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 30, 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2677657
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
100 Augusta Street
Greenville, South Carolina 29601
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(Address of principal executive offices) (Zip Code)
864\255-4100
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(Registrant's telephone number, including area code)
(Not Applicable)
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(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 14, 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.
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DELTA MILLS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--
September 30, 2000 and July 1, 2000 3-4
Condensed consolidated statements of operations--
Three months ended September 30, 2000 and
October 2, 1999 5
Condensed consolidated statements of cash
flows-Three months ended September 30, 2000
and October 2, 1999 6
Notes to condensed consolidated financial
statements-September 30, 2000 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 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA MILLS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS September 30, July 1,
2000 2000
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(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,311 $ 18,287
Accounts receivable:
Factor and other 65,944 71,670
Less allowances for doubtful accounts and returns 171 173
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65,773 71,497
Inventories:
Finished goods 7,871 4,916
Work in process 31,778 31,324
Raw materials and supplies 8,368 7,679
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48,017 43,919
Deferred income taxes 1,222 1,208
Other assets 506 467
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TOTAL CURRENT ASSETS 120,829 135,378
PROPERTY, PLANT AND EQUIPMENT
Cost 162,192 161,670
Accumulated depreciation 73,070 70,322
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89,122 91,348
DEFERRED LOAN COSTS AND OTHER ASSETS 2,718 2,886
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TOTAL ASSETS $ 212,669 $229,612
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DELTA MILLS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
September 30, July 1,
2000 2000
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(Unaudited)
(In thousands)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Trade accounts payable $ 14,917 $ 14,514
Payable to affiliates 347 1,318
Accrued employee compensation 1,765 2,858
Accrued and sundry liabilities 19,042 21,530
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TOTAL CURRENT LIABILITIES 36,071 40,220
LONG-TERM DEBT 99,425 115,078
DEFERRED INCOME TAXES 13,831 12,314
DEFERRED COMPENSATION 5,936 5,813
SHAREHOLDERS' EQUITY
Common Stock, par value $.01--authorized
3,000 shares, issued and outstanding 100 shares 0 0
Additional paid-in capital 51,792 51,792
Retained earnings 5,614 4,395
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TOTAL SHAREHOLDERS' EQUITY 57,406 56,187
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 212,669 $229,612
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DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
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September 30, October 2,
2000 1999
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(In thousands)
<S> <C> <C>
Net sales to non-affiliated parties $ 63,199 $ 58,008
Net sales to affiliated parties 0 7,310
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Net sales 63,199 65,318
Cost of goods sold 53,925 59,501
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Gross profit on sales 9,274 5,817
Selling, general and administrative 3,341 3,409
Other (income) (373) (33)
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OPERATING PROFIT 6,306 2,441
Interest expense (income):
Interest expense 2,949 4,313
Interest (income) (262) (145)
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2,687 4,168
INCOME(LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 3,619 (1,727)
Income tax expense (benefit) 1,285 (677)
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INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 2,334 (1,050)
Extraordinary gain on early retirement of debt
less applicable income taxes 639 0
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NET INCOME (LOSS) $ 2,973 $ (1,050)
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DELTA MILLS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
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September 30, October 2,
2000 1999
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(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 2,973 $ (1,050)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,748 3,434
Amortization 106 173
Decrease in deferred loan costs 392
Gain on early retirement of debt (1,383)
Provision for losses on accounts receivable (2)
Provision for deferred income taxes 1,503
Gains on disposition of property and equipment (341)
Deferred compensation 123 138
Changes in operating assets and liabilities (2,276) 11,800
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,843 14,495
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (919) (1,577)
Proceeds of dispositions of assets 450 0
Other (330) 0
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NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (799) (1,577)
FINANCING ACTIVITIES
Repurchase and retirement of long term debt (14,270) 0
Dividends paid (1,750) 0
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NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES
(16,020) 0
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (12,976) 12,918
Cash and cash equivalents at beginning of quarter 18,287 9,903
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CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 5,311 $ 22,821
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DELTA MILLS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2001. 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 1, 2000.
NOTE B--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):
September 30, July 1,
2000 2000
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Current assets $ 258 $ 234
Noncurrent assets 109 117
Current liabilities 1,470 1,479
Noncurrent liabilities 830 785
Stockholder's (deficit) (1,933) (1,913)
Summarized results of operations for the Guarantor are as follows (in
thousands):
Three Months Ended
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September 30, October 2,
2000 1999
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Net sales - intercompany commissions $ 1,043 $ 944
Costs and expenses 1,063 1,043
Income from continuing operations (20) (9)
Net profit (loss) (20) (9)
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NOTE C-LONG-TERM DEBT, CREDIT ARRANGEMENTS, AND NOTES PAYABLE
The Company has obtained a secured three-year $50 million revolving bank credit
facility. At each of July 1, 2000 and September 30, 2000, no amounts were
outstanding under this facility. The credit facility contains restrictive
covenants that, among other things, require that the Delta Mills' Maximum
Leverage Ratio, as defined, not exceed specified amounts. The agreement also
restricts additional indebtedness, dividends, and capital expenditures. The
payment of dividends with respect to the Company's stock is permitted if there
is no event of default and there is at least $1 of availability under the
facility.
During the quarter ended September 30, 2000, the Company acquired for
$14,270,480 a portion of its 9 5/8% Senior Notes. The aggregate principal face
amount of the acquired Senior Notes was $15,653,000. The Company recognized an
extraordinary gain on the early retirement of debt of $639,000 net of taxes of
$352,000.
In October 2000, the Company acquired for the sum of $3,664,810 an additional
portion of its 9 5/8% Senior Notes, the aggregate principal face amount of which
was $4,063,000.
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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 cost savings,
future capital expenditures, business strategy, competitive strengths, goals,
plans, references to future success and other such information are
forward-looking statements. The words "estimate", "project", "anticipate",
"expect", "intend", "believe" and similar expressions are intended to identify
forward-looking statements.
The forward-looking statements in this Quarterly Report are based on the
Company's expectations and are 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). The Company does not undertake publicly to update
or revise the forward-looking statements even if it becomes clear that any
projected results will not be realized
The Company sells a broad range of finished apparel fabric primarily to branded
apparel manufactures and resellers.
Net sales to non-affiliated parties in the first quarter of fiscal year 2001
were $63.2 million as compared to $58.0 million in the first quarter of the
prior fiscal year, an increase of 9%. The increase was due principally to an
increase in unit sales of cotton products as a result of improved market
conditions. Net sales to affiliated parties were eliminated in the first
quarter of fiscal year 2001 due to the sale of the Rainsford Plant to Delta
Apparel, Inc. in the fourth quarter of fiscal year 2000.
Gross profit from continuing operations increased to $9.3 million and 14.7% of
sales in the first quarter of fiscal year 2001. This compares to gross profit
of $5.8 million and 8.9% of sales in the prior year quarter. The increase in
gross profit margin was the result of increased sales and increased capacity
utilization associated with cotton products. Also contributing to the increase
in gross profit margin was the reduction in cost associated with the downsizing
of the synthetic product line that occurred during the first part of fiscal year
2000.
Selling, general and administrative expense (SG&A) was $3.3 million and 5.3% of
net sales for the first quarter of fiscal year 2001 compared to SG&A of $3.4
million and 5.2% of net sales for the prior year quarter. The decrease in SG&A
was directly related to the reduction in overhead associated with corporate
management fees.
Income from continuing operations was $2.3 million for the first quarter of
fiscal 2001 compared to a loss of $1.1 million in the prior year quarter. The
increase of $3.4 million was the result of the increase in gross profit and the
decrease in SG&A as described above coupled with a reduction in interest expense
due to lower debt levels associated with the extinguishment of a portion of the
Company's senior notes.
Extraordinary gain, net of taxes of $352,000, was $639,000 in the current year
quarter. The extraordinary gain occurred when the Company purchased $15.7
million face amount of its 9 5/8% Senior Notes for $14.2 million. There was no
extraordinary gain in the prior year quarter. In October 2000, the Company
acquired for the sum of $3,664,810 an additional portion of its 9 5/8% Senior
Notes, the aggregate principal face amount of which was $4,063,000.
Net income was $3.0 million for the quarter ended September 30, 2000 compared to
a net loss of $1.1 million in the prior year quarter.
The Company's order backlog at September 30, 2000 was $76.4 million, a 29%
increase over the backlog of $59.2 million at October 2, 1999. The increase was
spread throughout all product lines.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
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, to pay dividends and to fund its planned capital expenditures.
In June 1998, The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This standard, as subsequently amended by
SFAS Nos. 137 and 138, requires the recognition of all derivatives as either
assets or liabilities in the statement of financial position and the measurement
of those instruments at fair value. On July 2, 2000, the Company adopted the
new standard. The Company's management has determined that its cotton buying
contracts meet the criteria for exclusion under the normal purchases and normal
sales exemption and are not considered derivatives; therefore, the Company had
no financial statement impact from the adoption of the standard.
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.
As of September 30, 2000, a 10% decline in market price of the Company's fixed
price contracts would have had a negative impact of approximately $1.7 million
on the value of the contracts.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.10.1 Amendment of 2000 Stock Option Plan of Delta Woodside
Industries, Inc.: Incorporated by reference to exhibit
10.10.1 to Quarterly Report on Form 10-Q of Delta
Woodside Industries, for the fiscal quarter ended
September 30, 2000 (File No. 1-10095).
(b) Reports on Form 8-K filed during quarter ended September 30, 2000.
None
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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.
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(Registrant)
Date November 14, 2000 /s/ W.H. Hardman, Jr.
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W.H. Hardman, Jr.
Chief Financial Officer
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