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 September 30, 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.
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(Exact name of registrant as specified in its charter)
SOUTH CAROLINA 57- 0535180
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
100 Augusta Street
Greenville, South Carolina 29601
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(Address of principal executive offices) (Zip Code)
864\255-4100
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(Registrant's telephone number, including area code)
(Not Applicable)
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ] .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value-24,156,625 shares as of November 14, 2000
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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--
September 30, 2000 and July 1, 2000 3-4
Condensed consolidated statements of operations--
Three months ended September 30, 2000 and
October 2, 1999 5
Condensed consolidated statements of cash flows
Three months ended September 30, 2000 and
October 2, 1999 6
Notes to condensed consolidated financial
statements- September 30, 2000 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Item 3. Quantitative and Qualitative Disclosures about Market 10
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Securities Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, July 1,
2000 2000
-------- --------
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,297 $ 19,385
Accounts receivable:
Factor 66,280 71,897
Less allowances for doubtful accounts and returns 171 173
-------- --------
66,109 71,724
Inventories:
Finished goods 7,871 4,916
Work in process 31,778 31,324
Raw materials and supplies 8,368 7,679
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48,017 43,919
Deferred income taxes 3,302 3,288
Prepaid expenses and other current assets 554 537
-------- --------
TOTAL CURRENT ASSETS 125,279 138,853
PROPERTY, PLANT AND EQUIPMENT
Cost 163,532 163,012
Accumulated depreciation 74,380 71,632
-------- --------
89,152 91,380
Deferred Loan Costs and Other Assets 5,313 7,613
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$219,744 $237,846
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET--Continued
September 30, July 1,
2000 2000
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(Unaudited)
(In thousands)
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Trade accounts payable 14,927 14,611
Accrued employee compensation 1,767 3,649
Accrued and sundry liabilities 13,504 17,478
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TOTAL CURRENT LIABILITIES 30,198 35,738
LONG-TERM DEBT 99,425 115,078
DEFERRED COMPENSATION 6,237 6,125
SHAREHOLDERS' EQUITY
Preferred Stock
Common Stock, par value $.01-authorized
50,000,000 shares, issued and outstanding
24,156,000 shares at September 30, 2000 and
23,999,000 shares at July 1, 2000 240 240
Additional paid-in capital 86,145 86,145
Accumulated deficit (2,501) (5,480)
--------- ---------
TOTAL SHAREHOLDER'S EQUITY
83,884 80,905
COMMITMENTS AND CONTINGENCIES
$219,744 $237,846
========= =========
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See notes to consolidated financial statements.
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
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September 30, October 2,
2000 1999
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(In thousands, except per share data)
<S> <C> <C>
Net Sales $63,199 $57,306
Cost of goods sold 53,925 51,205
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Gross profit on sales 9,274 6,101
Selling, general and administrative expense 3,341 3,763
Other income (expense) 375 45
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OPERATING PROFIT 6,308 2,383
Interest expense (income):
Interest expense 2,971 4,542
Interest (income) (285) (175)
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2,686 4,367
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES & EXTRAORDINARY ITEM 3,622 (1,984)
Income tax expense (benefit) 1,286 (545)
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 2,336 (1,439)
Extraordinary gain on early retirement of debt (net of taxes) 639
Income from discontinued operations
less applicable income taxes 0 1,563
-------- --------
NET INCOME $ 2,975 $ 124
======== ========
Basic and diluted earnings (loss) per share:
Continuing operations $ 0.10 $ (0.06)
======== ========
Extraordinary Gain $ 0.02 $ 0.00
======== ========
Discontinued operations $ 0.00 $ 0.07
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Net earnings $ 0.12 $ 0.01
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Weighted average shares outstanding 24,148 23,799
======== ========
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See notes to consolidated financial statements.
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DELTA WOODSIDE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 30, October 2,
2000 1999
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(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,975 $ 124
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations 16,871
Depreciation 2,748 2,653
Amortization 106 173
Decrease in deferred loan costs 392
Gain on early retirement of debt (1,383)
Provision for deferred income taxes 1,503
Changes in operating assets and liabilities (4,073) 1,243
Other (234) 428
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,034 21,492
INVESTING ACTIVITIES
Property, plant and equipment purchases (919) (1,578)
Proceeds of dispositions of assets 452 1
Investing activities of discontinued operations (44)
Other 615 (4)
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NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 148 (1,625)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 85,520
Repayments on revolving lines of credit (87,198)
Scheduled principal payments of long-term debt (87)
Repurchase and retirement of long-term debt (14,270) 0
Other (158)
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NET CASH (USED) BY FINANCING ACTIVITIES (14,270) (1,923)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (12,088) 17,944
Cash and cash equivalents at beginning of quarter 19,385 14,066
--------- --------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $ 7,297 $32,010
========= ========
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See notes to consolidated financial statements.
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DELTA WOODSIDE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 three months ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending June 30, 2001. 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 1, 2000.
NOTE B-INCOME TAXES
The effective income tax rate on income from continuing operations for the three
months ended September 30, 2000 is 35.5%, compared to a tax benefit of 27.5% for
the prior year quarter.
NOTE C-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE
A subsidiary of the Company, Delta Mills, Inc., has obtained a secured
three-year $50 million revolving bank credit facility. At each of July 1, 2000
and September 30, 2000, no amounts were outstanding under this facility. The
credit facility contains restrictive covenants that, among other things, require
that the Delta Mills' Maximum Leverage Ratio, as defined, not exceed specified
amounts. The agreement also restricts additional indebtedness, dividends, and
capital expenditures. 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
availability under the facility.
During the quarter ended September 30, 2000, the Company's Delta Mills, Inc.
subsidiary acquired for $14,270,480 a portion of its 9 5/8% Senior Notes. The
aggregate principal face amount of the acquired Senior Notes was $15,653,000.
The Company recognized an extraordinary gain on the early retirement of debt of
$639,000 net of taxes of $352,000.
In October 2000, the Company acquired for the sum of $3,664,810 an additional
portion of its 9 5/8% Senior Notes, the aggregate principal face amount of which
was $4,063,000.
NOTE D - 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.
Since these businesses are no longer a part of the Company, the results of these
segments have been reclassified and reported as discontinued operations.
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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Summarized results of operations for discontinued businesses are as follows (in
thousands):
Three Months Ended
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September 30, 2000 October 2, 1999
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Net Sales $ 0 $ 45,114
Costs and expenses 0 42,959
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Income before income taxes 0 2,155
Income tax expense 0 592
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Income from discontinued operations 0 1,563
=================== ================
Summarized statements of cash flows for discontinued operations are as follows
(in thousands):
Three Months Ended
-----------------------------
September 30, October 2,
2000 1999
-----------------------------
Net income from discontinued operations $ 0 $ 1,563
Depreciation 0 2,501
Amortization 0 0
Other 0 5
Changes in operating assets and liabilities 0 14,365
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Subtotal 0 16,871
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Net cash provided by operating activities 0 18,434
Property, plant and equipment purchases 0 (140)
Proceeds of dispositions 0 95
Other 0 1
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Net cash (used) by investing activities 0 (44)
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Net cash provided by discontinued operations $ 0 $18,390
=============== ============
NOTE E - SEGMENT INFORMATION
The Company's only operating division, Delta Mills, engages in the manufacture
and sale of a broad range of finished apparel fabrics primarily to branded
apparel manufacturers and resellers and private label manufacturers.
The following tables summarize information about segment profit and loss for the
three months ended September 30, 2000 and October 2, 1999 and at September 30,
2000 and October 2, 1999, respectively:
Three Months Ended Discontinued Corporate
September 30, 2000 Delta Mills Operations and Other Total
------------------ ------------------- ------------- ----------- ----------
Net Sales $ 63,199 $ 0 $ 0 $ 63,199
Operating Profit 6,306 0 2 6,308
Total Assets at
September 30, 2000 $ 212,669 $ 0 $ 7,075 $ 219,744
=================== ============= =========== ==========
Three Months Ended Discontinued Corporate
October 2, 1999 Delta Mills Operations and Other Total
------------------ ------------------- ------------- ----------- ----------
Net Sales $ 57,306 $ 0 $ 0 $ 57,306
Operating Profit 3,401 0 (1,018) 2,383
Total Assets at
October 2, 1999 $ 232,211 $ 91,822 $ 8,890 $ 332,923
=================== ============= =========== ==========
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain "forward-looking statements". All
statements, other than statements of historical fact, that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such matters as future revenues, future cost savings,
future capital expenditures, business strategy, competitive strengths, goals,
plans, references to future success and other such information are
forward-looking statements. The words "estimate", "project", "anticipate",
"expect", "intend", "believe" and similar expressions are intended to identify
forward-looking statements.
The forward-looking statements in this Quarterly Report are based on the
Company's expectations and are subject to a number of business risks and
uncertainties, any of which could cause actual results to differ materially from
those set forth in or implied by the forward-looking statements. These risks
and uncertainties include, among others, changes in the retail demand for
apparel products, the cost of raw materials, competitive conditions in the
apparel and textile industries, the relative strength of the United States
dollar as against other currencies, changes in United States trade regulations
and the discovery of unknown conditions (such as with respect to environmental
matters, 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.
The Company, through its Delta Mills operating division, sells a broad range of
finished apparel fabric primarily to branded apparel manufactures and resellers.
Delta Mills represents the only business segment of the Company.
Net sales from continuing operations in the first quarter of fiscal year 2001
were $63.2 million as compared to $57.3 million in the first quarter of the
prior fiscal year, an increase of 10%. The increase was due principally to an
increase in unit sales of cotton products as a result of improved market
conditions.
Gross profit from continuing operations increased to $9.3 million and 14.7% of
sales in the first quarter of fiscal year 2001. This compares to gross profit
from continuing operations of $6.1 million and 10.6% of sales in the prior year
quarter. The increase in gross profit margin was the result of increased sales
and increased capacity utilization associated with cotton products. Also
contributing to the increase in gross profit margin was the reduction in cost
associated with the downsizing of the synthetic product line that occurred
during the first part of fiscal year 2000.
Selling, general and administrative expenses (SG&A) were $3.3 million and 5.3%
of sales for the first quarter of fiscal year 2001 compared to SG&A of $3.8
million and 6.5% of sales for the prior year quarter. The decrease in SG&A was
directly related to the reduction in corporate management overhead.
Income from continuing operations was $2.3 million for the first fiscal quarter
of fiscal year 2001 compared to a loss of $1.4 million in the prior year
quarter. The increase of $3.7 million was the result of the increase in gross
profit and the decrease in SG&A as described above coupled with a reduction in
interest expense due to lower debt levels associated with the extinguishment of
a portion of Delta Mills, Inc.'s senior note debt. On a per share basis, income
from continuing operations for the current quarter was $.10 per share on
24,148,000 average shares outstanding as compared to a loss of $.06 per share on
23,799,000 average shares outstanding in the same quarter of the prior fiscal
year.
Extraordinary gain, net of taxes of $352,000, was $639,000 in the current year
quarter. The extraordinary gain occurred when the Company's Delta Mills, Inc.
subsidiary purchased $15.7 million face amount of its 9 5/8% Senior Notes for
$14.2 million. There was no extraordinary gain in the prior year quarter. In
October 2000, the Company acquired for the sum of $3,664,810 an additional
portion of its 9 5/8% Senior Notes, the aggregate principal face amount of which
was $4,063,000.
Net income was $3.0 million for the quarter ended September 30, 2000 compared to
net income of $124,000 in the prior year quarter. The prior year quarter net
income included income of $1.6 million from discontinued operations. There was
no impact from discontinued operations for the current year quarter. See Note-D
to the financial statements for a description of the discontinued operations for
the prior year quarter.
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The Company's order backlog at September 30, 2000 was $76.4 million, a 29%
increase over the backlog of $59.2 million at October 2, 1999. The increase was
spread throughout all product lines.
The Company believes that cash flow generated by its operations will be
sufficient to service its debt, to satisfy its day to day working capital
requirements and to fund its planned capital expenditures.
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. On July 2, 2000, the Company adopted the
new standard. The Company's management has determined that its cotton buying
contracts meet the criteria for exclusion under the normal purchases and normal
sales exemption and are not considered derivatives; therefore, the Company had
no financial statement impact from the adoption of the standard.
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 September 30, 2000, a 10% decline in market price of the Company's fixed
price contracts would have had a negative impact of approximately $1.7 million
on the value of the contracts.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings*
Item 2. Changes in Securities and Use of Proceeds*
Item 3. Defaults upon Senior Securities*
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes at the Annual Meeting
of the Company's shareholders held on November 7, 2000:
Election of Broker
Directors For Against Withheld Abstentions Nonvotes
----------------- ---------- --------- --------- ----------- --------
W. F. Garrett 20,144,247 N/A 3,133,574 N/A N/A
C. C. Guy 20,106,310 N/A 3,171,511 N/A N/A
J. F. Kane 20,109,809 N/A 3,168,012 N/A N/A
M. Lennon 20,108,409 N/A 3,169,412 N/A N/A
E. E. Maddrey, II 20,076,131 N/A 3,201,690 N/A N/A
B. A. Mickel 17,656,009 N/A 5,621,812 N/A N/A
Approval of
The 2000 Stock
Option Plan 13,875,182 6,260,267 171,543 N/A 2,970,829
Approval of
The Incentive
Stock Award Plan 16,179,594 3,952,254 175,145 N/A 2,970,829
Ratification of
Appointment of
KPMG LLP
as Independent
Auditors
For Fiscal 2001 22,935,453 263,019 79,349 N/A N/A
Item 5. Other Information*
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.10.1 Amendment of 2000 Stock Option Plan of Delta Woodside Industries,
Inc. Except to the extent required by Section 14., without the prior
approval of the shareholders of the Company the Board (or Committee, as
applicable) shall not (i) reprice, replace or regrant through
cancellation any Options previously awarded under the Plan or (ii)
lower the price per Share at which an Option previously granted under the
Plan may be exercised.
(b) The Company filed Form 8-K with date of July 13, 2000. Items reported were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
The Company filed Form 8-K with date of August 4, 2000. Items reported were:
Item 2. Disposition of Assets
Item 5. Other Events
Item 7. Financial Statements and Exhibits
*Items 1,2,3 and 5 are not applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Woodside Industries, Inc.
----------------------------------
(Registrant)
Date November 14, 2000 /s/ W. H. Hardman, Jr.
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W.H. Hardman, Jr.
Chief Financial Officer
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