-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HkipofBRGuNMl7LnOauTNgJdfgD7+qSHapjWn8SHtnf6RL4ReXAuyS8JcdxwJU3Z NoJbo1cfggLtAD4tdOqutw== 0000806624-96-000009.txt : 19960930 0000806624-96-000009.hdr.sgml : 19960930 ACCESSION NUMBER: 0000806624-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA WOODSIDE INDUSTRIES INC /SC/ CENTRAL INDEX KEY: 0000806624 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 570535180 STATE OF INCORPORATION: SC FISCAL YEAR END: 0628 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10095 FILM NUMBER: 96636236 BUSINESS ADDRESS: STREET 1: 233 N MAIN ST STREET 2: HAMMOND SQUARE STE 200 CITY: GREENVILLE STATE: SC ZIP: 29601 BUSINESS PHONE: 8038791580 MAIL ADDRESS: STREET 1: 233 NORTH MAIN ST STREET 2: HAMMOND SQ STE 200 CITY: GREENVILLE STATE: SC ZIP: 29601 10-K 1 : SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 29, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-10095 DELTA WOODSIDE INDUSTRIES, Inc. (Exact name of registrant as specified in its charter) South Carolina 57-0535180 (State of Incorporation) (I.R.S. Employer Identification No.) 233 N. Main Street, Hammond Square, Suite 200 Greenville, South Carolina 29601 (Address of principal executive offices) (Zip code) 864/232-8301 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, Par Value $.01 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of each class None Exhibit Index at Page No. 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to be best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by non- affiliates of the registrant as of September 20, 1996 was : Common Stock, $.01 par value - $76,882,739 The number of shares outstanding of each of the registrant's classes of Common Stock, as of September 20, 1996 was: Common Stock, par value $.01 24,511,309 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to shareholders for the fiscal year ended June 29, 1996 are incorporated by reference into Parts I and II. Portions of the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A for the annual shareholders' meeting to be held on November 7, 1996 are incorporated by reference into Part III. Item 1 BUSINESS General Delta Woodside Industries, Inc. ("Delta Woodside" or the "Company") is a South Carolina corporation with its principal executive offices located at 233 North Main Street, Hammond Square, Suite 200, Greenville, South Carolina 29601 (telephone number: 864-232-8301). All references herein to Delta Woodside or the Company refer to Delta Woodside Industries, Inc. and its subsidiaries. The Company manufactures and markets woven and knitted fabrics and apparel. The Company's textile segment produces a range of cotton, synthetic and blended fabrics, woven and knit, which are sold for the ultimate production of apparel, home furnishings and other products. The Company's apparel segment produces woven and knit apparel, including the "Duck Head" (Reg. trademark) line of casualwear marketed primarily in the Southeastern United States to department stores and specialty apparel retailers. The Company also operates 41 retail apparel outlet stores that sell primarily closeout and irregular "Duck Head" products and other woven and knit casualwear produced by the "Duck Head" division and other manufacturers. The Company also manufactures and distributes physical fitness equipment under the "Nautilus" (Reg. trademark) name. The Company has operations in 13 states, Costa Rica and Honduras, and employs approximately 7,400 employees. Delta Woodside Industries, Inc. is the successor by merger to Delta Woodside Industries, Inc., a Delaware corporation that was incorporated in 1986 and whose subsidiaries' businesses were acquired beginning in 1984. The corporation that is now Delta Woodside Industries, Inc. was incorporated in 1972. Products, Marketing and Manufacturing The Company conducts its textile fabrics operations through the Delta Mills Marketing (woven fabrics) and Stevcoknit (knitted fabrics) divisions. It conducts its woven and knit apparel operations through the "Duck Head" and "Delta Apparel" (Reg. trademark) divisions. The Company also manufactures and sells fitness equipment through the "Nautilus" (Reg. trademark) division, and licenses the use of both the "Duck Head" and "Nautilus" trademarks through International Apparel Marketing Corporation (70% owned). Each division has its own management and employees and operates independently of the other divisions. Intersegment sales accounted for no more than approximately 4% of total sales for fiscal 1996, 1995 and 1994. Fabrics produced by Delta Woodside are either woven or knitted and are manufactured from cotton, wool or synthetic fibers or from synthetic filament yarns. Cotton and wool are purchased from numerous suppliers. Synthetic fiber and synthetic filament yarns are purchased from a smaller number of competitive suppliers. The Company sells its woven fabrics primarily to numerous apparel manufacturers and apparel resellers, including Levi, Haggar and Farah and private label apparel manufacturers for J. Item 1 (Continued) C. Penney, Sears and other retailers. The Company's knitted fabrics are sold for production of apparel to other branded and private label manufacturers. Apparel products are sold primarily to department and specialty retailers under the Company's "Duck Head" label, to private label apparel resellers, to distributors and to screen printers. Textile Segment The textile segment manufactures and markets woven and knitted fabrics to manufacturers of apparel and home furnishings and other products. The Company's net sales of woven fabrics were $294 million, $291 million and $289 million and the Company's net sales of knit fabrics were $83 million, $103 million and $103 million, during fiscal 1996, 1995 and 1994, respectively. Delta Mills Marketing Company (Woven Fabrics). Delta Mills Marketing Company produces finished and unfinished woven fabrics used in the production of apparel, home furnishings and other products. "Finished" fabric refers to fabric which has been treated by washing, bleaching, dyeing and applying certain chemical finishes. Finished apparel fabric is ready to be cut and sewn into garments and is typically sold to manufacturers of apparel. Unfinished fabric, commonly referred to as "greige" (pronounced "gray") goods, is typically sold to converters who subsequently finish the fabric and sell it to manufacturers of apparel, home furnishings and other products. The woven fabrics operation manufactures bottom-weight woven fabrics sold in a finished state for use in the manufacture of men's and women's apparel and professional uniforms. Finished woven fabrics produced by the division are primarily sold directly to major apparel manufacturers. The division's marketing efforts focus on four primary apparel manufacturing groups: women's apparel, including fashion apparel; men's apparel; career apparel and uniforms; and military and other government uniforms and apparel. The division also engages in commission finishing, whereby it finishes fabric for converters. The woven fabrics operation sells and distributes its fabrics through Delta Mills Sales Company, a marketing office based in New York City, with sales agents also operating from Atlanta, Dallas, Los Angeles and San Francisco. Delta Mills Sales Company also has international sales agents in the United Kingdom and Hong Kong. Approximately 69% of the division's finished woven fabrics are made from cotton or cotton/synthetic blends, while approximately 31% are made from spun synthetics, including varying blends of rayon, polyester and wool. Finished woven fabrics are principally woven according to projected sales based on strong indications from major customers, but finished according to specific purchase orders. The division's production of cotton and cotton/synthetic blend finished woven fabrics is largely integrated, with the division performing most of its own spinning and substantially all of its own weaving and finishing. The production of spun synthetic finished woven fabrics is fully integrated, with various plants in the division involved in spinning, weaving and finishing. With its printing capability, the Company believes that the division is the only substantially vertically integrated producer of battle dress camouflage military fabrics in the United States. The Company expects that its finished woven all cotton facilities will run at near full capacity during fiscal 1997. However, woven synthetic facilities are not expected to run full schedules during fiscal 1997. At one plant, the division also produces a variety of unfinished light-weight woven fabrics sold for ultimate use in manufacturing apparel such as blouses, dresses and linings, in manufacturing home furnishings, including draperies, curtains and comforters, and in medical and industrial products. Fabrics include 100% polyester, 100% rayon, polyester/rayon blends, textured polyester and other "semi-fancy" fabrics of more complicated construction. The unfinished operation currently is running at full production capacity. Stevcoknit (Knitted Fabrics). Stevcoknit, through 4 plants, spins yarn, knits and finishes a wide range of circular knit fabrics for use in the manufacture of knit apparel, and also provides yarn to the Company's apparel segment. Stevcoknit products are marketed to numerous apparel manufacturers through marketing staffs employed by Stevcoknit Marketing Company in New York City and Los Angeles, with sales personnel also located in North Carolina, Georgia and Dallas. To further promote sales of Stevcoknit's fabrics to apparel manufacturers, the marketing staff of Stevcoknit Marketing Company also contacts major retailers of products manufactured from the division's knitted fabrics. Discussions with these retailers provide information relating to fabric quality and trends in style and color. In addition to its sales to apparel manufacturers, the division also sells prepared for print fabrics to converters and printers through a broker. Certain knitting operations are scheduled according to projected sales, but most knitting and finishing of the fabrics are performed to specific customer orders. The operations within the knitted fabrics operation are largely integrated. Various plants are equipped to perform all stages of the manufacturing process, from carding the raw fiber stock to dyeing and finishing the final fabric product. The fabrics produced by this segment are manufactured primarily by using 100% cotton and polyester/cotton blends. The Stevcoknit operation is currently running at less than full capacity. Apparel Segment The apparel segment produces and markets both woven apparel and knit apparel. The segment's products include woven apparel marketed under the "Duck Head" line of men's and boys' casualwear, which includes pants, shorts and shirts. Knit apparel products include T-shirts and sweatshirts which are sold under the labels of "Duck Head", "Delta Apparel", and various private labels. "Duck Head" Apparel. The division produces a line of men's and boys' casual apparel, sold under the "Duck Head" label, including pants, shorts, shirts and accessories. This division also sells a relatively small amount of men's and boys' woven uniform, sportswear and casualwear under the private labels of its customers. The division also licenses various other categories of apparel and accessories. "Duck Head" labeled products are primarily marketed by sales staff employed by Duck Head Marketing Company to regional and national retailers with stores in the South and South Atlantic regions. The "Duck Head" trademark has been associated with apparel for many decades, but has traditionally been marketed primarily to a Southeastern customer base. The Company acquired the brand in February 1989. The division sells its "Duck Head" products primarily to regional and national department store groups as well as specialty apparel retailers and through Company- operated outlet stores. The division currently displays "Duck Head" products in "Duck Head" shops within some department stores. The "shop" display format of an entire line of sportswear in a dedicated section of a store's sportswear department is used by the major national sportswear brands. Gross sales of "Duck Head" labeled products were approximately $79 million, $81 million and $95 million during fiscal 1996, 1995, and 1994, respectively. "Duck Head" Apparel operates a total of 5 facilities located in Georgia and Costa Rica. The division purchases the fabrics used in its products from a number of producers. "Duck Head" is now acquiring less than one-half of its finished products from other companies throughout the world. This outside production takes the form of sewing fabric parts cut at "Duck Head" facilities, cutting and sewing with fabric and patterns supplied by "Duck Head", or providing finished garments made to "Duck Head" specifications. The division maintains a staff of quality specialists who consistently monitor work in process at outside companies. The Company believes that there is ample capacity among outside contractors worldwide to meet its future production requirements. All of the products are warehoused in the division's owned facilities. "Duck Head" labeled apparel items are generally required to be inventoried to permit quick shipment and to level production schedules. Customer private label apparel items are generally made only to order. The division's products are manufactured primarily from 100% cotton. The division's marketing office is based in Winder, Georgia with regional sales managers and sales personnel located throughout the country. The "Duck Head" division has 41 outlet stores in 11 states that sell principally closeout and irregular "Duck Head" products. These stores also sell a small amount of apparel items manufactured by other companies. "Delta Apparel". "Delta Apparel", which is headquartered in Duluth, Georgia, operates a total of 7 facilities and produces knitted T-shirts and sweatshirts. The division markets its products primarily to companies that screen print shirts for resale and to distributors. Net sales in this division were $123 million, $102 million and $84 million during fiscal 1996, 1995, and 1994, respectively. The division's knit apparel marketing is performed by sales personnel of Delta Apparel Marketing Company with sales personnel located throughout the country. Sales personnel call directly on the retail trade, contacting department stores and the mass marketers such as discount houses. This operation also utilizes independent sales representatives to sell to distributors and screen printing companies. Some knit apparel items are inventoried to permit quick shipment and to level production schedules. Special fashion knit apparel items and customer private label knit apparel styles generally are made only to order. Of the yarn used by the Company's knit apparel operation, approximately one-half is produced by Stevcoknit with the remainder purchased from outside vendors; the knit apparel operation is otherwise largely vertically integrated. The business manufactures its own knitted fabrics, utilizing knitting, dyeing and finishing processes, and cuts and sews its finished knitted fabrics into apparel. The fabrics used by the division are either polyester/cotton blends or 100% cotton. Private Label Division. During fiscal 1996, the Company established a new Private Label Division with the intent of marketing finished garments utilizing fabrics made in our Stevcoknit division and assembled outside the U.S. Fitness Equipment "Nautilus" Fitness Equipment. Nautilus produces weight resistance and aerobic equipment for the institutional, medical and home markets. The current product line in the weight resistance category is called the "Next Generation", which consists of 39 individual machines that exercise the various muscle groups. Nautilus also produces an exclusive line of 30 weight resistance machines for women called "Nautilus for Women". Nautilus also manufactures Power Plus and Free Weight equipment which consists of 45 Machines. As a supplement to the weight resistance line, Nautilus produces five versions of a multi- station machine that serve those markets that have space and budget limitations. Nautilus currently produces seven aerobic machines for the institutional market: three recumbent bikes, two stairclimbers, a treadmill and a skate machine. Nautilus historically has been focused on the institutional market and targets health clubs, the public sector, YMCAs and similar institutions and the medical, amenity and corporate markets. After extensive review, the Company has decided to defer its entry into the consumer market. The manufacturing operations at Nautilus are vertically integrated, including metal fabrication, upholstery, and a vacuum formed and injection molded plastics process. Raw material is inventoried, but finished machines are generally manufactured against customer orders. All manufacturing is done in Independence, Virginia. The Company believes that the manufacturing operation is currently operating at approximately 75% of present capacity, including certain new building space. Competition The cyclical nature of the textile and apparel industries, characterized by rapid shifts in fashion, consumer demand and competitive pressures, results in both price and demand volatility. The demand for any particular product varies from time to time based largely upon changes in consumer preferences and general economic conditions affecting the textile and apparel industries, such as consumer expenditures for nondurables. The textile and apparel industries are also cyclical because the supply of particular products changes as competitors enter or leave the market. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company sells primarily to domestic customers and competes with numerous competitors, both domestic and foreign. The principal competitive factors are price, service, delivery time, quality and flexibility, with the significance of each factor depending upon the product involved. The Company's competitive position varies among the different goods produced. There are several major domestic competitors in the finished cotton and cotton/polyester blend woven fabrics area, none of which dominates the market. The Company believes that it has a strong competitive position with respect to the manufacture of spun synthetic slack-weight and skirt-weight woven fabrics, as well as all cotton bottom-weight sportswear fabrics. The unfinished woven fabrics' operation is a major supplier of both polyester/rayon print cloth used in home furnishings and women's blouses and acetate fabric used in apparel linings and surgical tapes. There are several major domestic competitors in these markets but no company dominates any of these businesses. The knitted fabrics business in which Stevcoknit competes is highly competitive with several large competitors. However, the significant vertical integration of Stevcoknit's manufacturing operations and its experience in performing the more complicated manufacturing techniques required in the production of 100% cotton fabrics provide the Company with certain competitive advantages. The industry, nevertheless, remains highly competitive. The apparel segment competes with numerous domestic and foreign manufacturers of branded and private label apparel. Foreign competition has been an increasingly significant factor in the apparel manufacturing industry, particularly with respect to items that require labor- Item 1 (Continued) intensive production, such as shirts and jackets, and high cost luxury items. Although domestic apparel companies must compete to some extent on a price basis with foreign competition, the Company's management believes that domestic apparel companies can best compete by selling branded products, by manufacturing off- shore, by offering product flexibility, by responding quickly to changes in consumer demand and by providing more timely deliveries. The latter characteristics permit retailers to reduce their inventory costs and lower the risk that product availability will not match consumer demand. The Company's operations are oriented toward providing its apparel segment and the customers of its textile segment with all or some of these competitive advantages. The Company believes that it and its domestic customers can address quality control problems more easily than can manufacturers and distributors of foreign products. Furthermore, the customers of foreign suppliers generally face letter of credit fees, and occasionally face delivery delays and claims resolution difficulties. The Company believes that several aspects of its operations may mitigate some of the problems posed by competition within the domestic textile and apparel industries. The variety of the Company's products offers some degree of protection against the cyclical nature of the business of individual products. Management of the Company believes that the percentage of its production cost attributable to labor is comparable to that of its domestic competitors. Other competitive strengths include: the ability to produce special fabrics such as textured blends; the modern equipment in several of its plants; and the Company's achievement of substantial vertical integration in its various divisions. Nautilus competes in the institutional fitness market which is fragmented and highly competitive. The fitness equipment industry generally competes for business on price, quality, specifications and service. Management of the Company believes that Nautilus has a strong competitive position because of its high name recognition in markets and its reputation for high quality and durable equipment. Employees The Company has approximately 7,400 employees. The Company's employees are not represented by unions. The Company believes that its relations with its employees are good. Environmental and Regulatory Matters Delta Woodside is subject to federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions, ozone depletion and solid waste disposal. Delta Woodside's plants generate very small quantities of hazardous waste which are either recycled or disposed of off-site. Most of its plants are required to possess one or more discharge permits. The subsidiary that conducts the finished woven fabrics operations is subject to a Consent Order with the South Carolina Department of Health and Environmental Control dated September 26, 1985, which was executed prior to Delta Woodside's acquisition of the business. Pursuant to the Consent Order, which arose from a determination that several private drinking wells in the area of two of the subsidiary's plants had been contaminated, the subsidiary has discontinued the operation near these plants of a large spray field into which waste water sludge had been disposed and has placed into operation for such purpose a new and larger spray field. Delta Woodside expects that any continuing expenditures to comply with the Consent Order will be immaterial in amount. Some of the Company's plants have been unable to comply with the acute toxicity limits contained in the National Pollutant Discharge Elimination System (NPDES) permits held by the Company. With respect to certain such plants in North Carolina, the Company signed a Special Order by Consent with the North Carolina Department of Environmental Health and Natural Resources (DEHNR) which required the plants to achieve compliance with the acute toxicity limits . The Special Order by Consent has been amended to require the plants to achieve compliance by October 1, 1997. With respect to certain South Carolina plants, the Company is working with the appropriate state agency in developing a corrective action plan for addressing the toxicity issue. The Company has implemented several courses of action in an effort to achieve compliance with its NPDES permits. Although there is no assurance that the Company will be successful in this regard, it does not currently believe that the matter will have a material adverse impact on the Company. Generally, the environmental rules applicable to the Company are becoming increasingly stringent. The Company incurs capital and other expenditures in each year that are aimed at achieving compliance with current and future environmental standards. The Company does not expect that the amount of such expenditures will have a material adverse effect on its operations or financial condition. There can be no assurance, however, that changes in federal, state or local regulations, changes in regulatory policy or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, the extent of Delta Woodside's liability, if any, for past failures to comply with laws, regulations and permits applicable to its operations cannot be determined. Information contained under the subheading "Environmental Matters" in Management's Discussion and Analysis of Results of Operations and Financial Condition incorporated into Item 7 of this Form 10-K is incorporated herein by reference. Industry Segment Information Segment information made part of Note G of the Company's consolidated financial statements for the fiscal year ended June 29, 1996 is incorporated herein by reference. Other Information concerning order backlogs in Management's Discussion and Analysis of Results of Operations and Financial Condition," Consolidated Company Results, Fiscal 1996 Versus Fiscal 1995" incorporated into Item 7 of this Form 10-K incorporated herein by reference. Item 2. PROPERTIES The following table provides a description of Delta Woodside's principal production and warehouse facilities. Approximate Square Approximate Location Utilization Footage Acreage Textile Segment Beattie Plant, Fountain Inn, SC spin/weave 390,000 112 Furman Plant, Fountain Inn, SC weave 116,000 21 Distribution Center, Greenville, SC warehouse 88,000 12 Estes Plant, Piedmont, SC (4) spin/weave 332,000 114 Delta 3 Plant, Wallace, SC dye/finish 555,000 527 Cypress Plant, Pamplico, SC spin 144,000 4 Pamplico Plant, Pamplico, SC spin/weave 275,000 520 Delta 2 Plant, Wallace, SC dye/finish 347,000 295 Catawba Plant, Maiden, NC spin 115,000 34 Carter Plant, Wallace, NC dye/finish 485,000 72 Holly Plant, Wallace, NC knit/finish 224,000 3 Rainsford Plant, Edgefield, SC spin 296,000 21 Mickel Plant, Spartanburg, SC spin 207,000 14 Apparel Segment Maiden Plant, Maiden, NC knit/dye/finish/cut 305,000 45 Washington Plant, Washington, GA sew 129,800 6 Sandersville Plant, Sandersville, GA sew 27,000 5 Distribution Center, Knoxville, TN distribution 550,000 21 Decatur Plant, Decatur, TN (2) sew 75,000 11 Ashburn Plant, Ashburn, GA (1) sew 43,000 7 Honduras Plant, San Pedro Sula, Honduras(1) sew 70,000 2 Monroe #3, Monroe, GA cut 52,000 7 Monroe #2, Monroe, GA sew 93,000 8 Harmony Plant, San Jose, Costa Rica sew 14,000 San Jose Plant, San Jose, Costa Rica (1) sew 60,000 6 316 Distribution Center, Winder, GA warehouse 200,000 Various (3) stores Fitness Equipment Division Independence, VA manufacturing 251,000 54 Independence, VA (1) manufacturing 33,678 (1) Leased facility. (2) The "Duck Head" Outlet Stores lease a portion of the facility for retail sales. (3) The "Duck Head" Outlet Stores Operation leases 41 facilities in 13 states, which leased space is approximately 121,000 square feet. These leases expire at various dates through 2005. (4) Title to these facilities are held by the county under a fee- in-lieu arrangement. Except as noted above all of the above production and warehouse facilities are owned by Delta Woodside or one of its subsidiaries, subject in certain cases to various outstanding mortgages and security interests. The apparel segment's San Jose plant in San Jose, Costa Rica is leased on a month-to-month basis, the Ashburn Plant in Ashburn, Georgia has a lease which expires in February 1999 and the Honduras Plant has a lease which expires in November 2000. Delta Woodside leases corporate and division administrative offices in Greenville, South Carolina. The lease on the corporate offices expires December 1997 and leases on the administrative offices expire in 2008. Sales offices are leased in or near Charlotte, New York, Chicago, Newport Beach, San Francisco, Dallas and Los Angeles with leases expiring through December 2004. At the date of execution of this Form 10-K, the Company believes, with the exception of plants affected by the Company's modernization program, that its finished woven all cotton plants and finished woven synthetic plants are operating virtually at full production capacity while its unfinished woven fabrics operations are operating at slightly less than full production capacity. Although the Company expects greater utilization of textile capacity in fiscal 1997 than in fiscal 1996, the Company expects both the woven and knit operations to run at less than full capacity in fiscal 1997. During fiscal 1996, the Company established a new sewing operation for knit apparel items in Honduras. The plant began producing garments in September 1995. In June 1996 the plant was running at 55% of capacity with full capacity expected by February 1997. Various factors affect the relative use by the Company's apparel segment of its own facilities and outside contractors in the various apparel production phases. This segment is currently using all its internal production capacity. The fitness equipment operation is operating at approximately 75% of its production capacity as a result of new building space in excess of the current volume. The Company believes that its equipment and facilities are generally adequate to allow it to remain competitive with its principal competitors. Item 3. LEGAL PROCEEDINGS From time to time the Company and its subsidiaries are defendants in legal actions involving claims arising in the normal course of its business, including product liability claims. The Company believes that, as a result of its legal defenses, insurance arrangements and indemnification provisions with financially capable parties, none of these actions, if decided adversely, should have a material adverse effect on its business or financial condition taken as a whole. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the Company's 1996 fiscal year. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The material under the heading "Common Stock Market Prices and Dividends" on the inside front cover of the Company's annual shareholders' report for the year ended June 29, 1996 is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA The material under the heading "Selected Financial Data" on page 1 of the Company's annual shareholders' report for the year ended June 29, 1996 is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The material under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 4 through 10 (exclusive of graphs) of the Company's annual shareholders' report for the year ended June 29, 1996 is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements included on pages 14 through 27 of the Company's annual shareholders' report for the year ended June 29, 1996 are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the headings "Election of Directors" and "Executive Officers". Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the headings "Management Compensation" and "Compensation Committee Interlocks and Insider Participation". Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the heading "Stock Ownership of Principal Shareholders and Management". Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to 120 days following the end of the Company's fiscal year under the heading "Related Party Transactions". PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules The response to this portion of Item 14 is set forth on page F-2 included herein, which response is incorporated herein by reference. (3) Listing of Exhibits:* 3.1 Articles of Incorporation of the Company, as amended through February 5, 1989: Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc., File No. 33- 30247 (the "Form S-4"). 3.1.1 Articles of Amendment to Articles of Incorporation of the Company: Incorporated by reference to Exhibit 3.1.2 to the Form S-4. 3.1.2 Articles of Merger of Harper Brothers, Inc. into RSI Corporation: Incorporated by reference to Exhibit 4.1.1 to the Registration Statement of the Company on Form S-8, File No. 33- 33116 (the "1990 Form S-8"). 3.1.3 Articles of Merger of Delta Woodside Industries, Inc., a Delaware corporation, into RSI Corporation: Incorporated by reference to Exhibit 4.1.2 to the 1990 Form S-8. 3.1.4 Articles of Merger of Duncan Office Supplies, Inc., into Delta Woodside Industries, Inc.: Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarterly period ended December 29, 1990 (the "December 1990 10- Q"). 3.1.5 Articles of Amendment to the Articles of Incorporation of Delta Woodside Industries, Inc., filed with the South Carolina Secretary of State on November 15, 1991: Incorporated by reference to Exhibit 4.6 to the Form 10-Q of the Company for the quarterly period ended December 28, 1991. 3.2 By-laws of the Company, as amended: Incorporated by reference to Exhibit 3.1.1 to the Form S-4. 3.2.1 Amendments to By-laws of the Company: Incorporated by reference to Exhibit 3.2 to the December 1990 10-Q. 3.2.2 Amendment to By-laws of the Company, adopted as of June 29, 1992: Incorporated by reference to Exhibit 3.2.2 to the Company's Form 10-K for the fiscal year ended June 27, 1992 (the "1992 10-K"). 4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.2, 3.2.1. and 3.2.2. 4.1.1 Specimen of Certificate for the Company's Common Stock: Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-3, File No. 33-42710 (the "Form S-3"). 4.2 Amended and Restated Credit Agreement dated as of March 15, 1996 among Delta Woodside Industries, Inc., the Lenders named therein, and NationsBank, N.A. as Agent (with exhibits and schedules omitted) together with forms of Promissory Notes, Subsidiary Guaranty, Borrower Security Agreement, Subsidiaries Security Agreement and certain other documents: Incorporated by reference to Exhibit 4.4 to the Form 10-Q of the Company for the quarterly period ended March 30, 1996. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedules or exhibits to such agreement upon request of the Commission. 4.2.1 Amendment and Waiver Agreement dated as of May 20, 1996, by and among Delta Woodside Industries, Inc., the guarantors identified on the signature pages attached thereto and the lenders and agents thereto: Incorporated by reference to Exhibit 4.4.1 to the Form 8-K of the Company with date of May 28, 1996 (the "May 1996 8-K"). The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedules or exhibits to such agreement upon request of the Commission. 4.2.2 Pledge Agreement dated as of May 20, 1996 by and among Delta Woodside Industries, Inc., the guarantors from time to time party thereto and NationsBank, N.A., in its capacity as agent for the lenders from time to time party to the Credit Agreement described therein: Incorporated by reference to Exhibit 4.4.2 to the May 1996 8-K. The Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedules or exhibits to such agreement upon request of the Commission. 4.3 The Company hereby agrees to furnish to the Commission upon request of the Commission a copy of any instrument with respect to long-term debt not being registered in a principal amount less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis. 10.1 Lease, dated December 27, 1987 by and between Hammond Square, Ltd. and the Company: Incorporated by reference to Exhibit 10.10 to Registration Statement No. 33-22563 on Form S-4 of Delta Woodside Industries, Inc., a Delaware corporation ("Registration Statement No. 33- 22563"). 10.2** Delta Woodside Deferred Compensation Plan for Key Employees: Incorporated by reference to Exhibit 10.6 to the Form 10-Q of the Company for the quarterly period ended December 30, 1989. 10.3** Incentive Stock Award Plan effective July 1, 1990: Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company for the fiscal quarter ended March 31, 1990. 10.3.1** 1995 Amendment to the Incentive Stock Award Plan effective as of November 9, 1995: Incorporated by reference to Exhibit 10.3.1 to the Form 10-Q of the Company for the quarterly period ended December 30, 1995 (the "December 1995 10- Q"). 10.4.1** Stock Option Plan effective as of July 1, 1990: Incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the fiscal year ended June 30, 1990. 10.4.2** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the December 1990 10-Q. 10.4.3** Amendment to Stock Option Plan: Incorporated by reference to Exhibit 10.9.2 to the Company's Form 10-K for the fiscal year ended June 29, 1991 (the "1991 10-K"). 10.4.4** 1995 Amendment to the Stock Option Plan effective as of November 9, 1995: Incorporated by reference to Exhibit 10.4.4 to the December 1995 10-Q. 10.5 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company and E. Erwin Maddrey, II: Incorporated by reference to Exhibit 10.2 to the December 1990 10-Q. 10.6 Stock Transfer Restrictions and Right of First Refusal Agreement between the Company and Bettis C. Rainsford: Incorporated by reference to Exhibit 10.3 to the December 1990 10-Q. 10.7** Summary of Delta Woodside Industries, Inc., Director Charitable Giving Program: Incorporated by reference to Exhibit 10.11 to the 1992 10-K. 10.7.1** Resolution to amend Directors' Charitable Giving Program dated February 2, 1995: Incorporated by reference to Exhibit 10.7.1 to the March 1995 10-Q. 10.8.1** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the 1991 10-K. 10.8.2** Amendment of Director Stock Acquisition Plan, dated April 30, 1992: Incorporated by reference to Exhibit 10.12.2 to the 1992 10-K. 10.9 See Exhibits 4.2, 4.2.1 and 4.2.2. 13 Annual Report to Shareholders of the Company for the fiscal year ended June 29, 1996. 21 Subsidiaries of the Company. 23.1 Report on Schedule and Independent Auditors' Consent for the years ended June 29, 1996 and July 1, 1995. 23.2 Independent Auditors' Consent for the year ended July 2, 1994. 23.3 Report of Independent Auditors for the year ended July 2, 1994. 27 Financial Data Schedule * All reports previously filed by the Company with the Commission pursuant to the Exchange Act, and the rules and regulations promulgated thereunder, exhibits of which are incorporated to this Report by reference thereto, were filed under Commission File Number 1-10095. ** This is a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K During the fourth quarter of the fiscal year ended June 29, 1996, the Company filed Form 8-K with date of May 28, 1996, which reported the following items: Item 5. Other Events Item 7. Financial Statements and Exhibits (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELTA WOODSIDE INDUSTRIES, INC. 9/26/96 /s/ E. Erwin Maddrey, II Date E. Erwin Maddrey, II President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ C. C. Guy 9/26/96 /s/ E. Erwin Maddrey 9/26/96 C. C. Guy Date E. Erwin Maddrey, II Date Director President, Chief Executive Officer and Director /s/ James F. Kane 9/26/96 /s/ Bettis C. Rainsford 9/26/96 James F. Kane Date Bettis C.Rainsford Date Director Executive Vice President, Chief Financial Officer, Treasurer and Director /s/ Max Lennon 9/26/96 /s/ Douglas J. Stevens 9/26/96 Max Lennon Date Douglas J. Stevens Date Director Controller and Assistant Secretary /s/ Buck A. Mickel 9/26/96 Buck A. Mickel Date Director /s/ Buck Mickel 9/26/96 Buck Mickel Date Director EXHIBIT INDEX 13 Annual Report to Shareholders of the Company for the fiscal year ended June 29, 1996. 21 Subsidiaries of the Company. 23.1 Report on Schedule and Independent Auditors' Consent for the years ended June 29,1996 and July 1, 1995. 23.2 Independent Auditors' Consent for the year ended July 2,1994. 23.3 Report of Independent Auditors for the year ended July 2,1994. 27 Financial Data Schedule. ANNUAL REPORT ON FORM 10-K ITEM 14(a) (1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULES YEAR ENDED JUNE 29, 1996 DELTA WOODSIDE INDUSTRIES, INC. GREENVILLE, SOUTH CAROLINA F-1 FORM 10-K--ITEM 14(a)(1) AND (2) DELTA WOODSIDE INDUSTRIES, INC. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Delta Woodside Industries, Inc. and subsidiaries included in the Annual Report of the Registrant to its shareholders for the Year ended June 29, 1996 are incorporated by reference in Item 8: Consolidated balance sheets--June 29, 1996 and July 1, 1995. Consolidated statements of operations--Years ended June 29, 1996, July 1, 1995 and July 2, 1994. Consolidated statements of shareholders' equity--Years ended June 29, 1996, July 1, 1995 and July 2, 1994. Consolidated statements of cash flows--Years ended June 29, 1996, July 1, 1995 and July 2,1994. Notes to consolidated financial statements. The following consolidated financial statement schedule of Delta Woodside Industries, Inc. is included in Item 14(d): Schedule II -- Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Columns omitted from schedules filed have been omitted because the information is not applicable. F-2 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS DELTA WOODSIDE INDUSTRIES, INC.
COL. A COL. B COL. C COL. D COL. E ADDITIONS Balance at DESCRIPTION Beginning (1) (2) Deductions Balance at End of Period Charged to Costs Charged to Other Describe of Period and Expenses Accounts-Describe Deducted from asset accounts Allowance for doubtful accounts: Year ended June 29, 1996 $ 5,634,000 $ 2,577,000 $ 695,000(2) $ 2,648,000(1) $ 6,528,000 Year ended July 1, 1995 $ 3,275,000 $ 3,311,000 $ 36,000(2) $ 988,000(1) $ 5,634,000 Year ended July 2, 1994 $ 5,537,000 $ 3,886,000 $(1,658,000)(2) $ 4,490,000(1) $ 3,275,000 Inventory reserves: Year ended June 29, 1996 $14,052,000 $26,827,000 $40,879,000 NOTES: (1) Uncollectible accounts written off. (2) Net change in sales allowances charged to income as a reduction of sales.
EX-13 2 1996 ANNUAL REPORT (Delta Woodside logo) CONTENTS Common Stock Market Prices and Dividends.............................................Inside Front Cover Selected Financial Data..................................................1 Letter to Shareholders.................................................2-3 Management's Discussion and Analysis............................................................4-10 Operations by Industry Segment............................................................11-13 Report of KPMG Peat Marwick LLP...........................................................14 Consolidated Financial Statements.........................................................15-27 Corporate Directory.....................................................28 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, and cash dividends declared per share:
FISCAL QUARTERS: High 1996 Low High 1995 Low First Quarter $ 9 3/4 $ 7 1/2 $ 12 $ 10 5/8 Second Quarter 7 5/8 6 1/8 11 1/2 9 1/8 Third Quarter 8 4 7/8 11 8 3/8 Fourth Quarter 7 5/8 4 3/8 9 3/8 7 5/8 Cash Dividends Declared First Quarter $.10 $.10 Second Quarter .10 .10 Third Quarter .10 .10 Fourth Quarter .10
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. As of August 20, 1996 there were approximately 2,080 holders of record of the Company's Common Stock. Following the dividend declared in the third quarter of fiscal 1996, the Board of Directors suspended the quarterly dividend until the Company's financial results improve. Any future dividend payments will depend upon the Company's earnings, financial condition, capital requirements and other relevant factors. The most restrictive of the Company's loan covenants in the loan facility, described in Note D, requires a certain minimum tangible net worth. SELECTED FINANCIAL DATA In Thousands, Except Ratios, Percentages, Number of Shareholders and Per Share Data
OPERATIONS (1) 1996 1995 1994 1993 1992 1991 1990 1989 1988 Net Sales $600,172 $597,541 $613,776 $686,239 $705,037 $590,019 $500,894 $569,052 $488,568 Cost of Goods Sold 575,211 499,093 514,840 564,352 563,827 480,396 427,788 470,265 409,231 Gross Profit 24,961 98,448 98,936 121,887 141,210 109,623 73,106 98,787 79,337 Operating Profit (Loss) excluding Litigation, Restructuring Charges (54,058) 21,610 18,282 52,585 76,826 59,234 35,342 66,236 52,347 Litigation (Credit) Charge (9,000) (7,000) 27,096 Restructuring (Credit) Charges 19,994 (553) 9,199 2,265 Operating Profit (Loss) (65,052) 29,163 (18,013) 52,585 76,826 59,234 33,077 66,236 52,347 Earnings (Loss) Before Interest and Taxes (65,052) 31,367 (18,013) 52,585 76,826 59,234 33,077 66,513 54,209 Interest Expense 18,993 13,646 8,639 7,775 11,479 22,115 25,768 20,929 12,685 Income (Loss) Before Income Taxes (83,597) 17,770 (25,930) 45,172 65,801 37,543 8,029 45,940 41,705 Income Tax Expense (Benefit) (20,958) 7,672 (8,633) 16,968 25,786 13,600 2,020 15,643 13,850 Net Income (Loss) (62,639) 10,098 (17,297) 27,329 40,015 23,943 6,009 30,297 27,855 FINANCIAL DATA (1) Cash Flow (Net Income (Loss) plus Depreciation and Amortization) (8) (17,724) 34,690 9,596 46,148 54,843 39,041 19,263 40,025 32,421 Capital Expenditures/Capital Leases 63,743 41,834 29,856 49,575 42,916 15,793 19,250 46,048 32,141 Depreciation and Amortization (8) 44,915 24,592 26,893 18,819 14,828 15,098 13,254 9,728 4,566 Working Capital (32,648) 286,887 241,950 262,111 266,356 105,498 71,967 78,726 60,811 Long-Term Debt and Capital Leases 283 219,119 161,948 130,464 110,414 71,189 85,704 88,791 35,254 Funded Debt (2)(5) 242,644 219,395 162,812 132,200 112,133 188,352 227,097 223,397 118,528 Shareholders' Equity (3) 217,335 286,499 284,877 336,249 318,781 172,647 127,575 127,169 86,462 Capital Employed (4) 459,979 505,894 447,689 468,449 430,914 360,999 354,672 350,566 204,990 Total Assets (5) 537,716 610,296 567,003 573,946 524,756 434,424 414,497 331,066 177,300 FINANCIAL RATIOS (1) Net Sales divided by Inventory 4.3 2.6 3.0 3.5 4.0 4.3 3.5 4.4 6.3 Net Sales divided by Accounts Receivable 4.9 4.9 5.2 4.9 4.3 4.2 4.5 4.6 4.9 Net Sales divided by Capital Employed 1.3 1.2 1.4 1.5 1.6 1.6 1.4 1.6 2.4 Operating Income (Loss) as % of Capital Employed (14.0) 6.2 (3.9) 11.3 17.9 16.5 9.5 19.1 26.5 Current Ratio .9 4.8 3.5 4.1 4.4 1.6 1.4 1.7 2.2 Interest Coverage (3.4) 2.3 (2.1) 6.8 6.7 2.7 1.3 3.2 4.3 Gross Profit as % of Sales 4.2 16.5 16.1 17.8 20.0 18.6 14.6 17.4 16.2 Pretax Income (Loss) as % of Sales (13.9) 3.0 (4.2) 6.6 9.3 6.4 1.6 8.1 8.5 Net Income (Loss) as % of Sales (10.4) 1.7 (2.8) 4.0 5.7 4.1 1.2 5.3 5.7 Net Income (Loss) as % of Beginning Equity (21.9) 3.5 (5.1) 8.6 23.2 18.8 4.7 35 47 COMMON STOCK DATA (PER SHARE) (1)(6) Net Income (Loss) (2.56) .42 (.70) 1.03 1.62 1.27 .32 1.65 1.60 Dividends .30 .40 .40 .40 .35 .30 .30 .20 .05 Book Value 8.89 11.76 11.75 12.72 12.07 8.17 6.76 6.82 4.97 Price Range (7) -- High 9 3/4 12 12 1/2 18 3/8 25 1/4 141/8 17 7/8 16 1/2 14 1/4 -- Low 4 3/8 7 5/8 9 3/4 11 1/8 13 1/2 35/8 6 1/2 8 3/4 5 1/4 Weighted Average Shares Outstanding 24,443 24,317 24,550 26,421 24,670 18,879 18,733 18,338 17,385 Approximate Number of Shareholders 2,081 2,154 2,221 2,340 2,255 2,062 2,575 1,475 1,250 OPERATIONS (1) 1987 Net Sales $ 417,461 Cost of Goods Sold 343,623 Gross Profit 73,838 Operating Profit (Loss) excluding Litigation, Restructuring Charges 47,935 Litigation (Credit) Charge Restructuring (Credit) Charges Operating Profit (Loss) 47,935 Earnings (Loss) Before Interest and Taxes 46,993 Interest Expense 12,939 Income (Loss) Before Income Taxes 34,238 Income Tax Expense (Benefit) 12,667 Net Income (Loss) 21,571 FINANCIAL DATA (1) Cash Flow (Net Income (Loss) plus Depreciation and Amortization) (8) 24,908 Capital Expenditures/Capital Leases 7,924 Depreciation and Amortization (8) 3,337 Working Capital 63,602 Long-Term Debt and Capital Leases 38,832 Funded Debt (2)(5) 115,732 Shareholders' Equity (3) 59,015 Capital Employed (4) 174,747 Total Assets (5) 149,116 FINANCIAL RATIOS (1) Net Sales divided by Inventory 5.8 Net Sales divided by Accounts Receivable 4.5 Net Sales divided by Capital Employed 2.4 Operating Income (Loss) as % of Capital Employed 27.0 Current Ratio 2.2 Interest Coverage 3.6 Gross Profit as % of Sales 17.7 Pretax Income (Loss) as % of Sales 8.2 Net Income (Loss) as % of Sales 5.2 Net Income (Loss) as % of Beginning Equity 245 COMMON STOCK DATA (PER SHARE) (1)(6) Net Income (Loss) 1.36 Dividends -- Book Value 3.41 Price Range (7) -- High 16 1/2 -- Low 9 7/8 Weighted Average Shares Outstanding 15,840 Approximate Number of Shareholders 1,300
(1) Financial data reflect the following major business additions from their respective dates of acquisition: (i) a portion of the knit apparel operation and a portion of the woven apparel operation acquired on September 7, 1988; (ii) a portion of the woven apparel operation (including the "Duck Head" label) acquired on February 1, 1989; and (iii) Nautilus International and a portion of the affiliated license products company acquired January 20, 1993. (2) Funded Debt includes long- and short-term debt, capital leases and offset factor borrowings. See Note 5. (3) Shareholders' Equity at June 27, 1992 and June 29, 1991 includes approximately $113 million and $25.5 million of net proceeds from sales of Common Stock in October 1991 and June 1991, respectively. (4) Capital Employed includes shareholders' equity and funded debt. (5) Prior to fiscal 1990, the Company offset certain assigned receivables and borrowings relating to its former factor agreements. Had these items not been offset, the Company's accounts receivable and notes payable at the end of the 1989, 1988 and 1987 fiscal years would have each been increased by approximately $79.4 million, $73.6 million and $64.7 million, respectively. (6) Per share data and weighted average common shares outstanding for fiscal 1987 give retroactive effect to the issuance of 15,000,000 shares of Common Stock relating to the reorganization of companies under common control effective November 25, 1986. (7) The Company's Common Stock began trading publicly in February 1987. (8) Depreciation and amortization include certain write-downs of property and equipment of $15 million and $2 million in fiscal years 1996 and 1994, respectively. 1 TO OUR FELLOW SHAREHOLDERS (Photo of E. Erwin Maddrey, II appears here) E. ERWIN MADDREY, II To Our Fellow Shareholders: The 1996 fiscal year was a particularly difficult one for us. Sales of apparel at retail throughout the whole country were relatively weak during most of the fiscal year. Volume and prices in our Stevcoknit fabrics knitted textile division were especially weak through most of the year, and extraordinarily high fiber costs pushed gross margins in that division into the loss column. Sales volume at our Duck Head branded apparel business was lower than in fiscal 1995, and costs of disposing of excess inventories in this operation were significantly higher than we had planned. On the other hand, results at our Delta Apparel T-shirt business continued to improve, and operating profits in the Delta Mills woven fabrics operation were only down slightly, despite record high cotton costs. In the fourth quarter of fiscal 1996, we took substantial write-offs to our excess branded apparel inventories and also wrote down the value of our textile knitting and knit finishing plants. We also charged income to set up various restructuring reserves related principally to plant closings. Last year we told you that we planned to open several Duck Head Clearance Stores to sell the excess inventory that we held in this operation. We now have seven of these stores in operation, and, during the fiscal year, we sold the quantities of excess inventory that we had planned. However, we found that the cost of disposing of the excess inventories in this manner was significantly higher than we had expected. In addition, to turn this excess inventory into cash through direct sales of large quantities, we made some direct sales at prices lower than we had anticipated. We feel that the reserves we have now established will cover all future losses as we continue to reduce this excess stock. During the fourth quarter, we looked carefully at all of our fixed assets and determined that we should write down the book value of our textile knitting and knit finishing plants. Over the past several years, sales of knitted garments in the U.S. have continued to increase. However, during this same period, imports of knitted apparel have risen much faster than retail sales. Consequently, domestic production of knitted garments has fallen significantly. During fiscal 1996, we established a new Private Label Division with the intent of marketing finished garments utilizing fabrics made in our Stevcoknit division and assembled outside of the U.S. We spent $64 million on new plant and equipment during the year just closed. The majority of these expenditures was made in order to convert our Beattie plant (Fountain Inn, S.C.) from spinning and weaving light weight, unfinished fabric using old technology into spinning and weaving a heavier weight fabric to be finished at our Delta 3 finishing plant near Cheraw, S.C. The Beattie plant will soon be a state of the art spinning and weaving facility. The first half of this project was completed near the end of fiscal 1996, and the second half will be completed around the end of calendar 1996. Our weaving plant in Greer, S.C. was closed in April as production in the Beattie weaving plant began to build due to the modernization project there. During fiscal 1996, our Duck Head operation began to turn back in the right direction. The new Duck Head distribution center opened early in calendar 1996, and we have consolidated goods from several warehouses into this new facility. The most recent reports from our retail customers indicate that the brand is selling well. Sales in our Delta Apparel division, a vertical producer of T-shirts and fleece garments rose 21% from those of fiscal 1995. During fiscal 1996 we started up a large sewing plant in Honduras. This facility now employs over 800 people and is building production as we had planned. Our Honduras plant is helping us preserve our gross margins in this division as T-shirt prices continue to fall in the face of vigorous competition. 2 In view of the generally poor markets in which we operated during last fiscal year, we put a lot of attention on getting our assets in better shape. We put great pressure on our various divisions to reduce inventories during fiscal 1996. By year end, they had brought inventories down about $55 million from the end of fiscal 1995. After taking year end inventory reserve adjustments into account, we began fiscal 1997 with $85 million less inventory on the books that we had a year earlier. While it is too early to project a recovery to the levels of profitability that we experienced in our 1991, 1992 and 1993 fiscal years, we do believe that we have put many of our problems behind us, and are cautiously optimistic that fiscal 1997 will show much improved performance. (Photo of Bettis C. Rainsford appears here) BETTIS C. RAINSFORD (Signature of E. Erwin Maddrey, II) E. Erwin Maddrey, II President and Chief Executive Officer (Signature of Bettis C. Rainsford) Bettis C. Rainsford Executive Vice President, Treasurer and Chief Financial Officer 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CONSOLIDATED COMPANY RESULTS FISCAL 1996 VERSUS FISCAL 1995 Consolidated net sales for the year ended June 29, 1996 were $600 million as compared to $598 million in the fiscal year ended July 1, 1995. Net sales in fiscal 1996 declined in the textile segment and increased in the apparel segment as compared with net sales in fiscal 1995. Consolidated gross profit margin for fiscal 1996 was 4%, as compared to the gross profit margin of 16% in the prior fiscal year. Gross margins declined in all of the Company's segments, primarily due to charges to increase the reserve for excess inventories, and reduced plant running schedules. These charges are described later. Consolidated selling, general, and administrative expense for fiscal 1996 totaled $79 million, or 13% of net sales, compared to $77 million, or 13% of net sales in fiscal 1995. NET SALES FISCAL YEARS ENDED JUNE OR JULY (In Thousands of Dollars) 1991 1992 1993 1994 1995 1996 590,019 705,037 686,239 613,776 597,541 600,172 Net interest expense totaled $18.5 million for fiscal 1996 as compared to $13.6 million incurred in fiscal 1995, due to the combination of higher interest rates and higher average debt levels. Because the Company's operating earnings to interest ratios have declined, the rate of interest paid by the Company has increased. At June 29, 1996 the Company's interest rate is LIBOR plus 2.5% as compared to LIBOR plus .75% at July 1, 1995. The Company's outstanding debt increased by $23 million during fiscal 1996, primarily a result of the plant modernization program in the woven textile division. The effective income tax rates for the 1996 and 1995 fiscal years were 25% and 43%, respectively. The lower tax rate for fiscal 1996 was primarily due to the $9.6 million increase in valuation allowances recognized in part to offset the portion of the fiscal 1996 tax loss which could not be carried back to prior years, and also to the different effects that permanent nondeductible tax items had on the pretax losses in fiscal 1996, as compared to the effect on pretax income in fiscal 1995. During fiscal 1996, the Company recognized significant charges including $25 million to increase market reserves associated with excess inventories in the apparel segment, $12 million to reduce to appraised value the knitting and knit finishing assets of the knitted textile division, and $8 million of other restructuring charges in the woven textile division and the apparel segment. During fiscal 1996 the Company recognized tax benefits of only $21 million. Remaining tax benefits of $9.6 million cannot be recognized until the Company has sufficient taxable income to utilize the benefits. The net loss for fiscal 1996 was $63 million as compared to net income of $10 million for fiscal 1995. Net loss or income for fiscal 1996 and 1995 includes pretax credits to income of $9 million and $7 million, respectively, related to certain litigation charges recognized in fiscal 1994, and settled during fiscal 1996 and 1995. Net income for fiscal 1995 also includes life insurance proceeds of $2.2 million. Consolidated inventories totaled $141 million at June 29, 1996 as compared to $226 million at July 1, 1995, a decline of 38% or $85 million. The reduction in inventory is primarily attributable to decreases in inventory production, while $25 million of the decline is attributable to charges to write down inventory, as previously described. The reduction in plant running schedules resulted in increased costs per unit in fiscal 1996 because the fixed costs at the plants were spread over fewer units produced. The Company does not expect further decreases in the dollar value of its inventory, but does expect the units of inventory to decline as excess branded apparel inventories are sold. The Company's order backlog at June 29, 1996 stood at $168 million as compared to $140 million at July 1, 1995, an increase of $28 million or 20%. Order backlogs were down slightly in the textile segments but higher in the apparel segment. The Company believes that order backlogs are generally indicative of future sales. 4 The Company believes that its profit margins will remain under pressure due to the continued weak demand for textiles generally and especially for knit textiles prepared for printing. FISCAL 1995 VERSUS FISCAL 1994 Consolidated net sales for fiscal 1995 were $598 million as compared to $614 million in fiscal year 1994, a decrease of 3%. Sales in fiscal 1994 included $17 million from the Company's Harper Brothers operation which was sold in June of 1994. Consolidated gross profit margin for fiscal 1995 was 16.5%, as compared to the gross profit margin of 16.1% in the prior fiscal year. Gross margins improved slightly in the apparel segment, and decreased in the Company's textile and "other business" segment. NET INCOME (LOSS) FISCAL YEARS ENDED JUNE OR JULY (In Thousands of Dollars) 1991 1992 1993 1994 1995 1996 23,943 40,015 27,329 (-17,297) 10,098 (-62,639) Consolidated selling, general, and administrative expense for fiscal 1995 totaled $77 million, or 13% of net sales, compared to $82 million, or 13% of net sales in fiscal 1994. Net interest expense totaled $13.6 million in fiscal 1995 as compared to $7.9 million incurred in fiscal 1994, due to the combination of higher interest rates and higher average debt levels. Final settlement of the Alabama litigation, higher accounts receivable and inventories, and higher capital expenditures accounted for the major part of the Company's need for additional borrowed funds during fiscal 1995. The effective income tax rates for the 1995 and 1994 fiscal years were 43% and 33%, respectively. The lower tax rate for fiscal 1994 was primarily due to the different effects that permanent nondeductible tax items had on the pretax losses in fiscal 1994, as compared to the effect on pretax income in fiscal 1995. Net income in fiscal year 1995 was $10 million as compared to a net loss of $17 million in fiscal year 1994. Net income for fiscal 1995 included pretax credits to income of $7 million from the reversal of certain litigation reserves established in fiscal 1994, and then reduced after settlement in fiscal 1995. In fiscal 1994, the Company had charged pretax income for $27.1 million to establish the reserve for a judgment entered by an Alabama court on November 24, 1993, to three former independent sales representatives of a subsidiary of the Company. In addition, in fiscal 1994 the Company charged pretax income $9.2 million for expenses related to restructuring decisions made during that year. Without these special credits and charges, net income of approximately $5.5 million and $5.7 million would have resulted for fiscal years 1995 and 1994, respectively. Net income for fiscal 1995 includes life insurance proceeds of $2.2 million. The Company's order backlog at July 1, 1995 was $140 million as compared to $152 million at July 2, 1994, a decrease of $12 million. Order backlogs were lower in the textile and apparel segments, and higher in the Company's "other business" segment at the end of fiscal 1995 than they were at the end of fiscal 1994. DIVISION RESULTS TEXTILE SEGMENT FISCAL 1996 VERSUS FISCAL 1995 The Company's textile segment consists of finished woven and knitted textile fabrics sold principally to manufacturers of apparel products. The segment also sells unfinished fabrics to converters for various end uses, and produces yarn for the apparel segment. Net sales in the textile segment decreased $17 million to $377 million in fiscal 1996 from $394 million in fiscal 1995. All of the decrease came in the knitted textiles division while the woven textile division was slightly higher. Within the woven division, lower unit sales were more than offset by higher prices on a different mix of goods sold in fiscal 1996 as compared to fiscal 1995. In the knitted fabrics division, unit volume and average selling prices were both lower in all product categories. Sales of woven textiles accounted for approximately 49% of the Company's consolidated net sales for fiscal years 1996 and 1995. Sales of knitted textiles accounted for approximately 14% and 17% of consolidated net sales for fiscal years 1996 and 1995, respectively. 5 NET INCOME AS A % OF SALES FISCAL YEARS ENDED JUNE OR JULY 1991 1992 1993 1994 1995 1996 4.1 5.7 4.0 -2.8 1.7 -10.4 Gross profit margins in the textile segment declined from 11% in fiscal 1995 to 3% in fiscal 1996. The decrease is nearly all attributable to the knitted textile division where lower sales prices, lower units sold, and reduced running schedules in conjunction with higher raw material prices adversely affected margins in fiscal 1996 as compared to fiscal 1995. Gross margins for woven textiles declined slightly in fiscal 1996 as compared to fiscal 1995, being adversely impacted by historically high raw material costs, and by continuing disruptions caused by the Company's plant modernization program. The Company expects the disruptions to end in the third quarter of fiscal 1997. The purpose of this large capital project is to expand the Company's position in bottomweight finished fabric markets and to lower production costs. Selling, general, and administrative expenses in the textile segment for fiscal year 1996 totaled $23 million as compared with $24 million in fiscal 1995. As a percent of net sales, these expenses were 6.1% in fiscal 1996 as compared to 6.2% in fiscal 1995. SHAREHOLDERS' EQUITY FISCAL YEARS ENDED JUNE OR JULY (In Thousands of Dollars) 1991(1) 1992(2) 1993 1994 1995 1996 172,647 318,781 336,249 284,877 286,499 217,335 (1) 1991 Common Stock Offering Proceeds: $25,497 (2) 1992 Common Stock Offering Proceeds: $113,291 Operating profits in the textile segment were down $45 million in fiscal 1996 from fiscal 1995. Profits were down slightly in the woven division, but were down significantly in the knitted textile division as a result of the $12 million impairment charge described below, historically high raw material costs, lower sales prices and reduced plant running schedules, which resulted in increased fixed costs per unit of production. The reduced running schedules increased unit costs, but helped the textile segment reduce inventories to $75 million at June 29, 1996 as compared to $96 million at July 1, 1995. The history of operating losses at the knitting and knit finishing operation's two plants caused the Company to recognize a charge to reduce the book value of the fixed assets in this business to appraised value. While the Company has recognized an impairment charge relating to these plants, the Company is hopeful that reduced raw material prices, from the historically high levels of fiscal 1996, will help these plants operate at a profit in fiscal 1997. The Company will monitor closely the performance of these plants during the coming year. During fiscal 1996, the textile segment contributed 63% of the Company's consolidated net sales and 51% of the Company's consolidated gross profit, as compared to 66% and 45%, respectively, in fiscal 1995. The textile segment's capital expenditures totaled approximately $42 million for fiscal 1996. The major portion of these expenditures was related to the woven textile long-term modernization project. Although the Company expects greater utilization of textile capacity in fiscal 1997 than in fiscal 1996, the Company expects both the woven and knit operations to run at less than full capacity in fiscal 1997. Cotton prices reached a record high during the last months of fiscal 1995, and remained high during most of fiscal 1996. At the same time, prices of synthetic fibers utilized by the Company also escalated. The Company has been able to negotiate higher prices for many of its finished woven textile fabrics, but not at prices high enough to cover increases in its current average fiber costs. Profits in the textile segment are sensitive to the amount of its manufacturing capacity that is utilized, to the cost and availability of its principal raw materials, and to the mix of goods produced. FISCAL 1995 VERSUS FISCAL 1994 Net sales in the Company's textile segment increased to $394 million in fiscal year 1995 from $391 million in fiscal year 1994. Sales of both woven and knitted textiles were slightly higher in 6 fiscal 1995 than in the prior fiscal year. In the woven textile sector, lower sales of unfinished fabrics were more than offset by higher sales of finished cotton and blended fiber fabrics. Sales of woven textiles accounted for approximately 49% and 47% of the Company's consolidated net sales for fiscal years 1995 and 1994, respectively. Sales of knit textiles accounted for approximately 17% in fiscal years 1995 and 1994. EARNINGS (LOSS) PER SHARE FISCAL YEARS ENDED JUNE OR JULY (Dollars Per Share) 1991 1992 1993 1994 1995 1996 1.27 1.62 1.03 .70 .42 -2.56 1991 Weighted Average Shares Outstanding--18,879,000 1992 Weighted Average Shares Outstanding--24,670,000 1993 Weighted Average Shares Outstanding--26,421,000 1994 Weighted Average Shares Outstanding--24,550,000 1995 Weighted Average Shares Outstanding--24,317,000 1996 Weighted Average Shares Outstanding--24,443,000 Gross profit margins in the textile segment declined from 12% in fiscal 1994 to 11% in fiscal 1995. Gross margins for knitted textiles improved from fiscal 1994 to fiscal 1995, despite a dramatic slowdown since March 1995 in demand for textiles knitted and prepared for printing. Gross margins for woven textiles declined from fiscal 1994 to fiscal 1995, being adversely impacted by poor prices obtained in sales of unfinished fabrics, by higher raw material costs, and by certain manufacturing disruptions caused by the Company's plant modernization program. Selling, general, and administrative expenses in the textile segment for the year ended July 1, 1995 totaled $24 million as compared with $26 million in the fiscal year ended July 2, 1994. As a percent of net sales, these costs were 6.2% in fiscal 1995 as compared to 6.6% in fiscal 1994. Operating profits in the textile segment increased $2.7 million, or 14%, from fiscal 1994 to fiscal 1995. During fiscal 1995, the textile segment contributed 66% of the Company's consolidated net sales and 45% of the Company's consolidated gross profit, as compared to 64% and 46%, respectively, in fiscal 1994. Textile segment inventories were 3.3% higher at July 1, 1995 than at July 2, 1994. Knitted textiles accounted for the increase in the segment's inventory level, due to a marked slowdown towards the end of fiscal 1995 in new orders for fabric prepared for printing. The textile segment's capital expenditures totaled approximately $35.2 million for fiscal 1995. The major portion of these expenditures was related to the woven textile long-term modernization project. APPAREL SEGMENT FISCAL 1996 VERSUS FISCAL 1995 The Company's apparel segment consists of woven and knit branded apparel sold primarily to retailers, and knit apparel sold to screen printers, distributors and private label accounts. Net sales in the apparel segment increased by $17 million to $193 million in fiscal 1996 as compared to $176 million in fiscal 1995. Increased sales of knit apparel for printing were offset somewhat by decreased sales of branded apparel. Increased sales of knit apparel for printing were due to increased units, but at lower average prices. Lower sales of branded apparel were due to fewer units being sold as well as lower average prices related to the excess inventories. Sales of knit apparel for printing accounted for approximately 21% and 17% of the Company's consolidated net sales for fiscal years 1996 and 1995, respectively. Sales of branded apparel accounted for approximately 11% and 12% of the Company's consolidated net sales for fiscal years 1996 and 1995, respectively. During fiscal 1996, the Company established a new sewing operation for knit apparel items in Honduras. The plant began producing garments in September 1995. In June 1996 the plant was running at 55% of capacity with full capacity expected by February 1997. Construction of the Company's branded apparel distribution center in Winder, Georgia was completed during fiscal 1996, and began operations in January of 1996. Since June 1996 this facility has served as the headquarters for the Duck Head Apparel operations. The Company believes that this facility will lower its branded apparel distribution costs and contribute to more efficient administrative operations. The Company believes that its systems for planning inventory acquisitions and for distribution of its branded apparel are now operating satisfactorily. During fiscal 1996, the Company established a new Private Label Division with the intent of marketing finished garments utilizing fabrics made in our Stevcoknit division and assembled outside the U.S. Gross profit margins for the apparel segment decreased to 1% in fiscal 1996 as compared to 25% 7 in fiscal 1995. Gross margins declined in the knit apparel division, but fell negative in the branded apparel division, due to the charges in fiscal 1996 for increased inventory reserves associated with excess inventories. While in fiscal 1996 the Company met its goal of unit sales of the excess branded inventory, it found that the costs of such sales were higher than expected. The apparel segment represented 32% of the Company's fiscal 1996 consolidated net sales and 9% of the consolidated gross profit, as compared to 29% and 44%, respectively, in fiscal 1995. Selling, general, and administrative expenses in the apparel segment totaled $41 million in fiscal 1996, an increase of 11% from fiscal 1995. These expenses remained nearly level as a percent of sales in fiscal 1996 compared to fiscal 1995. Fiscal 1996 operating losses in the apparel segment totaled $36 million as compared to operating profit of $14 million in fiscal 1995. Fiscal 1996 results include restructuring charges of $7 million and credits to litigation expense of $9 million, while fiscal 1995 includes credits to litigation expense of $7 million. Inventories in the apparel segment at June 29, 1996 totaled $62 million, compared to $125 million at July 1, 1995. The large decrease is attributable to reduced plant running schedules and the $25 million increase in reserves for excess inventory. During fiscal 1996, excess branded apparel inventory was sold through retail clearance stores. The cost of disposing of these inventories through these stores was higher than expected, prompting the Company to increase reserves for the remaining inventories, as described elsewhere. As the Company realized lower returns on the sale of excess inventories through the retail clearance stores, direct sales in large quantities at lower prices became more attractive. Towards the end of fiscal 1996, additional quantities of excess inventories were sold in large quantities, and at lower margins. Management is continuing with its plan to reduce these inventories over the next two years through retail clearance stores and direct sales in large quantities. Capital expenditures in the apparel segment were $21 million during fiscal 1996, primarily to complete the new distribution center in the branded apparel division and the new sewing facility in Honduras. The apparel segment's operating results are dependent in large part on orders from retailers, distributors, and screen printers who supply finished garments to retailers. Generally, when retail sales of apparel are strong, the Company's apparel segment benefits. This segment's operating results are also dependent on the utilization of its owned and leased manufacturing facilities. The Company believes that it will operate its knit apparel facilities at or near full capacity during fiscal 1997. However, it does not believe that its branded apparel facilities will be fully utilized during any part of fiscal 1997. FISCAL 1995 VERSUS FISCAL 1994 Net sales in the apparel segment decreased by $2.8 million, or 2%, from fiscal 1994 to fiscal 1995. Increased sales of knit apparel for printing were more than offset by decreases in sales of branded apparel. Increased sales of knit apparel for printing were due to both increased units and average prices. Lower sales of branded apparel were due to fewer units being sold. Sales of knit apparel for printing accounted for approximately 14% and 17% of the Company's consolidated net sales for fiscal years 1994 and 1995, respectively. Sales of branded apparel accounted for approximately 15% and 12% of consolidated net sales for fiscal years 1994 and 1995, respectively. Gross profit margins in the apparel segment increased to 25% in fiscal 1995 from 20% in fiscal 1994. Gross margins improved in the apparel segment, primarily due to better average prices for knit apparel for printing as compared to the prior fiscal year. The apparel segment represented 29% of the Company's fiscal 1995 consolidated net sales and 44% of the Company's fiscal 1995 consolidated gross profit, as compared to 29% and 36%, respectively, in fiscal 1994. Selling, general, and administrative expenses in the apparel segment totaled $37 million in fiscal 1995, a 3% reduction from fiscal 1994. These expenses were 21% of net sales in fiscal 1995 and fiscal 1994. Fiscal 1995 operating profits in the apparel segment totaled $14.7 million as compared to an operating loss of $31.3 million in fiscal 1994. When the unusual credit and charges to operating profits referred to earlier are removed from both years, operating profits would have been $7.7 million in fiscal 1995 as compared with an operating loss of $1.3 million in fiscal 1994. Inventories in the apparel segment at July 1, 1995 totaled $127 million, compared to $110 million at July 2, 1994. Inventories of knit apparel for printing increased in proportion to the increase in sales of these products. Inventories of branded apparel increased due to sales of these products being less than anticipated. Capital expenditures in the apparel segment were $4.8 million during fiscal 1995. These represented improvements in the knitting, fabric finishing, and sewing facilities in this segment. 8 FUNDED DEBT TO EQUITY RATIO FISCAL YEARS ENDED JUNE OR JULY 1991 1992 1993 1994 1995 1996 1.1 to 1 0.4 to 1 0.4 to 1 0.6 to 1 0.8 to 1 1.1 to 1 LIQUIDITY AND SOURCES OF CAPITAL During fiscal 1996, the Company financed its operations and capital expenditures primarily through cash generated from operations, especially reductions in inventory. The Company also increased its debt to assist in financing the ongoing capital expenditure projects. The Company generated operating cash flows of $51 and $33 million for the 1996 and 1994 fiscal years, respectively, but used $15 million in cash to fund its operations during fiscal 1995. Cash generated from operations and borrowings has been used primarily to finance capital expenditures, including equipment purchases. As of June 29, 1996, the Company had reduced current assets by $83 million from the end of fiscal 1995 as a result of its inventory reduction plan. On March 15, 1996, the Company amended and restated its Credit Agreement with certain banks to secure the debt. At June 29, 1996, $118 million in receivables, $104 million in inventory and $158 million in equipment serve as collateral for the agreement. The amended agreement retains certain overall borrowing limits, but further limits borrowing to percentages of assets pledged as collateral. The agreement increased restrictions on the payment of dividends. Based on certain financial ratios, interest rates under the agreement increased by approximately 150 basis points. At June 29, 1996, borrowings under the Company's Credit Facility totaled $242 million at a weighted average interest rate of 8.1% per annum as compared to 6.8% at July 1, 1995. Certain conditions apply to the Company's ability to borrow under its Credit Facility, including compliance with financial covenants. See Note D of the accompanying financial statements for a description of loan covenants, which information is incorporated herein by reference. The Credit Facility will mature September 30, 1997; however the Company is negotiating with certain lenders to replace its existing Credit Facility with one which has greater availability. The existing Credit Facility requires certain financial ratios which the Company has not achieved. Because the Company is in default under the terms of the agreement, the Credit Facility has been reported as current in the accompanying financial statements. Although there can be no assurance, the Company believes that it will be able to replace the existing Credit Facility prior to maturity. The Company expects such a new facility to have a similar or slightly higher rate of interest. At a meeting of the Company's Board of Directors on May 9, 1996, the decision was made to suspend the quarterly dividend until the Company's financial results improve. Future dividend policy will depend upon the Company's ability to produce adequate cash flows in future quarters. During fiscal 1996, the Company had approximately $64 million in expenditures for property, plant, and equipment. Of this amount, approximately $42 million was spent in the textile segment with most of the expenditures relating to the long-term capital project for modernizing the Company's woven textile production facilities. Approximately $21 million was spent in the apparel segment. During fiscal 1997, the Company plans to spend approximately $33 million for capital improvements and new equipment. The majority of this amount is expected to be spent to complete the woven fabrics modernization program. The Company believes that its equipment and facilities are generally adequate to allow it to remain competitive with its principal competitors. The net losses for fiscal 1996 resulted in an income tax loss carryback for which the Company expects to receive a refund of approximately $8.5 million in the early part of fiscal year 1997. The Company believes that, with replacement of the existing Credit Facility, cash flow generated by its operations and funds available under the future Credit Facility will be sufficient to service its bank debt, to satisfy its day-to-day working capital needs and to fund its planned capital expenditures. ENVIRONMENTAL MATTERS The Company believes that it is in compliance in all material respects with federal, state, and local environmental statutes and requirements. The Company's Nautilus business has been named as a "potentially responsible party" ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act 9 ("CERCLA") with respect to three sites in North Carolina, South Carolina, and Mississippi. To the Company's knowledge, all of the transactions with these sites were conducted by a corporation (the "Selling Corporation") whose assets were sold in 1990 pursuant to the terms of an order of the United States Bankruptcy Court to another corporation, the stock of which was subsequently acquired by the Company in January 1993. At the North Carolina site, the Company's information is that there are over 1,400 PRPs, and the Selling Corporation is listed as a "de Minimis" party. At the South Carolina site, there are over 700 PRPs, and the Selling Corporation has been listed as an "insolvent" party and would appear to qualify as a "de Minimis" party. At the Mississippi site, the PRP group has completed a surface removal action. Soil and groundwater contamination, both at the site and in the surrounding area is now being investigated. The Company's latest information is that the Selling Corporation is ranked eleventh out of a total of over 300 PRPs in contributions of material to the site, and, based on volume, the Selling Corporation contributed approximately 3% of the site's material. To the Company's knowledge, the latest estimates of costs to clean up the site range up to $4 million. Trichloroethane, one of the substances delivered by the Selling Corporation to the site, has been found in the site's groundwater and at nearby residential drinking water wells. Although no assurance can be provided, the Company believes that it is shielded from liability at these three sites by the order of the United States Bankruptcy Court pursuant to which the Selling Corporation sold its assets to the corporation subsequently acquired by the Company. The Company has denied any responsibility at these three sites, has declined to participate as a member of the respective PRP groups, and has not provided for any reserves for costs or liabilities attributable to the Selling Corporation. 10 OPERATIONS BY INDUSTRY SEGMENT The Company operates principally in two segments: textiles and apparel. The textile segment's principal products are woven and knitted fabrics for apparel and home furnishings manufacturers. The apparel segment is the manufacturer of the "Duck Head" brand of casualwear, completed T-shirts, fleece goods and sportswear, and includes a retail apparel business. The apparel segment sells primarily to department stores and other apparel retailers. The Company also manufactures and sells Nautilus fitness equipment primarily to the institutional market.
June 29, 1996 July 1, 1995 July 2, 1994 Net Sales: Textiles Unaffiliated customers....................................................... $376,861,000 $393,736,000 $391,401,000 Intersegment................................................................. 25,600,000 20,192,000 15,660,000 402,461,000 413,928,000 407,061,000 Apparel, including retail stores Unaffiliated customers....................................................... 192,866,000 175,866,000 178,681,000 192,866,000 175,866,000 178,681,000 Fitness equipment and other Unaffiliated customers....................................................... 30,445,000 27,939,000 43,694,000 Intersegment................................................................. 871,000 866,000 1,474,000 31,316,000 28,805,000 45,168,000 Intersegment Eliminations...................................................... (26,471,000 ) (21,058,000) (17,134,000) Total...................................................................... $600,172,000 $597,541,000 $613,776,000 Gross Profit: Textiles....................................................................... $ 12,630,000 $ 44,321,000 $ 45,355,000 Apparel, including retail stores............................................... 2,337,000 43,514,000 35,846,000 Fitness equipment and other.................................................... 9,994,000 10,613,000 17,735,000 Total...................................................................... $ 24,961,000 $ 98,448,000 $ 98,936,000 Operating Profit (Loss): Textiles....................................................................... $(24,714,000 ) $ 20,000,000 $ 17,502,000 Apparel, including retail stores............................................... (36,104,000 ) 13,648,000 (32,288,000) Fitness equipment and other.................................................... (4,234,000 ) (4,485,000) (3,227,000) Total Operating Profit (Loss).............................................. (65,052,000 ) 29,163,000 (18,013,000) Interest expense............................................................... (18,993,000 ) (13,646,000) (8,639,000) Insurance proceeds............................................................. 2,204,000 Interest income................................................................ 448,000 49,000 722,000 Income (Loss) Before Income Taxes.......................................... $(83,597,000 ) $ 17,770,000 $(25,930,000) Identifiable Assets: Textiles....................................................................... $323,244,000 $326,926,000 $314,378,000 Apparel, including retail stores............................................... 172,095,000 234,811,000 195,370,000 Fitness equipment and other.................................................... 40,307,000 46,342,000 55,811,000 Corporate...................................................................... 2,070,000 2,217,000 1,444,000 Total...................................................................... $537,716,000 $610,296,000 $567,003,000 Depreciation and Amortization: Textiles....................................................................... $ 31,515,000 $ 16,867,000 $ 16,552,000 Apparel, including retail stores............................................... 10,697,000 5,824,000 6,210,000 Fitness equipment and other.................................................... 2,085,000 1,423,000 3,669,000 Corporate...................................................................... 618,000 478,000 462,000 Total...................................................................... $ 44,915,000 $ 24,592,000 $ 26,893,000 Capital Expenditures: Textiles....................................................................... $ 42,128,000 $ 35,182,000 $ 18,334,000 Apparel, including retail stores............................................... 20,655,000 4,812,000 3,844,000 Fitness equipment and other.................................................... 909,000 1,810,000 7,659,000 Corporate...................................................................... 51,000 30,000 19,000 Total...................................................................... $ 63,743,000 $ 41,834,000 $ 29,856,000
11 The textile segment sells to the apparel segment at a rate approximately 1% over cost. All other intersegment sales are at prices comparable to unaffiliated customer sales. Intersegment operating profit related to the intersegment sales is not significant. Operating profit is total revenue less operating expenses, excluding interest expense and interest income. During the fourth quarter of fiscal 1996 the Company recognized $12 million in impairment charges in the dye and finishing portion of the knitted fabric business of the textile segment. The Company also took restructuring charges of $6.7 million and $1.7 million related to plant closings in the textile and apparel segments, respectively, and increased inventory reserves by $25 million for excess inventory in the branded apparel division. During the first quarter of fiscal 1996 the Company recognized $9 million in credits related to litigation reserves first recognized in fiscal 1994. During the fourth quarter of fiscal 1995, the apparel segment settled a lawsuit and reduced related litigation reserves by $7,000,000. Previously during fiscal 1994, the apparel segment had recognized a charge of $27 million in connection with the lawsuit, and the textile, apparel and office products and other divisions recorded restructuring charges of $1,700,000, $2,900,000, and $4,600,000, respectively. Depreciation and amortization include certain writedowns of property and equipment. Identifiable assets are those assets that are used in the operations of each segment. Amounts shown for corporate assets consist principally of corporate office equipment and deferred loan costs. Capital expenditures include related accounts payable of $5,518,000, $9,178,000 and $1,010,000 for the 1996, 1995 and 1994 fiscal years, respectively. 12 DELTA WOODSIDE INDUSTRIES, INC. MARKETING STRUCTURE TEXTILES OTHER FITNESS EQUIPMENT DELTA MILLS STEVCOKNIT MARKETING CO. FABRICS CO. NAUTILUS INTERNATIONAL MARKETS SERVED: MARKETS SERVED: MARKETS SERVED: APPAREL: APPAREL: Bottomweight Fabrics, Childrens, Health Clubs, Dresses, Suit Linings, Men's, Women's Public Sector, Government & Athletic Wear, YMCAs & Similar Uniform Trade Fleece, Jersey Institutions, Interlock, Medical, OTHER: Rib Fabrics Amenity Facilities, Surgical Tapes Corporate Fitness Centers,
APPAREL PACKAGED LICENSED APPAREL PRODUCTS PRODUCTS DUCK HEAD DELTA APPAREL CO. APPAREL CO. PRIVATE LABEL INTERNATIONAL DIVISION APPAREL MARKETING CORP. MARKETS SERVED: MARKETS SERVED: MARKETS SERVED: MARKETS SERVED: Through Licensees: Department Stores & Screen Printers, Department Stores, Department Stores, Specialty Retailers Distributors Discounters, Sporting Goods Stores, Factory Direct Other Apparel Specialty Stores, Outlet Stores Branded & Private-Label Manufacturers Direct Mail, Premiums, Clubs, Military
13 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 June 29, 1996 and July 1, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. 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. The accompanying financial statements of Delta Woodside Industries, Inc. for the year ended July 2, 1994, were audited by other auditors whose report thereon dated August 17, 1994, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 1996 and 1995 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Delta Woodside Industries, Inc. at June 29, 1996 and July 1, 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in notes A and K to the consolidated financial statements, in 1996 the Company adopted the method of assessing impairment of long-lived assets as prescribed by Statement of Financial Accounting Standards No. 121. (Signature of KPMG Peat Marwick LLP) Greenville, South Carolina August 13, 1996 14 CONSOLIDATED BALANCE SHEETS Delta Woodside Industries, Inc.
JUNE 29, 1996 July 1, 1995 ASSETS CURRENT ASSETS Cash and cash equivalents........................................................ $ 6,271,000 $ 719,000 Accounts receivable: Factor........................................................................ 63,194,000 63,085,000 Customers..................................................................... 65,230,000 64,143,000 128,424,000 127,228,000 Less allowances for doubtful accounts and returns............................. 6,258,000 5,634,000 122,166,000 121,594,000 Inventories Finished goods................................................................ 64,122,000 137,675,000 Work in process............................................................... 60,739,000 58,806,000 Raw materials and supplies.................................................... 16,197,000 29,553,000 141,058,000 226,034,000 Deferred income taxes............................................................ 8,951,000 Prepaid expenses and other current assets........................................ 10,258,000 5,826,000 TOTAL CURRENT ASSETS 279,753,000 363,124,000 PROPERTY, PLANT AND EQUIPMENT, at cost Land and land improvements.................................................... 6,134,000 5,783,000 Buildings..................................................................... 81,077,000 66,928,000 Machinery and equipment....................................................... 248,193,000 210,200,000 Furniture and fixtures........................................................ 8,509,000 8,112,000 Leasehold improvements........................................................ 3,564,000 2,778,000 Construction in progress...................................................... 10,136,000 18,651,000 357,613,000 312,452,000 Less accumulated depreciation................................................. 136,879,000 104,393,000 220,734,000 208,059,000 EXCESS OF COST OVER ASSIGNED VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $5,665,000 (1996) and $4,819,000 (1995).......................... 26,464,000 27,310,000 OTHER ASSETS....................................................................... 10,765,000 11,803,000 $537,716,000 $610,296,000
See notes to consolidated financial statements. 15
JUNE 29, 1996 July 1, 1995 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable........................................................... $ 41,779,000 $ 50,593,000 Accrued employee compensation.................................................... 5,220,000 5,758,000 Accrued and sundry liabilities................................................... 23,041,000 19,610,000 Current portion of long-term debt................................................ 242,361,000 276,000 TOTAL CURRENT LIABILITIES 312,401,000 76,237,000 LONG-TERM DEBT..................................................................... 283,000 219,119,000 DEFERRED INCOME TAXES.............................................................. 21,473,000 OTHER LIABILITIES AND DEFERRED CREDITS............................................. 7,697,000 6,968,000 SHAREHOLDERS' EQUITY Common Stock -- par value $.01 a share -- authorized 50,000,000 shares, issued and outstanding 24,460,000 shares (1996) and 24,357,000 shares (1995)......... 245,000 244,000 Additional paid-in capital....................................................... 164,170,000 163,364,000 Retained earnings................................................................ 52,920,000 122,891,000 217,335,000 286,499,000 COMMITMENTS AND CONTINGENCIES $537,716,000 $610,296,000
See notes to consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF OPERATIONS Delta Woodside Industries, Inc.
Year Ended JUNE 29, 1996 July 1, 1995 July 2, 1994 Net sales........................................................ $600,172,000 $597,541,000 $613,776,000 Cost of goods sold............................................... 575,211,000 499,093,000 514,840,000 Gross profit..................................................... 24,961,000 98,448,000 98,936,000 Selling, general and administrative expenses..................... 78,874,000 77,037,000 82,223,000 Litigation (credit) charge....................................... (9,000,000 ) (7,000,000) 27,096,000 Restructuring and impairment charge (credit)..................... 19,994,000 (553,000) 9,199,000 (64,907,000 ) 28,964,000 (19,582,000) Other (expense) income: Interest expense............................................... (18,993,000 ) (13,646,000) (8,639,000) Interest income................................................ 448,000 49,000 722,000 Other.......................................................... (145,000 ) 2,403,000 1,569,000 (18,690,000 ) (11,194,000) (6,348,000) INCOME (LOSS) BEFORE INCOME TAXES (83,597,000 ) 17,770,000 (25,930,000) Income tax expense (benefit)..................................... (20,958,000 ) 7,672,000 (8,633,000) NET INCOME (LOSS) $(62,639,000 ) $ 10,098,000 $(17,297,000) Earnings (loss) per share of Common Stock........................ $ (2.56 ) $ 0.42 $ (0.70) Weighted average number of shares outstanding.................... 24,443,000 24,317,000 24,550,000
See notes to consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Delta Woodside Industries, Inc.
Additional Total Common Stock Paid-In Retained Shareholders' Shares Amount Capital Earnings Equity Balance at July 3, 1993................................. 26,436,886 $264,000 $186,381,000 $149,604,000 $336,249,000 Incentive Stock Award Plan, shares issued............. 82,309 1,000 666,000 667,000 Stock Option Plan, shares issued...................... 22,188 194,000 194,000 Tax benefits of stock plans........................... 144,000 144,000 Purchase and retirement of Common Stock............... (2,295,650) (23,000) (25,271,000) (25,294,000 ) Net loss.............................................. (17,297,000) (17,297,000 ) Cash dividends paid -- $.40 a share................... (9,786,000) (9,786,000 ) Balance at July 2, 1994................................. 24,245,733 242,000 162,114,000 122,521,000 284,877,000 Incentive stock award plan, shares issued............. 52,820 1,000 605,000 606,000 Stock Option Plan, shares issued...................... 59,000 1,000 465,000 466,000 Tax benefits of stock plans........................... 24,000 24,000 Net income............................................ 10,098,000 10,098,000 Cash dividends paid -- $.40 a share................... (9,728,000) (9,728,000 ) Other................................................. (475) 156,000 156,000 Balance at July 1, 1995................................. 24,357,078 244,000 163,364,000 122,891,000 286,499,000 INCENTIVE STOCK AWARD PLAN, SHARES ISSUED............. 53,448 1,000 594,000 595,000 STOCK OPTION PLAN, SHARES ISSUED...................... 49,125 375,000 375,000 TAX EXPENSE OF STOCK PLANS............................ (163,000) (163,000 ) NET LOSS.............................................. (62,639,000) (62,639,000 ) CASH DIVIDENDS PAID -- $.30 A SHARE................... (7,332,000) (7,332,000 ) BALANCE AT JUNE 29, 1996 24,459,651 $245,000 $164,170,000 $ 52,920,000 $217,335,000
See notes to consolidated financial statements. 18 CONSOLIDATED STATEMENTS OF CASH FLOWS Delta Woodside Industries, Inc.
Year Ended JUNE 29, 1996 July 1, 1995 July 2, 1994 OPERATING ACTIVITIES Net income (loss)............................................. $(62,639,000 ) $ 10,098,000 $(17,297,000) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................... 27,335,000 22,532,000 21,344,000 Amortization............................................... 2,203,000 2,060,000 1,859,000 Reduction in excess of cost over assigned value of net assets acquired......................................... 1,549,000 Writedown of property and equipment........................ 15,377,000 2,141,000 Provision for losses on accounts receivable................ 2,577,000 3,311,000 3,886,000 Provision for deferred income taxes........................ (12,522,000 ) 6,063,000 (10,810,000) Losses (gains) on disposition of property and equipment........................................... 507,000 507,000 113,000 Compensation under stock plans............................. 807,000 1,096,000 1,005,000 Deferred compensation...................................... 808,000 738,000 928,000 Other...................................................... (70,000 ) (70,000) 708,000 Changes in operating assets and liabilities net of effects from business acquisitions: Accounts receivable..................................... (2,069,000 ) (7,819,000) 17,635,000 Inventories............................................. 84,976,000 (22,231,000) (6,265,000) Other current assets.................................... (4,432,000 ) (3,884,000) 1,610,000 Litigation accrual...................................... (25,594,000) 25,594,000 Accounts payable and accrued expenses................... (2,261,000 ) (2,304,000) (11,183,000) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 50,597,000 (15,497,000) 32,817,000 INVESTING ACTIVITIES Acquisitions of businesses, net of cash acquired.............................................. (1,565,000) Property, plant and equipment: Purchases.................................................. (67,403,000 ) (32,224,000) (30,525,000) Proceeds of dispositions................................... 6,769,000 734,000 698,000 Sale of business.............................................. 2,102,000 Other......................................................... 27,000 (457,000) (697,000) NET CASH (USED) BY INVESTING ACTIVITIES (60,607,000 ) (31,947,000) (29,987,000)
19
Year Ended JUNE 29, 1996 July 1, 1995 July 2, 1994 FINANCING ACTIVITIES Proceeds from revolving lines of credit....................... $268,826,000 $ 348,849,000 $ 33,000,000 Repayments on revolving lines of credit....................... (245,660,000 ) (291,395,000) (11,000,000) Net borrowings on short-term line of credit................... 10,347,000 Scheduled principal payments of long-term debt....................................................... (272,000 ) (871,000) (1,781,000) Repurchase and retirement of shares of Common Stock........... (25,294,000) Dividends paid................................................ (7,332,000 ) (9,728,000) (9,786,000) Other......................................................... (769,000) 31,000 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 15,562,000 46,086,000 (4,483,000) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,552,000 (1,358,000) (1,653,000) Cash and cash equivalents at beginning of year.................. 719,000 2,077,000 3,730,000 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,271,000 $ 719,000 $ 2,077,000
See notes to consolidated financial statements. 20 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 is 70% owned). All significant intercompany balances and transactions have been eliminated. Certain amounts for fiscal 1995 and prior years have been reclassified to conform to the 1996 presentation. CASH EQUIVALENTS: The Company considers all highly liquid investments of three months or less when purchased to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market determined using both first-in, first-out (FIFO) and last-in, first-out (LIFO) methods. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the basis of cost. Depreciation is computed by the straight-line method for financial reporting based on estimated useful lives of three to thirty-two years, but predominantly over seven to ten years, and by accelerated methods for income tax reporting. When required by circumstances, the Company writes down assets to their estimated market value. INTANGIBLE ASSETS: Amortization is computed using the straight-line method. The excess of cost over assigned value of net assets acquired relating to certain business combinations is being amortized to expense primarily over periods of 40 years with other amounts amortized over 5 or 15 years. Loan acquisition costs are being amortized over 3 years. Other intangible assets are being amortized over periods of 3 to 40 years, but averaging approximately 10 years. The Company assesses the recoverability of its intangible assets by determining whether the amortization of the intangible balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. 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. This policy was formally adopted by the Company in fiscal 1996. REVENUE RECOGNITION: Sales are recorded upon shipment or designation of specific goods for later shipment at customers' request with related risk of ownership passing to such customers. INCOME TAXES: Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS PER COMMON SHARE: Per share data are computed based on the weighted average number of shares of Common Stock outstanding during each period. 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, fifty-three week fiscal year ending on the Saturday closest to June 30. Fiscal years 1996, 1995 and 1994 each consist of 52 weeks. NOTE B -- ACCOUNTS RECEIVABLE The woven fabrics operation 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. At June 29, 1996 the Company had no significant concentrations of credit risk, since substantially all of the Company's accounts receivable are due from many companies that produce apparel, home furnishings and other products and from department stores and specialty apparel retailers located throughout the United States. The Company generally does not require collateral for its accounts receivable. NOTE C -- INVENTORIES As of June 29, 1996 and July 1, 1995, cost for certain inventories of the apparel segment are determined under the LIFO method representing 45% and 40%, respectively, of the cost of consolidated inventories. The balance of the cost of consolidated inventories is determined under the FIFO method. If the inventories of the apparel segment had been determined by the FIFO method, they would have been approximately the same as the reported amounts. During fiscal 1996 the Company increased inventory reserves for excess branded apparel inventories by approximately $25 million. 21 NOTE D -- LONG-TERM DEBT, CREDIT ARRANGEMENTS AND LEASES Long-term debt consists of:
June 29, 1996 July 1, 1995 Revolving Credit Facility (8.1% at June 29, 1996), with interest payable monthly................. $241,296,000 $217,775,000 Industrial Revenue Bond payable monthly, through 2001 at 80% of a bank's base rate............... 1,057,000 1,296,000 Other..................... 291,000 324,000 242,644,000 219,395,000 Less current portion...... 242,361,000 276,000 $ 283,000 $219,119,000
At June 29, 1996, the Company's revolving Credit Facility was reduced to $249 million from $264 million. On June 28, 1997 it will be reduced by another $15 million, and then will mature on September 30, 1997, with a provision for one-year extensions. At June 29, 1996, the Company's interest rate is LIBOR plus 2.5%. The Credit Facility contains provisions that may decrease the spread over LIBOR depending upon certain financial ratios achieved by the Company. The Credit Facility has a limit of $25 million for the purpose of issuing letters of credit. At June 29, 1996 the Company had used $7.2 million for letters of credit and borrowed the remaining amount available under the facility. In April 1996 the Company amended the Credit Facility to secure it with accounts receivable, inventory and equipment as collateral. The collateral has a value of $380 million at June 29, 1996. The Credit Facility contains various restrictive covenants requiring minimum tangible net worth and certain other minimum financial ratios. The agreement also restricts additional indebtedness, dividends and capital expenditures. As a result of the losses incurred in fiscal 1996, the Company did not achieve certain required financial ratios, and therefore has reported the Credit Facility as current debt. The Company is negotiating with certain other lenders to refinance the debt. Total interest expense incurred by the Company was $19,703,000, $13,947,000 and $8,639,000 in the 1996, 1995 and 1994 fiscal years, respectively, of which $710,000 and $301,000 was capitalized in fiscal 1996 and 1995, respectively. Total interest paid during the 1996, 1995 and 1994 fiscal years was $18,088,000, $12,940,000 and $8,275,000, respectively. Rent expense relating to operating leases was approximately $6,276,000 (1996), $6,081,000 (1995), and $5,617,000 (1994). Aggregate principal maturities of all long-term debt and minimum payments under operating leases are as follows:
Long-term Operating Fiscal Year Debt Leases 1997....................... $242,361,000 $ 4,443,000 1998....................... 154,000 3,186,000 1999....................... 42,000 3,165,000 2000....................... 43,000 1,612,000 2001....................... 44,000 1,016,000 Later Years................ 2,156,000 $242,644,000 $15,578,000
22 NOTE E -- SHAREHOLDERS' EQUITY The Stock Option Plan was approved by the shareholders in fiscal 1991, and amended in fiscal 1996. The Plan gives the Company the right to grant options for up to 600,000 shares of Common Stock to employees. Prior to the amendment, the Company could grant options for up to 300,000 shares. Transactions under the Stock Option Plan are as follows:
Prices Outstanding Exercisable July 3, 1993..... $ 4.00-$9.94 176,688 49,355 Granted........ 5.44 20,000 Became exercisable.. 4.00-9.94 69,959 Exercised...... 4.00-9.94 (22,188) (22,188) Cancelled...... 4.00-9.94 (35,374) July 2, 1994..... 4.00-9.94 139,126 97,126 Granted........ 5.13-5.88 61,000 Became exercisable.. 4.00-9.94 26,749 Exercised...... 4.00-7.00 (59,000) (59,000) Cancelled...... 4.00-9.94 (11,876) (1,750) July 1, 1995..... 4.00-9.94 129,250 63,125 Granted........ 3.06-4.38 254,675 Became exercisable.. 3.38-9.94 27,875 Exercised...... 4.00-5.13 (49,125) (49,125) Cancelled...... 5.88-5.88 (7,500) June 29, 1996.... 3.06-9.94 327,300 41,875
The weighted average exercise price for all options outstanding was $6.32 per share at June 29, 1996. These options expire on various dates beginning November 1996 and ending on February 2001. The options generally become exercisable in equal amounts on the first through fourth anniversaries of the date of grant and remain exercisable until the fifth anniversary of the date of grant. The excess of the fair market value 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 $152,000, $161,000 and $232,000 during fiscal 1996, 1995 and 1994, respectively. Options available for grant at June 29, 1996, July 1, 1995 and July 2, 1994 were 91,325, 38,500 and 87,624, respectively. The Incentive Stock Award Plan was approved by the shareholders in fiscal 1991, and amended in fiscal 1996. The Plan gives the Company the right to grant awards for up to 800,000 shares of Common Stock to employees. Prior to the amendment, the Company could grant awards for up to 300,000 shares. Under the Incentive Stock Award Plan awards are granted for the right to purchase shares for $.01. During fiscal 1996 rights to purchase 22,206 shares were cancelled. During fiscal 1995 and 1994 awards were granted for the right to purchase up to 19,723 shares and 260,581 shares, respectively. 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 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 $615,000, $939,000 and $1,111,000 for the fiscal years 1996, 1995 and 1994, respectively. Shares available for grant at June 29, 1996 were 380,121. During the first six months of fiscal 1994, the Company repurchased 2,296,000 shares of Common Stock at an average price of $11.02 for a total of $25.3 million. The shareholders have authorized the Board of Directors to issue up to 10 million shares of preferred stock with a maximum aggregate par value of $250 million, and to establish the particular terms including dividend rates, conversion prices, voting rights, redemption prices and similar matters. 23 NOTE F -- INCOME TAXES For fiscal 1996, the Company had a tax loss of $36 million. The Company expects to carry a portion of this loss back to fiscal 1993 to obtain a tax refund of approximately $8.5 million. After this carryback, the Company will have a federal net operating loss (NOL) carryforward of $5 million. In addition, the Company has state NOL carryovers of $78 million which expire in years 1999 through 2011. The Company has also recognized valuation allowances for all outstanding deferred tax assets (net of deferred tax liabilities) including the NOL carryforwards for fiscal 1996. The increase in valuation allowances for fiscal 1996 was $9.6 million. At June 29, 1996, in addition to the NOL carryforward discussed above, the Company had other federal net operating loss carryforwards of $9.2 million for income tax purposes that expire in fiscal years 2002 and 2003. Those carryforwards resulted from the Company's 1988 acquisition of Stanwood Corporation. In addition to net operating loss carryforwards from Stanwood Corporation the Company has unused general business credit carryforwards of $610,000 which will expire in fiscal years ending 1999 through 2003. The maximum annual usage of the Stanwood NOL is limited by applicable provisions of the Internal Revenue Code to approximately $1 million per year. Deferred income taxes reflect the net tax effects of temporary differences between the financial statement amounts and amounts used for income tax purposes. At the end of fiscal 1996, the Company's gross deferred tax assets are approximately $49 million. The deferred tax assets have been reduced by a valuation allowance of approximately $15 million. The valuation allowance is adjusted from time to time as tax benefits are realized. Significant components of the Company's deferred tax assets and liabilities are
1996 1995 Assets Inventory........................ $17,197,000 $ 5,183,000 Net operating loss carryforwards.................. 9,508,000 6,665,000 Restructuring reserves........... 6,180,000 Tax credit carryforward.......... 5,590,000 4,370,000 Deferred compensation............ 2,606,000 2,111,000 Health claims.................... 2,374,000 1,310,000 Allowance for doubtful accounts....................... 1,870,000 1,527,000 Litigation accrual............... 1,219,000 Accrued vacation................. 636,000 696,000 Stock compensation accruals...... 444,000 837,000 Workers' compensation............ 193,000 311,000 Other............................ 2,809,000 2,080,000 Subtotal......................... 49,407,000 26,309,000 Valuation allowance.............. (15,181,000) (5,631,000) Deferred tax assets.............. 34,226,000 20,678,000 Liabilities Depreciation..................... 27,149,000 27,053,000 Inventory -- LIFO basis difference..................... 3,575,000 3,511,000 Intangibles...................... 2,145,000 2,128,000 Other............................ 1,357,000 508,000 Deferred tax liabilities......... 34,226,000 33,200,000 Net deferred tax liabilities................ $ 0 $12,522,000
Significant components of the provision for income taxes are as follows:
1996 1995 1994 Current: Federal income taxes.......................................................... $ (8,962,000) $ 883,000 $ 2,029,000 State income taxes............................................................ 526,000 726,000 148,000 Total current............................................................... (8,436,000) 1,609,000 2,177,000 Deferred: Federal income taxes (benefits)............................................... (10,506,000) 5,190,000 (9,593,000) State income taxes (benefits)................................................. (2,016,000) 873,000 (1,217,000) Total deferred.............................................................. (12,522,000) 6,063,000 (10,810,000) Total provision................................................................. $(20,958,000) $7,672,000 $ (8,633,000)
24 NOTE F -- INCOME TAXES (CONTINUED) The reconciliation of income tax expense (benefit) computed at the Federal statutory tax rate:
1996 1995 1994 Income tax expense (benefit) at statutory rates................................... $(29,259,000) $6,220,000 $(9,076,000) State taxes (benefits) net of federal benefit..................................... (969,000) 1,039,000 (695,000) Life insurance proceeds........................................................... (760,000) Amortization of excess of cost over assigned value of net assets acquired......... 293,000 280,000 865,000 Foreign subsidiary loss (income).................................................. 285,000 336,000 101,000 State NOL benefits................................................................ (940,000) (736,000) Valuation allowance adjustments................................................... 9,550,000 1,706,000 372,000 Other............................................................................. (858,000) (209,000) 536,000 $(20,958,000) $7,672,000 $(8,633,000)
The Company made income tax payments of approximately $1,628,000, $5,377,000 and $2,350,000 during the 1996, 1995 and 1994 fiscal years, respectively. NOTE G -- OPERATIONS BY INDUSTRY SEGMENT Industry segment information for the Company presented on pages 11 and 12 of this Annual Report is an integral part of these financial statements. NOTE H -- EMPLOYEE BENEFIT PLANS Under the terms of the Delta Woodside Industries Employee Retirement Plan, the Board of Directors has the discretion to authorize contributions from time to time to the Retirement Plan of cash or a maximum of 504,790 shares of the Company's Common Stock. A trustee holds the assets of the Retirement Plan for the benefit of the participants who may withdraw amounts or shares only upon retirement, death, disability or other termination of employment. All employees of the Company who are at least 21 years of age with one year of service participate in the Retirement Plan. Amounts allocated to participant accounts generally vest over a five-year period. Each participant has the right to direct the trustee as to the manner in which shares held are to be voted. The Retirement Plan qualifies as an Employee Stock Ownership Plan ("ESOP") under the Internal Revenue Code as a defined contribution plan. Contributions of $400,000, $358,000 and $363,000 were allocated to participants for fiscal 1996, 1995 and 1994, respectively. The Company maintains a 401(k) Employee Savings and Investment Plan for employees meeting certain eligibility requirements. During fiscal 1996 and 1995, the Company contributed $543,000 and $196,000, respectively, to the Plan. The Company made no contributions to the Plan during fiscal 1994. 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 June 29, 1996 and July 1, 1995, the total liability amounted to $6,138,000 and $5,273,000, respectively. The Company insured the lives of certain management employees to assist in funding of the deferred compensation liability. The Company is the owner and beneficiary of the insurance policies. NOTE I -- AFFILIATED PARTY TRANSACTIONS The Company leases its corporate and other office space from a corporation whose stock is owned one-half each by the president and a vice president of the Company. Additional office space and retail store space is leased from the executive vice president. Certain of these leases are on a monthly basis with others expiring in 1997. Under the leases, the Company made payments of approximately $216,000, $254,000 and $292,000 for the 1996, 1995 and 1994 fiscal years, respectively. 25 NOTE J -- FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's carrying value of long-term debt approximates fair value since the rates are tied to floating rates. There are no other material financial instruments which require fair value disclosure. NOTE K -- RESTRUCTURING AND IMPAIRMENT CHARGES The history of operating losses at the knitting and knit finishing operations at two plants in the knitted fabrics division of the textile segment caused the Company to recognize a charge of $12 million during fiscal 1996 to reduce the book value of the fixed assets in this business to the appraised value. The Company also recognized restructuring charges of $8 million for plant closings in the woven textile division and in the apparel segment. Of the $8 million, $4 million is for the write-down of property, plant and equipment, and $4 million is for expenses which will be incurred in connection with the plant closings. During fiscal 1994, the Company made certain decisions regarding its operations which resulted in a restructuring charge. These decisions included restructuring charges of $3.2 million for the sale of the office products business, $1.3 million to abandon plans to develop a spinning plant building and $2.4 million in the apparel segment to discontinue a women's line of apparel and consolidate distribution operations. These restructuring decisions include write-downs of $1.6 million of goodwill and $2.1 of property plant and equipment. NOTE L -- COMMITMENTS AND CONTINGENCIES During fiscal 1997, the Company plans to spend approximately $33 million for capital improvements and new equipment, primarily to complete the modernization program for the woven fabrics division of the Company's textile segment. The Company's 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. From time to time the Company and its subsidiaries are defendants in legal actions involving claims arising in the normal course of business, including product liability claims. The Company believes that, as a result of legal defenses, insurance arrangements and indemnification provisions with parties believed to be financially capable, none of these actions should have a material effect on its operations or financial condition. 26 NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of quarterly results of operations for the years ended June 29, 1996 and July 1, 1995:
Quarter Ended September 30 December 30 March 30 June 29 (In thousands, except per share data) 1996 Net sales.......................................................... $141,043 $ 150,558 $143,269 $165,302 Gross profit....................................................... 20,764 15,614 12,152 (23,569) Net income (loss).................................................. 1,327 367 (8,659 ) (55,674) Earnings (loss) per share of Common Stock.......................... 0.05 0.02 (0.35 ) (2.28)
Quarter Ended October 1 December 31 April 1 July 1 (In thousands, except per share data) 1995 Net sales.......................................................... $141,275 $ 142,520 $150,894 $162,852 Gross profit....................................................... 25,449 21,611 23,756 27,632 Net income (loss).................................................. 4,164 371 943 4,620 Earnings per share of Common Stock................................. 0.17 0.02 0.04 0.19
During the fourth quarter of fiscal 1996, the Company recognized impairment and restructuring charges of $20 million, and wrote down the value of excess inventories in the branded apparel division by $25 million. Also, cost of goods sold in the fourth quarter includes a charge of $1,061,000 attributable to cotton purchase commitments at prices in excess of market value and in quantities in excess of orders from customers. During the second quarter of fiscal 1996 the Company recognized $9 million in credits related to litigation charges first recognized in fiscal 1994. During the first quarter of fiscal 1995, the Company recognized certain life insurance proceeds of $2.2 million. During the fourth quarter of fiscal 1995, the Company recognized a pretax credit of $7 million upon settlement of the Alabama lawsuit. 27 CORPORATE DIRECTORY OPERATING COMPANIES OF DELTA WOODSIDE INDUSTRIES, INC. DELTA MILLS MARKETING COMPANY P.O. Box 6126, Station B 100 Augusta Street Greenville, SC 29606 STEVCOKNIT FABRICS COMPANY P.O. Box 1500 Greer, SC 29652 DUCK HEAD APPAREL COMPANY P.O. Box 688 1020 Barrow Industrial Parkway Winder, GA 30680-0688 DELTA APPAREL COMPANY 3355 Breckinridge Boulevard Suite 100 Duluth, GA 30136 INTERNATIONAL APPAREL MARKETING CORPORATION 80 West 40th Street, Suite 42 New York, New York 10018 PRIVATE LABEL DIVISION P.O. Box 688 1020 Barrow Industrial Parkway Winder, GA 30680-0688 NAUTILUS INTERNATIONAL 709 Powerhouse Road Independence, Virginia 24348-0708 CORPORATE OFFICERS E. ERWIN MADDREY, II President and Chief Executive Officer BETTIS C. RAINSFORD Executive Vice President, Treasurer and Chief Financial Officer JANE H. GREER Vice President and Secretary DOUGLAS J. STEVENS Controller and Assistant Secretary BRENDA L. JONES Assistant Secretary BOARD OF DIRECTORS * C. C. GUY** Retired businessman * DR. JAMES F. KANE** Dean Emeritus, College of Business University of South Carolina * DR. MAX LENNON** President Mars Hill College E. ERWIN MADDREY, II President and Chief Executive Officer Delta Woodside Industries, Inc. BUCK A. MICKEL** Vice President and Director Micco Corporation (Real estate and business investments) BUCK MICKEL** Chairman of the Board and Chief Executive Officer RSI Holdings, Inc. (Sold prior business; seeking business opportunities) BETTIS C. RAINSFORD Executive Vice President, Treasurer and Chief Financial Officer Delta Woodside Industries, Inc. * Member Audit Committee ** Member Compensation Committee 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 June 29, 1996 including financial statements and schedules, but excluding exhibits. Requests should be directed to: Jane H. Greer, Vice President and Secretary, Delta Woodside Industries, Inc., 233 North Main Street, Hammond Square, Suite 200, Greenville, South Carolina 29601. ANNUAL MEETING The Annual Meeting of Shareholders of Delta Woodside Industries, Inc. will be held on Thursday, November 7, 1996, at 10:30 a.m., at the Dorothy Gunter Theater of the Peace Center, 101 West Broad Street, Greenville, South Carolina. 28 DELTA WOODSIDE INDUSTRIES, INC. 233 N. Main Street Hammond Square, Suite 200 Greenville, SC 29601 (864) 232-8301 To the Shareholders of Delta Woodside Industries, Inc.: We want to keep you informed about Delta Woodside's performance, but we believe that the most timely and cost-effective approach is to mail updates only to those who request the information. We have made this decision for two reasons. One is the rising cost of producing and mailing quarterly reports. The other is the recognition that many investors now have access to the news wires and computerized data bases that report Delta Woodside's results on the same day that we release them to the media. If you wish to be mailed a copy of Delta Woodside's three quarterly news releases during 1997, simply complete and return the attached postcard. Please send me a copy of Delta Woodside's 1997 quarterly news releases. Name Address City State Zip Place Stamp Here Delta Woodside Industries, Inc. 233 N. Main Street Suite 200 Greenville, S.C. 29601 EX-21 3 SUBSIDIARIES OF REGISTRANT Jurisdiction % Of of Stock Owned Other Names Under Name of Subsidiary Incorporation By Parent Which Do Business Alchem Capital Corporation DE 100% owned by Delta Woodside Industries, Inc. Delta Mills, Inc. DE 100% owned by Delta Mills Marketing by Alchem Capital Company; Stevcoknit Corporation Fabrics Company; Woodside Mills Delta Merchandising, SC 100% owned by Duck Head Retail Inc. Alchem Capital Corporation Operations Duck Head Apparel TN 100% owned by Delta Apparel Company, Inc. Alchem Capital Maiden Properties Corporation Delta Consolidated NY 100% owned by Delta Mills Sales Co. Corporation Alchem Capital Stevcoknit Marketing Co. Corporation Nautilus Marketing Co. Delta Apparel Marketing Co. Duck Head Marketing Co. Cargud, Sociedad Costa Rica 100% owned by Anonima Duck Head Apparel Company, Inc. Armonia Textil, S.A. Costa Rica 100% owned by Cargud, Sociedad Anonima Delta Apparel Honduras, Honduras 96% owned by Duck Head S. A. Apparel Company, Inc., and 1% each owned by Alchem Capital Corporation, Delta Woodside Industries, Inc., Delta Consolidated Corporation and Cargud, S.A. Nautilus VA 100% owned by International, Inc. Alchem Capital Corporation Nautilus Direct, Inc. NC 100% owned by Nautilus International, Inc. International Apparel NY 70% owned by Alchem Capital Marketing Corporation. Corporation EX-23 4 REPORT ON SCHEDULE The Board of Directors Delta Woodside Industries, Inc: Under date of August 13, 1996, we reported on the consolidated balance sheets of Delta Woodside Industries, Inc. as of June 19, 1996 and July 1, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended, as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule for the years ended June 19, 1996 and July 1, 1995 as listed on page F-2 of Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ KPMG Peat Marwick LLP Greenville, South Carolina KPMG Peat Marwick LLP August 13, 1996 INDEPENDENT AUDITORS' CONSENT The Board of Directors Delta Woodside Industries, Inc. We consent to the incorporation by reference in the registration statements (No. 33-38930, No. 33-38931, No. 333- 01381 and No 333-01383) on Form S-8 of Delta Woodside Industries, Inc., of our reports dated August 13, 1996, relating to the consolidated balance sheets of Delta Woodside Industries, Inc. as of June 29, 1996 and July 1, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended, and related schedule, which reports are incorporated by reference or appear in the 1996 annual report on Form 10- K of Delta Woodside Industries, Inc. /s/ KPMG Peat Marwick LLP Greenville, South Carolina KPMG Peat Marwick LLP September 24, 1996 f:\delta\cindy\secrpt96\10k696\schedcon.doc EX-23 5 Exhibit 23.2--Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-38930 and No. 333-01381) pertaining to the Delta Woodside Industries, Inc. Stock Option Plan and in the Registration Statement (Form S-8 No. 33-38931 and No. 333-01383) pertaining to Delta Woodside Industries, Inc. Incentive Stock Award Plan, of our report dated August 17, 1994 with respect to the consolidated financial statements incorporated herein by reference and the financial statement schedule included herein for the year ended July 2, 1994 in the Annual Report (Form 10-K, of Delta Woodside Industries, Inc. for the year ended June 29, 1996. /s/ ERNST & YOUNG LLP Greenville, South Carolina September 24, 1996 EX-23 6 Report of Ernst & Young LLP, Independent Auditors Board of Directors and Shareholders Delta Woodside Industries, Inc. We have audited the consolidated statements of operations, shareholders' equity and cash flows of Delta Woodside Industries, Inc. for year ended July 2, 1994. Our audit also included the financial statement schedule of Delta Woodside Industries, Inc. for the year ended July 2, 1994. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Delta Woodside Industries, Inc. for the year ended July 2, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Greenville, South Carolina August 17, 1994 EX-27 7
5 This schedule contains summary financial information extracted from the registrant's condensed consolidated financial statements for the fiscal year ended June 29, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JUN-29-1996 JUN-29-1996 6,271 0 128,424 6,258 141,058 279,753 357,613 136,879 537,716 312,401 283 0 0 245 217,335 537,716 600,172 600,172 575,211 665,079 145 3,030 18,993 (83,597) (20,958) (62,639) 0 0 0 (62,639) (2.56) (2.56)
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