1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment 1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 27, 1998
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 333-37617
DELTA MILLS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13- 2677657
(State of Incorporation) (I.R.S. Employer Identification No.)
233 N. Main Street, Suite 200
Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)
864/232-8301
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
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 be best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of September 23, 1997 was:
Common Stock, $.01 par value - 0
The number of shares outstanding of each of the registrant's
classes of Common Stock, as of June 27, 1998 was:
Common Stock, par value $.01 100
Delta Mills, Inc.
For the fiscal year ended June 27,1998
Form 10-K Annual Report
Table of Contents
Part I Page
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security
Holders (None) 6
Part II
Item 5. Market for Registrant's Common equity and Related
Stockholder Matters. 7
Item 6. Selected Financial Data 8
Item 7. Management's discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure (None) 21
Part III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management 22
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 23
Item 1 BUSINESS
General
Delta Mills, Inc. ("Delta Mills" or the "Company") is a
Delaware corporation with its principal executive offices
located at 233 North Main Street, Suite [200], Greenville, South
Carolina 29601 (telephone number:
864-232-8301). The Company is a wholly owned subsidiary of
Delta Woodside Industries, Inc., a South Carolina corporation,
the common stock of which is listed on the New York Stock
Exchange. Unless the context otherwise requires, all
references herein to "Delta Mills" or the "Company" refer to
Delta Mills, Inc. and any of its existing and future
subsidiaries.
Effective for the year ended June 27, 1998, the Company
has adopted the segment reporting provisions of Financial
Accounting Standard 131. This standard requires the Company to
report segment information for divisions whose operating
results are regularly reviewed by the chief operating officer.
During fiscal 1998, the Company made the decision to exit the
knit textile market by closing its Stevcoknit Fabrics Company
operating division. Stevcoknit Fabrics Company has been
reclassified and reported as discontinued operations. The
Company has one segment in continuing operations: Delta Mills
Marketing Company.
The Company is a leading manufacturer and marketer of
woven finished
and unfinished (or greige) cotton, synthetic and blended
fabrics, which are sold for the ultimate production of apparel,
home furnishings and other products. The company sells a broad
range of fabrics primarily to branded apparel manufacturers and
resellers, including Levi Strauss, Haggar Corp., the Wrangler r
and Leer divisions of V.F. Corporation, Farah Incorporated,
Kellwood Company 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 believes that it is a leading producer of cotton pants-
weight woven fabric used in the manufacture of casual slacks
such as Levi Strauss' Dockersr and Haggar Corp.'s Wrinkle-
freer. Other apparel items manufactured with the Company's
woven fabrics include women's chinos pants, women's blazers,
career apparel (uniforms) and battle dress camouflage military
uniforms. The Company generated net sales of $364 million,
$358 million, and $317 million respectively during fiscal years
1998, 1997 and 1996.
The Company was incorporated in Delaware in 1971.
Products, Marketing and Manufacturing
The Company produces its woven fabrics through the Delta
Mills Marketing Company division. The woven fabrics and yarn
sales operation each has its own management and employees and
operates independently under the overall direction of the
Company's executive officers.
Woven fabrics are manufactured from cotton, wool or
synthetic fibers or from synthetic filament yarns. Cotton and
wool are purchased from numerous suppliers. Synthetic fibers
and synthetic filament yarns are purchased from a smaller
number of competitive suppliers. The Company spins the major
portion of the yarns used in its weaving operations. In
manufacturing these yarns, the cotton and synthetic fiber,
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 higher
quality yarn. 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. Finished fabrics generally have significantly higher
margins than greige goods.
The Company produces finished and unfinished woven fabrics
used in the production of apparel, home furnishings and other
products. Finished apparel fabric is ready to be cut and sewn
into garments. Greige goods are typically sold to converters
who enhance the fabric through finishing techniques and sell it
to manufacturers of apparel, home furnishings and other
products.
Item 1 (Continued)
Products, Marketing and Manufacturing (Continued)
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 its woven fabrics primarily to
numerous apparel manufacturers and apparel resellers. The
Company sells its fabrics through Delta Mills Marketing Inc., a
wholly owned subsidiary with a marketing office based in New
York City (which serves the United States, Canadian and Mexican
markets), with sales agents also operating in Atlanta, Chicago,
Dallas, Los Angeles, San Francisco and Mexico.
For fiscal year 1998, sales to Levi Strauss, VF Jeanswear,
and sales to the Company's top five non-affiliated customers
accounted for 18%, 11% and 47% respectively, of the Company's
total sales for continuing operations. In fiscal year 1997,
sales to Levi Strauss and sales to the Company's top five non-
affiliated customers accounted for 22% and 49% respectively, of
the Company's total sales for continuing operations. Consistent
with industry practice, the Company does not operate under a
supply contract with Levi-Strauss or any of its other major
customers. In addition, during fiscal years 1998, 1997 and
1996, sales of military fabrics accounted for 12%, 11%, and
16%, respectively, of the Company's total sales. The loss of
Levi Strauss or other major customers could have a material
adverse effect upon the Company.
Approximately 70% of the Company's finished woven fabric
sales are of fabrics made from cotton or cotton/synthetic
blends, while approximately 30% of such sales are 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. In the production of
military fabrics, the Company purchases a portion of its greige
goods needs and finishes this fabric to specifications. The
woven finished fabrics plants are currently operating at near
full capacity.
The Company also produces a variety of unfinished light-
weight woven fabrics that are ultimately used in the
manufacture of apparel (including blouses, dresses and suit
linings), home furnishings (including shower curtains) and
medical tape. Fabrics include filament acetate, textured
polyester and other "semi-fancy" fabrics of more complicated
construction. The unfinished woven fabric plant is 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, nylon and
rayon fibers and weaves filament acetate and textured
polyester. Polyester is obtained primarily from three major
suppliers, all of whom provide competitive prices. Polyester
and rayon are currently at the lowest prices the Company has
paid since fiscal year 1993. There can be no assurance,
however, that this trend will continue. The Company's average
price per pound of cotton purchased and consumed (including
freight, carrying cost and cost for the relatively high amount
of premium cotton the Company uses) was $.817 in fiscal year
1998 as compared to $.833 in fiscal year 1997, and, as compared
to $.944 in fiscal year 1996. In fiscal year 1999 the company
expects to use approximately 98 million pounds of cotton
(including approximately 28 million pounds of premium cotton)
and 12 million pounds of polyester in its manufacture of yarn.
The company has contracted to purchase about 64% of its
expected cotton requirements for fiscal year 1999. 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.
The Company believes that recent cotton prices has 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 these increased costs to
its customers.
Item 1 (Continued)
Competition
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 both the woven and knitted
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, as well as the spun synthetic
slack-weight and skirt-weight woven fabrics businesses. In
addition, the Company is one of several major domestic
suppliers of acetate unfinished fabric used in apparel linings
and surgical tapes. 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.
NAFTA has effectively eliminated or substantially reduced
tariffs on goods imported from Mexico if such goods are made
from fabric originating in Canada, Mexico, or the United
States. Section 807 provides for the duty free treatment of
United States origin components used in the assembly of
imported articles. The result is that duty is assessed only on
the value of any foreign components that may be present and the
labor cost incurred offshore in the assembly of apparel using
United States origin fabric components. Because Section 807
creates an incentive to use fabric manufactured in the United
States, it is beneficial to the Company and other domestic
producers of apparel fabrics. In addition, pursuant of Section
807A, apparel articles assembled in a Caribbean country, in
which all fabric components have been wholly formed and cut in
the United States, are subject to preferential quotas with
respect to access into the United States for such qualifying
apparel, in addition to the significant tariff reduction
pursuant to Section 807. A similar program, enacted as a
result of NAFTA and referred to as the Special Regime Program,
provides even greater benefits (complete duty free, quota free
treatment) for apparel assembled in Mexico from fabric
components formed and cut in the United States. In contrast,
apparel not meeting the criteria of Section 807, Section 807A
or the Special Regime Program, is subject to quotas and/or
relatively higher tariffs. If Section 807, Section 807A or the
Special Regime Program 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.
Employees
The Company has approximately 2,700 employees. The
Company's employees are not represented by unions. The Company
believes that its relations with its employees are good.
Item 1 (Continued)
Environmental and Regulatory Matters
The Company 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. The
Company's plants generate very small quantities of hazardous
waste which are either recycled or disposed of offsite. 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 for reference.
Generally, the environmental rules applicable to the
Company are becoming increasingly stringent. The Company
incurs capital and other expenditures in each year that are
aimed at achieving compliance with current and future
environmental standards.
The Company does not expect that the amount of such
expenditures 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 the Company's
liability, if any, for past failures to comply with laws,
regulations and permits applicable to its operations cannot be
determined.
Discontinued Operations
Information concerning discontinued operations in Note F,
"Notes To Consolidated Financial Statements" incorporated into
Item 8 of this Form 10K is incorporated herein by reference.
Other
Information concerning order backlogs in "Management's
Discussion and Analysis of Results of Operations and Financial
Condition, Consolidated Company Results, Fiscal 1998 Versus
Fiscal 1997" incorporated into Item 7 of this Form 10K is
incorporated herein by reference.
Item 2 PROPERTIES
The following table provides a description of Delta Mills, Inc.
principal production and warehouse facilities.
Approximate
Square
Location Utilization Footage Owned/Leased
Greenville, SC Admin. Offices 17,400 Leased(1)
Beattie Plant, Fountain Inn, SC spin/weave 390,000 Owned (2)
Furman Plant, Fountain Inn, SC weave 155,000 Owned (2)
Estes Plant, Piedmont, SC spin/weave 332,000 Owned (2)
Delta 3 Plant, Wallace, SC dye/finish 555,000 Owned (2)
Cypress Plant, Pamplico, SC spin 144,000 Owned (2)
Pamplico Plant, Pamplico, SC spin/weave 275,000 Owned (2)
Delta 2 Plant, Wallace, SC dye/finish 347,000 Owned (2)
Catawba Plant, Maiden, NC spin 115,000 Owned
Rainsford Plant, Edgefield, SC spin 296,000 Owned
Discontinued Operations
Greer, SC Admin. Office 12,000 Owned
Carter Plant, Wallace, NC dye/finish 485,000 Owned
Holly Plant, Wallace, NC knit/finish 224,000 Owned
(1) Lease expires in December 1998 with the right to renew for
two additional five year periods.
(2) Titles to these facilities and substantially all of the
equipment located in such facilities are 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 Delta Mills, Inc.
Delta Mills Marketing, Inc. leases sales offices in New
York, NY. The lease on the sales offices expires December
2004. A small sales office is leased in Dallas on a month to
month basis. The Dallas lease is currently being negotiated
for a longer term agreement.
At the date of execution of this Form 10-K, the Company
believes that the finished fabrics plants are operating near
full capacity. The unfinished fabrics plant is operating at
less than full capacity.
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 secure the company's credit facility.
Item 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are
defendants in legal actions involving claims arising in the
normal course of its business, including product liability
claims. The Company believes that, as a result of its legal
defenses, insurance arrangements and indemnification provisions
with financially capable parties, none of these actions is
reasonably likely to 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 1998 fiscal year.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Not applicable.
Item 6. SELECTED FINANCIAL DATA
In Thousands, Except Ratios
Fiscal Year (1)
1998 1997 1996 1995 1994
Net Sales 364,395 $358,204 $317,446 $308,526 $303,278
Cost of Goods Sold 300,556 293,145 283,776 272,413 256,784
Gross Profit 63,839 65,059 33,670 36,113 46,494
Selling, General and
administrative expenses 17,585 16,323 13,624 14,388 13,972
Restructuring charges 1,596 1,330
Other income (expense) 146 1,553 (908) (197) (102)
Operating profit 46,400 50,289 17,542 21,528 31,090
Interest expense 19,324 14,212 14,026 12,251 10,795
Interest (income) (152) 0 (19) (39) (131)
Income from Continuing
Operations Before
Income Taxes 27,228 36,077 3,535 9,316 20,426
Income Taxes 10,743 14,187 1,361 3,588 7,864
Income from Continuing
Operations 16,485 21,890 2,174 5,728 12,562
Loss from Discontinued
Operations (25,909) (5,337) (26,973) (677) (9,142)
Net Income (Loss) (9,424) 16,553 (24,799) 5,051 3,420
Other Data:(1)
Depreciation and
amortization $14,127 $13,840 $12,238 $10,444 $10,616
Capital expenditures 4,065 14,122 43,378 35,704 7,089
EBITDA (2) 60,375 64,129 29,761 31,933 41,575
Ratio of EBITDA to
interest expense (2) 3.1 4.5 2.1 3.0 3.4
Balance Sheet Data: (1)
Working Capital (deficit) $107,423 ($7,525) $16,010 $50,421 $59,320
Total assets 290,290 345,010 333,577 336,672 318,468
Total debt and other long-
term obligations (4) 176,635 268,658 289,587 252,750 249,530
Shareholders' Equity
(deficit) 40,078 7,844 (8,709) 16,090 11,122
NOTES TO SELECTED FINANCIAL DATA
(1) The amounts presented above for prior years have been
restated to
conform to the fiscal 1998 presentation of discontinued
operations. The Stevcoknit knitted fabrics business is
presented as part of discontinued operations.
(2) "EBITDA" is defined herein as income (loss) before income
taxes, plus
depreciation and amortization expense and interest expense,
plus impairment and restructuring charges (credits). While
EBITDA should not be construed as an alternative to operating
earnings (loss) or net income(loss), or as an indicator of
operating performance or liquidity, the Company believes
that the ratio of EBITDA to interest expense is a measure that
is commonly used to evaluate a company's ability to service
debt.
(3) Total debt and other long-term obligations, on an
historical basis consist of the long-term debt due to
affiliate, the current loan payable to affiliate and the
noninterest-bearing payable to affiliates. See Notes C and E
to the Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Annual 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 and the relative strength of the United States
dollar as against other currencies and the discovery of unknown
conditions (such as with respect to environmental matters, Year
2000 readiness 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.
Year Ended June 27, 1998 Compared to Year Ended June 28, 1997
Net Sales. Consolidated net sales for the year ended
June 27, 1998 totaled $364.4 million, as compared to $358.2
million for the year ended June 28, 1997, an increase of
1.7% resulting from an increase in unit sales. The
increase came from the sales of finished fabric to commercial
and government accounts due to increased demand. These
increases were chiefly offset by a sharp 32% decline in
unfinished greige fabric sold to converters due to decreased
demand.
Gross Profit. Consolidated gross profit margin for the
year ended June 27, 1998 was 17.5 %, as compared to 18.2% for
the year ended June 28, 1997, a decrease of .7 %. This decline
was due principally to the decline in the unfinished woven
fabrics market due to volume, price, and manufacturing degree
of operations.
Selling General and Administrative Expenses. During the
year ended June 27, 1998, selling, general and administrative
expenses were $17.6 million, as compared to $15.9 million
during the year ended June 28, 1997, an
increase of $1.7 million or 10.7%. For the year ended June 27,
1998, expenses in this category were 4.83% of net sales as
compared to 4.44% of net sales for the year ended June 28,
1997. The increase was due to distribution cost
related to sales volume increases, fixed administrative
services cost and one time cost associated with information
technology system studies. Management believes it has
effectively controlled its selling, general and administrative
expenses as a percentage of net sales.
Operating Earnings. Operating earnings for the year ended
June 27, 1998 were $46.4 million, as compared to $50.6 million
for the year ended June 28, 1997. The decline in operating
earnings was due to the factors described above.
Net Interest Expense. For the year ended June 27, 1998,
net interest expense was $19.2 million, as compared to $14.2
million for the year ended June 28, 1997. The increase in
interest expense was primarily a result of the higher interest
rates on the senior notes (9.625%) compared to intercompany
debt at lower rates in the 1997 fiscal year.
Year Ended June 27, 1998 Compared to Year Ended June 28, 1997
(Continued)
Taxes. The effective tax rate of 39.5% year ended June
27, 1998 is approximately the same as the effective tax rate
for the year ended June 28, 1997.
Item 7 (Continued)
Net Income. Net income for the year ended June 27, 1998 was
$16.5
million, as compared to $22.0 million for the year ended June
28, 1997.
The decrease was due to the factors described above.
Order Backlog. The Company's order backlog at June 27,
1998 was $106.6 million, an 11.1% decrease from the $119.9
million order backlog at June 28, 1997. The majority of this
decrease was attributable to a 76% decline in the unfinished
woven fabrics order backlog and a 33% decrease in the finished
woven government fabrics order backlog. Both decreases were
due to market conditions in these businesses. The Company
believes that backlog orders are generally indicative of future
sales.
Year Ended June 28, 1997 Compared to Year Ended June 29, 1996
Net Sales. Consolidated net sales for fiscal year 1997 totaled
$358.2
million, as compared to
$317.4 million for fiscal year 1996, an increase of 12.8%
resulting from an increase in unit sales and
unit prices. Sales to commercial accounts increased due both
to increased demand and to additional
finishing capacity resulting from recent capital expenditures.
This increase more than offset a decrease
in sales of woven fabrics to the government due to a slowdown
in procurement activity.
Gross Profit. Gross profit margin in fiscal year 1997 was
18.2%, as
compared to 10.6% in fiscal
year 1996, an increase of 71.2%. During fiscal year 1997, this
improvement was due principally to higher sales, lower raw
material costs and improved efficiencies resulting from the
modernization project at the Beattie spinning and weaving
plant.
Selling, General and Administrative Expenses. During fiscal
year 1997, selling, general and
administrative expenses were $17.6 million, as compared to
$16.3 million during fiscal year 1996, an
increase of 7.7%. Although expenses in this category increased
on an absolute basis, (due to increased sales), selling,
general and administrative expenses for fiscal year 1997 were
approximately the same as in
1996 as a percent of net sales.
Operating Earnings. Operating earnings for fiscal year 1997
were
$50.3 million, as compared to
$17.5 million in fiscal year 1996, an improvement of $32.8
million. This improvement was due to higher
sales, lower raw material cost and improved efficiencies.
Net Interest Expense. During fiscal year 1997, net interest
expense
was $14.2 million, as
compared to $14.0 million in fiscal year 1996, due principally
to higher rates of interest.
Taxes. The estimated effective tax rate for fiscal year
1997 was
39.3%, as compared to an
effective tax benefit rate of 38.5% for fiscal year 1996. The
lower tax rate in fiscal year 1996 is
primarily the result of the effect of nondeductible permanent
differences on pretax losses in fiscal year 1996 compared to
pretax earnings in fiscal year 1997.
Net Income. During fiscal year 1997, net income was $21.9
million, as compared to $2.2
million in fiscal year 1996. This significant improvement is
due to the factors described above.
Order Backlog. The Company's order backlog at June 28,
1997 was $119.9 million, a 60% increase from the $74.9 million
order backlog at June 29, 1996. This increase was attributable
to a 116% increase in finished woven fabrics for commercial
customers and was somewhat offset by a 42% decrease
Year Ended June 28, 1997 Compared to Year Ended June 29, 1996
(Continued)
in the unfinished woven fabrics order backlog. These changes
in the order backlog were due to improved market conditions and
increased capacity associated with the modernization project at
the Beattie spinning and weaving plant. The Company believes
that backlog orders are generally indicative of future sales.
Item 7 (Continued)
LIQUIDITY AND SOURCES OF CAPITAL
During fiscal 1998, the Company financed its capital
expenditures primarily through cash
generated from operations. Increases in inventory were
offset by reductions in accounts receivable, other operating
assets, and increases in certain operating liabilities.
The Company generated operating cash flows of
$32.1, $34.8,
and $22.6 million for the 1998,
1997,and 1996 fiscal years, respectively. The Company
generated cash from investing activities of $6.6 million in
fiscal year 1998 but used $13.4, and $44.4 million in fiscal
years 1997 and 1996 respectively
primarily to finance capital expenditures, including equipment
purchases. Cash generated in 1998 from investing activities was
primarily from the disposal of discontinued assets.
On August 25, 1997 the Company issued $150 million
of unsecured ten-year senior notes at an
interest rate of 9.625%, and obtained a secured five-year $100
million revolving line of credit. The interest rate on the
revolving credit facility at June 27, 1998 was 7.4%. The
revolving line of credit is secured by accounts receivable and
inventory with a net book value of approximately $155 million.
After borrowings as described above, the Company had $ 63
million and $42 million available
under the revolving credit agreement, on June 27, 1998 and
August 25, 1997 respectively.
The new credit facility and the senior notes contain
restrictive covenants which include minimum
tangible net worth and certain other minimum financial ratios.
The agreement also restricts additional indebtedness,
dividends and capital expenditures.
During fiscal 1998, the Company had capital
expenditures of approximately $4.1 million primarily
for capital improvements, new equipment, and computer system
upgrades. During fiscal 1999, the
Company plans to spend approximately $10 million for capital
improvements, new equipment, and
computer system upgrades. With the exception of certain
discontinued facilities , the Company believes
that its equipment and facilities are generally adequate to
allow it to remain competitive with its principal
competitors.
We have considered the impact of Year 2000 issues
on our computer systems and applications and
developed a remediation plan. Conversion activities are in
process and we expect conversion and testing to be completed
during fiscal 1999. Expenditures in fiscal 1998 for the Year
2000 project amounted to $21,000 and we expect that completion
of the various projects will result in additional expenditures
of approximately $200,000.
The carryback of the net losses for fiscal 1996 resulted in a
refund of
approximately $8.5 million
in the early part of fiscal year 1997.
The Company believes that cash flow generated by its
operations and funds available under its
new credit lines should be sufficient to service its bank
debt, to satisfy its day-to-day working capital needs, and to
fund its planned capital expenditures.
ENVIRONMENTAL AND REGULATORY MATTERS
Two of the Company's South Carolina plants, the textile
segment's
Delta 2 and 3 finishing plants, have been unable to comply
with certain toxicity and other permit-related limits
contained in a National
Pollutant Discharge Elimination system ("NPDES") permit held by
the Company. The Company is working with the appropriate state
agency to address these issues. To attempt to achieve
compliance, the
Company has completed the upgrades at a cost of approximately
$2.3 million and believes that the required effluent limits
will be achieved by November 1, 1998. Although there is no
assurance that the Company will be successful, and it could
face additional administrative penalties if it is not, the
Company does not currently believe that these matters will have
a material adverse impact on the Company.
Item 7 (Continued)
The Company is currently assessing certain wastewater
treatment system basins of a North Carolina plant that is no
longer in operation but was a likely source of groundwater
contamination. The company currently has no plans to remediate
any groundwater contamination. Although no assurance can be
provided, the Company does not currently believe that this
matter will have a material adverse impact on the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Commodity Risk Sensitivity
As a part of Delta Woodside'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 for the
Company. 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.
(In Thousands) Carrying Amount Fair Value
Cotton in inventory $2,443 $2,456
Fiscal year 1999 fixed price
purchase commitments $48,288 $51,437
Fiscal year 2000 fixed price
purchase commitments $ 7,345 $ 7,441
Interest Rate Sensitivity
The following debt obligations are sensitive to changes in interest
rates:
$150 million of unsecured ten year senior notes due
2007 at a fixed rate of 9.625%.
$100 million of secured five year revolving credit
facility expiring 2002 with interest
of 7.4% at June 27, 1998. Interest is based on LIBOR.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of KPMG Peat Marwick LLP F2
Consolidated Balance Sheets as of June 27, 1998 and June 28,
1997 F3
Consolidated Statements of Operations for the fiscal years
ended June 27, 1998, June 28, 1997, and June 29, 1996 F4
Consolidated Statements of Shareholder's Equity for the fiscal
years ended June 27, 1998, June 28, 1997, June 29, 1996, and
July 1, 1995 F5
Consolidated Statements of Cash Flows for the fiscal years
ended June 27, 1998, June 28, 1997, June 29, 1996 F6
Notes to Consolidated Financial Statements F7
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
Delta Mills, Inc.
We have audited the accompanying consolidated balance sheets of
Delta Mills, Inc. as of June 27, 1998 and June 28, 1997 and the
related
consolidated statements of operations, shareholder's equity,
and cash flows for each of the years in the three-year period
ended June 27, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Delta Mills, Inc. at June 27, 1998 and
June 28, 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended
June 27,1998, in conformity with generally accepted accounting
principles.
Greenville, South Carolina
August 14, 1998
CONSOLIDATED
BALANCE SHEETS
Delta Mills,
Inc.
(In Thousands)
June 27, 1998 June 28, 1997
ASSETS
CURRENT ASSETS
Cash and cash Equivalents $ 544 $ 1,095
Accounts receivable:
Factor and other 82,454 84,041
Affiliates 6,783 2,953
89,237 86,994
Less allowances for doubtful
accounts and returns 246 128
88,991 86,866
Inventories
Finished goods 10,427 7,178
Work in process 37,000 39,619
Raw materials and supplies 8,412 8,806
55,839 55,603
Current assets of
discontinued operations 15,484 40,431
Deferred income taxes and other
assets 2,567 3,463
TOTAL CURRENT ASSETS 163,425 187,458
PROPERTY, PLANT AND EQUIPMENT, at
cost
Land and land improvements 2,892 2,816
Buildings 47,225 46,675
Machinery and equipment 145,038 144,122
Furniture and fixtures 2,089 2,201
Construction in progress 4,643 872
201,887 196,686
Less accumulated depreciation 80,257 61,167
121,630 135,519
DEFERRED LOAN COSTS
Less accumulated amortization of 5,223
$582
NONCURRENT ASSETS OF DISCONTINUED
OPERATIONS 12 22,033
$290,290 $345,010
CONSOLIDATED BALANCE SHEETS
Delta Mills, Inc.
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 27,1998 June 28, 1997
Trade accounts payable $ 23,890 $ 31,597
Payable to affiliates 4,493 148,658
Accrued employee compensation 4,937 5,932
Accrued and sundry liabilities 16,042 8,796
Restructuring accruals 6,640
TOTAL CURRENT LIABILITIES 56,002 194,983
LONG-TERM DEBT 176,635
LOAN PAYABLE TO AFFILIATE 120,000
DEFERRED INCOME TAXES 7,431 16,547
OTHER LIABILITIES AND DEFERRED CREDITS 10,144 5,636
SHAREHOLDERS' EQUITY
Common Stock - par value
$.01 a share - authorized
3,000 shares, issued and
outstanding 100 shares
Additional paid-in capital 51,792 2,134
Retained earnings (deficit) (11,714) 5,710
40,078 7,844
COMMITMENTS AND CONTINGENCIES
$290,290 $345,010
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF
OPERATIONS
Delta Mills, Inc.
(In Thousands)
Year Ended Year Ended Year Ended
June 27, 1998 June 28, 1997 June 29, 1996
Net sales to non-affiliates $ 342,732 $ 336,181 $ 294,083
Net sales to affiliated parties 21,663 22,023 23,363
Net sales 364,395 358,204 317,446
Cost of goods sold 300,556 293,145 283,776
Gross profit 63,839 65,059 33,670
Selling, general and
administrative expenses 17,585 16,323 13,624
Restructuring and impairment Charge 0 0 1,596
Other income (expense) 146 1,553 (908)
OPERATING PROFIT 46,400 50,289 17,542
Other (expense) income:
Interest expense (17,160) (413) (312)
Interest income 152 19
Affiliate interest expense (2,164) (13,799) (13,714)
(19,172) (14,212) (14,007)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 27,228 36,077 3,535
Income tax expense 10,743 14,187 1,361
INCOME FROM CONTINUING
OPERATIONS 16,485 21,890 2,174
(Loss) on disposal of
discontinued operations
less applicable income taxes (21,079)
(Loss) from operations of
discontinued businesses
less applicable income taxes (4,830) (5,337) (26,973)
(Loss) from discontinued
operations (25,909) (5,337) (26,973)
NET INCOME (LOSS) $ (9,424) $ 16,553 $ (24,799)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Delta Mills, Inc.
(In Thousands)
Additional Total
Common Stock Paid-In Retained Shareholers'
Shares Amount Capital Earnings Equity
Balance at
July 1, 1995 100 $ 0 $ 2,134 $ 13,956 $ 16,090
Net loss (24,799) (24,799)
Balance at
June 19, 1996 100 0 2,145 (10,843) (8,709)
Net income 16,553 16,553
Balance at
June 28, 1997 100 0 2,134 5,710 7,844
Net loss (9,424) (9,424)
Cash dividends paid (8,000) (8,000)
Capital contributions 49,658 49,658
100 $ 0 $51,792 $(11,714) $ 40,078
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Mills, Inc.
(In Thousands)
Year Ended Year Ended Year Ended
June 27, June 28, June 29,
1998 1997 1996
OPERATING ACTIVITIES
Net income (loss) $ (9,424) $ 16,553 $ (24,799)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 14,095 13,910 12,249
Amortization 32 (70) (11)
Discontinued operations 41,080 (1,788) 27,504
Write-down of property and
equipment 996
Provision for losses on
accounts receivable 468
Provision for deferred
income taxes (8,261) 3,152 (2,201)
Losses (gains) on
disposition of property
and equipment (6) (1,504) 20
Deferred compensation 638 605 428
Changes in operating assets
and liabilities:
Accounts receivable 1,895 (14,092) (1,305)
Inventories (236) 4,667 9,603
Other current assets 41 (349) 91
Accounts payable and
accrued expenses (8,244) 13,680 (22)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 32,078 34,764 22,553
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (4,065) (14,122) (43,378)
Proceeds of dispositions 13 2,275 2,480
Investing activities of
discontinued operations 10,686 (1,597) (3,521)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 6,634 (13,444) (44,419)
INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from revolving
lines of credit 137,000
Repayments on revolving
lines of credit (110,365)
Scheduled principal payments
of long-term debt (50,000)
Net proceeds/(repayments)
of loan from parent (202,093) 29,731 21,865
Proceeds from issuance of
long-term debt 145,688
Dividends paid (8,000)
Other (1,493)
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (39,263) (20,269) 21,865
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (551) 1,051 (1)
Cash and cash equivalents at
beginning of year 1,095 44 45
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 544 $ 1,095 $ 44
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES Description of Business: The Company manufactures
woven fabrics which are sold through a separate sales
subsidiary. The Company's operations, all within the textile
industry, are considered a single business segment.
Basis of Presentation: The consolidated financial statements
include the accounts of Delta Mills, Inc. and the Delta Mills
Marketing, Inc., (collectively, the "Company"). All
significant intercompany balances and transactions have been
eliminated. Delta Mills, Inc. and Delta Mills Marketing , Inc.
are wholly-owned subsidiaries of Alchem Capital Corporation,
which is a wholly-owned subsidiary of Delta Woodside
Industries, Inc. ("DWI"). The Company has one segment that is
presented as a
discontinued operation, Stevcoknit Fabrics Company, which
manufactures
and sells knitted fabrics. Certain amounts for the 1997 and
1996 fiscal years have been reclassified to conform to the 1998
presentation of discontinued operations.
Cash Equivalents: The Company considers all highly liquid
investments having maturities of three months or less when
purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of the cost
or market determined using the first-in , first-out (FIFO)
method.
Property, Plant and Equipment: Property, plant and equipment
is stated on the basis of cost. Depreciation is computed by
the straight-line method for financial reporting based on
estimated useful lives of three to thirtytwo years, but
predominantly over seven to fourteen years, and by accelerated
methods for income tax reporting.
Impairment of Long-Lived Assets: When required by
circumstances, the Company evaluated the recoverability of its
long-lived assets by comparing estimated future undiscounted
cash flows with the asset's carrying amount to determine if a
write-down to market value is required. This policy was
formally adopted by the Company in fiscal year 1996.
Revenue Recognition: Sales are recorded upon shipment or
designation of specific goods for later shipment at customers'
request with related risk of ownership passing to such
customers.
Deferred Loan Costs: Deferred loan costs are being amortized
over periods of five and ten years based on maturity of related
debt.
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.
Environmental Costs: Environmental compliance cost including
ongoing maintenance, monitoring and similar costs, are expensed
as incurred.
Environmental remediation costs are accrued, except to the
extent costs can be capitalized, when remedial efforts are
probable, and the cost can be reasonably estimated.
Cotton Procurement: The Company contracts to buy cotton with
future delivery dates at fixed prices in order to reduce the
effects of fluctuations in the prices of cotton used in the
manufacture of its products. These contracts permit settlement
by delivery and are not used for trading purposes. The Company
commits to fixed prices on a percentage of its cotton
requirements up to eighteen months in the future. If market
prices for cotton fall below the Company's committed fixed
costs and are not recoverable, the differential is charged to
income at that time.
Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements
NOTE A-CONTINUED
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Fiscal Year: The Company's operations are based on a fifty-
two or fiftythree week fiscal year ending on Saturday closest
to June 30. Fiscal years 1996, 1997, and 1998 each consist of
52 weeks.
NOTE B-ACCOUNTS RECEIVABLE
The Company assigns a substantial portion of its trade accounts
receivable to a bank under a factor agreement. The assignment
of these receivables is primarily without recourse, provided
that customer orders are approved by the bank prior to shipment
of goods, up to a maximum for each individual account.
The Company operates within the textile industry, and its
operations are affected by the relative strength or weakness of
the textile markets. The Company has one major customer who
accounted for 18%, 22%, and 16% of total net sales of
continuing operations for fiscal years 1998, 1997, and 1996,
respectively. Another major customer accounted for 11% of
sales of continuing operations in fiscal year 1998.
The Company's accounts receivable are due from many companies
that produce apparel, home furnishings and other products
located throughout the United States. The many companies
represented in the Company's accounts receivable, limits to a
certain extent, the concentration of credit risk. The Company
generally does not require collateral for its accounts
receivable.
NOTE C-LONG-TERM DEBT AND LEASES
On August 25, 1997 the Company issued $150 million of unsecured
ten-year senior notes at an interest rate of 9.625%, and
obtained a secured fiveyear $100 million revolving line of
credit subject to borrowing base limitations. The net proceeds
of the senior notes, the initial borrowings under the new
revolving line of credit and a capital contribution of the
remainder of the intercompany debt were used to repay the long-
term debt and current amounts payable to affiliate. At June
27, 1998, the interest rate on the $100 million revolving line
of credit was 7.4% based on LIBOR. At June 27, 1998, accounts
receivable and inventory with a net book value of
approximately $138 million, served as collateral for the $100
million revolving line of credit. Immediately after the
borrowing as described
above, the Company had $63 million available under the
revolving line of credit on June 27, 1998.
The new credit facility and the senior notes contain
restrictive covenants, which include restrictions on additional
indebtedness, transactions with affiliates, payment of
dividends, minimum tangible net worth, and certain other
minimum financial ratios and maximum capital expenditures.
The carrying value of the Company's revolving credit agreements
approximate fair value since the rates are tied to floating
rates. At June 27, 1998 the carrying value of the senior notes
was $150,000,000 and the fair value, based on quoted market
prices was $150,375,000.
Total interest expense incurred and paid by the Company was
$13,563,000, $14,264,000 and $14,261,000 for fiscal years
1998, 1997, and 1996, respectively, of which $302,000 and
$523,000 were capitalized during fiscal years 1997 and 1996
respectively.
Rent expense relating to operating leases was approximately
$3,821,000, $2,759,000 and $ 1,309,000 for fiscal years 1998,
1997 and 1996 respectively.
NOTE C-CONTINUED
Aggregate principal maturities of all long-term debt and
minimum payments under operating leases are as follows:
Long-term Operating
Fiscal Year Debt Leases
1999 $ 3,363,000
2000 3,355,000
2001 3,352,000
2002 1,932,000
2003 $ 26,635,000 452,000
Later years 150,000,000 555,000
$176,635,000 $13,009,000
NOTE D-EMPLOYEE BENEFIT PLANS
The Company participates in the Delta Woodside Industries,
Inc. retirement and 40l(k) plans.
On September 27, 1997 the Delta Woodside Industries Employee
Retirement Plan ("Retirement Plan") merged into the Delta
Woodside Employee Savings and Investment Plan ("401(k) Plan").
Future contributions to the 401(k) Plan in lieu of a
contribution to the Retirement Plan will be made in cash and
not in stock. In the 401(k) Plan employees may elect to
convert DWI
stock to other funds, but may not increase the amount of stock
in their account. Each participant has the right to direct the
trustee as to the manner in which shares held are to be voted.
The Retirement Plan qualified as an Employee Stock Ownership
Plan ("ESOP") under the Internal Revenue Code as a defined
contribution plan. Contributions of $236,000 and $270,000 were
allocated to participants for fiscal 1997 and 1996,
respectively. During fiscal 1998, 1997 and 1996, the Company
contributed $455,000, $480,000, and $398,000, respectively, to
the 401(k) plan.
The Company also participates in a 501(c)(9) trust, the Delta
Woodside Employee Benefit Plan and Trust ("Trust"). The Trust
collects both employer and employee contributions from the
Company and makes disbursements for health claims and other
qualified benefits.
The Company participates in a Deferred Compensation Plan,
managed by DWI, which permits certain management employees to
defer a portion of their compensation. Deferred compensation
accounts are credited with interest and are distributed after
retirement, disability or employment termination. As of June
27, 1998 and June 28, 1997, the Company's liability was
$5,722,000 and $5,086,000 respectively.
The Company also participates in the Delta Woodside Industries,
Inc. Incentive Stock Award Plan and Stock Option Plan.
Including associated tax assistance, under the Incentive Stock
Award Plan, the Company recognized expense of $404,000,
$245,000, and $325,000 for fiscal years 1998, 1997 and 1996,
respectively. Under the Stock Option Plan, the Company
recognized expense of $104,000, $87,000 and $61,000 for fiscal
years 1998, 1997 and 1996, respectively.
NOTE E-AFFILIATED PARTY TRANSACTIONS
The Company participated in a cash management system maintained
by Delta Woodside Industries, Inc. until August 25, 1997.
Under this system excess cash was forwarded to DWI each day,
reducing the current loan payable to affiliate. Likewise, cash
requirements were funded daily by DWI, increasing loan payable
to affiliate. Interest was charged on loan payable to
affiliate balances based on the weighted average cost of DWI's
borrowings.
Accounts receivable due from affiliates include $1.7 million at
June 28, 1997 for anticipated refunds of income taxes from
Delta Woodside Industries, Inc. Receivables from affiliates
also include $5.0 million and $1.2 million at June 27, 1998 and
June 28, 1997, respectively, resulting from sales to Delta
Apparel, an affiliate.
Current payable to affiliates bears no interest and includes
(1) $40.5 million at June 28, 1997, payable to DWI resulting
from previous mergers, (2) interest payable of $10.2 million
owed Alchem Capital Corporation at June 28, 1997 and (3) other
amounts payable to DWI for current activity as described in the
following paragraphs.
NOTE E-CONTINUED
Affiliated party transactions included in the statements of
operations result from a variety of services provided and goods
transferred as shown in the following table:
1998 1997 1996
Textile and yarn sales $19,385,000 $29,870,000 $25,600,000
Corporate services expenses 2,838,000 3,302,000 3,123,000
Income tax payments 88,000 6,261,000 (1,852,000)
Payroll taxes, insurance and
employee related 45,223,000 42,578,000 25,548,000
Printing services 220,000 505,000 407,000
Interest expense 2,193,000 13,679,000 13,627,000
Rental income 95,000 93,000 141,000
As of March 29, 1997, the Company sells textiles and yarn to an
affiliate at prices which approximate market. Prior to March
29, 1997, the Company sold textiles and yarn to an affiliate at
prices which approximate cost. Corporate services include
management, treasury, computer, purchasing, benefits, payroll,
auditing, accounting and tax services. For these services,
DWI charges actual cost based on relative usage and other
factors. Actual cost is charged for payroll taxes, insurance
and employee related expenses which are managed by DWI as a
corporate service. Printing services are charged at market
prices. Interest was charged based on fixed rates for long-
term debt. Interest on loan payable to affiliates was charged
based on DWI `s weighted average interest rate. The Company
charges affiliates for rent based on estimated cost and space
utilized.
NOTE F-DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
In the third quarter of fiscal year 1998, the Company has
adopted the segment reporting provisions of Financial
Accounting Standard 131. This standard requires the Company to
report segment information for divisions which engage in
business activity, whose operating results are regularly
reviewed by the chief operating officer. The Company has one
segment in continuing operations: Delta Mills Marketing
Company which manufactures and sells woven fabrics for apparel
and home furnishings. The Company's other operations include
yarn sales to Delta Apparel, a segment of the parent company,
Delta Woodside Industries, Inc. Operating profit does not
include interest expense or interest income. The Company also
has one segment which is presented as a discontinued operation:
Stevcoknit Fabrics Company which manufactured and sold knitted
fabrics.
On March 3, 1998, the Company made the decision to close
Stevcoknit Fabrics. Accordingly, operating results for this
segment have been reclassified and reported as discontinued
operations. On June 27, 1998 the Company had sold most of the
assets of Stevcoknit Fabrics, and expects to complete
disposition of this business during calendar year 1998.
In connection with the decision to discontinue this business,
the Company recognized a loss on disposal of discontinued
operations of $21 million including an income tax benefit of
$14 million. The Company believes that it will recover the net
book value of the assets of the Stevcoknit division. At June
27, 1998, the Company had outstanding approximately $11 million
in accrued restructuring charges and reserves relating to
discontinued operations. These amounts consist of $6.6 million
and $4.4 million which are presented as current and noncurrent
liabilities, respectively. In fiscal year 1996, the Company
also recognized restructuring charges of $1.6 million for
NOTE F-CONTINUED
plant closings in the woven textile operation. Of the $1.6
million, $1.0 million is for the write-down of property, plant
and equipment, and the remainder is for expenses, which were
incurred in connection with the plant closings.
The assets of discontinued operations at June 27, 1998 and June
28, 1997 are as follows:
(in thousands) June 27, 1998 June 28, 1997
Accounts Receivable $ 13,893 $ 18,749
Inventory 1,529 21,592
Other current assets 62 90
Total current assets 15,484 40,431
Property, plant and equipment
net of accumulated depreciation 12 22,033
Total Assets $ 15,496 $ 62,464
Summarized results of operations for the discontinued business
are as follows:
(in thousands) June 27 June 28, June 29,
1998 1997 1996
Net Sales 91,153 $106,344 $85,015
Cost and expense 112,899 115,213 127,052
(Loss) before income
tax (21,746) (8,869) (42,037)
Income tax (benefit) (16,916) (3,532) (15,064)
(Loss) from
operations of
discontinued
operations $(4,830) $(5,337) $(26,973)
NOTE G-INCOME TAXES
The Company reports federal income taxes in the consolidated
return of its parent Delta Woodside Industries, Inc. (DWI) and
had taxable income of $7.7 million which will be reported in
the fiscal 1998 consolidated Federal income tax return of its
parent, DWI. The consolidated group had a tax loss of $27
million, which will be carried forward to offset future
taxable income. The Federal income tax obligation or refund
that is allocated to the Company is determined as if the
Company were filing a separate Federal income tax return. The
Company's Federal tax liability or receivable is paid to or is
a receivable from the parent company.
The Company had a Federal net operating loss carryforward of
$1.9 million which expired unused at the end of fiscal 1996.
The Company utilized its
state NOL carryovers of approximately $ 9 million and $18
million for 1998 and 1997 respectively.
The Company's gross deferred tax assets are reduced by a
valuation allowance to net deferred tax assets considered by
management to be more likely than not realizable. 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.
Deferred income taxes reflect the net tax effects of temporary
differences between the financial statement amounts and amounts
reported for income tax purposes. There was no change in the
valuation allowance from 1997 to 1998.
NOTE G-CONTINUED
Significant components of the Company's deferred tax assets and
liabilities are as follows:
1998 1997
Assets
Restructuring reserves $3,708,000
Deferred compensation 2,203,000 $1,958,000
Net operating loss
carryforwards 131,000 81,000
Accrued and sundry
liabilities 2,410,000 2,315,000
Inventory 557,000 744,000
Allowance for doubtful
accounts & sales returns 573,000 184,000
Subtotal 9,582,000 5,282,000
Valuation allowance (37,000) (37,000)
Deferred tax assets 9,545,000 5,245,000
Liabilities:
Depreciation 13,434,000 18,549,000
Other 1,343,000 189,000
Deferred tax liabilities 14,777,000 18,738,000
Net deferred tax liabilities $5,232,000 $13,493,000
Significant components of the provision for income taxes are as
follows:
1998 1997 1996
Current:
Federal income taxes $2,014,000 $ 7,352,000 $(11,583,000)
State income taxes 74,000 150,000 81,000
Total current $2,088,000 7,502,000 $(11,502,000)
Deferred:
Federal income taxes
(benefits) $(7,060,000) $ 2,710,000 $ (1,886,000)
State income taxes
(benefits) (1,201,000) 442,000 (315,000)
Total Deferred $(8,261,000) 3,152,000 $ (2,201,000)
Total provision $(6,173,000) $10,654,000 $(13,703,000)
The reconciliation of income tax expense (benefit) computed at
the Federal statutory tax rate:
1998 1997 1996
Income tax expense (benefit)at
statutory rates $ (5,459,000) 9,523,000 $ (13,476,000)
State taxes (benefits) net of
federal benefit (733,000) 385,000 (152,000)
Other 19,000 746,000 (75,000)
$ (6,173,000) $10,654,000 $ (13,703,000)
The Company made tax payments of $110,000 and $6,261,000
during fiscal years 1998 and 1997 respectively. During fiscal
1996, the Company received tax refunds of $1,852,000.
NOTE H-SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
Delta Mills Marketing, Inc. (the "Guarantor") does not
comprise a material portion of the Company's assets or
operations. The Guarantor is a whollyowned subsidiary of the
Company and has fully and unconditionally guaranteed, (the
"Guarantee") the Company's payment of principal, premium,
interest and certain liquidated damages, if any, on the
Company's senior notes (the "Notes"). The Guarantor's
liability under the Guarantee is limited to such amount, the
payment of which would not have left the guarantor insolvent
or with unreasonably small capital at the time its Guarantee
is entered into, after giving effect to the incurrance of
existing indebtedness immediately prior to such time.
The Guarantor is the sole subsidiary of the Company. All
future subsidiaries of the Company will provide guarantees
identical to the one described in the preceding paragraph
unless such future subsidiaries are Receivables Subsidiaries
(as defined in the indenture relating to the Notes). Such
additional guarantees will be joint and several with the
Guarantee of the Guarantor.
The Company has not presented separate financial statements or
other disclosures concerning the Guarantor because Company
management has determined that such information is not
material to investors.
Summarized financial information for the Guarantor is as
follows (in thousands):
June 27, 1998 June 28, 1997
Current assets 1,301 2,507
Noncurrent assets 412 163
Current Liabilities 1,428 1,630
Noncurrent 1,260 1,035
liabilities
Stockholders' (975) 5
equity (deficit)
Summarized results of operations for the
Guarantor are as follows (in thousands):
Twelve Months Ended
June 27, June 28 June 29,
1998 1997 1996
Net sales -intercompany
commissions $6,177 $6,041 $5,294
Cost and expenses 5,346 5,104 4,253
Income from continuing
operations 468 513 585
(Loss) from discontinued
operations (1,450) (1,006) (802)
Net (loss) (982) (498) (217)
NOTE I-COMMITMENTS AND CONTINGENCIES
During fiscal year 1999, the Company plans to spend
approximately $10 million for capital improvements.
The Company has entered into agreements, and has fixed prices,
to purchase cotton for use in its manufacturing operations. At
June 27, 1998 minimum payments under these contracts with non-
cancelable contract terms were $30 million in fiscal year 1999
and $4.4 million in fiscal year 2000.
Two of the Company's South Carolina plants, the textile
segment's Delta 2 and 3 finishing plants, have been unable to
comply with certain toxicity and other permit-related limits
contained in a National Pollutant Discharge
NOTE I-CONTINUED
Elimination system ("NPDES") permit held by the Company. The
Company is working with the appropriate state agency to address
these issues. To attempt to achieve compliance, the Company
has completed the upgrades at a cost of approximately $2.3
million and believes that the required effluent limits will be
achieved by November 1, 1998. Although there is no assurance
that the Company will be successful, and it could face
additional administrative penalties if it is not, the Company
does not currently believe that these matters will have a
material adverse impact on the Company.
The Company is currently assessing certain wastewater treatment
system basins of a North Carolina plant that is no longer in
operation but was a likely source of groundwater contamination.
The company currently has no plans to remediate any groundwater
contamination. Although no assurance can be provided, the
Company does not currently believe that this matter will have a
material adverse impact on the Company.
NOTE J-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results
of operations for the years ended June 27, 1998 and June 28,
1997.
Quarter Ended
September 27 December 27 March 28 June 27
(In thousands)
1998
Net sales $92,383 $89,285 $81,071 $101,656
Gross profit 17,025 15,006 14,497 17,311
Income from continuing
operations 5,303 3,632 3,048 4,502
Net income (loss) 3,666 1,907 (19,499) 4,502
September 28 December 28 March 29 June 28
(In thousands)
1997
Net sales $78,148 $ 91,784 $ 88,858 $ 99,414
Gross profit 13,312 15,050 16,442 20,255
Income from continuing
operations 3,793 5,197 5,378 7,522
Net income (loss) 2,512 4,129 4,062 5,850
During the third quarter of fiscal year 1998, the Company
recognized restructuring and impairment charges of $21 million
in connection with discontinued operations described in note F.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following provides certain information regarding the
directors and executive officers of the Company. Except as
otherwise noted below, the business address of each director
and officer is Delta Woodisde Industries, Inc., 233 North Main
Street, Hammond Square, Suite 200, Greenville, South Carolina
29601. Each such person is a citizen of the United States.
There are no family relationships among the directors and the
executive officers of the Company or Delta Woodside.
Name and Age Position With the Company Director Since(9)
E. Erwin Maddrey, II (57) President and Chief Executive Officer
of the Company and Delta Woodside
(1) 1984
Bettis C. Rainsford (47) Executive Vice President, Chief
FinancialOfficer and Treasurer
of the Company and Delta Woodside (2) 1984
C.C. Guy (65) Director of the Company and Delta
Woodside (3) 1984
Buck A. Mickel (42) Director of the Company and Delta
Woodside (4) 1984
Jane H. Greer (60) Vice President and Secretary of
the Company and Delta Woodside (5)
Robert W. Humphreys (41) Vice President-Finance and
Assistant Secretary of the
Company and Delta Woodside (6)
Douglas J. Stevens (65) Vice President-International of the
Company and Delta Woodside (7)
Brenda L. Jones (53) Assistant Secretary of the Company
and Delta Woodside (8)
(1) E. Erwin Maddrey, II was President and Chief Executive Officer of
Delta Woodside's predecessor by merger Delta Woodside
Industries, Inc., a Delaware Corporation ("Old Delta Woodside")
or its predecessors from the founding of Old Delta Woodside's
predecessors in 1984 until the November 15, 1989 merger of Old
Delta Woodside into RSI Corporation, a South Carolina
corporation, which changed its name to Delta Woodside
Industries, Inc. and is now Delta Woodside (the "RSI Merger"),
and he has served in such positions with Delta Woodside and the
Company since the RSI Merger.
He also serves as a director of Kemet Corporation and Delta
Woodside.
(2) Bettis C. Rainsford was Executive Vice President and
Chief Financial Officer of Old Delta Woodside or its
predecessors from the founding of Old Delta Woodside's
predecessors in 1984 until the RSI Merger and has served
in such positions with Delta Woodside and the Company since
the RSI Merger. Mr. Rainsford has served as Treasurer of Old
Delta Woodside or its predecessors or Delta Woodside and the
Company from 1984 to 1986, from August 1988 to November 1988
and from 1990 to the present. He is also President of The
Rainsford Development Corporation which is engaged in general
business development activities in Edgefield, South Carolina.
Mr. Rainsford also serves as a director of Martin Color-Fi,
Inc. and Delta Woodside.
Item 10. (Continued)
(3) C. C. Guy is a retired businessman. He served as Chairman of the
Board of Old Delta Woodside or its predecessors from the
founding of Old Delta Woodside's predecessors in 1984 until
November 1989. Since before the RSI Merger, he has been a
director of RSI Holdings, Inc., and he also served as President
of RSI Holdings, Inc. from before the RSI Merger until January
1995. RSI Holdings, Inc. until 1992 was engaged in the sale of
outdoor power equipment, until 1994 was engaged in the sale of
turf care products and currently is engaged in the consumer
finance business. Prior to November 15, 1989, RSI Holdings,
Inc. was a subsidiary of RSI Corporation. Mr. Guy served from
1979 until November 1989 as President, Treasurer and a director
of RSI Corporation. Prior to the RSI Merger, RSI Corporation
owned approximately 40% of the outstanding shares of common
stock of Old Delta Woodside and, among other matters, was
engaged in the office supply business, as well as the
businesses of selling outdoor power equipment and turf care
products. Mr. Guy also serves as a director of Delta Woodside.
(4) Buck A. Mickel is President and Chief Executive Officer
and a Director of RSI Holdings, Inc. He served as a Vice
President of Old Delta Woodside or its predecessors from the
founding of Old Delta Woodside's predecessors until November
1989, Secretary of Old Delta Woodside from November 1986 to
March 1987, and Assistant Secretary of Old Delta Woodside from
March 1987 to November 1988. He served as Vice President and a
director of RSI Holdings, Inc. from before the RSI Merger until
January 1995 and as Vice President of RSI Holdings, Inc. from
September 1996 until July 1998, when he assumed his current
positions. He served as Vice President of RSI Corporation from
1983 until November 1989. He also serves as a director of
Delta Woodside.
(5) Jane H. Greer became associated with Old Delta
Woodside's predecessors in July 1986, and was elected a Vice
President of Old Delta Woodside in November 1986, in charge of
human resources and other related areas, Assistant Secretary of
Old Delta Woodside in November 1987 and Secretary of Old Delta
Woodside in August 1988. She became Vice President and
Secretary of Delta Woodside and the Company on November 15,
1989.
(6) Robert W. Humphreys was elected Vice President-
Finance and Assistant Secretary of Delta Woodside and the
Company in May 1998. From January 1987 to May 1998, Mr.
Humphreys was President of Stevcoknit Fabrics Company, a
division of the Company.
(7) Douglas J. Stevens was elected Vice President-
International of Delta Woodside and the Company in May 1998.
Mr. Stevens was Controller and Assistant Secretary of Delta
Woodside and the Company effective August and September 1992
until May 1998. From February 1991 to August 1992, Mr. Stevens
was Vice President of Finance and Administration for Duck Head
Apparel Company, a division of a subsidiary of Delta Woodside.
(8) Brenda L. Jones was elected Assistant Secretary of Old
Delta
Woodside in November 1988. She became Assistant Secretary of
Delta Woodside and the Company on November 15, 1989. Since
July 1987, she has been Vice President and Chief Financial
Officer of The Rainsford Development Corporation, a corporation
wholly owned by Bettis C. Rainsford which is engaged in general
business development activities.
(9) Includes service as a director of Delta Woodside, Old
Delta Woodside or any predecessor to Old Delta Woodside.
The Company's directors hold office until the next annual
meeting of the Company's shareholder or until their successors
are duly elected and qualified. The Company's executive
officers are appointed by the Board of Directors and serve at
the pleasure of the Board.
SECTION 16(a) BENEFICIAL OWERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, E. Erwin Maddrey, II filed a form to report
one transaction in the Delta Woodside common stock that should
have been reported on an earlier form, Bettis C. Rainsford
filed a form to report one transaction in the Delta Woodside
common stock that should have been reported earlier on a form
that was not filed, Brenda L. Jones filed one late report with
respect to two transactions in the Delta Wooside common stock,
and Robert W. Humphreys filed late a form reporting his initial
ownership of Delta Woodside common stock at the time he became
subject to Section 16(a).
Item 11. EXECUTIVE COMPENSATION
Each of the executive officers of the Company serves in the
same position
for Delta Woodside and various of Delta Woodside's direct and
indirect subsidiaries and is compensated by Delta Woodside. On
an ongoing basis the Company reimburses Delta Woodside for
services provided to it by its executive officers. This
arrangement was formalized in a management services agreement
in August 1997. See Item 13. Certain Relationships and
Related Party Transactions. The following provides information
respecting the compensation received by the Company's executive
officers in all capacities for Delta Woodside and its direct
and indirect subsidiaries (including the Company) in fiscal
years 1996, 1997 and 1998. A portion of these amounts was
borne by the Company. See Item 13. Certain Relationships and
Related Party Transactions.
Summary Compensation Table
The following table sets forth certain information respecting
the compensation earned by the Chief Executive Officer, the
Chief Financial Officer, and the other three executive officers
who earned salary and bonus
in fiscal 1998 in excess of $100,000 (the "Named
Executives") for the fiscal years ended June 27, 1998,
June 28, 1997 and June 29, 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Awards All
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Options sation
Principal Position Year ($)(a) ($)(a)(b) ($)(c) (#)(d ($)
E.Erwin Maddrey,II, 1998 500,000 108,243 20,127 20,000(g) 36,563(k)(p)(q)
President & Chief 1997 500,000 0 0 0 36,905
Executive Officer 1996 500,000 0 0 0 47,571
Bettis C. Rainsford, 1998 450,000(f) 86,579 16,102 16,000(h) 16,012(l)(p)(q)
Executive VP, CFO, 1997 450,000(f) 0 0 0 15,621
& Treasurer 1996 450,000(f) 0 0 0 15,074
Jane H. Greer, 1998 173,500 64,915 10,538 0 1,893 (m)(q)
Vice President 1997 144,308 63,000 11,080 15,000(i) 1,313
& Secretary 1996 138,769 18,000 7,567 22,500(i) 878
Robert Humphreys, 1998 192,116 16,231 10,538 0 52,616(n)(q)
VP-Finance &
Asst. Secretary (e)
Douglas J. Stevens, 1998 143,904 64,915 10,538 21,000(j) 3,184(o)(q)
Vice President- 1997 134,000 63,000 11,080 19,000(j) 1,008
International 1996 126,923 18,000 6,229 7,500(j) 1,723
(a) The amounts shown in the column include sums the receipt
of which has been deferred pursuant to Delta Woodside's Savings and
Investment Plan (the "401(k) Plan") or Delta Woodside's
deferred compensation plan.
(b) Amounts in this column are cash bonuses paid to reward performance.
Item 11. (Continued)
(c) The amounts in this column were paid by Delta Woodside in
connection
with the vesting of awards under Delta Woodside's Incentive
Stock Award Plan and were in each case approximately
sufficient, after the payment of all applicable income taxes,
to pay the participant's federal and state income taxes
attributable to the vesting of the award.
(d) For purposes of this table, awards under Delta Woodside's
Incentive
Stock Award Plan are treated as options.
(e) Mr. Humphreys was elected Vice President-Finance and
Assistant Secretary of Delta Woodside and the Company in May
1998. The information in the table includes Mr. Humphreys'
compensation for all of fiscal 1998.
(f) Of this amount $150,000 was paid to The Rainsford
Development
Corporation, a company wholly owned by Mr. Rainsford.
(g) During fiscal 1998, Mr. Maddrey was granted an award
covering 20,000
shares under Delta Woodside's Incentive Stock Award Plan.
(h) During fiscal 1998, Mr. Rainsford was granted an award
covering
16,000 shares under Delta Woodside's Incentive Stock Award
Plan.
(i) During fiscal 1997, Ms. Greer was granted an award
covering 15,000
shares under Delta Woodside's Incentive Stock Award Plan.
During fiscal 1996, Ms. Greer was granted an option covering
22,500 shares under Delta Woodside's Stock Option Plan.
(j) During fiscal 1998, Mr. Stevens was granted options
covering 21,000 shares under Delta Woodside's Stock Option
Plan. During fiscal 1997, Mr. Stevens was granted an award
covering 15,000 shares under Delta Woodside's Incentive Stock
Award Plan and was granted an option covering 4,000 shares
under Delta Woodside's Stock Option Plan. During fiscal 1996,
Mr. Stevens was granted an option covering 7,500 shares under
Delta Woodside's Stock Option Plan.
(k) The fiscal 1998 amount represents $33,825 premium paid by
Delta Woodside for $10 million of life insurance on the life of
Mr. Maddrey, $793 allocated to Mr. Maddrey's account in the
401(k) Plan, $1,686 contributed by Delta Woodside to Delta
Woodside's deferred compensation plan as payment for the amount
of Delta Woodside contributions to the 401(k) Plan for fiscal
year 1997 that were not made for Mr. Maddrey because of
Internal Revenue Code contribution limitations, and $259 earned
on Mr. Maddrey's deferred compensation at a rate in excess of
120% of the Federal mid-term rate.
(l) The fiscal 1998 amount represents $14,525
premium paid by Delta Woodside for $10 million of life insurance on
the life of Mr. Rainsford,
$793 allocated to Mr. Rainsford's account in the 401(k) Plan
and $694 contributed by the Company to Delta Woodside's
deferred compensation plan as payment for the amount of Delta
Woodside contributions to the 401(k) Plan for fiscal year 1997
that were not made for Mr. Rainsford because of Internal
Revenue Code contribution limitations.
(m) Of the fiscal 1998 amount, $793 was allocated to Ms.
Greer's account
in the 401(k) Plan, $11 was contributed by the Delta Woodside
to Delta Woodside's deferred compensation plan as payment for
the amount of Delta Woodside contributions to the 401(k) Plan
for fiscal year 1997 that were not made for Ms. Greer because
of Internal Revenue Code contribution limitations, $1,026 was
contributed by Delta Woodside to the 401(k) Plan for Ms. Greer
with respect to her compensation deferred under the 401(k)
Plan, and $63 was earned on Ms. Greer's deferred compensation
at a rate in excess of 120% of the Federal mid-term rate.
Item 11. (Continued)
(n) The fiscal 1998 amount represents $793 allocated to Mr.
Humphreys'
account in the 401(k) Plan, $230 contributed by Delta Woodside
to Delta Woodside's deferred compensation plan as payment for
the amount of Delta Woodside contributions to the 401(k) Plan
for fiscal year 1997 that were not made for Mr. Humphreys
because of Internal Revenue Code contribution limitations, $828
contributed by Delta Woodside to the 401(k) Plan for Mr.
Humphreys with respect to his compensation deferred under the
401(k) Plan, $50,000 received as a bonus relating to a special
project while President of Stevcoknit, and $765 earned on Mr.
Humphreys' deferred compensation at a rate in excess of 120% of
the Federal mid-term rate.
(o) Of the fiscal 1998 amount, $690 was allocated to Mr.
Stevens' account in the 401(k) Plan, $65 was contributed by
Delta Woodside to Delta Woodside's deferred compensation plan
as payment for the amount of Delta Woodside contributions to
the 401(k) Plan for fiscal year 1997 that were
not made for Mr. Stevens because of Internal Revenue Code
contribution limitations, $603 was contributed by Delta
Woodside to Delta Woodside's 401(k) Plan for Mr. Stevens with
respect to his compensation deferred under the 401(k) Plan, and
$1,826 was earned on Mr. Stevens' deferred compensation at a
rate in excess of 120% of the Federal mid-term rate.
(p) Delta Woodside pays the premiums due for life insurance
policies
that total $10 million on each of the life of Mr. Maddrey and
the life of Mr. Rainsford. The proceeds of these policies are
payable to the beneficiary or beneficiaries chosen by Mr.
Maddrey or Mr. Rainsford, as the case may be.
(q) The 401(k) Plan allocation shown for the fiscal year was
allocated
to the participant's account during that fiscal year, although
all or part of the allocation may have been determined in whole
or in part on the basis of the participant's compensation
during the prior fiscal year.
The amounts shown in the table above do not include
reimbursement by Delta Woodside or its subsidiaries for certain
automobile expenses, club memberships and other items. The non-
business personal benefit to any Named Executive of these
amounts does not exceed 10% of the Named Executive's total
salary and bonus.
Option Grants in the Last Fiscal Year
The following table provides certain information respecting the
grant to
any Named Executive during fiscal 1998 of awards under Delta
Woodside's Incentive Stock Award Plan or options under Delta
Woodside's Stock Option Plan. For purposes of
this table, awards under Delta Woodside's Incentive
Stock Award Plan are treated as options.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
Number of Annual Rates
Securities % of Total Market of Stock Price
Underlying Options Exercise Price on Appreciation
Options Granted To or Base Date of for Option Term (c)
Granted Employees in Price Grant Expiration 0% 5% 10%
Name (#) Fiscal Year ($/Sh) ($/Sh) Date ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Erwin
Maddrey, II 20,000(a) 9.00 0.01 4.875 9/30/99(a) 97,300 103,455 109,731
Bettis C.
Rainsford 16,000(a) 7.20 0.01 4.875 9/30/99(a) 77,840 82,764 87,785
Douglas J.
Stevens 11,000(b) 4.95 2.59375 5.1875 12/12/02(b) 28,531 44,297 63,368
10,000(b) 4.50 2.93750 5.8750 4/14/03(b) 29,375 45,607 65,242
(a) These represent shares covered by an award granted during fiscal
1998 under Delta Woodside's Incentive Stock Award Plan,
pursuant to which a participant can acquire shares of
Delta Woodside's common stock for $0.01 cash per share
upon the vesting of the award respecting such shares.
Each grant of an award under the plan sets forth the
circumstances under which all or part of the award will
vest. These circumstances may include (i) the
participant being an employee of Delta Woodside or any
subsidiary on one or more specified dates and (ii) such
additional circumstances (which may include, in the case
of
certain shares covered by an award, Delta Woodside or a
division of Delta Woodside having met certain performance
criteria) as may be set
forth in the award. The vesting circumstances may vary
among the shares covered by an award. The part, if any,
of an award that does not vest is forfeited. In
connection with the vesting of any award, Delta Woodside
pays the participant cash in an amount approximately
sufficient, after the payment of all applicable income
taxes, to pay the participant's federal and state income
taxes attributable to the vesting of the award. The
expiration date set forth in the table is the last award
vesting date for any portion of the award, because in
certain circumstances all or part of the award, if not
vested, would have been forfeited by or on that date. As
to any vested portion, the award does not technically have
any expiration date.
On June 27, 1998, a portion of each award covering 5,000
shares to Mr. Maddrey and 4,000 shares to Mr. Rainsford
vested by reason of the participant being in Delta
Woodside's employ at that date. Each award provides that
a portion of the award covering 5,000 shares and 4,000
shares, respectively, will vest on July 3, 1999, providing
that the participant is an employee of Delta Woodside on
that date. The portion of each award covering the
remaining 10,000 shares and 8,000 shares, respectively,
will vest on or about September 30, 1999, providing that
the participant is an employee of Delta Woodside on that
date and Delta Woodside has achieved a specified level of
cumulative operating earnings through July 3, 1999. A
portion of these awards will vest if the participant's
employment terminates early by reason of death, retirement
or permanent disability.
(b) These represent shares covered by an option granted
during fiscal 1998 under Delta Woodside's Stock Option
Plan, pursuant to which a participant is granted the right
to acquire shares of Delta Woodside's Common Stock for an
exercise price per share which will be not less than one-
half of the fair market value on the date of the grant.
Each option granted under the plan sets forth the
circumstances under which all or part of the option can be
exercised. The expiration date set forth in the table is
the termination date for the option.
The option granted to Mr. Stevens on December 12, 1997 will
become exercisable with respect to 25% of the shares
covered by the option on December 12, 1998, and with
respect to an additional 25% of the shares covered by the
option on each anniversary of December 12, 1998, and the
option granted to Mr. Stevens on April 14, 1998 will
become exercisable with respect to 25% of the shares
covered by the option on April 14, 1999, and with respect
to an additional 25% of the shares covered by the option
on each anniversary of April 14, 1999, provided that he is
an employee of Delta Woodside on each of the relevant
dates. Additional terms and conditions are set forth in
the option relating to the exercise of options if Mr.
Stevens' employment terminates early by reason of death,
retirement or permanent disability.
(c) Based on annual compounding of assumed appreciation rate until
termination date.
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-
End Option Values
The following table provides certain information respecting the exercise
by any Named Executive during fiscal 1998 of awards granted
under Delta Woodside's Incentive Stock Award Plan and options
granted under Delta Woodside's Stock Option Plan. For purposes
of this table, awards under Delta Woodside's Incentive Stock
Award Plan are treated as options.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at FY-End at FY-End
on Exercise Realized (#) ($) (a)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
E. Erwin
Maddrey,II 5,000 24,325 0 15,000 0 72,975
Bettis C.
Rainsford 4,000 19,460 0 12,000 0 58,380
Jane H.
Greer 3,000 14,595 11,250 20,250 16,875 60,660
Robert W.
Humphreys 3,000 14,595 11,250 20,250 16,875 60,660
Douglas J.
Stevens 3,000 14,595 4,750 36,750 7,250 98,754
(a) Based on the closing sales price of $4.875 per share on
June 26, 1998.
</TABLE>
Director Compensation
Delta Woodside pays each director who is not an officer of
Delta Woodside a fee of $20,000 per year, plus provides
approximately $10,000 annually for
each such director with which shares of Delta Woodside's common
stock are purchased. These shares may be newly issued or
acquired in the open market for such purpose. Each director is
also reimbursed for his reasonable travel expenses in attending
each meeting. Commencing in October 1997, each non-officer
director is paid $500 ($750 for the committee chair) for each
committee meeting attended and $250 for each telephonic
committee meeting in which the director participates.
Beginning in fiscal 1998, the non-employee directors of Delta
Woodside are eligible to participate in the Long Term Incentive
Plan. Participants are selected by the Long Term Plan
Committee, which includes those members of Delta Woodside's
Compensation Committee who are "outside directors" (as that
term is defined for purposes of Section 162(m) of the Internal
Revenue Code or any successor provision). The Long Term Plan
Committee has the discretion to grant awards under the plan
that, based on a performance period of at least three years,
translate into options for Delta Woodside's common stock. No
grants were made under the Long Term Incentive Plan in fiscal
1998 to the non-employee directors.
Delta Woodside has established the Directors' Charitable
Giving Program covering each director of Delta Woodside. Under
the program, after the death of a director, Delta Woodside will
make an aggregate donation of $500,000, to be paid in 10 annual
installments commencing no later than six months after the
director's death, to one or more charitable organizations
selected by such director. With respect to Max Lennon, E.
Erwin Maddrey, II and Bettis C. Rainsford, the program will be
funded by life insurance policies owned and to be paid for by
the Company on the lives of such directors.
Item 11. (Continued)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation Committee of
Delta Woodside's Board of Directors during fiscal 1998: C.C.
Guy, Dr. James F. Kane, Dr. Max Lennon and Buck A. Mickel.
Until his death in July 1998, Buck Mickel, a director of Delta
Woodside, served as Chairman of the Compensation Committee.
C. C. Guy served as Chairman of the Board of Old Delta
Woodside or its predecessors from the founding of Old Delta
Woodside's predecessors in 1984 until November 1989. Buck A.
Mickel was a Vice President of Old Delta Woodside or its
predecessors from the founding of Old Delta Woodside's
predecessors until November 1989, Secretary of Old Delta
Woodside from November 1986 to March 1987, and Assistant
Secretary of Old Delta Woodside from March 1987 to November
1988.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
September 18, 1998, regarding the beneficial ownership of Delta
Woodside's common stock by (i) persons beneficially owning in
any case more than five percent of such common stock, (ii) the
directors of Delta Woodside, (iii) the executive officers of
Delta Woodside and (iv) all directors and executive officers of
Delta Woodside as a group. The Company is a wholly-owned
indirect subsidiary of Delta Woodside. Unless otherwise noted
in the notes to the table, the Company believes that the
persons named in the table have sole voting and investment
power with respect to all shares of common stock of Delta
Woodside shown as beneficially owned by them.
Shares
Beneficially
Beneficial Owner Owned Percentage
Reich & Tang Asset Management L. P. (1) 2,518,900 10.22%
600 Fifth Avenue
New York, New York 10020
Franklin Resources, Inc. (2) 2,400,000 9.73%
Franklin Advisory Services, Inc.
Charles B. Johnson
Rupert H.
Johnson, Jr.
777 Mariners
Island Boulevard
San Mateo,
California 94404
Dimensional Fund Advisors Inc. (3) 1,298,120 5.26%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
E. Erwin Maddrey, II (4) 3,253,422 13.2%
233 North Main Street
Hammond Square, Suite 200
Greenville, SC 29601
Bettis C. Rainsford (5) 3,185,097 13.0%
108-1/2 Courthouse Square
Post Office Box 388
Edgefield, SC 29824
Buck A. Mickel (6) (7) (20) 1,568,710 6.4%
Post Office Box 6721
Greenville, SC 29606
Micco Corporation (7) 1,240,634 5.0%
Post Office Box 795
Greenville, SC 29602
Minor H. Mickel(7) (8) 1,565,238 6.3%
415 Crescent Avenue
Greenville, SC 29605
Minor M. Shaw (7) (9) 1,520,086 6.2%
Post Office Box 795
Greenville, SC 29602
Charles C. Mickel (7) (10) 1,496,944 6.1%
Post Office Box 6721
Greenville, SC 29606
C. C. Guy (11) (20) 19,368 (19)
James F. Kane (12) (20) 11,864 (19)
Max Lennon (13) (20) 9,839 (19)
Jane H. Greer (14) 44,494 (19)
Robert W. Humphreys (15) 23,983 (19)
Douglas J. Stevens (16) 18,197 (19)
Brenda L. Jones (17) 1,426 (19)
All directors and executive officers
as a group (10 Persons) (18) 8,136,400 32.9%
(1) In an amendment dated March 16, 1998, to Schedule 13G,
Reich & Tang Asset Management L. P. ("Reich & Tang") reported
that it has shared voting power and shared dispositive power
with respect to all of the shares shown. The Schedule 13G
reported that the shares are held on behalf of certain accounts
for which Reich & Tang provides investment advice on a fully
discretionary basis. The Schedule 13G reported that none of
such accounts has an interest with respect to more than 5% of
the outstanding shares of common stock.
(2) In an amendment dated January 16, 1998, to Schedule 13G,
Franklin Resources, Inc. ("FRI") reported that the shares shown
in the table above are beneficially owned by one or more
investment companies or other managed accounts that are advised
by one or more direct and indirect investment advisory
subsidiaries of FRI. The Schedule 13G reported that the
investment advisory subsidiary(ies) have investment and/or
voting power over the securities owned by their investment
advisory clients. Accordingly, such subsidiary(ies) may be
deemed to be the beneficial owner of the shares shown in the
table. The Schedule 13G reported that Charles B. Johnson and
Rupert H. Johnson, Jr. (the "FRI Principal Shareholders") (each
of whom has the same business address as FRI) each own in
excess of 10% of the outstanding common stock and are the
principal shareholders of FRI and may be deemed to be the
beneficial owners of securities held by persons and entities
advised by FRI subsidiaries. The Schedule 13G reported that
one of the investment advisory subsidiaries, Franklin Advisory
Services, Inc. (whose address is One Parker Place, Sixteenth
Floor, Fort Lee, New Jersey 07024), has sole voting and
dispositive power with respect to all of the shares shown.
FRI, the FRI Principal Shareholders and the investment advisory
subsidiaries disclaim any economic interest or beneficial
ownership in the shares shown in the table above and are of the
view that they are not acting as a "group" for purposes of
Securities Exchange Act of 1934, as amended.
(3) In a Schedule 13G filed with the Securities and Exchange
Commission in February 1998, Dimensional Fund Advisors Inc.
("Dimensional") reported
that it has sole voting power with respect to 858,420 of the
shares shown, and sole dispositive power with respect to all of
the shares shown. The Schedule 13G reported that persons who
are officers of Dimensional also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund"), and The DFA
Investment Trust Company (the "Trust"), each an open-end
management investment company, and that in their capacities as
officers of the Fund and the Trust, these persons vote 146,100
shares owned by the Fund and 293,600 shares owned by the Trust
(which shares are included in the number of shares shown in the
table above). The Schedule 13G reports that all shares shown
are owned by advisory clients of Dimensional, and that, to the
knowledge of Dimensional, no such client has an interest with
respect to more than 5% of the outstanding shares of common
stock. Dimensional disclaims beneficial ownership of all such
shares.
(4) Mr. Maddrey is the President and Chief Executive Officer
and a director of Delta Woodside and the Company. The number
of shares shown as beneficially owned by Mr. Maddrey includes
approximately 28,023 shares allocated to Mr. Maddrey's account
in Delta Woodside's Employee Stock Purchase Plan, 431,470
shares held
Item 12. (Continued)
by the E. Erwin and Nancy B. Maddrey, II Foundation, a
charitable trust, as to which shares Mr. Maddrey holds sole
voting and investment power but disclaims beneficial ownership,
and approximately 1,074 shares allocated to the account of Mr.
Maddrey in Delta Woodside's Savings and Investment Plan (the
"401(k) Plan"). Mr. Maddrey is fully vested in the shares
allocated to his account in the 401(k) Plan. Excluded from the
table are 15,000 unissued shares covered by awards that are not
exercisable within 60 days of September 18, 1998.
(5) Mr. Rainsford is the Executive Vice President, Treasurer
and Chief Financial Officer and a director of Delta Woodside
and the Company. The number of shares shown as beneficially
owned by Mr. Rainsford includes 47,945 shares held by The
Edgefield County Foundation, a charitable trust, as to which
shares Mr. Rainsford holds sole voting and investment power but
disclaims beneficial ownership, and approximately 167 shares
allocated to the account of Mr. Rainsford in the 401(k) Plan.
Mr. Rainsford is fully vested in the shares allocated to his
account in the 401(k) Plan. Excluded from the table are 12,000
unissued shares covered by awards that are not exercisable
within 60 days after September 18, 1998.
(6) Buck A. Mickel is a director of Delta Woodside and the
Company. The
number of shares shown as beneficially owned by Buck A. Mickel
includes 327,076 shares directly owned by him, all of the
1,240,634 shares owned by Micco Corporation, and 1,000 shares
held by him as custodian for a minor. See Note (7).
(7) The shares of common stock of Micco Corporation are
owned in equal parts by Minor H. Mickel, Buck A. Mickel (a
director of Delta Woodside and the Company), Minor M. Shaw and
Charles C. Mickel. Buck A. Mickel, Minor M. Shaw and Charles
C. Mickel are the children of Minor H. Mickel. Minor H. Mickel,
Buck A. Mickel, Minor M. Shaw and Charles C. Mickel are
officers and directors of Micco Corporation. Each of Minor H.
Mickel, Buck A. Mickel, Minor M. Shaw and Charles C. Mickel
disclaims beneficial ownership of three-quarters of the shares
of Delta Woodside's common stock owned by Micco Corporation.
Minor H. Mickel directly owns 116,854 shares of Delta
Woodside's common stock and as personal representative of her
husband's estate owns 207,750 shares of Delta Woodside's common
stock. Buck A. Mickel directly or as custodian for a minor
owns 328,076 shares of Delta Woodside's common stock. Charles
C. Mickel, directly or as custodian for his children, owns
256,210 shares of Delta Woodside's common stock. Minor M.
Shaw, directly or as custodian for her children, owns 264,978
shares of Delta Woodside's common stock. Minor M. Shaw's
husband, through an individual retirement account and as
custodian for their children, beneficially owns approximately
14,474 shares of Delta Woodside's common
stock, as to which shares Minor M. Shaw may also be deemed a
beneficial owner. Minor M. Shaw disclaims beneficial ownership
with respect to these shares and with respect to the 2,748
shares of Delta Woodside's common stock held by her as
custodian for her children. The spouse of Charles C. Mickel
owns 100 shares of Delta Woodside's common stock, as to which
shares Charles C. Mickel may also be deemed a beneficial owner.
Charles C. Mickel disclaims beneficial ownership with respect
to these shares and with respect to the 3,510 shares of Delta
Woodside's common stock held by him as custodian for his
children. Micco Corporation owns 1,240,634 shares of Delta
Woodside's common stock.
(8) The number of shares shown as beneficially owned by
Minor H. Mickel includes 116,854 shares directly owned by her,
207,750 shares owned by her as personal representative of her
husband's estate and all of the 1,240,634 shares owned by Micco
Corporation. See Note (7).
(9) The number of shares shown as beneficially owned by Minor
M. Shaw
includes 264,978 shares owned by her directly or as custodian
for her children, approximately 14,474 shares beneficially
owned by her husband through an individual retirement account
or as custodian for their children, and all of the 1,240,634
shares owned by Micco Corporation. See Note (7).
(10) The number of shares shown as beneficially owned by
Charles C. Mickel includes 256,210 shares owned by him directly
or as custodian for his children, 100 shares owned by his wife
and all of the 1,240,634 shares owned by Micco Corporation.
See Note (7).
(11) C. C. Guy is a director of Delta Woodside and the
Company. The number of shares shown as beneficially owned by
C. C. Guy includes 18,968 shares owned by his wife, as to which
shares Mr. Guy disclaims beneficial ownership.
Item 12. (Continued)
(12) Dr. Kane is a director of Delta Woodside. The shares
shown as beneficially owned by him are held in a Keogh account
or an IRA account.
(13) Dr. Lennon is a director of Delta Woodside.
(14) Ms. Greer is Vice President and Secretary of
Delta Woodside and the Company. The number of shares shown as
beneficially owned by Ms. Greer
includes approximately 1,214 shares allocated to her account in
the 401(k) Plan. Ms. Greer is fully vested in the shares
allocated to her account in the 401(k) Plan. Also included are
11,250 unissued shares that can be acquired by the exercise of
options exercisable within 60 days of September 18, 1998, but
excluded from the table are 28,875 unissued shares covered by
options and awards that are not exercisable within 60 days
after September 18, 1998.
(15) Mr. Humphreys is Vice President-Finance and Assistant
Secretary of Delta Woodside and the Company. The number of
shares shown as beneficially owned by Mr. Humphreys includes
approximately 1,138 shares allocated to his account in the
401(k) Plan. Mr. Humphreys is fully vested in the shares
allocated to his account. Also included are approximately
1,596 shares allocated to Mr. Humphreys' account in Delta
Woodside's Employee Stock Purchase Plan and 11,250 unissued
shares that can be acquired by the exercise of options
exercisable within 60 days of September 18, 1998, but excluded
from the table are 20,250 unissued shares covered by options
and awards that are not exercisable within 60 days after
September 18, 1998.
(16) Mr. Stevens is Vice President-International of Delta
Woodside and
the Company. The number of shares shown as beneficially owned
by Mr. Stevens includes approximately 323 shares allocated to
his account in the 401(k) Plan. Mr. Stevens is fully vested in
the shares allocated to his account in the 401(k) Plan. Also
included are 4,750 unissued shares that
can be acquired by the exercise of options exercisable within
60 days of September 18, 1998, but excluded are 24,000 unissued
shares covered by options and awards that are not exercisable
within 60 days after September 18, 1998.
(17) Ms. Jones is Assistant Secretary of Delta Woodside and
the Company.
The number of shares shown as beneficially owned by Ms. Jones
includes approximately 201 shares allocated to her account in
the 401(k) Plan. Ms. Jones is fully vested in the shares
allocated to her account in the 401(k) Plan. Excluded from the
table are 1,975 unissued shares covered by options and awards
that are not exercisable within 60 days after September 18,
1998.
(18) Includes all shares deemed to be beneficially owned by
any director
or executive officer of Delta Woodside. Includes 4,116 shares
of Delta Woodside's common stock held for the executive
officers on the September 18, 1998 record date for the Annual
Meeting of the shareholders of Delta Woodside by the 401(k)
Plan. Each participant in the 401(k) Plan has the right to
direct the manner in which the trustee of the Plan votes the
shares held by the 401(k) Plan that are allocated to such
participant's account. Except for shares as to which such a
direction is made, the shares held by the 401(k) Plan will not
be voted. The number of shares shown in the table includes an
aggregate of 27,250 non-issued shares subject to employee stock
options held by executive officers that are exercisable within
60 days or less, but excludes 54,600 non-issued shares subject
to employee stock options and awards held by executive officers
that are not exercisable within 60 days.
(19) Less than one percent.
(20) The number of shares shown in the table excludes the
shares with approximate value of $10,000 per person acquired on
September 30, 1998, as described in "Item 11. Executive
Compensation under the subheading "Director Compensation."
."
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Rainsford Yarn Plant of the Company sells yarn to the
subsidiary of Delta Woodside that manufactures and sells
apparel. During fiscal years 1996, 1997, and 1998 these sales
of yarn aggregated $23,363,000, $22,015,000 and $17,687,000,
respectively. The Company's Stevcoknit Fabric's operation (now
discontinued) also sold knit fabric to such subsidiary of Delta
Woodside during fiscal years 1996,1997, and 1998.
These sales aggregated $2,237,000, $7,855,000, and $3,976,000,
respectively. During these periods until the end of March 1997,
all such yarn sales were at a price equal to cost plus $0.01
per pound. All such fabric sales, and all yarn sales made
since March 1997, were and have been made at prices deemed by
the Company and Delta Woodside to approximate market value. In
connection with the foregoing pricing policies on yarn sales,
through March 1997 the apparel manufacturing subsidiary of
Delta Woodside also maintained with the knitted fabrics
division a non-interest bearing deposit which aggregated $11.2
million at June 29,1996. Effective May 7, 1997, Delta Woodside
adopted a written policy statement governing the pricing of
inter-company transactions. Among other things, such policy
statement provides that all inter-company sales and purchases
will be settled at market value and terms.
Delta Woodside provides various services to the Company,
including payroll, accounting, internal audit, employee
benefits and services. These services have been charged on the
basis of Delta Woodside's cost and allocated to the Company
based on employee headcount, computer time, projected sales and
other criteria. During fiscal years 1996, 1997, and 1998,
Delta Woodside charged the Company $3,123,000, $3,302,000, and
$2,838,000, respectively, for these services. Effective August
1, 1997, the Company and Delta Woodside entered into a
management services agreement that governs the use by the
Company of and the method of charging the Company for the
services to be provided by Delta Woodside to the Company on an
ongoing basis. Such management services agreement provides,
among other things, that the Company may request that Delta
Woodside provide such executive, administrative, accounting and
similar services as may be necessary and appropriate for the
operation of the Company. The management services agreement
further provides that Delta Woodside shall provide such
services for a fee no greater than the lesser of: (a) the cost
to the Company of obtaining such services from a unaffiliated
third party in an arm's length transaction or (b) Delta
Woodside's pro rata share of Delta Woodside's actual cost or
expense incurred in connection with providing such services
(including a reasonable allocation of overhead and other
unallocated corporate cost) with such pro rata share to be
determined reasonably and in good faith by Delta Woodside in
accordance with the following formulas: in the case of
benefits, administration and payroll cost and expenses based
upon the average number of employees of the Company during the
immediately preceding four full fiscal quarters for which
internal statements are available (the "Statement Period") as
compared to the average number of employees of the Delta
Woodside Group during the Statement Period; in the case of
computer services based upon the number of computer processing
units attributable to the Company during the Statement Period
as compared to the total number of computer processing units of
the Delta Woodside Group during the Statement Period; in the
case of purchasing cost and expenses based upon the number of
purchase orders attributable to the Company during the
Statement Period as compared to the total number of purchase
orders of the Delta Woodside Group during the Statement Period;
in the case of expenses related to cotton buying services based
upon the number of cotton orders entered into by or on behalf
of the Company for the Statement Period as compared to the
total number of cotton orders of the Delta Woodside Group for
the Statement Period; in the case of accounting, tax, and
internal audit cost and expenses based upon the amount of the
bill of Delta Woodside's external auditors for the Statement
Period attributable to work related to the Company, as compared
to the total bill of Delta Woodside's external auditors for the
Statement Period; and in the case of cost and expenses for all
other services based upon the total of Delta Woodside's
revenues for the Statement Period as compared to revenues of
the consolidated Delta Woodside Group for the Statement Period.
The management services agreement further provides that letter
of credit or surety bond issuer fees and expenses incurred in
connection with workers compensation requirements will be borne
by the Company in accordance with its pro rata share of
applicable payroll expenses. Such management services
agreement may be terminated at any time by any party thereto
without liability, except that the Company shall pay for all
services provided up to and including the date such agreement
is terminated and all other amounts attributable to the period
prior to such termination.
Effective as of August 1, 1997 the Company and Delta
Woodside entered into an income tax sharing agreement. Such
income tax sharing agreement provides that Delta Woodside will
file consolidated federal, and may file consolidated state,
local or foreign, income tax returns covering the Company and
the other members of the Delta Woodside Group. Such income tax
sharing agreement further provides that the Company will pay to
Delta Woodside an amount on each tax due date equal to the
lesser of (a) the Company's income tax liability had the
Company filed a separate tax return for the affiliate group
(the "Subsidiary Group") consisting of the Company and
Item 13. Continued)
the Company's subsidiaries or (b) the Subsidiary Group's pro
rata share of the Delta Woodside Group's aggregate income tax
liability, calculating such pro rata share as if the members of
the Delta Woodside Group had filed separate tax returns.
However, any reduction in the amount payable by the Company
resulting from net operating losses ("NOL") generated by
another subsidiary of Delta Woodside shall be paid to Delta
Woodside when such
other subsidiary would have otherwise benefited from such NOL
if it were filing separate tax returns. The income tax sharing
agreement also provides that Delta Woodside will credit the
Company for any net loss, tax credit or refund of the
Subsidiary Group that reduces the tax liability of the Delta
Woodside Group. During fiscal year 1998 no payments were paid
by the Company to Delta Woodside pursuant to this agreement.
For further information on transactions with affiliates
by the Company, see Consolidated Statements of Cash Flows and
Notes C and E to the Consolidated Financial Statements, which
information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) Financial Statements and Financial
Statement Schedules
The response to this portion of Item 14 is set
forth on page F-2 included herein, which response is
incorporated herein by reference.
(3) Listing of Exhibits:*
3.1 Articles of Incorporation of the Company, as
amended through February 5, 1989: Incorporated
by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of RSI Corporation and
Porter Brothers, Inc., File No. 33-30247 (the
"Form S-4").
3.1.1 Articles of Amendment to Articles of Incorporation
of the Company: Incorporated by reference to
Exhibit 3.1.2 to the Form S-4.
3.1.2 Articles of Merger of Harper Brothers,Inc. into
RSI Corporation: Incorporated by reference to
Exhibit 4.1.1 to the Registration Statement of
the Company on Form S-8, File No. 33-33116 (the
"1990 Form S-8").
3.1.3 Articles of Merger of Delta Woodside Industries,
Inc., a Delaware corporation, into RSI
Corporation: Incorporated by reference to
Exhibit 4.1.2 to the 1990 Form S-8.
3.1.4 Articles of Merger of Duncan Office Supplies,
Inc., into Delta Woodside Industries, Inc.:
Incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the quarterly period
ended December 29, 1990 (the "December 1990 10-
Q").
3.1.5 Articles of Amendment to the Articles of
Incorporation of Delta Woodside Industries,
Inc., filed with the South Carolina Secretary of
State on November 15, 1991: Incorporated by
reference to Exhibit 4.6 to the Form 10-Q of the
Company for the quarterly period ended December
28, 1991.
3.2 By-laws of the Company, as amended: Incorporated
by reference to Exhibit 3.1.1 to the Form S-4.
3.2.1 Amendments to By-laws of the Company:
Incorporated by reference to Exhibit 3.2 to the December
1990 10-Q.
3.2.2 Amendment to By-laws of the Company, adopted as of
June 29, 1992: Incorporated by reference to
Exhibit 3.2.2 to the Company's Form 10-K for the
fiscal year ended June 27, 1992 (the "1992 10-
K").
4.1 See Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3,3.1.4,
3.1.5, 3.2, 3.2.1. and 3.2.2.
4.1.1 Specimen of Certificate for the Company's Common
Stock: Incorporated by reference to Exhibit 4.7
to the Company's Registration Statement on Form
S-3, File No. 3342710 (the "Form S-3").
4.2 Amended and Restated Credit Agreement dated as of
March 15, 1996 among Delta Woodside Industries,
Inc., the Lenders named therein, and
NationsBank, N.A. as Agent (with exhibits and
schedules omitted) together with forms of
Promissory Notes, Subsidiary Guaranty, Borrower
Security Agreement, Subsidiaries Security
Agreement and certain other documents:
Incorporated by reference to Exhibit 4.4 to the
Form 10-Q of the Company for the quarterly
period ended March 30, 1996. The Company agrees
to furnish supplementary to the Securities and
Exchange Commission a copy of any omitted
schedules or exhibits to such agreement upon
request of the Commission.
4.2.1 Amendment and Waiver Agreement dated as of May 20,
1996, by and among Delta Woodside Industries,
Inc., the guarantors identified on the signature
pages attached thereto and the lenders and
agents thereto: Incorporated by reference to
Exhibit 4.4.1 to the Form 8-K of the Company
with date of May 28, 1996 (the "May 1996 8-K").
The Company agrees to furnish supplementary to
the Securities and Exchange Commission a copy of
any omitted schedules or exhibits to such
agreement upon request of the Commission.
4.2.2 Pledge Agreement dated as of May 20, 1996 by and
among Delta Woodside Industries, Inc., the
guarantors from time to time party thereto and
NationsBank, N.A., in its capacity as agent for
the lenders from time to time party to the
Credit Agreement described therein:
Incorporated by reference to Exhibit 4.4.2 to
the May 1996 8-K. The Company agrees to furnish
supplementally to the Securities and Exchange
Commission a copy of any omitted schedules or
exhibits to such agreement upon request of the
Commission.
4.2.3 Second Amendment and Waiver Agreement dated as of
December 20, 1996, among Delta Woodside
Industries, Inc., the guarantors identified
as such on the signature pages attached, the
lenders and agents, together with forms of
certain real estate lien documents: Incorporated
by reference to Exhibit to the Form 10-Q of the
Company for the quarterly period ended December
28, 1996. The Company agrees to furnish
supplementary to the securities and Exchange
Commission a copy of any omitted schedules or
exhibits to such agreement upon request of the
Commission.
4.2.4 Credit Agreement dated as of August 25, 1997 among Delta
Mills, Inc., as Borrower, certain subsidiaries
of the Borrower from time to time party
thereto, as guarantors, the several lenders from
time to time party thereto,
NationsBank, N.A., as Administrative Agent, and
BNY Financial Corporation, as Collateral Agent,
together with forms of certain related
instruments, agreements and documents (excluding
schedules): Incorporated by reference to
Exhibit 4.2.4 to Form 8-K/A of the Company with
date of September 25, 1997. The Company agrees
to furnish supplementally to the Securities and
Exchange Commission a copy of any omitted
schedules to such agreement upon request of the
Commission.
4.2.5 Credit Agreement dated as of August 25, 1997 among Delta
Woodside Industries, Inc., as Borrower, certain
subsidiaries of the Borrower from time to time
party thereto, as guarantors, the several
Lenders from time to time party thereto and
NationsBank, N. A. as Agent , together with
forms of certain related instruments, agreements
and documents (excluding schedules):
Incorporated by reference to Exhibit 4.2.5 to
Form 8-K/A of the Company with date of September
25, 1997. The Company agrees to furnish
supplementally to the Securities and Exchange
Commission a copy of any omitted schedules to
such agreement upon request of the Commission.
4.2.6 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.
4.3 The Company hereby agrees to furnish to the
Commission upon request of the Commission a copy
of any instrument with respect to long-term debt
not being registered in a principal amount less
than 10% of the total assets of the Company and
its subsidiaries on a consolidated basis.
10.1 Lease, dated December 27, 1987 by and between
Hammond Square, Ltd. and the Company:
Incorporated by reference to Exhibit 10.10 to
Registration Statement No. 3322563 on Form S-4
of Delta Woodside Industries, Inc., a Delaware
corporation ("Registration Statement No. 33
22563").
10.2** Delta Woodside Deferred Compensation Plan for Key
Employees: Incorporated by reference to Exhibit
10.6 to the Form 10-Q of the Company for the
quarterly period ended December 30, 1989.
10.3** Incentive Stock Award Plan effective July 1, 1990:
Incorporated by reference to Exhibit 10.1 to the
Form 10-Q of the Company for the fiscal quarter
ended March 31, 1990.
10.3.1** 1995 Amendment to the Incentive Stock Award Plan
effective as of November 9, 1995: Incorporated
by reference to Exhibit 10.3.1 to the Form 10-Q
of the Company for the quarterly period ended
December 30, 1995 (the "December 1995 10-Q").
10.4.1** Stock Option Plan effective as of July 1, 1990:
Incorporated by reference to Exhibit 10.11 to the Company's
Form 10-K for the fiscal year ended June 30, 1990.
10.4.2** Amendment No. 1 to Stock Option Plan:
Incorporated by reference to Exhibit 10.1 to the
December 1990 10-Q.
10.4.3** Amendment to Stock Option Plan: Incorporated by
reference to Exhibit 10.9.2 to the Company's
Form 10-K for the fiscal year ended June 29,
1991 (the "1991 10-K").
10.4.4** 1995 Amendment to the Stock Option Plan effective
as of November 9, 1995: Incorporated by
reference to Exhibit 10.4.4 to the December
1995 10-Q.
10.5 Stock Transfer Restrictions and Right of First
Refusal Agreement between the Company and E.
Erwin Maddrey, II: Incorporated by reference to
Exhibit 10.2 to the December 1990 10-Q.
10.6 Stock Transfer Restrictions and Right of First
Refusal Agreement between the Company and Bettis
C. Rainsford: Incorporated by reference to
Exhibit 10.3 to the December 1990 10-Q.
10.7** Summary of Delta Woodside Industries, Inc.,
Director Charitable Giving Program:
Incorporated by reference to Exhibit 10.11 to
the 1992 10-K.
10.7.1** Resolution to amend Directors' Charitable Giving
Program dated February 2, 1995: Incorporated by
reference to Exhibit 10.7.1 to the March 1995 10-
Q.
10.8.1** Directors Stock Acquisition Plan: Incorporated by
reference to Exhibit 10.14 to the 1991 10-K.
10.8.2** Amendment of Director Stock Acquisition Plan,
dated April 30, 1992: Incorporated by reference
to Exhibit 10.12.2 to the 1992 10-K.
10.9 See Exhibits 4.2, 4.2.1, 4.2.2, 4.2.3,4.2.4,
4.2.5, and 4.2.6.
13 Annual Report to Shareholders of the Company for
the fiscal year ended June 28, 1997.
21 Subsidiaries of the Company.
23.1 Report on Schedule and Independent Auditors'
Consent for the years ended June 28, 1997, June
29, 1996 and July 1, 1995.
* All reports previously filed by the Company with the
Commission pursuant to the Exchange Act, and
the rules and regulations promulgated
thereunder, exhibits of which are incorporated
to this Report by reference thereto, were filed
under Commission File Number 1-10095.
** This is a management contract or compensatory plan
or arrangement.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
June 28, 1997.
(c) Exhibits
The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules
Not applicable
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 MILLS, INC.
9/25/98
/s/ E. Erwin Maddrey,III
Date E. Erwin Maddrey, II
President, Chief
Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ C. C. Guy 9/25/98 /s/ E. Erwin Maddrey, II 9/25/98
C. C. Guy E. Erwin Maddrey, II Date
Director President, Chief Executive Officer
and Director
/s/ Buck A. Mickel 9/25/98 /s/Bettis C. Rainsford 9/35/98
Buck A. Mickel Bettis C. Rainsford Date
Director Executive Vice President,
Chief Financial
Officer, Treasurer and
Director
/s/ Robert W.Humphreys 9/25/98
Robert w. Humphreys
Vice President-Finance
and Assistant
Secretary
EXHIBIT INDEX
21 Subsidiaries of the Company.
23.1 Independent Auditors' Report, June 27, 1998
ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JUNE 27,1998
DELTA MILLS, INC.
GREENVILLE, SOUTH CAROLINA
F-1
FORM 10-K--ITEM 14(a)(1) AND (2)
DELTA MILLS, INC.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Delta Mills,
Inc. and for the Year ended June 27, 1998 are incorporated by
reference in Item 8:
Consolidated balance sheets-June 27, 1998 and June 28, 1997.
Consolidated statements of operations--Years ended June
27, 1998 and June 28, 1997, and June 29,1996.
Consolidated statements of shareholders' equity-- Years
ended June 27, 1998 and June 28, 1997, and June 29,1996.
Consolidated statements of cash flows-- Years
ended June 27, 1998 and June 28, 1997, and June 29,1996.
Notes to consolidated financial statements.
The following consolidated financial statement schedule of
Delta Woodside Industries, Inc. is included in Item 14(d):
Schedule II -- Valuation and qualifying accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted. Columns
omitted from schedules filed have been omitted because the
information is not applicable.
F-2
<TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DELTA MILLS, INC.
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Balance at
DESCRIPTION Beginning (1) (2) Deductions Balance at End
of Period Charged to Costs Charged to Other Describe of Period
and Expenses Accounts-Describe
Deducted from asset accounts
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year ended June 27, 1998 $ 128,000 $ 246,000
Year ended June 28, 1997 $ 99,000 $ 128,000
Year ended June 29, 1996 $ 160,000 $ 99,000
Inventory reserves:
Year Ended June 27, 1998 $ 2,638,000 $ 3,452,000
Year ended June 28, 1997 $ 5,322,000 $ 2,638,000
Year ended June 29, 1996 $ 5,452,000 $ 5,322,000
</TABLE>
SUBSIDIARIES OF REGISTRANT
Jurisdiction % Of
of Stock Owned Other Names Under
Name of Subsidiary Incorporation By Parent Which Do Business
Delta Mills Marketing, Inc. Delaware 100% owned by Delta Mills Sales Co.
Delta Mills, Inc. Stevcoknit
Marketing Co.
EXHIBIT 23.1
REPORT ON SCHEDULE
The Board of Directors
Delta Mills, Inc.
Under date of August 14, 1998, we reported on the consolidated
balance sheets of Delta Mills, Inc. as of June 27, 1998 and June
28, 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the
three-year period ended June 27, 1998, as contained in the 1998
annual report on form 10-K. In connection with our audit of the
aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule for each of
the years in the three-year period ended June 27, 1998, as listed
on in Item 14(d) of Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ KPMG Peat Marwick LLP
Greenville, South Carolina KPMG Peat
Marwick LLP
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal year
ended June 27, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> JUN-27-1998
<CASH> 544
<SECURITIES> 0
<RECEIVABLES> 89,237
<ALLOWANCES> 246
<INVENTORY> 55,839
<CURRENT-ASSETS> 163,425
<PP&E> 201,887
<DEPRECIATION> 80,357
<TOTAL-ASSETS> 290,290
<CURRENT-LIABILITIES> 56,002
<BONDS> 176,635
0
0
<COMMON> 51,792
<OTHER-SE> (11,714)
<TOTAL-LIABILITY-AND-EQUITY> 290,290
<SALES> 364,395
<TOTAL-REVENUES> 364,395
<CGS> 300,556
<TOTAL-COSTS> 300,556
<OTHER-EXPENSES> 146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,160
<INCOME-PRETAX> 27,228
<INCOME-TAX> 10,743
<INCOME-CONTINUING> 16,485
<DISCONTINUED> (25,909)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,424)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
