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 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission File Number 1-15585
DUCK HEAD APPAREL COMPANY, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-2510086
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1020 Barrow Industrial Pkwy,
Winder, Georgia 30680
- ---------------- -------------------
(Address of principal executive offices) (Zip Code)
(770) 867-3111
--------------
(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--2,807,213 shares as of February 12, 2001
INDEX
DUCK HEAD APPAREL COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Condensed consolidated balance sheets--
December 30, 2000 and July 1, 2000 3
Consolidated statements of operations--
Three and six month periods ended December 30, 2000 and January 1, 2000 5
Condensed consolidated statements of cash flows
Three months ended December 30, 2000 and January 1, 2000 6
Notes to condensed consolidated financial statements- December 30, 2000 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures about Market 15
Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 16
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DUCK HEAD APPAREL COMPANY, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands except share data)
(Unaudited)
December 30, July 1,
Assets 2000 2000
-------------- -----------------
Current assets:
Cash and cash equivalents 4,018 1,275
Accounts receivable, less allowances of
$1,041 in December 2000 and $1,219 in July 2000 2,355 3,191
Inventories (note 2) 13,490 17,766
Prepaid expenses and other current assets (note 5) 793 269
-------------- -----------------
Total current assets 20,656 22,501
Property, plant and equipment, net 10,202 10,842
Other assets 388 --
-------------- -----------------
31,246 33,343
============== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,077 1,621
Accrued expenses 3,486 4,161
Current portion of long-term debt 960 960
Income taxes payable 40 --
-------------- -----------------
Total current liabilities 5,563 6,742
Long-term debt 4,160 4,640
Other liabilities 361 798
-------------- -----------------
Total liabilities 10,084 12,180
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized;
none issued and outstanding -- --
3
Common stock, $0.01 par value; 9,000,000 shares authorized;
2,807,213 issued and outstanding at December 30, 2000;
2,399,863 issued and outstanding at July 1, 2000 28 24
Additional paid-in capital 21,800 21,139
Accumulated deficit (666) --
-------------- -----------------
Total stockholders' equity 21,162 21,163
31,246 33,343
============== =================
See accompanying notes to condensed consolidated financial statements.
4
DUCK HEAD APPAREL COMPANY, INC.
Consolidated Statements of Operations
(Amounts in thousands except per share data)
(Unaudited)
For the three months ended For the six months ended
------------------------------------- ---------------------------------------
December 30, January 1, December 30, January 1,
2000 2000 2000 2000
------------------- ----------------- ------------------ --------------------
Net sales $ 9,506 12,929 22,620 28,992
Cost of goods sold 5,928 8,904 13,980 20,030
------------------- ----------------- ------------------ --------------------
Gross profit 3,578 4,025 8,640 8,962
Selling, general and administrative expenses 5,186 5,018 9,946 10,350
Other income (559) (399) (988) (1,166)
------------------- ----------------- ------------------ --------------------
Operating loss (1,049) (594) (318) (222)
------------------- ----------------- ------------------ --------------------
Interest expense:
Interest expense, net 150 206 308 338
Intercompany interest expense -- 1,882 -- 3,869
------------------- ----------------- ------------------ --------------------
150 2,088 308 4,207
------------------- ----------------- ------------------ --------------------
Loss before income taxes (1,199) (2,682) (626) (4,429)
Income taxes 12 21 40 30
------------------- ----------------- ------------------ --------------------
Net loss $ (1,211) (2,703) (666) (4,459)
=================== ================= ================== ===================
Basic net loss per share $ (0.50) (1.13) (0.28) (1.87)
=================== ================= ================== ====================
Diluted net loss per share $ (0.50) (1.13) (0.28) (1.87)
=================== ================= ================== ====================
Weighted average shares outstanding used in basic
per-share calculation 2,412 2,386 2,408 2,383
=================== ================= ================== ====================
Weighted average shares outstanding used in
diluted per-share calculation 2,412 2,386 2,408 2,383
=================== ================= ================== ====================
See accompanying notes to condensed consolidated financial statements.
5
DUCK HEAD APPAREL COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
December 30, January 1,
2000 2000
-------------------- --------------------
Operating activities:
Net loss $ (666) (4,459)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,419 1,579
Deferred taxes -- (233)
Loss on sale of property and equipment -- (58)
Provision for losses on accounts receivable (178) (24)
Changes in operating assets and liabilities:
Trade accounts receivable 1,014 2,809
Inventories 4,276 8,510
Prepaid and other current assets (524) (83)
Accounts payable (544) (1,157)
Accrued expenses (675) (1,770)
Income taxes payable 40 913
Other liabilities (437) 58
-------------------- --------------------
Net cash provided by
operating activities 3,725 6,085
-------------------- --------------------
Investing activities:
Purchases of property, plant and equipment (688) (251)
Asset adjustments (91) --
Proceeds from sale of property, plant and equipment -- 813
Investment in other assets (388) --
-------------------- --------------------
Net cash (used in) provided by
investing activities (1,167) 562
-------------------- --------------------
Financing activities:
Change in obligations under capital leases, net (29)
Change in revolving credit facility
Principal payments on long-term debt (480) (126)
Stock option/incentive award 665 --
6
Change in due to Parent, net -- (6,549)
-------------------- --------------------
Net cash used in financing activities 185 (6,704)
-------------------- --------------------
Increase in cash 2,743 (57)
Cash at beginning of period 1,275 236
-------------------- --------------------
Cash at end of quarter $ 4,018 179
==================== ====================
See accompanying notes to condensed consolidated financial statements.
7
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for
the three months and six months ended December 30, 2000 and January 1,
2000, respectively, include the operations and accounts of Duck Head
Apparel Company, Inc. These condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the U.S. have been condensed or
omitted pursuant to such rules and regulations of the Securities and
Exchange Commission relating to interim financial statements. In the
opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting of
only normal, recurring adjustments, necessary to present fairly the
financial position of the Company at December 30, 2000 and the results of
its operations and its cash flows for the three months and six months ended
December 30, 2000 and January 1, 2000. The results for the six months ended
December 30, 2000 are not necessarily indicative of the expected results
for the full year or any future period. The unaudited condensed
consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's form 10-K for the fiscal year ended July 1, 2000.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. The Company's management evaluates inventory for potentially
obsolete or slow-moving items based on management's analysis of inventory
levels, sales forecasts and historical sales trends, and records provisions
to cost of sales as required.
Inventories consist of the following:
December 30, July 1, 2000
2000
------------------ -----------------
Raw materials $ 988 1,268
Work in process 1,435 1,641
Finished Goods 11,067 14,857
------------------ -----------------
$ 13,490 17,766
================== =================
8
(3) Operating Segments
The Company has two reportable segments: Wholesale and Outlet Retail. The
Company's reportable segments are strategic business units that offer
similar products through different distribution channels. The Wholesale
segment designs, markets, manufactures, sources and distributes casual
wear and sportswear for men and boys and licenses the Company's
trademarks for specified products. The Outlet Retail segment operates the
Company's outlet and clearance stores.
Summarized segment information as of December 30, 2000 and January 1,
2000 and for the six months ended December 30, 2000 and January 1, 2000
and for the quarter ended December 30, 2000 and January 1, 2000 is
presented below.
Wholesale Outlet Total
Retail
--------------- ------------- -----------
Quarter ended December 30, 2000
Revenues $ 5,304 4,202 9,506
Operating income (loss) (1,031) (18) (1,049)
Total assets 28,009 3,237 31,246
Capital expenditures 203 197 400
Depreciation and amortization 612 68 680
Quarter ended January 1, 2000
Revenues $ 9,011 3,918 12,929
Operating income (loss) (735) 141 (594)
Total assets 30,888 2,899 33,787
Capital expenditures 232 5 237
Depreciation and amortization 725 66 791
Six months ended December 30, 2000
Revenues $ 14,049 8,571 22,620
Operating income (loss) (723) 405 (318)
Total assets 28,009 3,237 31,246
Capital expenditures 472 216 688
Depreciation and amortization 1,280 139 1,419
Six months ended January 1, 2000
Revenues $ 20,614 8,378 28,992
Operating income (loss) (779) 557 (222)
Total assets 30,888 2,899 33,787
Capital expenditures 334 (83) 251
Depreciation and amortization 1,466 113 1,579
9
(4) Customer Concentration
During the six months ended December 30, 2000 and January 1, 2000
approximately 24.4% and 25.8% of the Company's sales were to one
customer. In addition, during the same six-month periods 48.9% and 47.0%
of the Company's sales were made to its five largest customers
respectively. 39.9% and 48.9% of gross accounts receivable were with one
customer at December 30, 2000 and July 1, 2000. In addition, 52.7% and
69.8% of gross accounts receivable were with two customers at the same
dates respectively.
(5) Other Current Assets
On December 30, 2000, Robert D. Rockey, Chairman of the Board and Chief
Executive Officer, and William V. Roberti, President and Chief Operating
Officer, exercised options for which the Company issued stock. The total
amount due to the Company as a result of the exercised options was
$656,960. At the close of the quarter $120,000 was paid and the remaining
$536,960 was recorded as a receivable and included in other current
assets. The balance was paid in full by January 5, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Quarterly Report 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 trade regulations 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.
10
Results of Operations
Net Sales
Consolidated net sales for the second quarter ended December 30, 2000
totaled $9.5 million, as compared to $12.9 million for the second quarter ended
January 1, 2000, a decrease of 26.4%. Consolidated net sales for the six months
ended December 30, 2000 totaled $22.6 million, as compared to $29.0 million for
the six months ended January 1, 2000, a decrease of 22.1%. A summary of Duck
Head's net sales for the three-month and six-month periods ended December 30,
2000 and January 1, 2000 are as follows:
Net Sales (in millions)
Wholesale Retail Total
- ------------------------------------ ------------------ -------------------------- --------------------------
Three months ended:
December 30, 2000 ($) 5.3 4.2 9.5
January 1, 2000 ($) 9.0 3.9 12.9
Increase/(Decrease) ($) (3.7) 0.3 (3.4)
Percent increase(decrease) (41.1%) 7.7% (26.4%)
Six months ended:
December 30, 2000 ($) 14.0 8.6 22.6
January 1, 2000 ($) 20.6 8.4 29.0
Increase/(Decrease) ($) (6.6) 0.2 (6.4)
Percent increase(decrease) (32.0%) 2.4% (22.1%)
The decrease in wholesale sales dollars in both the three months and
six months ended December 30, 2000 as compared to the three months and six
months ended January 1, 2000 reflected a decrease in unit shipments, which was
primarily due to reduced sales to major accounts and reduced sales of close-out
inventory to close-out accounts, partially offset by increases in private label
sales and lower sales returns and allowances. The decrease in sales to major
accounts, which accounted for decreases of approximately $3.2 million and $6.6
million in the three month and six month periods ended December 30, 2000,
respectively, as compared to the prior year periods, was due to lower offering
and sales of fashion goods during the three month and six month periods ended
December 30, 2000 as compared to the three month and six month periods ended
January 1, 2000 and due to inventory reduction efforts at our largest customer.
The decrease in fashion offerings was in line with the Company's continuing
strategy to shift the mix of its product to a heavier mix of core product and
key items and a lower mix of fashion inventory. Inventory levels at Duck Head's
largest account were reduced by approximately $1.1 million during the three
months ended December 30, 2000 and $2.0 million during the six month period
ended December 30, 2000. Duck Head product was carried in approximately the same
number of doors at this account during the three-month and six-month periods
ended December 30, 2000 as in the three-month and six-month periods ended
January 1, 2000. Sales to close-out accounts were $1.6 million lower during the
three months and $1.7 million lower in the six months ended December 30, 2000 as
compared to the three and six month periods ended January 1, 2000 due to
significantly lower levels of close-out inventory available to sell. Private
label sales increased by $0.7 million and $1.2 million during the three and six
month periods ended December 30, 2000 as compared to the three and six-month
periods ended January 1, 2000.
11
The increases in Duck Head retail store sales during both the three
month and six month periods ended December 30, 2000 as compared to the three and
six month periods ended January 1, 2000 resulted from more stores on the average
being open, including temporary locations, in the three and six month periods
ended December 30, 2000 as compared to the three and six month periods ended
January 1, 2000, partially offset by comparable store sales decreases of 4.4%
and 6.1% during the three and six months ended December 30, 2000, respectively.
During the three-month and six-month periods ended December 30, 2000, Duck Head
opened two stores and closed one store, and at December 30, 2000 Duck Head
operated 27 retail outlet stores. Duck Head believes that the number of stores
currently open is an appropriate number given the geographic distribution of the
"Duck Head" brand through its current wholesale channels. Duck Head's strategy
continues to include closing poor performing stores, the investigation of new
store openings in better outlet malls in the Southeastern and Southwestern
United States, and the geographic expansion of retail stores to the extent that
wholesale distribution expands outside the Southeastern and Southwestern United
States.
Gross Profit
Consolidated gross profit and gross profit margin for the second
quarter ended December 30, 2000 were $3.6 million and 37.9%, respectively, as
compared to $4.0 million and 31.0%, respectively, for the second quarter ended
January 1, 2000, a decrease in consolidated gross profit of 10%. Consolidated
gross profit and gross profit margin for the six months ended December 30, 2000
were $8.6 million and 38%, respectively, as compared to $9.0 million and 31.0%,
respectively, for the six months ended January 1, 2000, a decrease in
consolidated gross profit of 4.4%.
Gross profit was $1.9 million and gross profit margin was 35.8% on
wholesale sales for the second quarter ended December 30, 2000, as compared to
$2.3 million and 25.6%, respectively, for the second quarter ended January 1,
2000. Gross profit was $4.9 million and gross profit margin was 35.0% on
wholesale sales for the six months ended December 30, 2000, as compared to $5.4
million and 26.2%, respectively, for the six months ended January 1, 2000. The
increase in gross profit margin for both the three and six month periods ended
December 30, 2000 was primarily due to lower product cost, lower sales returns
and allowances and sales of close-out inventory, which are sold at low gross
profit margins, being a lower percentage of the total sales mix. Product costs
were reduced due to better product sourcing arrangements with domestic fabric,
offshore contractor and offshore package good vendors and more efficient use of
leased offshore production capacity due to the completion of the downsizing of a
manufacturing facility in the first quarter of fiscal year 2000. Gross profit
decreased due to lower sales partially offset by the increase in gross profit
margin.
Gross profit was $1.7 million and gross profit margin was 40.5% on
retail sales for the second quarter ended December 30, 2000 as compared to $1.7
million and 43.6%, respectively, for the second quarter ended January 1, 2000.
Gross profit was $3.7 million and gross profit margin was 43.0% on retail sales
for the six months ended December 30, 2000 as compared to $3.6 million and
42.9%, respectively, for the six months ended January 1, 2000. The decrease in
gross profit margin in the second quarter ended December 30, 2000 was due to a
more promotional environment during the 2000 holiday selling season as compared
to the 1999 holiday selling season and due to higher sales through temporary
locations where gross profit margins are usually lower than at outlet stores.
12
Selling, General and Administrative Expenses
During the second quarter ended December 30, 2000, consolidated
selling, general and administrative expenses were $5.2 million, as compared to
$5.0 million during the second quarter ended January 1, 2000 an increase of
4.0%. During the six months ended December 30, 2000, consolidated selling,
general and administrative expenses were $9.9 million, as compared to $10.4
million during the six months ended January 1, 2000 a decrease of 4.8 %. For the
three months ended December 30, 2000, expenses in this category were 54.7% of
net sales as compared to 38.8% of net sales for the three months ended January
1, 2000. For the six months ended December 30, 2000, expenses in this category
were 43.8% of net sales as compared to 35.9% of net sales for the six months
ended January 1, 2000.
Wholesale selling, general and administrative expenses for the second
quarter ended December 30, 2000 were flat when compared to the second quarter
ended January 1, 2000. Wholesale selling, general and administrative expenses
for the six months ended December 30, 2000 were 9.6% lower than during the six
months ended January 1, 2000. Reductions in marketing, product development and
distribution expenses were experienced during both the three and six-month
periods ended December 30, 2000 as compared to the three and six-month periods
ended January 1, 2000. General and administrative expenses were higher in both
the three and six-month periods ended December 30, 2000 as compared to the three
and six-month periods ended January 1, 2000. These increases in general and
administrative expenses were primarily due to expenses associated with a proxy
contest, and expenses associated with the search for and hiring of a new
President. William V. Roberti was hired in October of 2000 as President and
Chief Operating Officer. Mr. Roberti will become Chief Executive Officer in
March of 2001 when Mr. Rockey will resign that position and remain as Chairman
at a reduced salary. In January of 2001, a significant staff reduction took
place, which will result in a significant reduction in selling, general and
administrative expenses going forward. A charge of approximately $400,000 will
be recorded in the third quarter related to severance costs associated with the
staff reduction. Duck Head expects a lower wholesale selling, general and
administrative expense level in the future.
Retail selling, general and administrative expenses for the three and
six-month periods ended December 30, 2000 increased by $0.2 million as compared
to the three and six-month periods ended January 1, 2000. The increase was
primarily due to higher selling costs due to more stores being open on average
during both the three and six-month periods ended December 30, 2000 as compared
to the three and six month periods ended January 1, 2000, partially offset by
lower home office costs. Based on the current number of stores, Duck Head
expects this new level of retail selling, general and administrative expenses to
continue.
Operating Income / Loss
Consolidated operating loss for the second quarter ended December was
$1.0 million, as compared to $0.6 million operating loss for the second quarter
ended January 1, 2000. Consolidated operating loss for the six months ended
December was $0.3 million, as compared to $0.2 million operating loss for the
six months ended January 1, 2000.
Wholesale operating loss for the three months ended December 30, 2000
was $1.0 million, as compared to operating losses of $0.7 million for the three
months ended January 1, 2000. Wholesale operating loss for the six months ended
December 30, 2000 was $0.7 million, as compared to operating losses of $0.8
million for the six months ended January 1, 2000. Included in the wholesale
13
operating loss for the three and six months ended December 30, 2000 was $0.6
million and $1.0 million, respectively, of royalty income on license agreements
as compared to $0.3 million and $0.7 million, respectively, in the three and six
month periods ended January 1, 2000. The six months ended January 1, 2000
included a $0.4 million gain on an insurance settlement.
Primarily as a result of the factors described above, retail operating
loss for the three months ended December 30, 2000 was $18,000 as compared to
operating income of $0.1 million for the three months ended January 1, 2000.
Primarily as a result of the factors described above, retail operating income
for the six months ended December 30, 2000 was $0.4 million as compared to
operating income of $0.6 million for the six months ended January 1, 2000.
Net Interest Expense. For the second quarter ended December 30, 2000
net interest expense was $0.2 million, as compared to $2.0 million for the
second quarter ended January 1, 2000. For the six months ended December 30, 2000
net interest expense was $0.3 million, as compared to $4.2 million for the six
months ended January 1, 2000. In the later part of the year ended July 1, 2000,
pursuant to the Distribution Agreement to which the Company and Delta Woodside
Industries, Inc. are parties related to the spin-off of the Company by Delta
Woodside, the affiliated debt was contributed to equity or repaid and replaced
with significantly lower levels of third party debt. This decreased the
Company's interest expense.
Taxes. The effective tax rate was (1.0)% expense on a pretax loss for
the three months ended December 30, 2000 as compared to (0.6)% expense on a
pretax loss for the three months ended January 1, 2000. The effective tax rate
was (6.4)% expense on a pretax loss for the six months ended December 30, 2000
as compared to (0.7)% expense on a pretax loss for the six months ended January
1, 2000. The tax expense in all of these periods results from various state
minimum alternative-taxing systems.
Net Loss. Net loss for the second quarter ended December 30, 2000 was
$1.2 million, as compared to a net loss of $2.7 million for the second quarter
ended January 1, 2000. Net loss for the six months ended December 30, 2000 was
$0.7 million, as compared to a net loss of $4.5 million for the six months ended
January 1, 2000. The improvement was due to the factors described above.
Inventories. Inventories decreased to $13.5 million at December 30,
2000 from $17.8 million at July 1, 2000, a decrease of $4.3 million or 24.2%.
The decrease in inventories reflects decreases in all categories of inventory.
This decrease was due to Duck Head's inventory control strategy, which includes
aggressive sales of close-out inventories and reductions in the production
levels at Duck Head's own sewing facility.
Liquidity and capital resources
At December 30, 2000, $5.1 million was outstanding under Duck Head's
term loan at a weighted interest rate of 9.28%. At December 30, 2000, Duck Head
did not have any loans outstanding under its revolving credit facility and had
approximately $8.2 million of borrowings available.
Duck Head's operating activities resulted in $3.7 million of cash
provided during the six months ended December 30, 2000 as compared to $6.1
million of cash provided during the six months ended January 1, 2000. The cash
14
provided during the first six months of both fiscal year 2001 and fiscal year
2000 was primarily the result of reductions in inventories and accounts
receivable partially offset by a reduction in current liabilities.
Capital expenditures of $0.7 million were made during the six months
ended December 30, 2000, as compared to $0.3 million of capital expenditures
during the six months ended January 1, 2000. The expenditures in the six months
ended December 30, 2000 were primarily for fixtures for in-store shops and focal
areas placed in major retailers and in Duck Head's own retail outlet stores and
hardware and software related to Duck Head's information technology programs.
Subsequent development
As announced on January 31, 2001, the Company has decided to pursue
certain actions recommended by Kurt Salmon Associates ("KSA") designed to
significantly enhance shareholder value. In November 2000, a special committee
of the Company's Board of Directors, chaired by Dr. Max Lennon, was appointed by
the Board to engage and work with an investment banking firm to explore any and
all options to enhance shareholder value, and to recommend appropriate action to
the Board of Directors. The special committee selected KSA for this work.
The Company believes that it is not appropriate at this time to outline
publicly all the steps the Company will be taking over the next several months
based on the advice of KSA. In the immediate future, the Company will be looking
for smaller, more cost-effective distribution and office facilities. The Company
intends to market its current distribution and office facilities, which far
exceed the Company's needs for the foreseeable future. The Company hopes to make
future announcements of material developments as they occur, when in the best
interest of the Company and its shareholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Duck Head's credit agreement provides that the interest rate on
outstanding amounts owed shall bear interest at variable rates. An interest rate
increase would have a negative impact on Duck Head to the extent that it has
borrowings outstanding under either its term loan or its revolving line of
credit. Based on the amount of Duck Head's indebtedness during the three months
ended December 30, 2000, if the interest rate on this outstanding indebtedness
had been increased by 1%, Duck Head's interest expense during the quarter would
have been approximately $16,000 higher than the actual expense. The actual
increase in interest expense resulting from a change in interest rates would
depend on the magnitude of the increase in rates and the average principal
balance outstanding.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 24, 2000, the Company filed a lawsuit in the United States
Federal District Court for the Northern District of Georgia against Bettis C.
Rainsford and Talmadge Knight alleging that Messrs. Rainsford and Knight
violated Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and rules promulgated thereunder by, among other things,
15
failing to disclose that Messrs. Rainsford and Knight are and have been acting
as a "group" under the federal securities laws and by failing to make the
appropriate filings under Section 13(d) disclosing the actions and intentions of
the Rainsford-Knight group. Subsequent to the filing of the lawsuit, Messrs.
Rainsford and Knight filed a Schedule 13D/A providing certain additional
disclosures. On January 9, 2001, the Company voluntarily dismissed the lawsuit,
without prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 29, 2000, the Shareholder Rights Agreement dated January
27, 2000 by and between the Company and First Union National Bank, as rights
agent (the "Rights Agreement"), was amended to change the Final Expiration Date
(as defined in the Rights Agreement) from January 20, 2010 to March 31, 2001.
The Rights Agreement and the Rights, as defined in the Rights Agreement, are
commonly referred to as a "poison pill." The effect of the amendment is that the
Rights issued pursuant to the Rights Agreement will cease to be exercisable
after March 31, 2001.
On December 30, 2000, the Company issued 250,000 shares of the
Company's common stock to William V. Roberti, the President and Chief Operating
Officer of the Company, and 150,000 shares of the Company's common stock to a
family limited partnership of Robert D. Rockey, Jr., the Chairman and Chief
Executive Officer of the Company, pursuant to exercises of portions of a stock
purchase right originally granted by the Company to Mr. Rockey. Mr. Rockey had
previously transferred a portion of the stock purchase right to Mr. Roberti. The
shares were acquired at an exercise price of $1.6424 per share, which
represented the average of the closing price of the Duck Head stock during the
six months following June 30, 2000. The aggregate amount of the proceeds
received by the Company for these issuances was $656,960. Issuance of these
shares was exempt from registration under the Securities Act of 1933, as
amended, by reason of section 4(2) of that Act.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The votes at the company's annual meeting of shareholders, originally
scheduled for November 8, 2000 and adjourned to November 15, 2000, were as
follows:
For Against Withheld Abstentions Broker Nonvotes
- --------------------------------------------------------------------------------------------------------------------------------
Election of Directors:
William F. Garrett N/A N/A N/A
1,469,194 69,342
M. I. Goldman N/A N/A N/A
1,468,744 69,792
C. C. Guy N/A N/A N/A
1,468,939 69,597
Dr. James F. Kane N/A N/A N/A
1,469,189 69,347
Dr. Max Lennon N/A N/A N/A
1,469,194 69,342
E. Erwin Maddrey, II N/A N/A N/A
1,468,505 70,031
Buck A. Mickel N/A N/A N/A
1,469,094 69,442
Robert D. Rockey, Jr. N/A N/A N/A
1,468,766 69,770
Ratification of appointment of N/A N/A
1,919,324 9,013 58,858
KPMG LLP as independent auditors
for fiscal year 2001
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
4.3.1 Amendment No. 1 dated November 29, 2000 to
Shareholder Rights Agreement, dated as of January 27,
2000, between the Company and First Union National
Bank, as Rights Agent: Incorporated by reference to
the Company's Current Report on Form 8-K dated
November 29, 2000 and filed with the Commission on
December 19, 2000 (Commission File No. 1-15585).
10.9 Letter from the Company to William V. Roberti dated
October 18, 2000.
10.10 Severance Protection Agreement dated as of November
3, 2000 by and between the Company and K. Scott
Grassmyer.
17
10.11 Severance Protection Agreement dated as of November
3, 2000 by and between the Company and William B.
Mattison.
10.12 Severance Protection Agreement dated as of November
3, 2000 by and between the Company and Michael H.
Prendergast.
10.13 Severance Protection Agreement dated as of November
3, 2000 by and between the Company and William V.
Roberti.
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K filed during fiscal quarter ended December
30, 2000
Form 8-K with date of November 29, 2000. Items reported were:
Item 5. Other Events
Item 7. Financial statements and Exhibits
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.
Duck Head Apparel Company, Inc.
----------------------------------
(Registrant)
Date February 13, 2001 /s/ K. Scott Grassmyer
--------------------------------- -------------------------
K. Scott Grassmyer
Senior Vice President, Chief
Financial Officer, Secretary and
Treasurer