UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 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 February 4, 1998
INDEX
DELTA MILLS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
Condensed consolidated balance sheets--
December 27, 1997 and June 28, 1997 3-4
Condensed consolidated statements of income --
Three months ended December 27, 1997 and
December 28, 1996 5
Condensed consolidated statements of cash
flows-- Three months ended December 27, 1997
and December 28, 1996 6
Notes to condensed consolidated financial
statements--December 27, 1997 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
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
SIGNATURES 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 27, June 28,
1997 1997
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,254 $ 1,095
Accounts receivable:
Factor 77,773 83,676
Customers 19,945 19,989
Affiliates 4,901 2,953
102,619 106,618
Less allowances for doubtful
accounts and returns 672 1,003
101,947 105,615
Inventories
Finished goods 22,757 13,160
Work in process 44,771 52,283
Raw materials and supplies 11,667 11,752
79,195 77,195
Deferred income taxes
and other current assets 3,246 3,553
TOTAL CURRENT ASSETS 187,642 187,458
PROPERTY, PLANT AND EQUIPMENT
Cost 278,297 276,193
Less accumulated depreciation 128,843 118,641
149,454 157,552
OTHER ASSETS 5,556
TOTAL ASSETS $342,652 $345,010
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
December 27, June 28,
1997 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 23,126 $ 31,597
Accrued and sundry liabilities 18,995 14,728
Payable to affiliates 3,789 58,469
TOTAL CURRENT LIABILITIES 45,910 104,794
LONG-TERM DEBT, less current portion 210,000 210,189
DEFERRED INCOME TAXES 17,601 16,547
OTHER LIABILITIES AND DEFERRED CREDITS 6,066 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 11,283 5,710
TOTAL SHAREHOLDERS' EQUITY 63,075 7,844
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$342,652 $345,010
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
December 27, December 28,December 27, December 28,
1997 1996 1997 1996
(In thousands, except shares)
Net sales $ 114,795 $ 119,220 $ 234,726 $ 219,159
Cost of goods sold 100,232 103,525 203,343 190,276
Gross profit on sales 14,563 15,695 31,383 28,883
Selling, general and
administrative expenses6,370 6,143 12,932 11,951
Other (income) (27) (1,177) (42) (1,202)
OPERATING PROFIT 8,220 10,729 18,493 18,134
Interest expense (income):
Interest expense 4,990 3,761 9,313 7,187
Interest (income) (48) (6) (63) (21)
4,942 3,755 9,250 7,166
INCOME BEFORE
INCOME TAXES 3,278 6,974 9,243 10,968
Income taxes 1,371 2,845 3,670 4,327
NET INCOME $ 1,907 $ 4,129 $ 5,573 $ 6,641
Net income per share $ 19.07 $ 41.29 $ 55.73 $ 66.41
Weighted average shares
outstanding 100 100 100 100
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
December 27, December 28,
1997 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 5,573$ 6,641
Depreciation 10,203 9,654
Amortization 223 (14)
Other 2,013 1,701
Changes in operating assets and
liabilities (15,136) (12,333)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,876 5,649
INVESTING ACTIVITIES
Property, plant and equipment purchases (2,838) (7,670)
Other 6 (867)
NET CASH (USED) BY INVESTING ACTIVITIES (2,832) (8,537)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit 98,000
Payments on revolving lines of credit (38,000)
Net proceeds from senior notes 145,688
Repayment of amounts due to affiliates (202,093)
Net borrowing from affiliates 2,887
Other financing costs (1,480)
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES 2,115 2,887
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,159 (1)
Cash and cash equivalents
at beginning of period 1,095 44
CASH AND CASH EQUIVALENTS AT END OF PERIOD$ 3,254$ 43
See notes to condensed consolidated financial statements
DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 27, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 quarter and six months ended December 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 consolidated financial statements include the accounts of Delta Mills, Inc.
and its subsidiary (the "Company"). The Delta Mills, Inc. marketing divisions
of Delta Consolidated Corporation were transferred to Delta Mills Marketing,
Inc., in August 1997, Delta Mills Marketing, Inc. is the sole and wholly-owned
subsidiary of the Company. The combination of these entities under common
control was accounted for similar to pooling of interest accounting for business
combinations. All prior periods have been restated to reflect the consolidated
operations and financial position. All significant intercompany balances and
transactions have been eliminated. Delta Mills, Inc. is a wholly-owned
subsidiary of Alchem Capital Corporation, which is a wholly-owned subsidiary of
Delta Woodside Industries, Inc. ("DWI").
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.
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
Company's payment of principal, premium, interest and liquidated damages, if
any, on the Notes (the"Guarantee"). 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-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 inventors.
Summarized financial information for the Guarantor is as follows (in thousands)
(unaudited):
June 28, December 27,
1997 1997
Current assets $2,507 $1,960
Noncurrent assets 163 137
Current liabilities 1,630 1,014
Noncurrent liabilities 1,035 1,236
Stockholders' equity 5 (153)
Summarized results of operations for the Guarantor are as follows (in thousands)
(unaudited):
Three Months Ended Six Months Ended
December 27, December 28, December 27,December 28,
1997 1996 1997 1996
Net sales - intercompany
commissions $2,279 $2,291 $4,657 $4,237
Costs and expenses 2,051 2,043 4,377 3,959
Net income (loss) (41) 2 (158) (108)
DELTA MILLS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net sales for the second quarter of fiscal 1998 totaled $115 million, as
compared to $119 million for the second quarter of fiscal 1997, a decrease of
3%. Net sales in the woven fabrics division were down slightly at $85 million
in the second quarter of fiscal 1998 as compared to the second quarter of fiscal
1997, primarily due to a decline in sales of commercial fabrics. Net sales in
the knitted fabrics division were $30 million in the second quarter of fiscal
1998, down from $33 million in the second quarter of fiscal 1997, a decrease of
9%. Units sold as sell as unit prices decreased in the knitted fabrics
division, primarily in sales to related parties.
Net sales for the first six months of fiscal year 1998 totaled $235 million, as
compared to $219 million for the first six months of fiscal year 1997, an
increase of 7%. Sales of the woven fabrics division were $174 million in the
first six months of fiscal year 1998 as compared to $158 million in the first
six months of fiscal year 1997, an increase of 10% resulting from an increase in
unit sales and unit prices. Sales of the knitted fabrics division were $61
million for the first six months of fiscal year 1998, approximately the same as
for the first six months of the prior fiscal year.
The gross profit margin in the second quarter of fiscal 1998 was 13%, down
slightly compared to the second quarter of fiscal 1997. During the second
quarter of fiscal 1998, the woven fabrics division's gross profit was $15
million, approximately the same when compared to the second quarter of fiscal
1997. Gross profit in the knitted fabrics division decreased from a profit of
$.6 million in the second quarter of fiscal 1997 to a loss of $.4 million in the
second quarter of fiscal 1998. This decline was due to reduced sales as
described above and to an increase of off-quality production.
The gross profit margin in the first six months of fiscal year 1998 was 13%, a
slight increase compared to the first six months of the prior fiscal year.
During the first six months of fiscal year 1998, woven fabrics division gross
profit was $32 million, compared to $28 million for the first six months of the
prior fiscal year, a 13% increase. The 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 profit in the knitted
fabrics division declined from a profit of $.5 million for the first six months
of fiscal 1998 to a loss of $.6 million for the first six months of fiscal year
1998. This decline was due to an increase in off-quality production, and
certain non-recurring accrual adjustments in fiscal 1997.
Operating earnings for the second quarter of fiscal 1998 were $8 million, as
compared to $11 million in the second quarter of fiscal 1997. Operating
earnings in the woven fabrics division declined to $11 million in the second
quarter of fiscal 1998, from $13 million in the second fiscal quarter 1997.
Operating earnings in the second quarter of the prior fiscal year included a
$1.2 million gain on the sale of a warehouse in the woven fabrics division. The
knitted fabrics division reported operating losses in the second quarter of
fiscal 1998 and in the second quarter of fiscal 1997.
Operating earnings for the six months ended December 27, 1997 were $18 million,
approximately the same as in the first six months of the prior fiscal year.
Operating earnings in the woven fabrics division were $24 million in the six
months ended December 27, 1997, up from $22 million for the first six months of
the prior fiscal year. Earnings for the first six months of the prior fiscal
year included a $1.2 million gain described in the preceding paragraph.
Operating losses in the knitted fabrics division increased in the current six
months compared to the same period of the prior fiscal year.
Interest expense for the quarter and six-months ended December 27, 1997 was up
compared to the same periods of the prior fiscal year. The increase in interest
expense is primarily a result of the refinancing described in Note B to the
accompanying financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS--Continued
With respect to certain South Carolina plants, the Company is working with the
appropriate state agency in developing a corrective action plan for addressing
toxicity and other permit-related issues including upgrades at the Company's
Delta 2 and 3 finishing plants. A Delta 2 and 3 consent order (#97-109W) became
effective on December 2, 1997. The order included a $4,000 penalty, which has
been paid. The order requires correction of waste treatment plant deficiencies
by November 1, 1998. Construction to upgrade the treatment process has
commenced. The upgrades are estimated to cost between $2.0 million and $2.5
million. Management believes construction will be complete, deficiencies
corrected, and the upgraded treatment process in operation before the November
1, 1998 deadline.
The Company believes that cash flow generated by its operations and funds
available under its bank 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 and Use of Proceeds*
Item 3. Defaults upon Senior Securities*
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes at the Annual Meeting of the
Company's shareholders held on November 6, 1997:
Election of Broker
Directors For Against Withheld Abstentions Nonvotes
C. C. Guy 100 0 0 N/A N/A
E. E. Maddrey, II 100 0 0 N/A N/A
B. A. Mickel 100 0 0 N/A N/A
B. C. Rainsford 100 0 0 N/A N/A
Item 5.Other Information*
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.10 Delta Woodside Industries, Inc. Long
Term Incentive Plan: Incorporated by reference to
Exhibit10.2 to Registration Statement on Form S-4 of
Delta Mills, Inc. (File No. 333-37617)
(b) No reports were filed by the registrant on Form 8-K during the
quarter ended December 27, 1997.
* Items 1, 2, 3 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 February 20, 1998 /s/ Douglas J. Stevens
Douglas J. Stevens
Controller and
Assistant Secretary
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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 December 27, 1997 and is qualified in its entirety by reference to such
financial statements
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