UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
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 333-376-17
DELTA MILLS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2677657
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
233 North 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)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. Common Stock, $.01 Par Value--100 shares as of April 21, 1999.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND H(1)(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
DELTA MILLS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
March 27, 1999 and June 27, 1998 3-4
Condensed consolidated statements of
operations-- Three and nine months ended March
27, 1999 and March 28, 1998 5
Condensed consolidated statements
of cash flows-Nine months ended
March 27, 1999 and March 28, 1998 6
Notes to condensed consolidated financial
statements-March 27, 1999 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 27, June 27,
1999 1998
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,301 $ 544
Accounts receivable:
Factor and other 69,756 82,454
Affiliates 17,271 6,783
87,027 89,237
Less allowances for doubtful
accounts and returns 327 246
86,700 88,991
Inventories:
Finished goods 14,512 10,427
Work in process 33,214 37,000
Raw materials and supplies 7,732 8,412
55,458 55,839
Current assets of discontinued operations 833 15,484
Deferred income taxes 1,152 2,567
TOTAL CURRENT ASSETS 145,444 163,425
PROPERTY, PLANT AND EQUIPMENT
Cost 196,625 201,887
Accumulated depreciation 82,778 80,257
113,847 121,630
DEFERRED LOAN COSTS AND OTHER ASSETS 4,928 5,235
TOTAL ASSETS $ 264,219 $290,290
DELTA MILLS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
March 27, June 27,
1999 1998
(Unaudited)
(In thousands)
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable $ 13,741 $ 23,890
Payable to affiliates 3,530 4,493
Accrued and sundry liabilities 15,031 20,979
Accrued restructuring charges 1,400 6,640
TOTAL CURRENT LIABILITIES 33,702 56,002
LONG-TERM DEBT 154,000 176,635
DEFERRED INCOME TAXES 14,655 7,431
OTHER LIABILITIES AND DEFERRED CREDITS 6,166 10,144
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--authorized 0 0
3,000 shares, issued and outstanding
100 shares
Additional paid-in capital 51,792 51,792
Retained earnings (deficit) 3,904 (11,714)
TOTAL SHAREHOLDERS' EQUITY 55,696 40,078
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 264,219 $ 290,290
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
March 27, March 28, March 27, March 28,
(In thousands)
Net sales to non-affiliated parties $ 73,329 $ 74,323 $236,164 $248,025
Net sale to affiliated parties 7,720 6,748 24,240 14,714
Net sales 81,049 81,071 260,404 262,739
Cost of goods sold 69,364 66,574 215,749 216,211
Gross profit on sales 11,685 14,497 44,655 46,528
Selling, general and administrative 4,094 4,587 12,445 12,641
Other (income) (59) (20) (62) (62)
OPERATING PROFIT 7,650 9,930 32,272 33,949
Interest expense (income):
Interest expense 3,999 5,318 13,002 15,135
Interest (income) (48) (425) (115) (992)
3,951 4,893 12,887 14,143
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,699 5,037 19,385 19,806
Income tax expense 1,439 1,989 7,542 7,823
INCOME FROM CONTINUING OPERATIONS 2,260 3,048 11,843 11,983
Gain (loss) on disposal of discontinued
operations less applicable income taxes 1,141 (21,079) 3,773 (21,079)
(Loss) from operations of discontinued
operations less applicable income taxes 0 (1,468) 0 (4,830)
Income (loss) from discontinued
operations 1,141 (22,547) 3,773 (25,909)
NET INCOME (LOSS) $ 3,401 $(19,499) $ 15,616 $(13,926)
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
NINE MONTHS ENDED
March 27, March 28,
1999 1998
(In thousands)
OPERATING ACTIVITIES
Net Income (loss) $ 15,616 $ (13,926)
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations 14,289 20,931
Depreciation 10,541 15,748
Amortization 466 390
Other 9,098 (5,613)
Changes in operating assets and liabilities (21,653) (11,004)
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,357 6,526
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (6,086) (1,099)
Proceeds of dispositions 1,086 0
Investing activities of discontinued operations 206 (2,036)
Other (1) 7
INVESTING ACTIVITIES (4,795) (3,128)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 90,365 118,000
Repayments on revolving lines of credit (113,000) (50,000)
Net repayments of loan from parent company 0 (202,093)
Proceeds from issuance of long-term debt 0 145,688
Dividends paid 0 (8,000)
Other (170) (1,481)
NET CASH (USED) BY FINANCING ACTIVITIES (22,805) 2,114
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 757 5,512
Cash and cash equivalents at beginning of year 544 1,095
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,301 $ 6,607
DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 27, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements of Delta Mills, Inc. ("the Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating
results for the nine months ended March 27, 1999 are not
necessarily indicative of the results that may be expected
for the year ending July 3, 1999. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K
for the year ended June 27, 1998.
NOTE B--DISCONTINUED OPERATIONS
On March 3, 1998, the Company made the decision to close its
Stevcoknit Fabrics division. During the first quarter and
third quarters of fiscal 1999, the Company reduced the
estimate of the cost to close the business and recognized
gains of $2.6 million and $1.1 million, respectively in
discontinued operations, net of tax effects of $1.8 million
and $.5 million respectively. Proceeds from the liquidation
of the Stevcoknit Fabrics division have been used to reduce
indebtedness.
The assets of discontinued business at March 27, 1999 and
June 27, 1998, are as follows:
March 27, June 27,
1999 1998
(In thousands)
Accounts Receivable (net of reserves) $ 882 $ 13,893
Inventories 0 1,529
Other current assets 17 62
Total current assets 899 15,484
Property, plant and
equipment net of
accumulated depreciation 0 12
Total Assets $ 899 $ 15,496
Summarized results of operations for discontinued business are as follows:
(In thousands)
Three Months Ended Nine months Ended
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
Net Sales $ 0 $ 21,192 $ 2,080 $ 74,250
Cost and expenses 692 23,649 5,612 82,233
Net costs charged to reserves (692) 0 (3,532) 0
(Loss) before income taxes 0 (2,457) 0 (7,983)
Income tax (benefit) 0 (989) 0 (3,153)
(Loss) from discontinued operations $ 0 $ (1,468) $ 0 $ (4,830)
NOTE C--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 wholly-owned
subsidiary of the Company and has fully and
unconditionally guaranteed (the "Guarantee") the
Company's payment of principal, premium, if any,
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 was entered
into, after giving effect to the incurrence 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):
March 27, June 27,
1999 1998
Current assets $ 318 $ 1,301
Noncurrent assets 80 412
Current liabilities 4 1,428
Noncurrent liabilities 1,711 1,260
Stockholder's (deficit) (1,317) (975)
Summarized results of operations for the Guarantor are as follows
(in thousands):
Three Months Ended Nine months Ended
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
Net sales - intercompany commissions $ 1,204 $ 1,345 $ 3,896 $ 4,472
Costs and expenses 1,139 1,330 3,435 3,838
Income from continuing operations 50 (14) 301 372
Net profit (loss) 50 (380) (394) (638)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company manufactures and sells finished and
unfinished woven fabrics to non-affiliated parties
and manufactures and sells yarn, primarily to Delta
Apparel, a division of Duck Head Apparel Company,
Inc., which is owned by the Company's parent company,
Delta Woodside Industries, Inc.
Net sales to non-affiliated parties for the third
quarter of fiscal year 1999 were $73.3 million as
compared to $74.3 million in the same quarter of the
prior fiscal year, a decrease of 1.3%. For the nine
months ended March 27, 1999, net sales to non
affiliated parties were $236 million, a 5% decline
from $248 million in the first nine months of the
prior fiscal year. Sales decreases were primarily
due to lower demand for unfinished and synthetic
fabric.
Net sales to affiliated parties for the third quarter
of fiscal 1999 were $7.7 million as compared to $6.7
million in the same quarter of the prior fiscal year
and $24.2 million for the nine months ended March 27,
1999 as compared to $14.7 million for the first nine
months of the prior fiscal year. The increases in
sales to affiliated parties is primarily due to the
Company's discontinuation of its Stevcoknit Fabrics
operation, which previously consumed a significant
portion of the yarn production now being sold to the
affiliate. The Company believes that the affiliate
will continue to purchase yarn throughout the
remainder of the fiscal year at approximately the
same level as during the first three quarters of
fiscal 1999.
Gross profit as a percent of sales decreased for the
nine months ended March 27, 1999, and for the third
quarter as compared to the same periods of the prior
fiscal year. This decrease was due primarily to
lower selling prices on unfinished greige fabric,
manufacturing curtailment to manage inventories, and
lower selling prices of yarn to affiliated and non-
affiliated parties. The Company continues to make
progress in shifting production from unfinished
greige fabric to fabrics used in finished products.
Operating profits decreased 23% in the third quarter
of fiscal 1999 as compared to the same quarter of the
prior fiscal year, and operating profits decreased 5%
in the first nine months of fiscal year 1999 as
compared to the same period of the prior fiscal year.
Selling, general and administrative costs were lower
in the quarter and nine months ended March 27, 1999,
as compared to the prior year periods, offsetting
somewhat the decline in gross profits.
The Company reported income from continuing
operations of $2.2 million in the third quarter of
fiscal year 1999 as compared to $3.0 million in the
same quarter of the prior fiscal year and $11.8
million for the nine months ended March 27, 1999 as
compared to $12.0 million in the same period of the
prior year.
The Company recognized a gain on disposal of
discontinued operations of $4.5 million in the first
quarter of fiscal year 1999 and a pretax gain on
disposal of discontinued operations of $1.6 in the
third quarter of fiscal year 1999. These gains
reflect reductions in the estimated costs of closing
the Stevcoknit Fabrics Company. At March 27, 1999
the Company still has $1.4 million in restructuring
reserves related to the Stevcoknit Fabrics Company.
The Company regularly reviews these reserves, and
adjusts them as necessary based on current estimates
of costs to close the discontinued operations.
Proceeds from the liquidation of the Stevcoknit
Fabrics division have been
used to reduce indebtedness.
Net income for the third quarter of fiscal year 1999
was $3.4 million, as compared to a net loss of $19.5
million in the same quarter of the prior fiscal year.
Net income for the first nine months of fiscal year
1999 was $15.6 million as compared to a net loss of
$13.9 million in the same period of the prior fiscal
year. The improvement in earnings in each period is
primarily attributable to the reduction in losses
from discontinued operations.
The order backlog was $84 million at March 27, 1999;
a decrease of 14% as compared to $97 million at March
28, 1998.
During the third quarter of fiscal year 1999, the
Company's parent company, Delta Woodside Industries,
Inc., announced a restructuring plan that would,
among other things, spin-off to the Delta Woodside
shareholders the affiliated company that is buying
the majority of the yarn production of the Rainsford
yarn plant. If this
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS-Continued
restructuring is accomplished, it is anticipated that
prior to the spin-off the Company will sell the
Rainsford yarn plant to the affiliated company for
its fair value. The announced restructuring plan
would also involve the spin-off
to the Delta Woodside shareholders of Delta
Woodside's other apparel division and the sale of the
remainder of Delta Woodside (including the Company)
to an as yet undetermined third party for cash.
The Company has a variety of computers and systems
that are subject to Year 2000 issues. The Year 2000
problem arose because many existing computer programs
use only the last two digits to refer to a year.
Therefore, these programs do not properly recognize a
year that begins with "20" instead of the familiar
"19". If not corrected,
many computer applications could fail, or cause
erroneous results. The Company has considered the
impact of Year 2000 issues on the Company's computer
information systems and other equipment that uses
embedded technology such as microcontrollers, and has
developed a remediation plan. The Company's Year
2000 plan includes 1) Identification of Year 2000
issues, 2) Assessment and prioritization of issues,
3) Remediation, and 4) Testing for Year 2000
compliance. Because the Company has a wide variety
of systems and equipment at various locations
affected by the Year 2000 issue, various aspects of
the Company's Year 2000 efforts are at different
stages of progress. Most of the work now being done
involves testing of Year 2000 solutions, tracking key
vendor Year 2000 compliance, and testing contingency
plans. Expenditures in fiscal year 1998 for the Year
2000 project amounted to approximately $21,000. As a
part of its plan to achieve Year 2000 compliance, the
Company has decided to accelerate the schedule for
implementation of certain data collection systems.
The cost of these systems is approximately $1
million. The Company now expects to spend
approximately $1.2 million on software improvements
and remediation work in fiscal 1999, and an
additional $.3 million in fiscal year 2000, with
completion expected by the first quarter of fiscal
year 2000. Most key vendors and customers have
documented assurance of current or planned readiness
for the year 2000. The most likely worst-case
scenario is that certain non-critical business
systems might fail. The Company has developed
contingency plans for all systems that had not been
remediated as of March 27, 1999.
Contingency plans include the option to disable
certain systems or to use alternate methods of
providing the same or similar service. The Company
does not believe that these non-critical systems will
have a material adverse impact on the Company's
ability to generate revenue. In the event that the
Company is unable to implement all or part of its
Year 2000 plan, then some of the Company's computer
systems could fail. Any liability or lost revenue
associated with systems failure cannot be reasonably
estimated at this time.
As a part of the Company's business of converting
fiber to finished fabric, the Company makes raw
cotton purchase commitments and then fixes prices
with cotton merchants who buy from producers and sell
to textile manufacturers. Daily price fluctuations
are minimal, yet long-term trends in price movement
can result in unfavorable pricing of cotton. Before
fixing prices, the Company looks at supply and demand
fundamentals, recent price trends and other factors
that affect cotton prices. The Company also reviews
the backlog of orders from customers as well as the
level of fixed price cotton commitments in the
industry in general. A 10% decline in market price
of the Company's fixed price contracts would have a
negative impact of approximately $5.3 million on the
value of the contracts.
The Company believes that the cash flow generated by
its operations and funds available under its current
credit facilities will be sufficient to service its
debt, to satisfy its day-to-day working capital
requirements, to pay dividends and to fund its
planned capital expenditures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings*
Item 5 Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) The Company filed Form 8-K with date of February 8, 1999.
Items reported were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
*Items 1 and 5 are not applicable
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Mills, Inc.
(Registrant)
Date May 5, 1999 /s/ Robert W. Humphreys
Robert W. Humphreys
Vice President-Finance
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL QUARTER
ENDED MARCH 27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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