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 September 27, 1997
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 No X .
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 10, 199
INDEX
DELTA MILLS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
September 27, 1997 and June 28, 1997 3-4
Condensed consolidated statements of income --
Three months ended September 27, 1997 and
September 28, 1996 5
Condensed consolidated statements of cash
flows-- Three months ended September 27, 1997
and September 28, 1996 6
Notes to condensed consolidated financial
statements--September 27, 1997 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Uses of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11-13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 27, June 28,
1997 1997
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 578 $ 1,095
Accounts receivable:
Factor 81,580 83,676
Customers 21,713 19,989
Affiliates 4,355 2,953
107,648 106,618
Less allowances for doubtful
accounts and returns 706 1,003
106,942 105,615
Inventories
Finished goods 17,151 13,160
Work in process 54,224 52,283
Raw materials and supplies 12,262 11,752
83,637 77,195
Deferred income taxes and other current assets 3,460 3,553
TOTAL CURRENT ASSETS 194,617 187,458
PROPERTY, PLANT AND EQUIPMENT
Cost 277,279 276,193
Less accumulated depreciation 123,773 118,641
153,506 157,552
OTHER ASSETS 5,349
$353,472 $345,010
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
September 27, June 28,
1997 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 32,615 $ 31,597
Accrued and sundry liabilities 16,533 14,728
Payable to affiliates 5,628 58,469
TOTAL CURRENT LIABILITIES 54,776 104,794
LONG-TERM DEBT, less current portion 215,000 210,189
DEFERRED INCOME TAXES 16,547 16,547
OTHER LIABILITIES AND DEFERRED CREDITS 5,981 5,636
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--
authorized 3,000 shares, issued
and outstanding 100 shares
Additional paid-in capital 51,792 2,134
Retained earnings 9,376 5,710
TOTAL SHAREHOLDER'S EQUITY 61,168 7,844
COMMITMENTS AND CONTINGENCIES
$353,472 $345,010
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
September 27, September 28,
1997 1996
Net sales $ 119,931 $ 99,939
Cost of goods sold 103,111 86,751
Gross profit on sales 16,820 13,188
Selling, general and administrative expenses 6,562 5,808
Other income (expense) 15 (25)
OPERATING PROFIT 10,273 7,405
Interest expense (income):
Interest expense 4,323 3,426
Interest (income) (15) (15)
4,308 3,411
INCOME BEFORE INCOME TAXES 5,965 3,994
Income taxes 2,299 2,113
NET INCOME $ 3,666 $ 1,881
Net income per share $ 36.66 $ 18.81
Weighted average shares outstanding 100 100
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
September 27, September 28,
1997 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 3,666 $ 1,881
Depreciation 5,131 4,808
Amortization 57 (7)
Other 687
Changes in operating assets and liabilities (15,352) (474)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (6,498) 6,895
INVESTING ACTIVITIES
Property, plant and equipment
purchases (1,517) (5,509)
Other 3
NET CASH (USED) BY INVESTING ACTIVITIES (1,514) (5,509)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 73,000
Principal payments on revolving line of credit (8,000)
Net proceeds from senior notes 144,588
Repayment of amounts due to affiliate (202,093) (1,384)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 7,495 (1,384)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (517) 2
Cash and cash equivalents at beginning of period 1,095 44
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 578 $ 46
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 27, 1997
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 27, 1997 are not necessarily indicative of the results that may be
expected for the year ending June 27, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Registration Statement on Form S-4 (File No. 333-376-17).
The financial statements for the periods or portions of periods prior to
August 2, 1997, consist of the combined accounts of Delta Mills, Inc. and
the Delta Mills, Inc. marketing divisions of Delta Consolidated Corporation.
On August 2, 1997, the assets of the Delta Mills, Inc. marketing divisions of
Delta Consolidated Corporation were contributed to a new corporation,
Delta Mills Marketing, Inc., a subsidiary of Delta Mills, Inc.
NOTE B-DEBT AND EQUITY
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 net proceeds of the senior notes,
the initial borrowings under the new revolving line of credit and a capital
contribution of $49.7 million were used to repay the long-term debt and current
amounts payable to affiliate. Other assets are deferred loan costs primarily
attributable to the unsecured senior notes. These costs are being amortized
over the life of the debt.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Combined net sales for the first quarter of fiscal year 1998 were $119.9
million, as compared to $99.9 million for the first quarter of fiscal year
1997, an increase of 20.0%. Sales of the woven fabrics division were $88.6
million in the first quarter of fiscal year 1998 as compared to $72.1
million in the first quarter of fiscal year 1997, an increase of
22.9% resulting from an increase in unit sales and unit prices. Sales of
woven fabrics to commercial accounts increased due both to increased capacity
resulting from recent capital expenditures and to increased demand.
Sales of woven government fabrics increased due to increased procurement
activity. Sales of the knitted fabrics division were $31.3 million in the
first fiscal quarter 1998 up from $27.8 million in the first
quarter of fiscal year 1997, an increase of 12.6%. In the knitted fabrics
division unit sales and unit prices increased, while yarn sales to related
parties decreased.
Combined gross profit margin in the first quarter of fiscal year 1998 was
14.0%, as compared to 13.2% in the first quarter of fiscal year 1997, an
improvement of 6.1 %. During the first quarter of fiscal year 1998, woven
fabrics division gross profit totaled $17.0 million, as compared to
$13.3 million in the first quarter of fiscal year 1997, an increaseof 27.8%.
This gross profit increase was due principally to an increase in demand
for both government and commercial fabrics supported by increased capacity
in cotton fabric production. Gross margins in the knitted fabrics division
showed small losses in both the most recent fiscal quarter and the same
quarter a year ago.
During the first quarter of fiscal year 1998, selling, general and
administrative expenses were $6.6 million, as compared to $ 5.8 million
during the first fiscal quarter of 1997, an increase of 13.0 %.
As in past years, the Company has been able to control its selling, general
and administrative expenses as a percentage of net sales. Expenses in this
category increased on an absolute basis, however, they decreased to 5.5 %
of net sales in the most recent fiscal quarter as compared to 5.8 % of net
sales for the first fiscal quarter 1997.
Operating earnings for the first quarter of fiscal year 1998 were
$10.3 million, as compared to $7.4 million in the first quarter of
fiscal year 1997. Operating earnings in the woven fabrics division were
$13.0 million in the first quarter of fiscal year 1998, an improvement of
$3.2 million as compared to the division's operating earnings in the first
quarter of fiscal year 1997. The knitted fabrics division showed an
operating loss in the first quarter of fiscal year 1998 of $2.7 million
compared to an operating loss of $2.4 million in the first quarter of fiscal
year 1997.
During the first fiscal quarter 1998, net interest expense was
$4.3 million, as compared to $3.4 million in the first fiscal quarter 1997.
The increase in interest expense is primarily a result of the higher interest
rates on the senior notes (9.625%) as compared to the lower average rate on
intercompany debt (6.5%).
The estimated effective tax rate for the first fiscal quarter 1998 is 38.5 %,
approximately the same as for the twelve months ended June 28, 1997.
Net income for the first fiscal quarter 1998 was $3.7 million, as
compared to $1.9 million for the first fiscal quarter of 1997. The improvement
was due to the factors described above.
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
revolving
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS-Continued
line of credit with maximum borrowings of $100 million (subject to a
borrowing base requirement.) The net proceeds of the senior notes,
the initial borrowings under the new revolving line of credit and a capital
contribution of $49.7 million were used to repay the long-term
debt and current amounts payable to affiliate. For additional
information on the refinancing, see Note C in the Company's financial
statements included in the Company's Registration Statement on Form S-4
(File No. 333-376-17.)
For certain textile plants in South Carolina, the Company expects to receive an
amended Special Order by Consent requiring the plants to achieve
compliance with certain environmental standards by November 1, 1998, instead of
October 1, 1997. The Company believes that the required equipment upgrades
will be completed within the extended time frame and all related penalties
will be avoided.
The Company believes that cash flow generated by its operations and funds
available under its new credit facility should be sufficient to service
its debt, to satisfy its day-to-day working capital needs, and to fund its
planned capital expenditures.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings*
Item 2. Changes in Securities*
Item 3. Defaults upon Senior Securities and Uses of Proceeds*
Item 4. Submission of Matters to a Vote of Security Holders*
Item 5. Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
1.1 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, NA, 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 Delta
Woodside Industries, Inc. (File No. 1-10095) 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.
4.1 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.
4.2 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 from 8-
K/A of Delta Woodside Industries, Inc. (File No. 1-
10095) 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.
10.2** Delta Woodside Deferred Compensation Plan for
Key Employees: Incorporated by reference to
Exhibit 10.6 to the Form 10-Q of Delta Woodside
Industries, Inc. (File No. 1-10095) for the fiscal
quarter ended March 31, 1990.
10.3** Incentive Stock Award Plan effective July 1, 1990:
Incorporated by reference to Exhibit 10.1 to the
Form 10-Q of Delta Woodside Industries, Inc. (File
No. 1-10095) for the fiscal quarter ended March 31,
1990.
10.3.1** 1995 Amendment to the Delta Woodside Incentive
Stock Award Plan effective as of November 9, 1995:
Incorporated by reference to Exhibit 10.3.1 to the
Form 10-Q of Delta Woodside Industries, Inc. (File
No. 1-10095) for the quarterly period ended
December 30, 1995 (the "December 1995 10-Q").
10.4.1** Delta Woodside Stock Option Plan effective as of
July 1, 1990: Incorporated by reference to Exhibit
10.11 to Woodside Industries, Inc. (File No. 1-10095)
Form 10-K for the fiscal year ended June 30, 1997.
10.4.2** Amendment No. 1 to Delta Woodside Stock Option
Plan: Incorporated by reference to Exhibit 10.1 to
the Delta Woodside Industries, Inc. (File No. 1-
10095) Form 10-Q for the quarterly period ended
December 29, 1990.
10.4.3** Amendment to the Delta Woodside Stock Option
Plan: Incorporated by reference to Exhibit 10.9.2 to
Delta Woodside Industries, Inc. (File No. 1-10095)
Form 10-K for the fiscal year ended June 29, 1991
(the "1991 10-K").
10.4.4** 1995 Amendment to the Delta Woodside Stock
Option Plan effective as of November 9, 1995:
Incorporated by reference to Exhibit 10.4.4 to the
December Form 10-Q.
10.5** Summary of Delta Woodside Industries, Inc.,
Director Charitable Giving Program: Incorporated
by reference to Exhibit 10.11 to the Form 10-K on
Delta Woodside Industries, Inc. (File No. 1-10095)
for the 1992 fiscal year.
10.5.1** Resolution to amend Directors' Charitable Giving
Program dated February 2, 1995: Incorporated by
reference to 10.7.1 to the Form 10-Q of Delta
Woodside Industries, Inc. (File No 1-10095) for the
quarterly period ended April 1, 1995.
10.6.1** Delta Woodside Directors Stock Acquisition Plan:
Incorporated by reference to Exhibit 10.14 to the
1991 Form 10-K.
10.6.2** Amendment of Delta Woodside Director Stock
Acquisition Plan, dated April 30, 1992:
Incorporated by reference to Exhibit 10.12.2 to the
1992 Form 10-K.
10.7 See Exhibits 4.1 and 4.2.
10.10 Registration Rights Agreement, dated as of August
25, 1997, by and among Delta Mills, Inc., Delta Mills
Marketing, Inc. and NationsBanc Capital Markets,
Inc.: Incorporated by reference to Exhibit 1.2 to
Registration Statement on Form S-4 of Delta Mills,
Inc. (File No. 333-376-17).
10.11 Purchase Agreement relating to $150 million 9 5/8%
Senior Notes due 2007, dated August 20, 1997, by
and among Delta Mills, Inc., Delta Mills Marketing,
Inc. and NationsBanc Capital Markets, Inc.:
Incorporated by reference to Exhibit 1.1 to
Registration Statement on Form S-4 of Delta Mills,
Inc. (File No. 333-376-17).
**This is a management contract or compensatory plan or arrangement.
(b) No reports were filed by the registrant on Form 8-K during the
quarter ended September 27, 1997.
* Items 1, 2, 3, 4 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 October 27, 1997 /s/ Douglas J. Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
EXHIBIT INDEX
3.1 Restated and Amended Certification of Incorporation of Delta Mills, Inc.:
Incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-4
of Delta Mills, Inc. (File No. 333-376-17).
3.2 Bylaws of Delta Mills, Inc.: Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-4 of Delta Mills, Inc. (File No. 333-376-17).
10.1 Registration Rights Agreement, dated as of August 25, 1997, by and among
Delta Mills, Inc., Delta Mills Marketing, Inc. and NationsBanc Capital Markets,
Inc.: Incorporated by reference to Exhibit 1.2 to Registration Statement on
Form S-4 of Delta Mills, Inc. (File No. 333-376-17).
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
registrant's condensed consolidated financial statements for the fiscal quarter
ended September 27, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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