-----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, Dtwd9hIYfWfJftvja3ECgHXGn/8rXkv9XeA0z9cnW8iIWuAeRfQXHoZfiUOUh14C dBSO2x2LAFYP9A6eHqssPw== 0001019892-03-000011.txt : 20030211 0001019892-03-000011.hdr.sgml : 20030211 20030211114803 ACCESSION NUMBER: 0001019892-03-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021228 FILED AS OF DATE: 20030211 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10095 FILM NUMBER: 03549165 BUSINESS ADDRESS: STREET 1: P O BOX 6126 CITY: GREENVILLE STATE: SC ZIP: 29606 BUSINESS PHONE: 8642554100 MAIL ADDRESS: STREET 1: P O BOX 6126 CITY: GREENVILLE STATE: SC ZIP: 29606 10-Q 1 form10q-12282002.txt FOR PERIOD ENDING DECEMBER 28, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 28, 2002 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 or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) P.O. Box 6126 100 Augusta Street Greenville, South Carolina 29606 - -------------------------------- ----- (Address of principal executive offices) (Zip Code) 864 255-4122 ------------ (Registrant's telephone number, including area code) (Not Applicable) ---------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value--5,862,116 shares as of February 7, 2003 1 DELTA WOODSIDE INDUSTRIES, INC.
INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--December 28, 2002 and June 29, 2002 3 Condensed consolidated statements of operations-- Three and six months ended December 28, 2002 and December 29, 2001 4 Condensed consolidated statements of cash flows-- Six months ended December 28, 2002 and December 29, 2001 5 Notes to condensed consolidated financial statements--December 28, 2002 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Item 4. Controls and Procedures 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and use of Proceeds 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 CERTIFICATIONS 14-19
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS Delta Woodside Industries Inc. (In Thousands, except share amounts)
December 28, 2002 June 29, 2002 ------------------------- ------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 780 $ 314 Accounts receivable: Factor and other 34,850 49,980 Less allowances for returns 28 32 ------------------- ---------------- 34,822 49,948 Inventories Finished goods 6,714 7,085 Work in process 20,725 19,878 Raw materials and supplies 6,715 5,784 ------------------- ---------------- 34,154 32,747 Deferred income taxes 2,079 1,895 Other assets 469 19 ------------------- ---------------- TOTAL CURRENT ASSETS 72,304 84,923 Assets held for sale 3,141 3,141 PROPERTY, PLANT AND EQUIPMENT, at cost 148,659 147,906 Less accumulated depreciation 79,777 77,405 ------------------- ---------------- 68,882 70,501 DEFERRED LOAN COSTS AND OTHER ASSETS 745 816 DEFERRED INCOME TAXES 5,485 6,499 ------------------- ---------------- $ 150,557 $ 165,880 =================== ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 6,804 $ 11,675 Revolver 3,938 11,365 Accrued employee compensation 923 1,696 Accrued and sundry liabilities 9,826 10,798 ------------------- ---------------- TOTAL CURRENT LIABILITIES 21,491 35,534 LONG-TERM DEBT 44,739 47,819 DEFERRED COMPENSATION 7,189 7,281 SHAREHOLDERS' EQUITY Common Stock -- par value $.01 a share -- authorized 50,000,000 shares, issued and outstanding 5,862,000 shares 59 58 at December 28, 2002 and 5,829,000 at June 29, 2002 Additional paid-in capital 86,870 86,694 Retained earnings(deficit) (9,791) (11,506) ------------------- ---------------- 77,138 75,246 COMMITMENTS AND CONTINGENCIES ------------------- ---------------- $ 150,557 $ 165,880 =================== ================
See notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF OPERATIONS Delta Woodside Industries Inc. (In Thousands, except per share data)
3 Mths Ended 3 Mths Ended 6 Mths Ended 6 Mths Ended December 28, December 29, December 28, December 29, 2002 2001 2002 2001 ----------------- ---------------- ---------------- ----------------- Net sales $ 35,853 $ 44,140 $ 82,032 $ 81,117 Cost of goods sold 32,168 42,432 72,802 78,335 ----------------- ---------------- ---------------- ----------------- Gross profit 3,685 1,708 9,230 2,782 Selling, general and administrative expenses 2,556 2,871 5,461 5,463 Impairment and restructuring expenses 8,683 Other income 23 18 488 40 ----------------- ---------------- ---------------- ----------------- OPERATING PROFIT (LOSS) 1,152 (1,145) 4,257 (11,324) Other income: Interest expense (1,240) (2,468) (2,771) (4,933) Interest income 36 133 Gain on extinguishment of debt 565 1,303 ----------------- ---------------- ---------------- ----------------- (675) (2,432) (1,468) (4,800) ----------------- ---------------- ---------------- ----------------- INCOME(LOSS) BEFORE INCOME TAXES 477 (3,577) 2,789 (16,124) Income tax expense (benefit) 184 (1,251) 1,074 (5,639) ----------------- ---------------- ---------------- ----------------- NET INCOME (LOSS) $ 293 $ (2,326) $ 1,715 $ (10,485) ================= ================ ================ ================= Basic and diluted earnings (loss) per share: $ 0.05 $ (0.40) $ 0.29 $ (1.80) ================= ================ ================ ================= Weighted average shares outstanding 5,862 5,831 5,861 5,832 ================= ================ ================ =================
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS Delta Woodside Industries Inc. (In Thousands)
6 Months Ended 6 Months Ended December 28, 2002 December 29, 2001 ------------------------ ------------------------ OPERATING ACTIVITIES Net income (loss) $ 1,715 $ (10,485) Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation 4,578 4,551 Amortization 68 211 Gain on extinguishment of debt (1,303) Provision for impairment and restructuring 8,683 Losses (gains) on disposition of property and equipment (433) Change in deferred income taxes 664 (5,833) Deferred compensation (86) 367 Changes in operating assets and liabilities 7,020 4,225 ------------------ ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 12,223 1,719 INVESTING ACTIVITIES Property, plant and equipment: Purchases (3,302) (2,674) Proceeds of dispositions 775 ------------------ ------------------ NET CASH USED BY INVESTING ACTIVITIES (2,527) (2,674) FINANCING ACTIVITIES Proceeds from revolving lines of credit 88,752 Repayments on revolving lines of credit (96,180) Repurchase and retirement of long term debt (1,778) Repurchase common stock (24) (39) ------------------ ------------------ NET CASH USED BY FINANCING ACTIVITIES (9,230) (39) ------------------ ------------------ INCREASE/(DECREASE) IN CASH AND CASH AND CASH EQUIVALENTS 466 (994) Cash and cash equivalents at beginning of year 314 14,491 ------------------ ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 780 $ 13,497 ================== ==================
See notes to consolidated financial statements. 5 DELTA WOODSIDE INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Delta Woodside Industries, Inc. ("the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended December 28, 2002 are not necessarily indicative of the results that may be expected for the year ending June 28, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended June 29, 2002. NOTE B-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE On August 25, 1997 a subsidiary of the Company, Delta Mills, Inc. ("Delta Mills"), issued $150 million of unsecured ten-year Senior Notes at an interest rate of 9.625%. These notes will mature in August 2007. At December 28, 2002, the outstanding balance of the notes was $44,739,000, a decrease of $3,080,000 from the balance at June 29, 2002. Delta Mills has a secured $50 million revolving credit facility that expires on March 31, 2004. Borrowings under this credit facility are based on eligible accounts receivable and inventory of Delta Mills, subject to a maximum $37.5 million availability limit. The facility is secured by the accounts receivable, inventory and capital stock of Delta Mills. The interest rate on the credit facility is based on a spread over either LIBOR or a base rate. Borrowings under this facility were $3.9 million and $11.4 million as of December 28, 2002 and June 29, 2002, respectively. The Delta Mills' credit facility contains restrictive covenants that restrict additional indebtedness, dividends, and capital expenditures, and includes a minimum availability requirement. 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. During the six months ended December 28, 2002 and the year ended June 29, 2002, Delta Mills did not pay any dividends to Delta Woodside Industries, Inc. Under the minimum availability requirement, Delta Mills' availability for borrowings cannot exceed $37.5 million. The revolver availability was approximately $21 million at December 28, 2002. Management believes the availability under Delta Mills' credit facility is adequate for the foreseeable future. Delta Mills assigns a substantial portion of its trade accounts receivable to GMAC Commercial Credit LLC (the Factor) under a factor agreement. The assignment of these receivables is primarily without recourse, provided that customer orders are approved by the Factor prior to shipment of goods, up to a maximum for each individual account. The assigned trade accounts receivables are recorded on the Delta Mills' books at full value and represent amounts due Delta Mills from the Factor. There are no advances from the Factor against the assigned receivables. All factoring fees are recorded on the Delta Mills' books as incurred as a part of General and Administrative Expense. 6 NOTE C - STOCKHOLDERS' EQUITY Activity in stockholders' equity during the six months ended December 28, 2002 is as follows (in thousands):
Total Common Additional Paid Accumulated Stockholders' Stock In Capital Deficit Equity --------------- ---------------------------------- ----------------- Balance at June 29, 2002 $58 $86,694 ($11,506) $75,246 Incentive stock award plan, shares issued 1 176 177 Share repurchases (24) (24) Shares issued 24 24 Net Income 1,715 1,715 --------------- ---------------------------------- ----------------- Balance at December 28, 2002 $59 $86,870 ($ 9,791) $77,138 =============== ================================== =================
NOTE D - 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. The common stock purchase rights attached to the Company's common stock pursuant to its Shareholder Rights Agreement, dated December 10, 1999, as amended, were adjusted in connection with the reverse stock split as required by the provisions of Section 11(a) of the Rights Agreement to prevent any dilution or enlargement of the rights. The exercise price of each right was increased from the pre-split $5.00 per quarter-share of common stock to $20.00 per quarter-share. Each share of common stock will continue to have only one right attached to it, and each right will continue to evidence the right to acquire one quarter share of the Company's common stock. All shares and per share amounts in the condensed consolidated financial statements have been retroactively restated in connection with the reverse stock split. NOTE E - RESTRUCTURING AND IMPAIRMENT CHARGES During the year ended June 29, 2002, the Company took an impairment and restructuring charge of $8.7 million, on a pretax basis, associated with the closing of the Furman Plant as announced on August 22, 2001. Pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", the Company recorded an $8.2 million non-cash asset write-down to reflect the property and equipment at the Furman Plant at its estimated fair value, less selling costs. The carrying amount of these assets was reduced to approximately $3,923,000. The balance of the charge was approximately $0.5 million of accrued expenses for involuntary termination costs associated with the 122 employees terminated as a result of the plant closing. Production at the Furman facility ceased on October 21, 2001 and the Company is in the process of either liquidating or transferring the assets associated with this facility. As of December 28, 2002 and June 29, 2002 the Company had $3.1 million in assets held for sale related to the closing of the Furman plant. 7 NOTE F - GAIN ON EXTINGUISHMENT OF DEBT In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements Nos. 4 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Among other things, Statement No. 145, through the rescission of Statement No. 4, will no longer require extraordinary item treatment for gains and losses from the extinguishment of debt, unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria established in APB 30. The Statement was effective for fiscal years beginning after May 15, 2002 and requires the reclassification of prior period items that do not meet the extraordinary item classification criteria in APB 30. Upon adoption, the Company reclassified all extraordinary gains recognized for the early extinguishment of debt as a component of income before income taxes for all financial statement periods presented. During the quarter ended December 28, 2002, Delta Mills, Inc. purchased $1,527,000 face amount of its 9.625% Senior Notes for $962,000. The Company recognized a gain of $565,000 as a result of this purchase, which is included in income before income taxes in the accompanying statement of operations. For the six months ended December 28, 2002, Delta Mills, Inc. purchased $3,080,000 face amount of its 9.625% Senior Notes for $1,777,000. The Company recognized a gain of $1,303,000 as a result of these purchases, which is also included in income before income taxes in the accompanying statement of operations. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains certain "forward-looking statements". All statements, other than statements of historical fact, that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such matters as future revenues, future cost savings, future capital expenditures, business strategy, competitive strengths, goals, plans, references to future success and other such information are forward-looking statements. The words "estimate", "project", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this Quarterly Report are based on the Company's expectations and are subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. These risks and uncertainties include, among others, changes in the retail demand for apparel products, the cost of raw materials, competitive conditions in the apparel and textile industries, the relative strength of the United States dollar as against other currencies, changes in United States trade regulations and the discovery of unknown conditions (such as with respect to environmental matters and similar items). The Company does not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized. The Company, through its Delta Mills operating division, sells a broad range of woven, finished apparel fabric primarily to branded apparel manufacturers and resellers. Delta Mills also sells camouflage fabric and other fabrics used in apparel sold to the United States Department of Defense. Delta Mills represents the only business segment of the Company. Net sales for the three months ended December 28, 2002 were $35.9 million as compared to $44.1 million in the same quarter of the prior fiscal year, a decrease of 18.8%. The sales decrease was primarily in units and was somewhat offset by a slight increase in average sales price. The sales unit decline was due to a decline in market demand. Net sales for the six months ended December 28, 2002 were $82.0 million consistent with net sales of $81.1 million for the six months ended December 29, 2001. The overall average sales price increased approximately 2% in the current quarter and the six months ended December 28, 2002 as compared to the same periods in the prior year. This increase in sales price was principally due to a shift in mix to higher price product categories. 8 Gross profit was $3.7 million and 10.3% of sales for the second quarter of fiscal year 2003. This compares to gross profit of $1.7 million and 3.9% of sales in the prior year second quarter. Gross profit for the six months ended December 28, 2002 was $9.2 million or 11.3% of sales compared to gross profit of $2.8 million or 3.4% of sales for the six months ended December 29, 2001. In both the current quarter and the six months ended December 28, 2002, the improvement in gross profit was the result of lower product costs and a shift in product categories to products that yield higher profit margins. Selling, general and administrative expense (SG&A) was $2.6 million and 7.1% of net sales for the second quarter of fiscal year 2003 compared to SG&A of $2.9 million and 6.5% of net sales for the prior year second quarter. The decline in SG&A dollars was primarily due to a decline in administrative overhead costs during the current quarter. SG&A expenses for the six months ended December 28, 2002 and December 29, 2001 were $5.5 million or 6.7% of net sales. The Company reported operating profit of $1.2 million in the current year second quarter compared to an operating loss of $1.1 million in the second quarter of fiscal 2002. For the six months ended December 28, 2002, the company reported operating profit of $4.3 million versus a loss of $11.3 million for the six months ended December 29, 2001. The operating loss for the previous year included impairment and restructuring charges of $8.7 million related to the closing of the Company's Furman facility. Excluding the impairment and restructuring charge during the first six months of fiscal year 2002, the improvement in operating profit was primarily due to the improvement in gross profit as discussed above. Interest expense was $1.2 million for the quarter ended December 28, 2002, compared to $2.5 million for the prior year quarter. Interest expense for the six months ended December 28, 2002 was $2.8 million versus $4.9 million for the six months ended December 29, 2001. The reduction in interest expense was primarily due to the reduction in the balance of the Senior Notes. There was no significant interest income in either the current or prior year quarters. Included in other (expense) income for the quarter ended December 28, 2002 was a $0.6 million gain resulting from the repurchase by the Company's wholly owned subsidiary, Delta Mills, Inc, of a portion of its 9.625% Senior Notes. Included in other (expense) income for the six months ended December 28, 2002 was a $1.3 million gain also resulting from Senior Notes repurchases. There was no similar income or expense reported in this category in the previous year quarter or six months ending December 29, 2001. The income tax expense for the quarter was $184,000. This compares to an income tax benefit of $1.3 million in the previous year quarter. For the six months ended December 28, 2002 income tax expense was $1.1 million versus a tax benefit of $5.6 million for the six months ended December 29, 2001. The effective tax rate for the three months and six months ended December 28, 2002 was 38.5%. The Company reported net income of $293,000 or $0.05 per common share for the quarter ended December 28, 2002 compared to a net loss of $2.3 million or $0.40 per common share for the quarter ended December 29, 2001. Net income for the current year quarter included a gain of $0.3 million on an after tax basis from the repurchase by Delta Mills of a portion of its 9.625% Senior Notes. Net income for the six months ended December 28, 2002 was $1.7 million compared to a net loss of $10.5 million for the previous year's six months ending December 29, 2001. Net income for the current six month period included a gain of $0.8 million on an after tax basis from the repurchase by Delta Mills of a portion of its 9.625% Senior Notes. The net loss for the six months ended December 29, 2001 included asset impairment and restructuring costs associated with closed facilities of $5.6 million or $0.97 per share on an after tax basis. For the current year to date, the Company generated $13.0 million and used $12.5 million in cash for a net increase in cash of $0.5 million. Cash generated from operations was $12.2 million. The Company also generated $0.8 million in cash from various machinery and equipment sales. Cash uses for the current year to date were $3.3 million for capital expenditures, $1.8 million for the repurchase of Senior Notes, and $7.4 million for revolver debt reduction. The Company believes that the cash flow generated by its operations combined with the availability on its revolving credit facility will be sufficient to service its debt, to satisfy its day to day working capital requirements and to fund its planned capital expenditures. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED On November 6, 2002, the Company announced that it had started a major capital project to modernize its Delta 3 cotton finishing plant in Wallace SC. The Company expects that the first phase of this project will be complete by June of 2003. During fiscal year 2004 and 2005, the Company plans additional capital expenditures for this project to make the finishing facility better prepared for growth and improved product quality. On August 25, 1997 Delta Mills issued $150 million of unsecured ten-year Senior Notes at an interest rate of 9.625%. These notes will mature in August 2007. At December 28, 2002, the outstanding balance of the notes was $44,739,000, a decrease of $3,080,000 from the balance at June 29, 2002. Delta Mills has a secured $50 million revolving credit facility that expires on March 31, 2004. Borrowings under this credit facility are based on eligible accounts receivable and inventory of Delta Mills, subject to a maximum $37.5 million availability limit. The facility is secured by the accounts receivable, inventory and capital stock of Delta Mills. The interest rate on the credit facility is based on a spread over either LIBOR or a base rate. Borrowings under this facility were $3.9 million and $11.4 million as of December 28, 2002 and June 29, 2002, respectively. The Delta Mills' credit facility contains restrictive covenants that restrict additional indebtedness, dividends, and capital expenditures, and includes a minimum availability requirement. 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. During the quarter ended December 28, 2002 and the year ended June 29, 2002, Delta Mills did not pay any dividends to Delta Woodside Industries, Inc. Under the minimum availability requirement, Delta Mills' availability for borrowings cannot exceed $37.5 million. The revolver availability was approximately $21 million at December 28, 2002. Management believes the availability under Delta Mills' credit facility is adequate for the foreseeable future. In August of 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations". SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets, which assets result from the acquisition, construction, development and or normal use of the assets. The enterprise also is to record a corresponding increase to the carrying amount of the related long-lived asset (i.e. the associated asset retirement costs) and to depreciate that cost over the life of the asset. The liability is changed at the end of each period to reflect the passage of time (i.e. accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. This statement is effective for fiscal years beginning after June 15, 2002. The Company has adopted the Statement effective for fiscal 2003. The adoption of this standard has not materially impacted the Company. On October 3, 2001 the FASB issued statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that is applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB's new rules on asset impairment supersede FASB statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and provide a single accounting model for long-lived assets to be disposed of. The Company has adopted the Statement effective for fiscal 2003. The adoption of this standard has not materially impacted the Company. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements Nos. 4 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Among other things, Statement No. 145, through the rescission of Statement No. 4, will no longer require extraordinary item treatment for gains and losses from the extinguishment of debt, unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria established in APB 30. The Statement was effective for fiscal years beginning after May 15, 2002 and requires the reclassification of prior period items that do not meet the extraordinary item classification criteria in APB 30. Upon adoption, the Company reclassified all extraordinary gains recognized for the early extinguishment of debt as a component of income before income taxes for all financial statement periods presented. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED In July 2002, the FASB issued Statement No. 146, "Accounting for Obligations Associated with Disposal Activities". Statement No. 146 addresses financial reporting and accounting for costs associated with exit or disposal activities. It nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". Statement 146 requires that a liability be recognized for such costs only when the liability is incurred, which is in contrast to EITF No. 94-3, which requires the recognition of a liability upon the commitment to an exit plan. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes the adoption of Statement No. 146 will not have a material impact on its financial statements. During 1998, the Company received notices from the State of North Carolina asserting deficiencies in state corporate income and franchise taxes for the Company's 1994 - 1997 tax years. The total assessment proposed by the State amounts to $1.5 million, which includes interest and penalties. The assessment was delayed pending an administrative review of the case by the State. In October 2002, the State proposed a settlement in which the Company would have paid approximately 90% of the assessed amount plus a portion of certain penalties for the Company's tax years 1994 - 2000. The Company rejected this offer and continued with its appeal due to management's belief that the State's legal position is in conflict with established principles of federal constitutional law. The Company believes that its reserves for any likely settlement are adequate and any payment in settlement of this matter will not result in a material impact on the Company's results of operations. CRITICAL ACCOUNTING POLICIES Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties, and potentially result in materially different results under different assumptions and conditions. 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 fair value is required. 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. At December 28, 2002, the Company had regular tax loss carry forwards of $35 million for federal purposes and $10 million for state purposes. The Federal loss carry forwards expire at various intervals from 2013 to 2021, while the state loss carry forwards expire at various intervals beginning in 2003. At December 28, 2002, the Company's gross deferred tax assets are reduced by a valuation allowance of $156,000 due to expiring tax credits. It is management's belief that it is more likely than not that the gross deferred tax assets will be realized in the future. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The potential tax effect of establishing a full valuation allowance on gross deferred tax assets is approximately $13 million. 11 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Commodity Risk Sensitivity As a part of the Company's business of converting fiber to finished fabric, the Company makes raw cotton purchase commitments and then fixes prices with cotton merchants who buy from producers and sell to textile manufacturers. Daily price fluctuations are minimal, yet long-term trends in price movement can result in unfavorable pricing of cotton. Before fixing prices, the Company looks at supply and demand fundamentals, recent price trends and other factors that affect cotton prices. The Company also reviews the backlog of orders from customers as well as the level of fixed price cotton commitments in the industry in general. As of December 28, 2002, a 10% decline in market price of the Company's fixed price contracts would have had a negative impact of approximately $0.7 million on the value of the contracts. As of June 29, 2002, such a 10% decline would have had a negative impact of $1.5 million. The decline in the potential negative impact from June 29, 2002 to December 28, 2002 is due principally to a decline in the quantity of cotton with fixed prices as compared to the previous period. Interest Rate Sensitivity The $50 million secured four-year revolving credit facility expiring in 2004 is sensitive to changes in interest rates. Interest is based on a spread over LIBOR or a base rate. An interest rate increase would have a negative impact to the extent the Company borrows against the revolving credit facility. The impact would be dependent on the level of borrowings incurred. As of December 28, 2002, an increase in the interest rate of 1% would have a negative impact of approximately $39,400. As of June 29, 2002, an increase in the interest rate of 1% would have had a negative impact of approximately $114,000. The decline in the potential negative impact from June 29, 2002 to December 28, 2002 is due to the decrease in borrowings from the facility. An interest rate change would not have an impact on the payments due under the fixed rate ten year Senior Notes. Item 4. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings* Item 2. Changes in Securities and Use of Proceeds* Item 3. Defaults upon Senior Securities* Item 4. Submission of Matters to a Vote of Security Holders* Item 5. Other Information* Item 6. Exhibits and Reports on Form 8-K a) Listing of Exhibits 99.1 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by William F. Garrett, dated February 11, 2003 99.2 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by William H. Hardman, dated February 11, 2003 b) No report on Form 8-K was filed during the fiscal quarter ended December 28, 2002. * Items 1,2,3, 4 and 5 are not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Delta Woodside Industries, Inc. (Registrant) Date February 11, 2003 By: /s/ W. H. Hardman, Jr. -------------------- --------------------------------- W.H. Hardman, Jr. Chief Financial Officer 13 CERTIFICATIONS I, William F. Garrett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Delta Woodside Industries, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("the Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date February 11, 2003 By: /s/ William F. Garrett -------------------- ----------------------------------- William F. Garrett President & Chief Executive Officer 14 I, William H. Hardman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Delta Woodside Industries, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("the Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date February 11, 2003 By: /s/ W. H. Hardman, Jr. --------------------- --------------------------------- W.H. Hardman, Jr. Chief Financial Officer 15 EX-99 3 exhibit99-1certification.txt CEO CERTIFICATION EXHIBIT 99.1 CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 William F. Garrett, the President and Chief Executive Officer of Delta Woodside Industries, Inc. (the "Company"), hereby certifies that to the best of his knowledge: 1. The Quarterly Report on Form 10-Q for the quarter ended December 28, 2002 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. The foregoing certification is made solely for the purpose of complying with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350) and may not be relied upon by anyone for any other purpose. The undersigned expressly disclaims any undertaking to update such certification except as required by law. Date February 11, 2003 By: /s/ William F. Garrett --------------------- ----------------------------------- William F. Garrett President & Chief Executive Officer EX-99 4 exhibit99-2certification.txt CFO CERTIFICATION EXHIBIT 99.2 CERTIFICATE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 William H. Hardman, Jr., the Vice President, Treasurer and Chief Financial Officer of Delta Woodside Industries, Inc. (the "Company"), hereby certifies that to the best of his knowledge: 1. The Quarterly Report on Form 10-Q for the quarter ended December 28, 2002 of the Company (the "Report") fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. The foregoing certification is made solely for the purpose of complying with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350) and may not be relied upon by anyone for any other purpose. The undersigned expressly disclaims any undertaking to update such certification except as required by law. Date February 11, 2003 By: /s/ W. H. Hardman, Jr. ---------------------- ------------------------------- W.H. Hardman, Jr. Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----