.31 ( 2.34) ( 2.66)
------------- ------------ ------------
Net earnings (loss) $ 0.91 $ ( 1.63) $ ( 1.78)
============= ============ ============
Weighted average number of shares outstanding 23,651,000 24,149,000 24,575,000
============= ============ ============
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
14
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Delta Woodside Industries, Inc.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Common Stock
Preferred ----------------------------
Stock Shares Amount
-------- --------------- ------------
<S> <C> <C> <C>
Balance at June 28, 1997 $0 24,518,405 $245,000
Incentive stock award plan, shares issued 112,403 1,000
Stock Option Plan, shares issued 11,255
Tax benefits of stock plans
Net (loss)
Cash dividends paid - $.10 a share
Other 2,026
-- ----------- --------
Balance at June 27, 1998 $0 $24,644,089 $246,000
Incentive stock award plan, shares issued 72,435 1,000
Stock Option Plan, shares issued 56,751
Share repurchases (978,647) (9,000)
Net (loss)
Cash dividends paid - $.10 a share
Other (3,119)
-- ----------- --------
Balance at July 3, 1999 $0 23,791,509 $238,000
Incentive stock award plan, shares issued 59,361 $ 1,000
Stock Option Plan, shares issued 12,875
Long Term Incentive Plan, shares issued 690,980 $ 7,000
Share repurchases (556,100) (6,000)
Net income
Net dividend to reflect the spin off of Delta Apparel & Duck Head
-- ----------- --------
Balance at July 1, 2000 $0 $23,998,625 $240,000
<CAPTION>
Additional Retained
Paid-In Earnings
Capital (Deficit)
---------------- ----------------
<S> <C> <C>
Balance at June 28, 1997 $ 164,811,000 $ 60,311,000
Incentive stock award plan, shares issued 575,000
Stock Option Plan, shares issued 75,000
Tax benefits of stock plans (253,000)
Net (loss) (43,751,000)
Cash dividends paid - $.10 a share (2,460,000)
Other 13,000
---------------- ----------------
Balance at June 27, 1998 $ 165,221,000 $ 14,100,000
Incentive stock award plan, shares issued 344,000
Stock Option Plan, shares issued 411,000
Share repurchases (4,511,000)
Net (loss) (39,395,000)
Cash dividends paid - $.10 a share (593,000) (1,826,000)
Other (9,000)
---------------- ----------------
Balance at July 3, 1999 $ 160,863,000 ($ 27,121,000)
Incentive stock award plan, shares issued 155,000
Stock Option Plan, shares issued 80,000
Long Term Incentive Plan, shares issued 1,031,000
Share repurchases (1,024,000)
Net income 21,641,000
Net dividend to reflect the spin off of Delta Apparel & Duck Head (74,960,000)
------------- ------------
Balance at July 1, 2000 $ 86,145,000 ($ 5,480,000)
-------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Woodside Industries, Inc.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Year Ended
-------------------------------------------------------
July 1, 2000 July 3, 1999 June 27, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 21,641,000 ($ 39,395,000) ($ 43,751,000)
Adjustments to reconcile net income to net cash provided by operating
activities:
Discontinued operations 21,217,000 67,173,000 68,530,000
Depreciation 10,797,000 11,029,000 13,713,000
Amortization 1,919,000 706,000 1,013,000
Discount to face value on repurchase of bonds (8,307,000)
Provision for losses on accounts receivable (114,000) 27,000 (363,000)
Provision for deferred income taxes (8,805,000) (415,000) 294,000
Losses (gains) on disposition of property and equipment 133,000 110,000 (143,000)
Compensation under stock plans 1,272,000 748,000 664,000
Deferred compensation (416,000) 48,000 244,000
Other 8,000 265,000
Changes in operating assets and liabilities:
Accounts receivable (4,413,000) 14,872,000 1,587,000
Inventories 450,000 9,015,000 2,817,000
Other current assets (115,000) 191,000 (45,000)
Accounts payable and accrued expenses (2,961,000) (9,648,000) 7,076,000
-------------- ------------- -------------
Net cash provided by operating activities 32,298,000 54,469,000 51,901,000
Investing activities
Property, plant and equipment:
Purchases (4,179,000) (8,896,000) (3,826,000)
Proceeds of dispositions 750,000 578,000 86,000
Net (investing) divesting activities of discontinued operations (2,932,000) 9,619,000 (684,000)
Cash balances of businesses spun off (1,665,000)
Other 1,647,000 (7,000) (296,000)
-------------- ------------- -------------
Net cash (used) provided by investing activities (6,379,000) 1,294,000 (4,720,000)
Financing activities
Proceeds from revolving lines of credit 185,517,000 297,434,000 293,262,000
Repayments on revolving lines of credit (171,672,000) (333,499,000) (481,019,000)
Scheduled principal payments of long-term debt (7,163,000) (514,000) (682,000)
Repurchase and retirement of long term debt (26,615,000)
Proceeds from issuance of long-term debt 0 0 145,688,000
Dividends paid 0 (2,419,000) (2,460,000)
Repurchase common stock (1,030,000) (4,520,000)
Other 363,000 (932,000) (1,913,000)
-------------- ------------- -------------
Net cash (used) by financing activities (20,600,000) (44,450,000) (47,124,000)
-------------- ------------- -------------
Increase in cash and cash equivalents 5,319,000 11,313,000 57,000
Cash and cash equivalents at beginning of year 14,066,000 2,753,000 2,696,000
-------------- ------------- -------------
Cash and cash equivalents at end of year $ 19,385,000 $ 14,066,000 $ 2,753,000
============== ============= =============
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
16
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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 year ending June 27, 1998,
wholly owned for the year ended July 3, 1999 and was merged into the Company
during the year ending July 1, 2000). All significant intercompany balances and
transactions have been eliminated. The 1999 and 1998 fiscal years have been
reclassified to conform to the 2000 presentation. (See Note B, Discontinued
Operations)
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 the first-in, first-out (FIFO) method.
Cost for certain inventories of discontinued operations were determined under
the LIFO method. If these inventories had been determined by the FIFO method,
they would have been approximately the same as the reported amounts.
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
over periods of 5 to 10 years, but primarily over 10 years. The excess of cost
over assigned value of net assets acquired relating to certain business
combinations included in discontinued operations has been amortized to expense
over 40 years. As of July 3, 1999, and July 1, 2000 all such assets had been
either disposed of or written down to zero value due to impairment.
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: Basic and diluted earnings per share data are
computed based on the weighted average number of shares of Common Stock and
Common Stock Equivalents outstanding during each period. Common stock
equivalents are approximately 0% 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.
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 are
settled 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.
17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
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 2000 each consisted of 52 weeks and 1999 consisted of 53 weeks.
NOTE B -- Spin-off Transaction and Discontinued Operations
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. This transaction was completed on June 30, 2000 and
resulted in a net dividend to reflect the spin-off transactions of $74,960,000.
Since these businesses are no longer a part of the Company, the results of
these segments have been reclassified and reported as discontinued operations
for all years presented. During fiscal year 2000, the Company recorded pre-tax
expenses related to the spin-off totaling approximately $5.0 million.
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 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 $7 million.
Proceeds from the liquidation of these divisions have been used to reduce
indebtedness and to make capital expenditures.
The net assets of discontinued businesses are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
July 1, 2000 July 3, 1999
-------------- ---------------
<S> <C> <C>
Accounts Receivable $ 0 $ 31,849,000
Inventories 0 51,754,000
Other current assets 0 1,058,000
Accounts Payable 0 (9,121,000)
Accrued and sundry liabilities 0 (9,831,000)
--- ------------
Net current assets 0 65,709,000
Property, plant and equipment net of accumulated depreciation 0 43,361,000
Intangibles 0 145,000
Other noncurrent assets 0 396,000
--- ------------
Total Assets $ 0 $109,611,000
=== ============
--------------------------------------------------------------------------------------------------
</TABLE>
The net assets of the Delta Apparel and Duck Head businesses, which were spun
off to the shareholders as a dividend on June 30, 2000, were $53.8 million and
$21.1 million respectively.
18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
Summarized results of operations for discontinued businesses are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
July 1, 2000 July 3, 1999 June 27, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Sales $169,792,000 $190,364,000 $301,999,000
Costs and expenses 158,060,000 239,464,000 330,517,000
------------ ------------ ------------
Income (loss) before spin off costs and income taxes 11,732,000 (49,100,000) (28,518,000)
Spin off costs (4,953,000) 0 0
Income tax expense (benefit) (592,000) 142,000 (574,000)
------------ ------------ ------------
Income (loss) from operation of discontinued businesses $ 7,371,000 ($ 49,242,000) ($ 27,944,000)
============ ============ ============
--------------------------------------------------------------------------------------------------------------
</TABLE>
Summarized statements of cash flows for discontinued operations are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Fiscal Year Ended
----------------------------------------------------
July 1, 2000 July 3, 1999 June 27, 1998
-------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (loss) from discontinued operations $ 7,371,000 $ (56,629,000) $ (65,453,000)
------------ ------------- -------------
Depreciation 8,315,000 18,167,000 17,180,000
Amortization 0 22,082,000 8,173,000
Other (3,990,000) 2,693,000 5,299,000
Changes in operating assets and liabilities 16,892,000 24,231,000 37,878,000
------------ ------------- -------------
Subtotal 21,217,000 67,173,000 68,530,000
------------ ------------- -------------
Net cash provided by operating activities 28,588,000 10,544,000 3,077,000
------------ ------------- -------------
Property, plant and equipment purchases (4,760,000) (6,196,000) (14,637,000)
Proceeds of dispositions 1,958,000 13,504,000 13,889,000
Other (130) 2,311,000 64,000
------------ ------------- -------------
Net cash provided (used) by investing activities (2,932,000) 9,619,000 (684,000)
------------ ------------- -------------
Net cash provided by discontinued operations $ 25,656,000 $ 20,163,000 $ 2,393,000
============ ============= =============
-------------------------------------------------------------------------------------------------------
</TABLE>
Amortization in the year ended July 3, 1999 included $8.9 million in impairment
charges at the Nautilus International division. Also, 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, which is also included in amortization. The Company also
took an impairment charge to write down certain real property in the Delta
Apparel division. This charge is included in depreciation.
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. This charge is included in
amortization.
NOTE C -- Accounts Receivable
The Company 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.
19
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
The Company operates within the textile industry, and its operations are
affected by the relative strength or weakness of the textile markets. The
Company has three major customers that accounted for 44%, 48%, and 40% of total
net sales of continuing operations for fiscal years 2000, 1999, and 1998,
respectively.
NOTE D -- Long-Term Debt, Credit Arrangements and Notes Payable
Long-term debt consists of:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
July 1, 2000 July 3, 1999
-------------- ---------------
<S> <C> <C>
Senior notes due in 2007 (9.625%), with interest payable semiannually $115,078,000 $150,000,000
Industrial Revenue Bond payable monthly, through 2001 at 80% of a bank's base rate 0 339,000
Note to a bank payable monthly with interest at prime Plus 1% 0 6,415,000
Other 0 114,000
------------ ------------
115,078,000 156,868,000
Less current portion 0 6,710,000
------------ ------------
$115,078,000 $150,158,000
============ ============
--------------------------------------------------------------------------------------------------------------------
</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 was replaced by a new credit facility on March 31, 2000.
Borrowings under the new credit facility are based on eligible accounts
receivable and inventory of Delta Mills, subject to a $50 million maximum
availability limit. The facility has a three-year term and is secured by the
accounts receivable, inventory and capital stock of Delta Mills and Delta Mills
Marketing (Delta Mills' wholly-owned subsidiary). The interest rate on the
credit facility is based on a spread over either LIBOR or a base rate. On July
1, 2000, there were no borrowings under this credit facility.
The credit facility contains restrictive covenants which require 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 which were present in the
credit facility which it replaced. The payment of dividends with respect to
Delta Mills stock is permitted if there is no event of default and there is at
least $1 of undrawn availability under the facility.
Loan covenants in the senior notes and the DMI credit facility limit the
Company's ability to use cash generated by DMI to fund operations in the rest
of the Company. In addition to the limitations contained in the credit
agreement described above, the senior notes also contain restrictive covenants
limiting payments to the Company. At July 1, 2000, the net assets of the
Company include net assets of the wholly owned subsidiary DMI of approximately
$56 million which are subject to the restrictions described above.
Total interest expense incurred by the Company was $17,312,000, $19,929,000 and
$23,395,000 in fiscal years 2000, 1999 and 1998, respectively. Total interest
paid during fiscal years 2000, 1999 and 1998 was $16,790,000, $18,021,000, and
$21,568,000, 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
$3,860,000, $3,636,000 and $4,142,000 for fiscal 2000, 1999 and 1998,
respectively.
20
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
The carrying value of the Company's revolving credit agreements approximate
fair value since the rates are tied to floating rates. At July 1, 2000 the
carrying value of the senior notes was $115,078,000 and the fair value, based
on quoted market prices was $96,666,000.
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>
2001 $ 0 $3,280,000
2002 0 1,628,000
2003 0 446,000
2004 0 461,000
Later year 115,078,000 528,000
------------ ----------
$115,078,000 $6,343,000
============ ==========
-------------------------------------------
</TABLE>
NOTE E -- Shareholders' Equity
STOCK OPTION PLAN
The Stock Option Plan was approved by the shareholders in fiscal 1991, and
amended in fiscal 1996 and fiscal 1998. The Plan terminated in May 2000. The
Plan gives the Company the right to grant options for up to 800,000 shares of
Common Stock to employees. Options available for grant at July 3, 1999 and June
27, 1998 were 127,887 and 221,700, respectively.
A reconciliation of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
Weighted
Average Price Shares
--------------- ------------
<S> <C> <C>
Outstanding at June 28, 1997 $ 3.82 341,506
Granted 2.66 148,000
Exercised 3.29 (11,375)
Canceled 6.63 (20,750)
------- -------
Outstanding at June 27, 1998 3.33 457,381
Granted 2.52 55,500
Exercised 3.62 (56,751)
Canceled 3.12 (38,187)
------- -------
Outstanding at July 3, 1999 3.20 417,943
Granted N/A
Exercised 3.10 (12,875)
Canceled 4.77 (45,175)
------- -------
Outstanding at July 1, 2000 3.01 359,893
======= =======
------------------------------------------------------------
</TABLE>
21
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
For options outstanding at July 1, 2000, exercise price ranges from $2.44 to
$3.38. These options expire on various dates beginning January 2001 and ending
in August 2003, with a weighted average expiration of February 2002. The
options generally have 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. Pursuant to an amendment to the stock
option plan associated with the spin off of Delta Apparel and Duck Head, the
vesting of outstanding options was accelerated during fiscal 2000. Accordingly,
all 359,893 options outstanding are exercisable. Compensation expense
recognized in the year ended July 1, 2000, related to this accelerated vesting,
was $329,000. Options which were exercisable at the end of fiscal 2000, 1999
and 1998 were 359,893, 211,899, and 151,296, respectively, with weighted
average exercise prices of $3.01, $3.59, and 3.84, respectively.
The excess of the fair market value of the stock over the exercise price at the
date of grant is recognized as compensation expense over the period during
which the options become exercisable. Related compensation expense was
$208,000, $308,000 and $223,000 during fiscal 2000, 1999, and 1998,
respectively.
PRO FORMA DISCLOSURE
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." SFAS 123, "Accounting for Stock-Based Compensation," requires
pro forma disclosures for option grants when accounting for stock-based
compensation plans in accordance with APB 25. The pro forma effects are
determined as if compensation costs were recognized using a fair value based
accounting method. The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
--------------------------------------------------------------
2000 1999 1998
------ ------------ ------------
<S> <C> <C> <C>
Risk free interest rate N/A 5.0% 5.0%
Expected lives for options N/A 5 years 5 years
Expected volatility N/A 47% 41%
Dividend yield N/A 2.0% 1.9%
Fair value at grant date N/A $155,400 $427,720
--------------------------------------------------------------
</TABLE>
The pro forma effects on net loss and loss per share of options granted are as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
(in thousands, except per share data) ------------ ------------- -------------
<S> <C> <C> <C>
Reported net income (loss) $ 21,641 $ (39,395) $ (43,753)
Pro forma net income (loss) 21,589 (39,401) (43,755)
Reported income (loss) per share $ .91 $ (1.63) $ (1.78)
Pro forma income (loss) per share .91 (1.63) (1.78)
--------------------------------------------------------------------------------
</TABLE>
INCENTIVE STOCK PLAN
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.
22
<PAGE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
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 0,
2,950, and 36,791 shares during fiscal 2000, 1999 and 1998, respectively.
During fiscal 2000 and 1999, awards to purchase 45,175 and 24,833 shares,
respectively, 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 $176,000, $977,000 and
$775,000 for the fiscal years 2000, 1999 and 1998, respectively. Shares
available for grant at July 1, 2000 were 529,851.
STOCK PURCHASE PLAN
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
share 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 fiscal 2000 the Company purchased approximately 556,000 shares at a cost
of approximately $1,030,000.
LONG TERM INCENTIVE PLAN
In 1997, the shareholders approved the Delta Woodside long term incentive plan.
Under that plan, awards grants could be made to key executives and non-employee
directors of Delta Woodside that, depending on the attainment of certain
performance goals, could translate into stock options. In connection with the
exercise of any options granted under the plan, the Company would pay cash to
the participant to offset the income taxes attributable to the option exercise.
No awards grants complying with all the terms of the plan were made. The
Company did, however, identify the individuals who would be plan participants,
determined performance targets, and communicated these actions to the affected
individuals. To take account of the communications made to the participants,
the fact that all performance periods would expire following the record date
for the Duck Head and Delta Apparel spin off, and the efforts of the key
executives and directors, the Company's board approved the issuance of 690,980
shares of the Company's stock plus payment for income taxes attributable to the
issuance. By acceptance of this compensation, the affected individuals have
surrendered any rights they may have under the plan and no further awards will
be granted or issued under the plan. The Company recognized compensation
expense of $1,672,000 including payments for income taxes in fiscal 2000 under
this plan.
PREFERRED STOCK
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 2000, the Company had regular taxable income of $13 million and
alternative minimum taxable income (AMT) of $7 million, both of which were
offset by available tax loss carry-forwards. After the spin-off and offsetting
of current year taxable income, the Company had regular tax loss carry-forwards
of $35 million for federal purposes and $19 million for state purposes at July
1, 2000.
23
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
2000 1999
-------------- ----------------
<S> <C> <C>
Assets:
Net operating loss carryforwards $13,590,000 $ 19,420,000
Inventory 0 6,625,000
Accrued transaction costs 631,000 676,000
Tax credit carryforwards 3,069,000 3,738,000
Deferred Compensation 2,342,000 3,027,000
Health Claims & Worker's Compensation 1,596,000 2,760,000
Accrued compensation 1,079,000 1,335,000
Other 1,011,000 2,248,000
----------- -------------
Deferred tax assets 23,318,000 39,829,000
Valuation allowance 0 (21,837,000)
----------- -------------
Net deferred tax assets 23,318,000 17,992,000
----------- -------------
Liabilities:
Depreciation 15,675,000 17,616,000
Inventory 269,000 0
Inventory -- LIFO basis difference 0 2,109,000
Accounts Receivable write-down 661,000 329,000
Other 18,000 47,000
----------- -------------
Deferred tax liabilities 16,623,000 20,101,000
----------- -------------
Net deferred tax asset (liability) $ 6,695,000 $ (2,109,000)
=========== =============
------------------------------------------------------------------------
</TABLE>
Approximately $10 million of the $21,837,000 prior year valuation allowance
used to offset the gross deferred tax assets was spun-off with the new
companies. The remaining valuation allowance was decreased to $0 due to
management's belief that it is more likely than not that the gross deferred tax
assets will be realized in the future. 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.
24
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
2000 1999 1998
--------------- ---------- ----------------
<S> <C> <C> <C>
Current:
Federal Income Taxes $ 0 $ 0 $ 577,000
State Income Taxes 467,000 202,000 94,000
------------ -------- ------------
Total Current 467,000 202,000 671,000
Deferred:
Federal income taxes (6,334,000) 0 0
State income taxes (benefits) (362,000) 0 0
------------ -------- ------------
Total Deferred (6,696,000) 0 0
Total Provision for continuing operations $ (6,229,000) $202,000 $ 671,000
------------ -------- ------------
The total provision for income taxes related to:
Extraordinary Items (649,000) 0 0
Discontinued Operations $ (592,000) $163,000 $ (1,344,000)
------------ -------- ------------
Total provision for income taxes $ (7,470,000) $365,000 $ (673,000)
============ ======== ============
-----------------------------------------------------------------------------------------------
</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>
-------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rates $ 4,961,000 $ (13,664,000) $ (15,574,000)
State taxes, net of federal benefit (649,000) 374,000 189,000
Amortization of excess cost over assigned value of net assets acquired 0 5,900,000 2,799,000
Foreign subsidiary loss 535,000 358,000 175,000
Valuation allowance adjustments (11,459,000) 8,744,000 11,983,000
Other (858,000) (1,347,000) (245,000)
------------- ------------- -------------
$ (7,470,000) $ 365,000 $ (673,000)
============= ============= =============
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE G -- 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 DWI 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. A contribution of
$328,000 was allocated to participants for fiscal 1998. During fiscal 2000,
1999 and 1998, the Company contributed $465,000, $736,000 and $615,000,
respectively, to the 401(k) plan.
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 1, 2000 and July 3, 1999, the
total liability amounted to $6,125,000 and $7,862,000, respectively.
25
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
NOTE H -- Affiliated Party Transactions
Prior to June 30, 2000 the Company leased its corporate office space from a
corporation whose stock is owned one-half each by the then president and a then
vice president of the Company. Prior to June 30, 2000 additional office space
and retail store space was leased from a director. Under the leases, the
Company made payments of approximately $353,000, $169,000 and $248,000 for the
2000, 1999 and 1998 fiscal years, respectively.
These leases were terminated as of June 30, 2000 as part of the spin off.
NOTE I -- Commitments and Contingencies
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At July 1, 2000 minimum
payments under these contracts with non-cancelable contract terms were
approximately $25 million.
During fiscal 2001, the Company plans to spend approximately $10 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" under the Comprehensive Environmental Response,
Compensation, and Liability Act with respect to three hazardous waste sites. To
the Company's knowledge, all of the transactions with these sites were
conducted by a 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. The
Company, therefore, has denied any responsibility at the sites and has declined
to participate in any settlements. Accordingly, the Company has not provided
for any reserves for costs or liabilities attributable to the previous
corporation.
At two sites the previous company is listed as a "de minimis" party. At the
third site, the previous company is ranked eleventh out of a total of over 300
potentially responsible parties based on the company's volume of contribution
of about 3%. Latest estimates of certain costs to clean up the site range up to
$4 million. Although there is uncertainty as to several legal issues, the
Company believes that it has certain defenses to liability at these sites.
Based on the information currently known to it, the Company does not believe
that the potential liabilities arising from these three sites will have a
materially adverse impact on the Company.
On January 10, 2000, the North Carolina Department of Environment and Natural
Resources requested that Delta Mills, Inc., a subsidiary of the Company, accept
responsibility for investigating the discharge of hazardous substances at an
inactive hazardous waste site known as the Glen Raven Mills Site, Kings
Mountain, North Carolina (the "Site"). A predecessor by merger of Delta Mills,
Inc., Park Yarn Mills Company, Inc. ("Park Yarn"), owned the Site for
approximately six (6) years, from approximately 1977 to 1983 (prior to the time
Delta Mills, Inc. became a subsidiary of Delta Woodside Industries, Inc.) Delta
Mills, Inc. is aware of no evidence that Park Yarn discharged or deposited any
hazardous substance at the Site or is otherwise a "responsible party" for the
Site. Further, Park Yarn filed bankruptcy and was discharged in 1983. Although
no assurance can be provided, any liability of Park Yarn for the Site may have
been discharged by the bankruptcy order. Accordingly, Delta Mills, Inc. has
denied any responsibility at the Site, has declined to undertake any activities
concerning the Site, and had not provided for any reserves for costs or
liabilities attributable to Park Yarn.
On January 13, 2000, Marion Mills, LLC, a supplier to the Delta Mills, Inc.
subsidiary of the Company, brought an action against Delta Mills, Inc. in North
Carolina Superior Court in McDowell County, North Carolina. Delta Mills, Inc.
removed the case to federal court in the Western District of North Carolina,
Asheville Division, where it is currently pending. Plaintiff seeks actual
damages in excess of $1.8 million and consequential and incidental damages in
excess of $7.4 million. The actual damages claim is based on an alleged failure
by Delta Mills, Inc. to pay in excess of $1.8 million of invoice amounts. The
consequential and incidental damages claim is based on the allegation that
Delta Mills, Inc's. failure to pay caused Marion Mills, LLC to shut down its
business. The
26
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
Company's position is that Delta Mills, Inc. paid some of the invoices claimed
to be unpaid and did not pay the other invoices because of defects in the goods
supplied by the plaintiff (which were returned per the plaintiff's
authorization). The Company and Delta Mills, Inc. therefore deny and are
vigorously contesting the claims.
From time to time the Company and its subsidiaries are defendants in other
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.
NOTE J -- Quarterly Results of Operations (Unaudited)
The following is a summary of quarterly results of operations for the years
ended July 1, 2000 and July 3, 1999.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
2000 Quarter Ended
<S> <C> <C> <C> <C>
October 2 January 1 April 1 July 1
----------- ----------- ----------- -------------
(In thousands, except per share data)
Net sales $ 57,306 $ 58,082 $ 62,146 $ 71,581
Gross profit 6,101 6,339 9,452 11,656
Income (loss) from continuing operations (net of taxes) (1,439) (3,936) 1,928 9,655
Extraordinary gain (net of taxes) 0 0 5,550 2,512
Income (loss) from discontinued operations (net of taxes) 1,563 1,580 (502) 4,730
Net income (loss) 124 (2,356) 6,976 16,897
Earnings (loss) from continuing operations per share of Common Stock (0.06) (0.16) 0.08 0.41
Earnings (loss) per share of Common Stock 0.01 (0.10) 0.30 0.72
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
1999 Quarter Ended
<S> <C> <C> <C> <C>
September 26 December 26 March 27 July 3
-------------- ------------- ---------- ------------
(In thousands, except per share data)
Net sales $83,223 $78,861 $72,944 $79,427
Gross profit 16,879 15,540 12,506 11,786
Income from continuing operations (net of taxes) 7,003 4,181 195 5,855
(Loss) from discontinued operations (net of taxes) (3,348) (7,021) (2,906) (43,354)
Net income (loss) 3,655 (2,840) (2,711) (37,499)
Earnings from continuing operations per share of Common Stock 0.28 0.17 0.01 0.25
Earnings (loss) per share of Common Stock 0.15 (0.12) (0.11) (1.58)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the fourth quarter of fiscal 2000, as a result of the spin-off
transaction, the Company reassessed the need for deferred tax asset valuation
allowances and recorded a tax benefit of $5,821,000 to reduce the previously
recorded valuation allowances.
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,
27
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Delta Woodside Industries, Inc.
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. These charges are reflected in loss from discontinued
operations.
NOTE K -- Extraordinary Item and Subsequent Events
(a) During fiscal 2000, the Company's Delta Mills, Inc. subsidiary purchased
$34,922,000 of face amount of its 9 5/8% Senior Notes for $26,615,000. The
Company recognized an extraordinary gain of $8,062,000 after a tax benefit of
$648,000.
(b) Subsequent to the end of the fiscal 2000 and through September 18, 2000,
Delta Mills purchased $15,653,000 face amount of its 9 5/8% senior notes for
$14,270,000, resulting in a pre-tax extraordinary gain of $990,000.
28
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CORPORATE DIRECTORY
Operating Company of
Delta Woodside Industries, Inc.
Delta Mills
P.O. Box 6126, Station B
100 Augusta Street
Greenville, SC 29606
Corporate Officers
William F. Garrett
President and Chief Executive Officer
William H. Hardman, Jr.
Vice President, Chief Financial Officer,
Secretary and Treasurer
Donald C. Walker
Vice President, Controller
and 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 1, 2000 including financial statements and
schedules, but excluding exhibits. Requests should be directed to:
William H. Hardman, Jr.
Vice President, Chief Financial Officer,
Secretary and Treasurer
P.O. Box 6126, Station B
100 Augusta Street
Greenville, SC 29606
Board of Directors
* C. C. Guy**
Retired businessman
William F. Garrett
President and
Chief Executive Officer
Delta Woodside Industries, Inc.
* 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
Maddrey & Associates
(Investment and Consulting)
Buck A. Mickel**
Vice President and Director
Micco Corporation
(Real estate and business investments)
* Member Audit Committee
** Member Compensation Committee
Annual Meeting
The Annual Meeting of Shareholders of Delta Woodside Industries, Inc. will
be held on Tuesday, November 7, 2000, at 10:00 a.m., at the Peace Center,
Gunter Theatre, 320 South Main Street, Greenville, South Carolina.
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.
<TABLE>
<CAPTION>
2000 1999
FISCAL QUARTERS: --------------------- ----------------------
High Low High Low
-------------------- ----------------------
<S> <C> <C> <C> <C>
First Quarter $5 15/16 $2 5/8 $5 13/16 $ 3 3/8
-------------------- -------------------- ---------------------
Second Quarter 4 5/16 1 1/2 6 1/4 3 15/16
-------------------- -------------------- ---------------------
Third Quarter 2 1/8 1 3/8 7 1/4 4 9/16
-------------------- -------------------- ---------------------
Fourth Quarter 4 1 9/16 7 1/4 4 13/16
==================== -------------------- ---------------------
</TABLE>
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 2000 years were fifty-two
week years.
As of September 20, 2000 there were approximately 1,700 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 and other relevant factors. During the first
quarter of fiscal 2000, the Company suspended payments of dividends. For a
description of the loan covenant restrictions that limit the payment of
dividends by the Company, see "Management's Discussion and Analysis of Results
of Operations and Financial Condition -- Liquidity and Sources of Capital".
<PAGE>
Delta Woodside Industries, Inc.
(864) 255-4200
P.O. Box 6126, Station B
100 Augusta Street
Greenville, SC 29606
