10-K 1 form10k-06282003.txt FOR FISCAL YEAR ENDED JUNE 28, 2003 UNITED STATES 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 28, 2003 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.) PO Box 6126 100 Augusta Street Greenville, South Carolina 29606 ---------------------------------------------- -------------------- (Address of principal executive offices) (Zip code) 864/255-4100 ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange -------------------- on which registered Common Stock, Par Value $.01 New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of each class None 1 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 is not contained herein, and will not be contained, to the 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 [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X -------- -------- The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of the New York Stock Exchange on December 27, 2002, which was the last trading day of the second quarter of fiscal 2003, of $4.90, was $28,724,369. The number of shares outstanding of each of the registrant's classes of Common Stock, as of September 25, 2003 was: Common Stock, par value $.01 - 5,862,116 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to shareholders for the fiscal year ended June 28, 2003 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 6, 2003 are incorporated by reference into Part III. 2 PART I ITEM I. BUSINESS The following discussion contains various "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. Examples are statements that concern future revenues, future costs, future capital expenditures, business strategy, competitive strengths, competitive weaknesses, goals, plans, references to future success or difficulties and other similar information. The words "estimate", "project", "forecast", "anticipate", "expect", "intend", "believe" and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements. The forward-looking statements in this document are based on the Company's expectations and are necessarily dependent upon assumptions, estimates and data that the Company believes are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are also subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. These risks and uncertainties include, among others, changes in the retail demand for apparel products, the cost of raw materials, competitive conditions in the apparel and textile industries, the relative strength of the United States dollar as against other currencies, changes in United States and international trade regulations, including without limitation the expected end of quotas on textile and apparel products amongst WTO member states in 2005, and the discovery of unknown conditions (such as with respect to environmental matters and similar items). Accordingly, any forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized. The Company does not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized. GENERAL Delta Woodside Industries, Inc. ("Delta Woodside" or the "Company") is a South Carolina corporation with its principal executive offices located at 100 Augusta Street, PO Box 6126, Greenville, South Carolina 29606 (telephone number: 864-255-4100). All references herein to Delta Woodside or the Company refer to Delta Woodside Industries, Inc. and its subsidiaries. Until June 30, 2000, the Company had two apparel businesses and a textile fabrics business. One of the apparel businesses was conducted by the Company's Delta Apparel Company division, a vertically integrated supplier of knit apparel, particularly T-shirts, sportswear and fleece goods. The other apparel business was conducted by the Company's Duck Head Apparel Company division, which designed, sourced, produced, marketed and distributed boys' and men's value-oriented casual sportswear. The textile fabrics business was conducted by the Company's Delta Mills Marketing Company division, which engages in the manufacture and sale of a broad range of finished apparel fabrics primarily to branded apparel manufacturers and resellers and private label apparel manufacturers. During fiscal 2000, the Company's board of directors determined that it was in the best interest of the Company and its shareholders to separate the three businesses into three independent companies. In May of 2000, the Company internally reorganized its business operations such that (i) all of the assets and operations of the Delta Apparel Company division were transferred to a newly-formed direct subsidiary of the Company named Delta Apparel, Inc. ("Delta Apparel") or to a subsidiary of Delta Apparel, (ii) all of the assets and operations of the Duck Head Apparel Company division were transferred to another newly-formed direct subsidiary of the Company named Duck Head Apparel Company, Inc. ("Duck Head") or to a subsidiary of Duck Head, and (iii) the Company's subsidiary Delta Mills, Inc., which includes all of the assets and operations of the Delta Mills Marketing Company division, became a direct subsidiary of the Company. On June 30, 2000, the Company simultaneously spun-off Delta Apparel and Duck Head. All of the outstanding common stock of Delta Apparel and all of the outstanding common stock of Duck Head were distributed to the shareholders of the Company pro rata based on their record ownership on June 19, 2000 of the Company's common stock. 3 GENERAL - CONTINUED During fiscal 1998 the Company made the decision to exit the knit textile market by closing its Stevcoknit Fabrics Company operating division. Also during fiscal 1998 the Company made the decision to exit the fitness equipment (Nautilus International) business. Delta Apparel, Duck Head Apparel, Stevcoknit Fabrics Company and Nautilus International have been classified and reported as discontinued operations. Most of the liquidation of Stevcoknit Fabrics Company was completed in fiscal 1998. The Nautilus International business was sold in January 1999. Delta Woodside Industries, Inc. is the successor by merger to Delta Woodside Industries, Inc., a Delaware corporation that was incorporated in 1986. The corporation that is now Delta Woodside Industries, Inc. was incorporated in 1972. During the year ended June 28, 2003, the Company announced the closing of its Catawba Plant, a yarn manufacturing facility located in Maiden, North Carolina. The equipment run-out schedule was completed in April 2003, and the Company is in the process of liquidating the assets associated with this facility. The Company has replaced the production from this facility with purchased yarn from outside sources. During the year ended June 29, 2002, the Company announced the closing of its Furman Plant, a weaving facility located in Fountain Inn, South Carolina. The equipment run-out schedule was completed in October 2001 and the Company is in the process of either liquidating or transferring the assets associated with this facility. The Company transferred the production for the closed facility to other weaving facilities in the Company to better utilize the remaining equipment. PRODUCTS, MARKETING AND MANUFACTURING The Company produces woven textile fabrics through its Delta Mills (formerly named the Delta Mills Marketing Company) operating division. Delta Mills is the only business segment of the Company. Woven textile fabrics produced for sale by the Company are manufactured from cotton, wool, flax or synthetic fibers or from synthetic filament yarns. Cotton is purchased from numerous suppliers. Wool, flax, synthetic fibers and synthetic filament yarns are purchased from a smaller number of competitive suppliers. The Company spins the major portion of the spun yarns used in its weaving operations, and the balance is purchased from a small number of domestic spinners. In manufacturing these yarns, the cotton and synthetic fibers, either separately or in blends, are carded (fibers straightened and oriented) and then spun into yarn. The Company combs (removing short fibers) some cotton fiber to make high quality yarns. In other fabrics, filament yarns are used. The spun or filament yarn is then woven into fabric on looms. The unfinished fabric at this stage is referred to as greige goods. Finished fabric refers to fabric that has been treated by washing, bleaching, dyeing and applying certain chemical finishes. The Company sells a broad range of finished apparel fabrics primarily to branded apparel manufacturers and resellers, including Levi Strauss, Haggar Corp., the Wrangler(R) and Lee(R) divisions of V.F. Corporation, and Liz Claiborne, Inc., and private label apparel manufacturers for J.C. Penney Company, Inc., Sears Roebuck & Co., Wal-Mart Stores, Inc., and other retailers. The Company also sells camouflage fabric and other fabrics used in apparel sold to the United States Department of Defense. These fabrics account for more than 10% of net sales for fiscal year 2003. The Company believes that it is a leading producer of cotton pants-weight woven fabric used in the manufacture of casual slacks such as Levi Strauss' Dockers(R) and Haggar Corp.'s Wrinkle-Free(R). Other apparel items manufactured with the Company's woven fabrics include women's chino pants, women's blazers, and career apparel (uniforms). 4 PRODUCTS, MARKETING AND MANUFACTURING - CONTINUED Net sales of woven fabrics were $177 million, $175 million, and $213 million during fiscal 2003, 2002, and 2001, respectively. For fiscal year 2003, the Company had three customers, Levi Strauss, V.F. Corporation, and Haggar Apparel that each exceeded 10% of consolidated net sales. The Company's sales to these customers totaled $71 million or approximately 40% of net sales in fiscal 2003. For fiscal year 2002, only two of these customers, Levi Strauss and V.F. Corporation, each exceeded 10% of consolidated net sales. The Company's sales to these customers totaled $63 million or approximately 36% of net sales in fiscal 2002. For fiscal year 2001, the Company again had three customers, Levi Strauss, Haggar Corp., and V.F. Corporation, which each exceeded 10% of consolidated net sales. The Company's aggregate sales to these customers were $90 million or approximately 42% of net sales for fiscal 2001. In addition, during fiscal years 2003, 2002, and 2001, sales of military fabrics to apparel customers accounted for approximately 33%, 31%, and 22%, respectively, of the Company's total sales. The loss of any of these accounts could have a material adverse effect on the results of the Company. The Company has focused its marketing efforts on building close relationships with major apparel companies that have broad distribution channels and that the Company believes have positioned themselves for long-term growth. The Company sells and distributes its fabrics through a marketing office based in New York City (which serves the United States, Canadian and Mexican markets), with sales agents also operating from Atlanta, Dallas, San Francisco and Mexico. During fiscal years 2003, 2002 and 2001, approximately 77%, 83% and 82%, respectively, of the Company's finished woven fabric sales were of fabrics made from cotton or cotton/synthetic blends, while approximately 23%, 17% and 18%, respectively, of such sales were of fabrics made from spun synthetics and other natural fibers, including various blends of rayon, polyester and wool. Woven fabrics are generally produced and shipped pursuant to specific purchase orders, which minimizes the Company's uncommitted inventory levels. The Company's production of cotton and cotton/synthetic blend and spun synthetic finished woven fabrics is largely vertically integrated, with the Company performing most of its own spinning, weaving and finishing. The Company's woven finished fabrics plants are currently operating at less than full capacity. RAW MATERIALS The Company's principal raw material is cotton, although it also spins polyester, wool, linen fiber, acrylic, lyocell, nylon and rayon fibers and weaves textured polyester filament. Polyester is obtained primarily from three major suppliers, all of whom provide competitive prices. Polyester prices for fiscal year 2003 were volatile and slightly higher than in fiscal 2002. The Company's average price per pound of cotton purchased and consumed, including freight and carrying costs, was $.463 in fiscal year 2003 as compared to $.594 in fiscal year 2002, and $.659 in fiscal year 2001. As of June 28, 2003, the Company had contracted to purchase 85% and had fixed the price for approximately 72% of its expected cotton requirements for fiscal year 2004. The percentage of the Company's cotton requirements that the Company fixes each year varies depending upon the Company's forecast of future cotton prices. In the fourth quarter of fiscal 2003, the Company increased its cotton purchases to lock-in favorable costs as cotton prices were rising. The Company believes that recent cotton prices have enabled it to contract for cotton at prices that will permit it to be competitive with other companies in the United States textile industry when the cotton purchased for future use is put into production. To the extent that cotton prices decrease before the Company uses these future purchases, the Company could be materially and adversely affected, as there can be no assurance that it would be able to pass along its higher costs to its customers. In addition, to the extent that cotton prices increase and the Company has not provided for its requirements with fixed price contracts, the Company may be materially and adversely affected, as there can be no assurance that it would be able to pass along these increased costs to its customers. 5 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 non-durable goods. In recent years, the Company has seen a trend toward shorter lead times for its customers' orders. The textile and apparel industries are also cyclical because the supply of particular products changes as competitors enter or leave the market. The Company sells primarily to domestic apparel manufacturers, many of which operate offshore sewing operations. The Company competes with numerous domestic and foreign fabric manufacturers, including companies larger in size and having greater financial resources than the Company. The principal competitive factors in the woven fabrics markets are price, service, delivery time, quality and flexibility, with the relative importance of each factor depending upon the needs of particular customers and the specific product offering. Management believes that the Company maintains its ability to compete effectively by providing its customers with a broad array of high-quality fabrics at competitive prices on a timely basis. The Company's competitive position varies by product line. There are several major domestic competitors in the finished cotton and cotton/polyester blend woven fabrics business, none of which dominates the market. The Company believes, however, that it has a strong competitive position in the all cotton pants-weight fabrics business. In addition, the Company believes it is one of only two finishers successful in printing camouflage for sale to apparel suppliers of the U.S. Government and the only supplier that is vertically integrated for camouflage production. Additional competitive strengths of the Company include: knowledge of its customers' business needs; its ability to produce special fabrics such as textured blends; state of the art spinning, weaving and fabric finishing equipment at most of its facilities; substantial vertical integration; and its ability to communicate electronically with its customers. Foreign competition is a significant factor in the United States fabric market. The Company believes that its relatively small manual labor component, highly-automated manufacturing processes and domestic manufacturing base allow the Company to compete on a price basis and to respond more quickly than foreign producers to changing fashion trends and to its domestic customers' delivery schedules. In addition, the Company benefits from protections afforded to apparel manufacturers based in certain Latin American and Caribbean countries that ship finished garments into the United States. The North American Free Trade Agreement (often referred to as "NAFTA") entered into force on January 1, 1994. NAFTA has effectively eliminated all tariffs and quotas on goods imported from Mexico if such goods are made from fabric originating in Canada, Mexico, or the United States. The Caribbean Basin Trade Partnership Act (often referred to as "CBTPA") became effective on October 1, 2000. CBTPA has effectively eliminated tariffs and quotas on apparel products imported from participating Caribbean and Central American nations if such products are made from fabric woven in the United States of U.S. yarn. The Andean Trade Promotion and Drug Eradication Act (often referred to as "ATPDEA") was signed into force on October 31, 2002, with similar rules of origin. Because NAFTA, CBTPA, and ATPDEA create an incentive to use fabric manufactured in the United States, they are beneficial to the Company and other domestic producers of apparel fabrics. In contrast, apparel not meeting the origin requirements of these trade preference agreements is subject to quotas and/or relatively higher tariffs. If NAFTA, CBTPA or ATPDEA were repealed or altered in whole or in part, the Company believes that it could be at a serious competitive disadvantage relative to textile manufacturers in other parts of the world seeking to enter the United States market, which would have a material adverse effect on the Company. Moreover, there can be no assurance that the current favorable regulatory environment will continue or that other geographic areas will not be afforded similar regulatory advantages. The World Trade Organization (often referred to as the "WTO"), a multilateral trade organization, was formed in January 1995 and is the successor to the General Agreement on Tariffs and Trade or "GATT". This multilateral trade organization has set forth mechanisms by which world trade in clothing is being progressively liberalized by phasing-out quotas and reducing duties over a period of time that began in January of 1995. As it implements the WTO mechanisms, the U.S. government is negotiating bilateral trade agreements with developing countries (which are generally exporters of textile and apparel products) that are members of the WTO to get them to reduce their tariffs on imports of textiles and apparel in exchange for reductions by the United States in tariffs on imports of textiles and apparel. The elimination of quotas and the reduction of tariffs under the WTO may result in increased imports of certain textile and apparel products into North America. These factors could make the Company's products less competitive against low cost imports from developing countries. 6 COMPETITION - CONTINUED A Free Trade Area of the Americas agreement (often referred to as "FTAA") is being negotiated, with expected implementation in the year 2005. FTAA will be a NAFTA-like agreement among most of the nations in the Americas. While the agreement language is not final, the rules of origin will likely allow apparel to be imported into the United States without tariff or quota provided the yarns and fabrics are formed in any participating country. This agreement would create an incentive for apparel manufacturers to use fabric from the Americas region rather than other parts of the world, which could be beneficial to the Company and other domestic textile manufacturers. Conversely, this agreement may result in an increase in the production and use of regional fabrics formed outside the U.S., which would be a disadvantage to the Company. The Company expects to face a significant change in global competition in 2005 as a result of the impact of multilateral agreements intended to liberalize global trade. The World Trade Organization ("WTO") is overseeing the phase-out of textile and apparel quotas over a 10-year period ending 2004. Tariffs on textile/apparel products are being reduced (but not eliminated) over the same 10-year period. In addition, China's admission to the WTO will have a significant impact on global textile and apparel trade. By gaining admission to the WTO, China is able to take advantage of the elimination of quota limitations on access to the U.S. market, and there could be a significant negative impact on the North American textile industry. With the arrival of 2005 and the elimination of quotas for WTO members, certain countries, most particularly, but not limited to, China, may have cost advantages compared to the Company. Accordingly, the Company believes it must fully utilize other competitive advantages it believes it has compared to Asian competitors. Among the advantages of the Company are its well established relationships with its customers, its ability to respond quickly to its customers needs as well as the logistic advantages associated with its manufacturing being located in North America. However, there can be no assurance that these advantages will allow the Company to successfully compete with foreign textile producers. EMPLOYEES The Company has approximately 1,600 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 various 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 information contained under the subheading "Environmental Matters" under the heading "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. Generally, the environmental rules applicable to the Company are becoming increasingly stringent. The Company incurs capital and other expenditures in each year that aim at achieving compliance with current and future environmental standards. The Company does not expect that the amount of such expenditures in the future will have a material adverse effect on its operations or financial condition. There can be no assurance, however, that future changes in federal, state, or local regulations, interpretations of existing regulations 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. INDUSTRY SEGMENT INFORMATION Delta Mills is the only business segment of the Company. 7 ITEM 2. PROPERTIES The following table provides a description of Delta Woodside's principal facilities.
Approximate Square Location Utilization Footage Owned/Leased -------- ----------- ------------ ------------ Corporate and Greenville, SC Administrative Offices 17,400 Leased (1) Beattie Plant, Fountain Inn, SC Spinning and Weaving 390,000 (2) Estes Plant, Piedmont, SC Spinning and Weaving 332,000 (2) Delta 3 Plant, Wallace, SC Dyeing and Finishing 555,000 (2) Pamplico/Cypress Plant, Pamplico, SC Spinning and Weaving 419,000 (2) Delta 2 Plant, Wallace, SC Dyeing and Finishing 347,000 (2)
(1) Lease expires in December 2003 with the right to renew for an additional five-year period. (2) The title to these facilities and substantially all of the equipment located in these facilities is held by three South Carolina counties under a fee-in-lieu-of-taxes arrangement, which has the effect of substantially reducing the Company's property taxes in South Carolina. Although the Company can reacquire such property at a nominal price, this would currently cause a significant increase in the amount of property taxes paid by the Company. Except as noted above, all of the above facilities are owned by the Company's Delta Mills, Inc. subsidiary, subject in certain cases to various outstanding liens. Delta Woodside leases corporate offices in Greenville, South Carolina. The lease on the corporate offices expires December 31, 2003. Sales offices are leased in New York City under leases expiring in December 2004. At the date of execution of this Form 10-K, the Company believes that its plants are operating at less than full production capacity. At the date of execution of this Form 10-K, the Company has closed and plans to dispose of its Furman facility in Fountain Inn, SC. At the date of execution of this Form 10-K, the Company has closed and plans to dispose of its Catawba facility in Maiden, NC. The Company believes that its equipment and facilities are generally adequate to allow it to remain competitive with its principal competitors. The Company's accounts receivable and inventory, and certain other intangible property (including the capital stock of Delta Mills, Inc. and its subsidiary) secure the credit facility of the Company's wholly owned subsidiary, Delta Mills, Inc. 8 Item 3. LEGAL PROCEEDINGS All litigation to which the Company is a party is ordinary routine product liability litigation, contract breach litigation, or employment litigation incident to its business that does not depart from the normal kind of such actions. The Company believes that none of these actions, if adversely decided, would have a material adverse effect on its results of operations 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 2003 fiscal year. 9 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 28, 2003 is incorporated herein by reference. During fiscal 2003, the Company issued no shares of common stock that were not registered under the Securities Act of 1933, as amended, and were not previously reported by the Company in a Form 10-Q. EQUITY COMPENSATION PLAN DISCLOSURE The following table summarizes equity compensation plans approved by security holders and equity compensation plans that were not approved by security holders as of June 28, 2003:
( c ) Number of Securities ( a ) Remaining Available for Number of Securities ( b ) Future Issuance Under to be Issued Upon Weighted-Average Equity Compensation Exercise of Outstanding Exercise Price of Plans (Excluding Options, Warrants, Outstanding Options, Securities Reflected in Plan category and Rights Warrants and Rights Column ( a )) ---------------------------------- --------------------------- ------------------------- -------------------------- Equity compensation plans approved by stockholders: Stock Option Plans 381,035 $6.82 45,842 Incentive Stock Plans 93,836 $0.01 7,417 --------------------------- ------------------------- -------------------------- Sub-total 474,871 $5.54 53,259 Equity compensation plans not approved by stockholders N/A N/A N/A --------------------------- ------------------------- -------------------------- Total 474,871 $5.54 53,259
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 28, 2003 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 3 through 15 of the Company's annual shareholders' report for the year ended June 28, 2003 is incorporated herein by reference. 10 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The material under the subheading , "Quantitative and Qualitative Disclosures About Market Risk" under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 11 of the Company's annual shareholders' report for the year ended June 28, 2003 is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements included on pages 16 through 36 of the Company's annual shareholders' report for the year ended June 28, 2003 are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. Item 9A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-14(e)), have concluded that, as of June 28, 2003, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. (b) Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were required or undertaken. 11 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" ,"Executive Officers" and "Section 16 (a) Beneficial Ownership Reporting Compliance." 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." Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 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 "Ratification of Appointment of KPMG LLP as Independent Auditors - Principal Accountant Fees and Services." 12 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) 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 28, 2003 are incorporated by reference in Item 8: Consolidated balance sheets-- June 28, 2003 and June 29, 2002. Consolidated statements of operations--Years ended June 28, 2003, June 29, 2002 and June 30, 2001. Consolidated statements of shareholders' equity--Years ended June 28, 2003, June 29, 2002 and June 30, 2001. Consolidated statements of cash flows--Years ended June 28, 2003, June 29, 2002 and June 30, 2001. Notes to consolidated financial statements. The following consolidated financial statement schedules of Delta Woodside Industries, Inc. are included in Item 15a(2): Schedule I - Condensed Financial Information of Registrant Schedule II -- Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulations 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. (3) Listing of Exhibits:* 2.1 Distribution Agreement by and among Delta Woodside Industries, Inc,DH Apparel Company, Inc. (subsequently renamed Duck Head Apparel Company, Inc.) and Delta Apparel, Inc. (excluding schedules and exhibits): Incorporated by reference to Exhibit 2.1 to the Form 10/A of Delta Apparel, Inc. (File No. 1-15583). 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"). 13 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. 3.1.6 Articles of Amendment to the Articles of Incorporation of the Company filed with the South Carolina Secretary of State on February 5, 2002: Incorporated by reference to Exhibit 3.1.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2001 and filed with the Securities and Exchange Commission on February 12, 2002. 3.2 Amended and Restated Bylaws of the Company adopted December 9, 1999: Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K with date of December 9, 1999 and filed with the Securities and Exchange Commission on December 16, 1999. 4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5 and 3.2. 4.2 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"). 4.3.1 Revolving Credit and Security Agreement, dated as of March 31, 2000, between GMAC Commercial Credit LLC as agent and lender, and Delta Mills, Inc. as borrower: Incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000. 4.3.1.1 Letter, dated July 28, 2000, amending Revolving Credit and Security Agreement: Incorporated by reference to Exhibit 4.3.1.1 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 4.3.1.2 Consent and Amendment to Credit Agreement and Other Documents, dated as of October 5, 2001: Incorporated by reference to Exhibit 4.3.1.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2001 and filed with the Securities and Exchange Commission on November 9, 2001. 4.3.1.3 Consent and Amendment to Credit Agreement and Other Documents, dated as of March 31,2002: Incorporated by reference to Exhibit 4.3.1.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002 and filed with the Securities and Exchange Commission on May 14, 2002. 4.3.1.4 Consent and Amendment to Credit Agreement and Other Documents, dated as of March 20,2003: Incorporated by reference to Exhibit 4.3.1.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003 and filed with the Securities and Exchange Commission on May 13, 2003. 4.3.2 Guarantee, dated as of March 31, 2000, of Delta Mills Marketing, Inc. in favor of GMAC Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000. 4.3.3 General Security Agreement, dated as of March 31, 2000, between Delta Mills Marketing, Inc. and GMAC Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000. 4.3.4 Stock Pledge and Security Agreement, dated as of March 31, 2000, by Alchem Capital Corporation in favor of GMAC Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000. 14 4.3.5 Stock Pledge and Security Agreement, dated as of March 31, 2000, by Delta Mills, Inc. in favor of GMAC Commercial Credit LLC as agent: Incorporated by reference to Exhibit 99.5 to the Company's Current Report on Form 8-K dated March 31, 2000 and filed with the Securities and Exchange Commission on April 13, 2000 4.3.6 Stock Pledge and Security Agreement, dated as of May 11, 2000, by Delta Woodside Industries, Inc. in favor of GMAC Commercial Credit LLC as agent : Incorporated by reference to Exhibit 4.3.6 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 4.4 Indenture, dated as of August 25, 1997 with respect to Delta Mills, Inc.$150,000,000 Series A and Series B 9 5/8% Senior Notes due 2007, with The Bank of New York, as Trustee, together with forms of certain related instruments, agreements and documents: Incorporated by reference to Exhibit 4.2.6 to Form 8-K/A of the Company with date of September 25, 1997. 4.5 Rights Agreement, dated as of December 10, 1999, between the Company and First Union National Bank, which includes, as Exhibit A, the Form of Rights Certificate and, as Exhibit B, the Summary of Rights to Purchase Common Stock: Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K with date of December 9, 1999 and filed with the Securities and Exchange Commission on December 16, 1999. 4.5.1 Amendment No. 1 to Shareholders Rights Agreement, dated as of March 15, 2000, between the Company and First Union National Bank: Incorporated by reference to the Company's Current Report on Form 8-K dated March 15, 2000 and filed with the Securities and Exchange Commission on April 3, 2000. 4.6 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** Delta Woodside Deferred Compensation Plan for Key Managers, Amended and Restated Effective June 30, 2000: Incorporated by reference to Exhibit 10.2 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.2** 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. 10.2.1** Amendment No. 1 to Stock Option Plan: Incorporated by reference to Exhibit 10.1 to the December 1990 Form 10-Q. 10.2.2** 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"). 10.2.3** 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 Form 10-Q. 10.2.4** 1997 Amendment to Stock Option Plan effective as of November 6, 1997: Incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8 of Delta Woodside Industries, Inc. (File No. 333-45767). 10.2.5** Amendment to Stock Option Plan adopted April 25, 2000: Incorporated by reference to Exhibit 10.4.6 to the Company's Form 10-Q for the fiscal quarter ended April 1, 2000. 10.2.6** Amendments to Stock Option Plan: Incorporated by reference to Exhibit 10.4.7 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 15 10.3** Form of Amendment of Certain Rights and Benefits Relating to Stock Options and Deferred Compensation by and between the Company and certain pre-spin-off Delta Woodside Industries, Inc, plan participants: Incorporated by reference to Exhibit 10.7 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.3.1 List of directors and officers of the Company who signed the document described in Exhibit 10.7: Incorporated by reference to Exhibit 10.7.1 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.3.2** Form of Amendment of Stock Options by and between Delta Woodside Industries, Inc. and certain pre-spin-off plan participants: Incorporated by reference to Exhibit 10.7.2 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.4** Directors Stock Acquisition Plan: Incorporated by reference to Exhibit 10.14 to the 1991 Form 10-K. 10.4.1** Amendment of Director Stock Acquisition Plan, dated April 30, 1992: Incorporated by reference to Exhibit 10.12.2 to the 1992 Form 10-K. 10.5** 2000 Stock Option Plan of Delta Woodside Industries, Inc: Incorporated by reference to Exhibit 10.10 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.5.1 Amendment of 2000 stock option plan of Delta Woodside Industries, Inc: Incorporated by reference to Item 6(a) of the Company's report on Form 10-Q for the quarter ended September 30, 2000 and filed with the Securities and Exchange Commission on November 14, 2000. 10.6** 2000 Incentive Stock Award Plan of Delta Woodside Industries, Inc: Incorporated by reference to Exhibit 10.11 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.7** Letter dated June 28,2000 to William F. Garrett: Incorporated by reference to Exhibit 10.14 to the Company's Report on Form 10-K dated July 1, 2000 and filed with the Securities and Exchange Commission on September 29, 2000. 10.8 Tax Sharing Agreement, dated as of June 30, 2000 by and among Delta Woodside Industries, Inc. Duck Head Apparel Company, Inc. and Delta Apparel, Inc.: Incorporated by reference to Exhibit 2.2 to the Report on Form 8-K of the Company with the date of June 30, 2000. 10.8.1 Amendment to tax sharing agreement dated as of August 6, 2001: Incorporated by reference to Exhibit 10.17.2 to the Company's Report on Form 10-K for the fiscal year ended June 30, 2001 and filed with the Securities and Exchange Commission on September 24, 2001, the "2001 10-K." 10.9 See Exhibits 4.3.1, 4.3.1.1, 4.3.2, 4.3.3, 4.3.4, 4.3.5, 4.3.6 and 4.4. 13 Annual Report to Shareholders of the Company for the fiscal year ended June 28, 2003. 21 Subsidiaries of the Company: Incorporated by reference to Exhibit 21 to the 2001 Form 10-K. 23 Report on Schedules and Independent Auditors' Consent for the years ended June 28, 2003, June 29, 2002 and June 30, 2001. 16 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 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. The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit to any of the above filed exhibits upon request of the Commission. (b) Reports on Form 8-K On April 4, 2003, the Company filed a Current Report on Form 8-K dated April 3, 2003 reporting information under Item 5 and Item 7. (c) Exhibits The response to this portion of Item 15 is incorporated by reference from Item 15(a)(3) above. (d) Financial Statement Schedules The response to this portion of Item 15 is submitted as a separate section of this report. 17 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. (Registrant) September 25, 2003 By: /s/ William F. Garrett ------------------------------------------ -------------------------------- Date William F. Garrett 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 9/25/2003 /s/ William F. Garrett 9/25/2003 ------------------------------------- ------------ -------------------------------------------------------- ------------ C.C. Guy Date William F. Garrett Date Director President, Chief Executive Officer and Director /s/ J. Patrick Danahy 9/25/2003 /s/ William H. Hardman, Jr. 9/25/2003 ------------------------------------- ------------ -------------------------------------------------------- ------------ J. Patrick Danahy Date William H. Hardman, Jr. Date Director Vice President, Treasurer, and Chief Financial Officer /s/ James Kane 9/25/2003 /s/ Donald C. Walker 9/25/2003 ------------------------------------- ------------ -------------------------------------------------------- ------------ James Kane Date Donald C. Walker Date Director Vice President, Assistant Secretary, and Controller /s/ Max Lennon 9/25/2003 ------------------------------------- ------------ Max Lennon Date Director /s/ E. Erwin Maddrey, II 9/25/2003 ------------------------------------- ------------ E. Erwin Maddrey, II Date Director /s/ Buck A. Mickel 9/25/2003 ------------------------------------- ------------ Buck A. Mickel Date Director
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EXHIBIT INDEX 13 Annual Report to Shareholders of the Company for the fiscal year ended June 28, 2003. 23 Report on Schedules and Independent Auditors' Consent for the years ended June 28, 2003, June 29, 2002 and June 30, 2001. 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SCHEDULE I CONDENSED BALANCE SHEETS Delta Woodside Industries, Inc. (In thousands) June 28, 2003 June 29, 2002 ------------- ------------- ASSETS CURRENT ASSETS Cash and cash equivalents $261 $262 Deferred income taxes 0 533 Prepaid expenses and other current assets 7,703 5,470 ---------------- ---------------- TOTAL CURRENT ASSETS 7,964 6,265 INVESTMENT IN SUBSIDIARIES 41,521 38,926 ADVANCES TO SUBSIDIARIES 17,082 16,870 DEFERRED INCOME TAXES 4,841 13,214 OTHER ASSETS 25 25 ---------------- ---------------- TOTAL ASSETS $71,433 $75,300 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $53 $54 Deferred income taxes 574 ---------------- ---------------- TOTAL CURRENT LIABILITIES 627 54 SHAREHOLDERS' EQUITY Preferred Stock 0 0 Common Stock -- par value $.01 a share - authorized 50,000,000 shares, issued and outstanding 5,862,000 shares (2003) and 5,829,000 shares (2002) 59 58 Additional paid-in capital 86,869 86,694 Accumulated deficit (16,122) (11,506) ---------------- ---------------- 70,806 75,246 COMMITMENTS AND CONTINGENCIES ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $71,433 $75,300 ================ ================
See notes to condensed financial statements. 20
CONDENSED STATEMENTS OF OPERATIONS Delta Woodside Industries, Inc. (In thousands, except per share data) Year Ended Year Ended Year Ended June 28, 2003 June 29, 2002 June 30, 2001 ------------- ------------- ------------- Selling, general and administrative (expenses) $ (1) $ 118 Equity in income (loss) of subsidiaries 2,595 (2,063) $(3,926) Other income (expense) 1 4 (27) ---------------- ---------------- --------------- OPERATING PROFIT (LOSS) 2,595 (1,941) (3,953) Interest (expense) income: Interest expense (28) Interest income 76 54 ---------------- ---------------- --------------- 76 26 ---------------- ---------------- --------------- INCOME (LOSS) BEFORE INCOME TAXES 2,595 (1,865) (3,927) Income tax expense (benefit) 7,211 240 (6) ---------------- ---------------- --------------- NET LOSS $ (4,616) $(2,105) $(3,921) ================ ================ =============== Basic and diluted loss per share $ (0.79) $ (0.36) $ (0.66) ================ ================ =============== Weighted average number of shares outstanding 5,862 5,831 5,959 ================ ================ ===============
See notes to condensed financial statements. 21
CONDENSED STATEMENTS OF CASH FLOWS Delta Woodside Industries, Inc. (In thousands) Year Ended Year Ended Year Ended June 28, 2003 June 29, 2002 June 30, 2001 ------------- ------------- ------------- OPERATING ACTIVITIES Net loss $(4,616) $(2,105) $(3,921) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in net (income) loss of subsidiaries (2,595) 2,063 3,926 Change in deferred income taxes 9,480 755 529 Other 200 113 981 Changes in operating assets and liabilities (2,234) 32 (3,342) ---------------- ---------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 235 858 (1,827) ---------------- ---------------- --------------- INVESTING ACTIVITIES Dividends received from subsidiaries 2,900 ---------------- ---------------- --------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 2,900 ---------------- ---------------- --------------- FINANCING ACTIVITIES Net advances from (to) subsidiaries (212) (3,327) 1,627 Repurchase common stock (24) (44) (1,023) ---------------- ---------------- --------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (236) (3,371) 604 ---------------- ---------------- --------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1) (2,513) 1,677 Cash and cash equivalents at beginning of year 262 2,775 1,098 ---------------- ---------------- --------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $261 $262 $2,775 ================ ================ ===============
See notes to consolidated financial statements. 22 NOTES TO CONDENSED FINANCIAL STATEMENTS Delta Woodside Industries, Inc. The accompanying condensed financial statements of Delta Woodside Industries, Inc. should be read in conjunction with the consolidated financial statements of Delta Woodside Industries, Inc. and its consolidated subsidiaries. BASIS OF PRESENTATION: Delta Woodside Industries Inc. is the parent of subsidiaries that are engaged in the manufacture, sale and distribution of textile products. Delta Woodside's investments in its subsidiaries are reported in these condensed financial statements using the equity method of accounting. LONG TERM DEBT: Delta Mills, Inc., a subsidiary of Delta Woodside, has unsecured Senior Notes and a bank credit facility outstanding. See Note C to Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Sources of Capital" in the Company's Annual Report to Shareholders. The Delta Mills credit facility contains restrictive covenants that restrict additional indebtedness, dividends, and capital expenditures of Delta Mills. The payment of dividends with respect to Delta Mills' stock is permitted if there is no event of default and there is at least $1 of undrawn availability under the facility. Loan covenants in the Senior Notes and the Delta Mills credit facility limit the Company's ability to use cash generated by Delta Mills to fund operations in the rest of the Company. In addition to the limitations contained in the Delta Mills credit facility described above, the Senior Notes also contain restrictive covenants limiting payments to the rest of the Company. At June 28, 2003, the net assets of the Company include net assets of the wholly owned subsidiary Delta Mills of approximately $50 million, which are subject to the restrictions described above. REVERSE STOCK SPLIT: The Company effected a 4:1 reverse split of its common stock on February 5, 2002. The Company's shareholders adopted an amendment to the Company's articles of incorporation that provided for the reverse split at a special meeting held on January 28, 2002. The shareholders authorized the Company's board of directors to determine whether to consummate the reverse split and to determine the ratio of the reverse split within a range of whole shares from 3:1 to 10:1. The Company's board of directors set the ratio for the reverse split at 4:1. The Company paid cash in lieu of any fractional shares. The total number of authorized shares of common stock and the par value of the common stock remain the same and were unaffected by the reverse split. All shares and per share amounts have been retroactively restated in connection with the reverse stock split. DIVIDENDS: The Delta Mills' credit facility contains restrictive covenants that restrict additional indebtedness, dividends, and capital expenditures. The payment of dividends with respect to Delta Mills, Inc. stock is permitted if there is no event of default and there is at least $1 of availability under the facility. At June 28, 2003, under the most restrictive of these covenants, no dividends were available for distribution by Delta Mills to Delta Woodside Industries, Inc. The indenture pertaining to the Delta Mills' 9.625% Senior Notes contains restrictive covenants that restrict additional indebtedness, dividends, and investments by Delta Mills' and its subsidiaries. The payment of dividends with respect to Delta Mills, Inc. stock is permitted if there is no event of default under the indenture and after payment of the dividend, the Delta Mills could incur at least $1 of additional indebtedness under a fixed coverage ratio. Dividends are also capped based on cumulative net income and proceeds from the issuance of securities and liquidation of certain investments. During the year ended June 28, 2003 and the year ended June 29, 2002, Delta Mills did not pay any dividends to Delta Woodside Industries, Inc. During the year ended June 30, 2001, Delta Mills paid $2.9 million of dividends to Delta Woodside Industries, Inc. 23
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS DELTA WOODSIDE INDUSTRIES, INC. ---------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E ---------------------------------------------------------------------------------------------------------------------------------- ADDITIONS -------------------------------------- Balance at (2) 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 Returns: Year ended June 28, 2003 $ 32,000 $1,751,000(1) ($1,603,000)(2) $180,000 ================ ===================== ================= ================= Year ended June 29, 2002 $ 51,000 $1,795,000(1) ($1,814,000)(2) $32,000 ================ ===================== ================= ================= Year ended June 30, 2001 $173,000 $2,998,000(1) ($3,222,000)(2) $51,000 ================ ===================== ================= =================
NOTES: 1) The change in the reserve for returns and allowances is charged to income as a reduction of net sales. 2) Deductions represent customer returns and allowances during the period. 24