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 January 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File number 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 February 15, 2000.
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.
1
<PAGE>
DELTA MILLS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
January 1, 2000 and July 3, 1999 3-4
Condensed consolidated statements of operations--
Three months and six months ended January 1, 2000 and
December 26, 1998 5
Condensed consolidated statements of cash
flows-Six months ended January 1, 2000
and December 26, 1998 6
Notes to condensed consolidated financial
statements-January 1, 2000 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Item 3. Quantitative and Qualitative Disclosures About Risk 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS January 1, July 3,
2000 1999
------------ --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 32,337 $ 9,903
Accounts receivable:
Factor and other 53,561 69,881
Affiliates 3,232 12,994
------------ --------
56,793 82,875
Less allowances for doubtful accounts and returns 270 291
------------ --------
56,523 82,584
Inventories:
Finished goods 10,782 9,122
Work in process 27,295 29,201
Raw materials and supplies 7,794 7,144
------------ --------
45,871 45,467
Current assets of discontinued operations 642 780
Deferred income taxes 2,527 2,482
------------ --------
TOTAL CURRENT ASSETS 137,900 141,216
PROPERTY, PLANT AND EQUIPMENT
Cost 201,220 200,723
Accumulated depreciation 92,633 85,743
------------ --------
108,587 114,980
DEFERRED LOAN COSTS AND OTHER ASSETS 4,409 4,755
------------ --------
TOTAL ASSETS $ 250,896 $260,951
============ ========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DELTA MILLS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
January 1, July 3,
2000 1999
------------ ---------
(Unaudited)
(In thousands)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable $ 11,428 $ 15,887
Payable to affiliates 2,376 571
Accrued employee compensation 1,539 4,014
Accrued and sundry liabilities 14,815 18,381
Accrued restructuring charges 670 750
------------ ---------
TOTAL CURRENT LIABILITIES 30,828 39,603
LONG-TERM DEBT 150,000 150,000
DEFERRED INCOME TAXES 15,547 15,547
OTHER LIABILITIES AND DEFERRED CREDITS 6,563 6,040
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) (3,834) (2,031)
------------ ---------
TOTAL SHAREHOLDERS' EQUITY 47,958 49,761
------------ ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 250,896 $260,951
============ =========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
January 1, December 26, January 1, December 26,
2000 1998 2000 1998
------------ -------------- ------------ --------------
(In Thousands) (In thousands)
<S> <C> <C> <C> <C>
Net sales to non-affiliated parties $ 58,144 $ 79,134 $ 116,152 $ 162,835
Net sale to affiliated parties 8,297 7,804 15,607 16,520
------------ -------------- ------------ --------------
Net sales 66,441 86,938 131,759 179,355
Cost of goods sold 60,233 71,156 119,734 146,385
------------ -------------- ------------ --------------
Gross profit on sales 6,208 15,782 12,025 32,970
Selling, general and administrative 3,661 4,403 7,070 8,351
Other (income) (58) 22 (92) (3)
------------ -------------- ------------ --------------
OPERATING PROFIT 2,605 11,357 5,047 24,622
Interest expense (income):
Interest expense 4,288 4,489 8,601 9,003
Interest (income) (304) (42) (448) (67)
------------ -------------- ------------ --------------
3,984 4,447 8,153 8,936
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (1,379) 6,910 (3,106) 15,686
Income tax expense (benefit) (626) 2,724 (1,303) 6,103
------------ -------------- ------------ --------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (753) 4,186 (1,803) 9,583
Gain on disposal of discontinued operations
less applicable income taxes 0 0 0 2,632
------------ -------------- ------------ --------------
NET INCOME (LOSS) $ (753) $ 4,186 $ (1,803) $ 12,215
============ ============== ============ ==============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
----------------------------
January 1, December 26,
2000 1998
------------ --------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ (1,803) $ 12,215
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations 0 14,025
Depreciation 6,950 6,991
Amortization 346 346
Other 490 9,257
Changes in operating assets and liabilities 18,747 (15,175)
------------ --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,730 27,659
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (2,308) (4,419)
Proceeds of dispositions 12 1,034
Investing activities of discontinued operations 0 59
Other 0 87
------------ --------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (2,296) (3,239)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 0 74,365
Repayments on revolving lines of credit (96,000)
Other 0 (235)
------------ --------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 0 (21,870)
------------ --------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 24,434 2,550
Cash and cash equivalents at beginning of year 9,903 544
------------ --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,337 $ 3,094
============ ==============
</TABLE>
6
<PAGE>
DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
January 1, 2000
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 consisting of only normal recurring
accruals considered necessary for a fair presentation have been included.
Operating results for the three and six months ended January 1, 2000 are not
necessarily indicative of the results that may be expected for the year ending
July 1, 2000. 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 July 3, 1999.
NOTE B--DISCONTINUED OPERATIONS
On March 3, 1998, the Company made the decision to close its Stevcoknit Fabrics
division. Accordingly, results of that segment have been reported as
discontinued operations. During the first quarter of fiscal year 1999, the
Company reduced the estimate of the cost to close the business and recognized a
credit of $2.6 million in discontinued operations, net of income taxes of $1.8
million.
The assets of discontinued business at January 1, 2000 and July 3, 1999, are as
follows:
<TABLE>
<CAPTION>
January 1, July 3,
(In thousands) 2000 1999
---------- --------
<S> <C> <C>
Accounts Receivable (net of reserves) $ 625 $ 763
Other current assets 17 17
---------- --------
Total current assets $ 642 $ 780
========== ========
</TABLE>
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.
7
<PAGE>
NOTE C--SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY - CONTINUED
Summarized financial information for the Guarantor is as follows (in thousands):
<TABLE>
<CAPTION>
January 1, July 3,
2000 1999
------------ ----------
<S> <C> <C>
Current assets $ 219 $ 194
Noncurrent assets 92 71
Current liabilities 457 560
Noncurrent liabilities 1,195 980
Stockholder's (deficit) (1,341) (1,275)
</TABLE>
Summarized results of operations for the Guarantor are as follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
January 1, December 26,
2000 1998
------------ --------------
<S> <C> <C>
Net sales - intercompany commissions $ 1,903 $ 2,692
Costs and expenses 2,020 2,296
Income from continuing operations (117) 251
Net profit (loss) (66) (444)
</TABLE>
NOTE D--LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE
At each of July 3, 1999, October 2, 1999, and January 1, 2000, no amounts were
outstanding under the Company's bank credit facility. The Company's first and
second fiscal 2000 quarter operating results have caused the Company not to be
in compliance at the end of those quarters with the credit facility's covenants
respecting minimum interest coverage ratio, maximum leverage ratio and minimum
consolidated tangible net worth. The same covenants are contained in, and
therefore a default also exist under, operating leases of the Company with an
aggregate outstanding lease balance of approximately $5.5 million.
In February 2000, the Company acquired for $15,619,744 a portion of its 9 5/8%
Senior Notes. The aggregate principal face amount of the acquired Senior Notes
was $20,260,000. This transaction was an event of default under the Company's
bank credit facility with respect to repayment of indebtedness while in default
(see the preceding paragraph). The Company's intent is to replace the existing
bank credit facility with a new credit facility that provides for a lower level
of borrowing availability that is more consistent with the Company's needs and
plans. The Company has largely negotiated the terms of a new facility and
believes it will be able to enter into the new agreement on terms satisfactory
to the Company before the end of the third fiscal quarter. The financial
covenants in the new credit facility will automatically replace the current
financial covenants incorporated into the operating leases. Accordingly, the
Company does not believe that these credit facility or operating lease covenant
defaults will have a material adverse effect on the Company.
The Company believes that cash flow generated by its operations will be
sufficient to service its debt, to satisfy its day to day working capital
requirements and to fund its planned capital expenditures.
8
<PAGE>
NOTE E--COMMITMENTS AND CONTINGENCIES
On January 10, 2000, the North Carolina Department of Environment and Natural
Resources requested that Delta Mills, Inc. accept responsibility for
investigating the discharge of hazardous substances at an inactive hazardous
waste site known as the Glen Raven Mills Site, Kings Mountain, North Carolina
(the "Site"). A predecessor by merger of Delta Mills, Inc., Park Yarn Mills
Company, Inc. ("Park Yarn"), owned the Site for approximately six (6) years,
from approximately 1977 to 1983 (prior to the time Delta Mills, Inc. became a
subsidiary of Delta Woodside Industries, Inc.). Delta Mills, Inc. is aware of
no evidence that Park Yarn discharged or deposited any hazardous substance at
the Site or is otherwise a "responsible party" for the Site. Further, Park Yarn
filed bankruptcy and was discharged in 1983. Although no assurance can be
provided, any liability of Park Yarn for the Site may have been discharged by
the bankruptcy order. Accordingly, Delta Mills, Inc. has denied any
responsibility at the Site, has declined to undertake any activities
concerning the Site, and has not provided for any reserves for costs or
liabilities attributable to Park Yarn.
On January 13, 2000, Marion Mills, LLC, a supplier to the Company, brought an
action against the Company in North Carolina Superior Court in McDowell County,
North Carolina. The plaintiff seeks actual damages in excess of $1.8 million
and consequential and incidental damages in excess of $7.4 million. The actual
damages claim is based on an alleged failure by the Company to pay in excess of
$1.8 million of invoice amounts. The consequential and incidental damages claim
is based on the allegation that the Company's failure to pay caused Marion
Mills, LLC to shut down its business. The Company's position is that it paid
some of the invoices claimed to be unpaid and did not pay the other invoices
because of defects in the goods supplied by the plaintiff (which were returned
per the plaintiff's authorization). The Company, therefore, denies and is
vigorously contesting the claims.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains certain "forward-looking statements".
All statements, other than statements of historical fact, that address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such matters as future revenues, future
costs, future capital expenditures, business strategy, competitive strengths,
competitive weaknesses, goals, plans, references to future success or
difficulties and other similar information are forward-looking statements. The
words "estimate", "project", "anticipate", "expect", "intend", "believes" and
similar expressions, and discussions of strategy and intentions, are intended to
identify forward-looking statements.
The forward-looking statements in this Quarterly Report are based on the
Company's expectations and are necessarily dependent upon assumptions, estimates
and data that the Company believes are reasonable and accurate but may be
incorrect, incomplete or imprecise. Forward-looking statements are also subject
to a number of business risks and uncertainties, any of which could cause actual
results to differ materially from those set forth in or implied by the
forward-looking statements. These risks and uncertainties include, among
others, changes in the retail demand for apparel products, the cost of raw
materials, competitive conditions in the apparel and textile industries, the
relative strength of the United States dollar as against other currencies,
changes in United States trade regulations and the discovery of unknown
conditions (such as with respect to environmental matters and similar items).
Accordingly, any forward-looking statements do not purport to be predictions of
future events or circumstances and may not be realized.
The Company does not undertake to publicly update or revise the
forward-looking statements even if it becomes clear that any projected results
will not be realized.
The Company manufactures and sells finished 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 second quarter of fiscal year 2000
were $58.1 million as compared to $79.1 million in the same quarter of the prior
fiscal year, a decrease of 26.5%. For the six months ended January 1, 2000, net
sales to non-affiliated parties were $116.1 million as compared to $162.8
million for the same period of fiscal 1999, a decrease of 28.7%. Sales declines
were in both cotton and synthetic product categories and were primarily
attributable to lower unit sales. The synthetic product sales decline was a
result of changing market demand due to increased import pressure. In order to
match capacity to current market demand, the Company has downsized this portion
of the business. To a lesser extent, market demand for cotton twill fabric has
also declined. Management believes this decline in cotton twills, the Company's
core product, is in part the result of garment manufacturers moving through a
backlog of inventory that has resulted in a slow down of replenishment orders to
the fabric supplier.
Net sales to affiliated parties for the second quarter of fiscal year 2000 were
$8.3 million as compared to $7.8 million in the same quarter of the prior fiscal
year. Affiliated party sales were $15.6 million for the six months ended
January 1, 2000 versus $16.5 million for the same six-month period of fiscal
1999. The increase was due to an increased demand at the affiliate. The
Company believes that the affiliate will continue to purchase yarn throughout
the third quarter of fiscal year 2000 or until the Rainsford yarn facility is
sold to Delta Apparel Inc. This sale of the Rainsford facility is expected to
occur in connection with the Delta Apparel distribution described in the Form 10
of Delta Apparel, Inc (file no. 1-15583) and the Delta Woodside Form 8-K (file
no. 1-10095) filed with the Securities and Exchange Commission on December 29,
1999 and December 30, 1999,respectively. Management anticipates the Delta
Apparel distribution to take place in April of 2000.
Gross profit as a percent of sales was 9.3% for the second quarter of fiscal
year 2000 compared to 18.2% in the prior year quarter. Gross profit as a
percentage of sales was 9.1% for the six months ended January 1, 2000 as
compared to 18.4% for the same period of fiscal 1999. These declines were
primarily due to these three factors: 1) A decline in sales volume and related
manufacturing efficiency losses, 2) the absence of the USDA cotton rebate
program for the major part of the first six months of the current fiscal year,
and 3) the cost associated with the downsizing of the synthetic product
category.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Selling, general and administrative costs for the second quarter were $3.7
million and 5.5% of sales compared to $4.4 million and 5.1% of sales in the
prior year quarter. Year to date selling, general and administrative costs for
fiscal 2000 were $7.1 million or 5.4% of sales as compared to $8.4 million or
4.7% of net sales for the same period of fiscal 1999.
The Company reported a net loss of $.8 million for the second quarter of fiscal
year 2000 as compared to income of $4.2 million in the prior year quarter. The
Company reported a loss of $1.8 million for the six months ended January 1, 2000
as compared to net income of $12.2 million for the period ended December 26,
1998. The $12.2 million income figure for 1999 includes a $2.6 million pretax
gain for the reduction of restructuring reserves related to discontinued
operations.
The Company's order backlog at January 1, 2000 was $66.8 million, down from the
$85.4 million order backlog at December 26, 1998. The decline was spread
throughout all product lines.
Inventory for the quarter ended January 1, 2000 was contained at $45.9 million
in line with reduced sales volume. This compares with inventory of $45.5 at
July 3, 1999 and $55.6 million at December 26, 1998.
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 use embedded
technology such as micro-controllers, and has completed a remediation plan. The
Company's Year 2000 plan included 1) Identifying year 2000 issues, 2) Assessment
and prioritization of issues, 3) Remediation, and 4) Testing for Year 2000
compliance. As a part of its plan to achieve Year 2000 compliance, the Company
decided to accelerate the schedule for implementation of certain data collection
systems. The cost of these systems, which were in place prior to the end of
1999, was approximately $1.2 million. In addition, the Company spent
approximately $21,000 on software improvements and remediation work in fiscal
year 1998, $216,000 in fiscal year 1999, and an additional $.2 million in the
first six months of fiscal year 2000. No further spending is anticipated for
remediation and software improvements. Through the month of January 2000, the
Company has experienced no material problems associated with Year 2000 issues.
The Company believes that its Year 2000 remediation efforts were successful, and
that no further remediation efforts are necessary.
At each of July 3, 1999, October 2, 1999, and January 1, 2000, no amounts were
outstanding under the Company's bank credit facility. The Company's first and
second fiscal 2000 quarter operating results have caused the Company not to be
in compliance at the end of those quarters with the credit facility's covenants
respecting minimum interest coverage ratio, maximum leverage ratio and minimum
consolidated tangible net worth. The same covenants are contained in, and
therefore a default also exist under, operating leases of the Company with an
aggregate outstanding lease balance of approximately $5.5 million.
In February 2000, the Company acquired for $15,619,744 a portion of its 9 5/8%
Senior Notes. The aggregate principal face amount of the acquired Senior Notes
was $20,260,000. This transaction was an event of default under the Company's
bank credit facility with respect to repayment of indebtedness while in default
(see the preceding paragraph). The Company's intent is to replace the existing
bank credit facility with a new credit facility that provides for a lower level
of borrowing availability that is more consistent with the Company's needs and
plans. The Company has largely negotiated the terms of a new facility and
believes it will be able to enter into the new agreement on terms satisfactory
to the Company before the end of the third fiscal quarter. The financial
covenants in the new credit facility will automatically replace the current
financial covenants incorporated into the operating leases. Accordingly, the
Company does not believe that these credit facility or operating lease covenant
defaults will have a material adverse effect on the Company.
The Company believes that cash flow generated by its operations will be
sufficient to service its debt, to satisfy its day to day working capital
requirements and to fund its planned capital expenditures.
11
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. At January 1, 2000, a 10% decline in market price of the Company's
fixed price contracts would have a negative impact of approximately $5.0 million
on the value of the contracts.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 10, 2000, the North Carolina Department of Environment and Natural
Resources requested that Delta Mills, Inc. accept responsibility for
investigating the discharge of hazardous substances at an inactive hazardous
waste site known as the Glen Raven Mills Site, Kings Mountain, North Carolina
(the "Site"). A predecessor by merger of Delta Mills, Inc., Park Yarn Mills
Company, Inc. ("Park Yarn"), owned the Site for approximately six (6) years,
from approximately 1977 to 1983 (prior to the time Delta Mills, Inc. became a
subsidiary of Delta Woodside Industries, Inc.). Delta Mills, Inc. is aware of
no evidence that Park Yarn discharged or deposited any hazardous substance at
the Site or is otherwise a "responsible party" for the Site. Further, Park Yarn
filed bankruptcy and was discharged in 1983. Although no assurance can be
provided, any liability of Park Yarn for the Site may have been discharged by
the bankruptcy order. Accordingly, Delta Mills, Inc. has denied any
responsibility at the Site, has declined to undertake any activities
concerning the Site, and has not provided for any reserves for costs or
liabilities attributable to Park Yarn.
On January 13, 2000, Marion Mills, LLC, a supplier to the Company, brought an
action against the Company in North Carolina Superior Court in McDowell County,
North Carolina. The plaintiff seeks actual damages in excess of $1.8 million
and consequential and incidental damages in excess of $7.4 million. The actual
damages claim is based on an alleged failure by the Company to pay in excess of
$1.8 million of invoice amounts. The consequential and incidental damages claim
is based on the allegation that the Company's failure to pay caused Marion
Mills, LLC to shut down its business. The Company's position is that it paid
some of the invoices claimed to be unpaid and did not pay the other invoices
because of defects in the goods supplied by the plaintiff (which were returned
per the plaintiff's authorization). The Company, therefore, denies and is
vigorously contesting the claims.
Item 5 Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) The Company filed Form 8-K with date of October 4, 1999.
Items reported were:
Item 5. Other Events
Item 7. Financial Statements and Exhibits
*Item 5 is not applicable.
12
<PAGE>
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 February 15, 2000 /s/ David R. Palmer
----------------- ----------------------
David R. Palmer
Controller
(Authorized signatory and
chief accounting officer)
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 32337
<SECURITIES> 0
<RECEIVABLES> 56793
<ALLOWANCES> 270
<INVENTORY> 45871
<CURRENT-ASSETS> 137900
<PP&E> 201220
<DEPRECIATION> 92633
<TOTAL-ASSETS> 250896
<CURRENT-LIABILITIES> 30828
<BONDS> 150000
0
0
<COMMON> 51792
<OTHER-SE> (3834)
<TOTAL-LIABILITY-AND-EQUITY> 250896
<SALES> 131759
<TOTAL-REVENUES> 131759
<CGS> 119734
<TOTAL-COSTS> 126712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8601
<INCOME-PRETAX> (3106)
<INCOME-TAX> (1303)
<INCOME-CONTINUING> (1803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1803)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
