UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 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 333-376-17
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
Hammond Square, 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 November 2, 1998
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
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
September 26, 1998 and June 27, 1998 3-4
Condensed consolidated statements of operations--
Three months ended September 26, 1998 and
September 27, 1997 5
Condensed consolidated statements of cash
flows-Three months ended September 26, 1998
and September 27, 1997 6
Notes to condensed consolidated financial
statements-September 26, 1998 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 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
September 26, June 27,
ASSETS 1998 1998
(Unaudited)
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $2,358 $544
Accounts receivable:
Factor and other 78,718 82,454
Affiliates 12,663 6,783
___________ ___________
91,381 89,237
Less allowances for doubtful
accounts and returns 284 246
___________ ___________
91,097 88,991
Inventories
Finished goods 12,325 10,427
Work in process 37,338 37,000
Raw materials and supplies 8,909 8,412
___________ ___________
58,572 55,839
Current assets of discontinued
operations 4,626 15,484
Deferred income taxes and
other assets 3,028 2,567
___________ ___________
TOTAL CURRENT ASSETS 159,681 163,425
PROPERTY, PLANT AND
EQUIPMENT, at cost 195,734 201,887
Less accumulated depreciation 77,128 80,257
___________ ___________
118,606 121,630
DEFERRED LOAN COSTS AND
OTHER ASSETS 5,299 5,235
___________ ___________
$283,586 $290,290
___________ ___________
___________ ___________
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 26, June 27,
1998 1998
(Unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $17,975 $23,890
Payable to affiliates 4,274 4,493
Accrued and sundry liabilities 16,781 20,979
Accrued restructuring charges 5,327 6,640
___________ ___________
TOTAL CURRENT LIABILITIES 44,357 56,002
LONG-TERM DEBT 175,000 176,635
DEFERRED INCOME TAXES 9,987 7,431
OTHER LIABILITIES AND DEFERRED
CREDITS 6,135 10,144
SHAREHOLDERS' EQUITY
Common Stock -- par value $.01 a share -- authorized
3,000 shares, issued and outstanding 100
Additional paid-in capital 51,792 51,792
Retained earnings (3,685) (11,714)
___________ ___________
48,107 40,078
COMMITMENTS AND CONTINGENCIES
$283,586 $290,290
___________ ___________
___________ ___________
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended
September 26, September 27,
1998 1997
Net sales to non-affiliated parties $83,702 $88,571
Net sales to affiliated parties 8,715 $3,812
___________ ___________
Net sales 92,417 $92,383
Cost of goods sold 75,229 75,358
___________ ___________
Gross profit 17,188 17,025
Selling, general and administrative expenses 3,948 4,104
Other income (expense) (25) (15)
___________ ___________
OPERATING PROFIT 13,265 12,936
Interest (expense) income:
Interest expense 4,514 4,323
Interest (income) (25) (15)
___________ ___________
4,489 4,308
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 8,776 8,628
Income tax expense 3,379 3,325
___________ ___________
INCOME FROM CONTINUING
OPERATIONS 5,397 5,303
Decrease in estimate of loss on
disposal of discontinued operations
less applicable income taxes 2,632
(Loss) from operations of discontinued
operations less applicable income taxes (1,637)
___________ ___________
Income (Loss) from discontinued operations 2,632 (1,637)
___________ ___________
NET INCOME $8,029 $3,666
___________ ___________
___________ ___________
See notes to consolidated financial statements.
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) Three Months Ended
September 26, September 27,
1998 1997
OPERATING ACTIVITIES
Net income (loss) $8,029 $3,666
Adjustments to reconcile net income to net
cash provided by operating activities:
Discontinued operations 9,211 (5,917)
Depreciation 3,432 3,699
Amortization (65) 56
Other 3,754 349
Changes in operating assets and liabilities (20,060) (155,337)
__________ ___________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,301 (153,484)
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (3,153) (2,148)
Proceeds of dispositions 566 3
Investing activities of discontinued operations 1,648 (1,036)
Other 87
___________ ___________
NET CASH (USED) BY
INVESTING ACTIVITIES (852) (3,181)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 57,365 210,000
Repayments on revolving lines of credit (59,000) (145,000)
Net repayments of loan from parent company (53,440)
Proceeds from issuance of long-term debt 145,688
Other (1,100)
___________ ___________
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (1,635) 156,148
___________ ___________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,814 (517)
Cash and cash equivalents at beginning of year 544 1,095
___________ ___________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $2,358 $578
___________ ___________
___________ ___________
See notes to consolidated financial statements.
DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 26, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited combined 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 (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 26,
1998 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. The Company expects to complete
disposition of the business during the second quarter of fiscal year
1999. During the first quarter of fiscal 1999, the Company reduced
the estimate of the cost to close the business and recognized a credit
of $2.6 million in discontinued operations, including a tax benefit of
$1.8 million. The amount the Company will ultimately realize from the
liquidation of the Stevcoknit Fabrics division could differ materially
from the carrying value of the assets of the business.
The assets of discontinued businesses at September 26, 1998 and June
27, 1998, are as follows:
September 26, June 27,
(In thousands) 1998 1998
Accounts Receivable $4,576 $13,893
Inventories 0 1,529
Other current assets 50 62
_______ _______
Total current assets 4,626 15,484
Property, plant and
equipment net of
accumulated depreciation 11 12
_______ _______
Total Assets $4,637 $15,496
_______ _______
_______ _______
NOTE B--DISCONTINUED OPERATIONS (Continued)
Summarized results of operations for discontinued businesses are as
follows: (In thousands)
Three Months Ended
September 26,September 27,
1998 1997
Net Sales $2,000 $27,548
Cost and expenses 2,000 30,211
_______ _______
(Loss) before income taxes 0 (2,663)
Income tax (benefit) (1,026)
_______ _______
(Loss) from discontinued
operations $0 ($1,637)
_______ _______
_______ _______
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, 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.
NOTE C--SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
(Continued)
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):
September 26, June 27,
1998 1998
Current assets $364 $1,301
Noncurrent assets 100 412
Current liabilities 146 1,428
Noncurrent liabilities 1,313 1,260
Stockholder's (deficit) (995) (975)
Summarized results of operations for the Guarantor are as follows (in
thousands):
Three Months Ended
September 26, September 27,
1998 1997
Net sales - intercompany
commissions................... $1,377 1,591
Costs and expenses............ 1,327 1,413
Income from continuing operati 184 120
Net income (loss) (83) (116)
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 which is
owned by the parent Company Delta Woodside Industries, Inc. Operating
profits were slightly ahead of the same quarter of the prior fiscal
year while sales to non-affiliated parties declined 6% to $83 million.
The decline was due primarily to a decrease in sales of unfinished
(greige) fabrics, and a decline in sales of finished fabric to
government accounts. Gross margins continue to benefit from the
modernization program completed during fiscal 1997, and from lower raw
material costs. Business remains good with the exception of the
unfinished fabrics portion of the business which is operating on
reduced running schedules. This market represents less than 10% of
sales, and this production is being shifted to alternative end markets.
Income from continuing operations in the first quarter of fiscal year
1999 was approximately the same as in the first quarter of the prior
fiscal year. Both interest expense and interest income were
approximately the same in the current quarter compared to the first
quarter of the prior fiscal year.
The Stevcoknit liquidation is almost complete and the Company expects
to collect the remaining accounts receivable during the second quarter
of fiscal 1999.
Order backlogs decreased to $93 million at September 26, 1998 as
compared $112 million at September 27, 1997.
Inventories increased $2.8 million to $59 million at September 26,
1998 as compared to inventories at June 27, 1998, but decreased from
inventory levels at September 27, 1997.
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 beings 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 use embedded technology such as micro-controllers, and has
developed a remediation plan. The Company's Year 2000 plan includes 1)
Identifying 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 remediation and testing of Year 2000 solutions. Expenditures
in fiscal 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 year 1999, and an additional $.3 million in
fiscal year 2000, with completion expected by the first quarter of fiscal
year 2000. 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 December 26, 1998. 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 a 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.
The Company believes that 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, 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) No reports were filed on form 8-K during the quarter
ended September 26, 1998
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 November 5, 1998 /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 SEPTEMBER 26, 1998 AND IS QUALIFIED IN I6S ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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