þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
GEORGIA | 58-2508794 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
322 South Main Street | ||
Greenville, SC | 29601 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Page | ||
Exhibits | ||
EX-10.1 | ||
EX-31.1 | ||
EX-31.2 | ||
EX-32.1 | ||
EX-32.2 |
PART 1. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
October 1, 2011 | July 2, 2011 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 323 | $ | 656 | |||
Accounts receivable, net | 66,777 | 76,821 | |||||
Inventories, net | 186,326 | 159,209 | |||||
Prepaid expenses and other current assets | 4,392 | 4,059 | |||||
Deferred income taxes | 2,838 | 2,931 | |||||
Total current assets | 260,656 | 243,676 | |||||
Property, plant and equipment, net | 39,396 | 39,756 | |||||
Goodwill | 16,812 | 16,812 | |||||
Intangibles, net | 7,253 | 7,405 | |||||
Other assets | 3,994 | 4,216 | |||||
Total assets | $ | 328,111 | $ | 311,865 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 53,161 | $ | 55,554 | |||
Accrued expenses | 20,057 | 23,708 | |||||
Income tax payable | 55 | 969 | |||||
Current portion of long-term debt | 3,042 | 2,799 | |||||
Total current liabilities | 76,315 | 83,030 | |||||
Long-term debt, less current maturities | 102,291 | 83,974 | |||||
Deferred income taxes | 3,307 | 2,877 | |||||
Other liabilities | 235 | 19 | |||||
Total liabilities | 182,148 | 169,900 | |||||
Commitments and contingencies | — | — | |||||
Shareholders’ equity: | |||||||
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding | — | — | |||||
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 8,491,787 and 8,421,863 shares outstanding as of October 1, 2011 and July 2, 2011, respectively | 96 | 96 | |||||
Additional paid-in capital | 59,408 | 59,750 | |||||
Retained earnings | 97,687 | 93,277 | |||||
Accumulated other comprehensive loss | (134 | ) | (14 | ) | |||
Treasury stock —1,155,185 and 1,225,109 shares as of October 1, 2011 and July 2, 2011, respectively | (11,094 | ) | (11,144 | ) | |||
Total shareholders’ equity | 145,963 | 141,965 | |||||
Total liabilities and shareholders’ equity | $ | 328,111 | $ | 311,865 |
Three Months Ended | |||||||
October 1, 2011 | October 2, 2010 | ||||||
Net sales | $ | 123,523 | $ | 107,916 | |||
Cost of goods sold | 92,270 | 82,007 | |||||
Gross profit | 31,253 | 25,909 | |||||
Selling, general and administrative expenses | 24,562 | 22,896 | |||||
Other (income) expense, net | (7 | ) | 57 | ||||
Operating income | 6,698 | 2,956 | |||||
Interest expense, net | 893 | 601 | |||||
Income before provision for income taxes | 5,805 | 2,355 | |||||
Provision for income taxes | 1,393 | 707 | |||||
Net income | $ | 4,412 | $ | 1,648 | |||
Basic earnings per share | $ | 0.52 | $ | 0.19 | |||
Diluted earnings per share | $ | 0.50 | $ | 0.19 | |||
Weighted average number of shares outstanding | 8,450 | 8,523 | |||||
Dilutive effect of stock options | 310 | 257 | |||||
Weighted average number of shares assuming dilution | 8,760 | 8,780 |
Three Months Ended | |||||||
October 1, 2011 | October 2, 2010 | ||||||
Operating activities: | |||||||
Net income | $ | 4,412 | $ | 1,648 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 1,795 | 1,767 | |||||
Amortization of deferred financing fees | 90 | 70 | |||||
Excess tax benefits from exercise of stock options | (475 | ) | (90 | ) | |||
Provision for deferred income taxes | 523 | 303 | |||||
Loss on disposal of property and equipment | 33 | 24 | |||||
Non-cash stock compensation | 672 | 545 | |||||
Changes in operating assets and liabilities, net of effect of acquisitions: | |||||||
Accounts receivable | 10,044 | 10,272 | |||||
Inventories | (27,118 | ) | (14,119 | ) | |||
Prepaid expenses and other current assets | (334 | ) | (128 | ) | |||
Income taxes | (439 | ) | (533 | ) | |||
Other non-current assets | 132 | 1 | |||||
Accounts payable | (2,393 | ) | 5,645 | ||||
Accrued expenses | (3,648 | ) | (1,951 | ) | |||
Other liabilities | 96 | (103 | ) | ||||
Net cash (used in) provided by operating activities | (16,610 | ) | 3,351 | ||||
Investing activities: | |||||||
Purchases of property and equipment, net | (1,319 | ) | (1,537 | ) | |||
Cash paid for business, net of cash acquired | — | (9,884 | ) | ||||
Net cash used in investing activities | (1,319 | ) | (11,421 | ) | |||
Financing activities: | |||||||
Proceeds from long-term debt | 164,581 | 130,035 | |||||
Repayment of long-term debt | (146,021 | ) | (121,443 | ) | |||
Repurchase of common stock | (1,459 | ) | (735 | ) | |||
Proceeds from stock options | 20 | 52 | |||||
Excess tax benefits from exercise of stock options | 475 | 90 | |||||
Net cash provided by financing activities | 17,596 | 7,999 | |||||
Net decrease in cash and cash equivalents | (333 | ) | (71 | ) | |||
Cash and cash equivalents at beginning of period | 656 | 687 | |||||
Cash and cash equivalents at end of period | $ | 323 | $ | 616 | |||
Supplemental cash flow information: | |||||||
Cash paid for interest | $ | 696 | $ | 536 | |||
Cash paid for income taxes | $ | 1,235 | $ | 928 | |||
Non-cash financing activity—issuance of common stock | $ | 142 | $ | 98 |
October 1, 2011 | July 2, 2011 | ||||||
Raw materials | $ | 21,858 | $ | 20,970 | |||
Work in process | 37,779 | 34,599 | |||||
Finished goods | 126,689 | 103,640 | |||||
$ | 186,326 | $ | 159,209 |
Yarn | $ | 30,411 | |
Natural gas | 1,204 | ||
Finished fabric | 1,817 | ||
Finished products | 21,203 | ||
$ | 54,635 |
Basics | Branded | Consolidated | |||||||||
Three months ended October 1, 2011: | |||||||||||
Net sales | $ | 52,598 | $ | 70,925 | $ | 123,523 | |||||
Segment operating income | 1,584 | 5,114 | 6,698 | ||||||||
Segment assets* | 174,688 | 153,423 | 328,111 | ||||||||
Three months ended October 2, 2010: | |||||||||||
Net sales | $ | 49,539 | $ | 58,377 | $ | 107,916 | |||||
Segment operating income | 150 | 2,806 | 2,956 | ||||||||
Segment assets* | 130,471 | 135,211 | 265,682 | ||||||||
* All goodwill and intangibles on our balance sheet are included in the branded segment. |
Three Months Ended | |||||||
October 1, 2011 | October 2, 2010 | ||||||
Segment operating income | $ | 6,698 | $ | 2,956 | |||
Unallocated interest expense | 893 | 601 | |||||
Consolidated income before taxes | $ | 5,805 | $ | 2,355 |
Effective Date | Notional Amount | LIBOR Rate | Maturity Date | |||||
Interest Rate Swap | September 1, 2011 | $10 million | 0.7650 | % | September 1, 2013 | |||
Interest Rate Swap | September 1, 2011 | $10 million | 0.9025 | % | March 1, 2014 | |||
Interest Rate Swap | September 1, 2011 | $10 million | 1.0700 | % | September 1, 2014 |
October 1, 2011 | July 2, 2011 | ||||||
Accrued expenses | $ | — | $ | 22 | |||
Deferred tax liabilities | (84 | ) | (8 | ) | |||
Other liabilities | 218 | — | |||||
Accumulated other comprehensive loss | $ | 134 | $ | 14 |
◦ | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
◦ | Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active. |
◦ | Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques. |
Fair Value Measurements Using | ||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||
Period Ended | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||
Interest Rate Swaps | ||||||||||||||
October 1, 2011 | $ | 218 | — | $ | 218 | — | ||||||||
July 2, 2011 | $ | 22 | — | $ | 22 | — |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Dollar Value of Shares that May Yet Be Purchased Under the Plans | |||||||
July 3 to August 6, 2011 | — | $ | — | — | $8.4 million | ||||||
August 7 to September 3, 2011 | 33,852 | $ | 15.82 | 33,852 | $7.9 million | ||||||
September 4 to October 1, 2011 | 58,904 | $ | 15.68 | 58,904 | $7.0 million | ||||||
Total | 92,756 | $ | 15.73 | 92,756 | $7.0 million |
Fiscal Year | Amount | ||
2012 | $ | 1,329 | |
2013 | 1,877 | ||
2014 | 1,827 | ||
2015 | 1,524 | ||
2016 | 629 | ||
$ | 7,186 |
October 1, 2011 | July 2, 2011 | ||||||||||||||||||||
Cost | Accumulated Amortization | Net Value | Cost | Accumulated Amortization | Net Value | Economic Life | |||||||||||||||
Goodwill | $ | 17,424 | $ | (612 | ) | $ | 16,812 | $ | 17,424 | $ | (612 | ) | $ | 16,812 | N/A | ||||||
Intangibles: | |||||||||||||||||||||
Tradename/trademarks | 1,530 | (469 | ) | 1,061 | 1,530 | (450 | ) | 1,080 | 20 yrs | ||||||||||||
Customer relationships | 7,220 | (2,215 | ) | 5,005 | 7,220 | (2,124 | ) | 5,096 | 20 yrs | ||||||||||||
Technology | 1,220 | (215 | ) | 1,005 | 1,220 | (185 | ) | 1,035 | 10 yrs | ||||||||||||
Non-compete agreements | 517 | (335 | ) | 182 | 517 | (323 | ) | 194 | 4 – 8.5 yrs | ||||||||||||
Total intangibles | 10,487 | (3,234 | ) | 7,253 | 10,487 | (3,082 | ) | 7,405 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | the volatility and uncertainty of cotton, other raw materials, transportation and energy prices; |
• | the general U.S. and international economic conditions; |
• | changes in consumer confidence, discretionary consumer spending and demand for apparel products; |
• | the financial difficulties encountered by our customers and credit risk exposure; |
• | the competitive conditions in the apparel and textile industries; |
• | changes in environmental, tax, trade, employment and other laws and regulations; |
• | any significant litigation in either domestic or international jurisdictions; |
• | changes in the economic, political and social stability at our offshore locations; |
• | the relative strength of the United States dollar as against other currencies; |
• | any restrictions to our ability to borrow capital or obtain financing; |
• | the ability to grow, achieve synergies and realize the expected profitability of recent acquisitions; |
• | the impairment of acquired intangible assets; |
• | changes in our information systems related to our business operations; |
• | any significant interruptions with our distribution network; |
• | the ability of our brands and products to meet consumer preferences within the prevailing retail environment; |
• | the ability to obtain and renew our significant license agreements; |
• | implementation of cost reduction strategies; |
• | any negative publicity regarding domestic or international business practices; and |
• | the illiquidity of our shares and volatility of the stock market. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Item 6. | Exhibits |
10.1 | Form of Restricted Stock Unit and Performance Unit Award Agreement Under the Delta Apparel, Inc. 2010 Stock Plan | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
DELTA APPAREL, INC. (Registrant) | |||
Date | November 2, 2011 | By: | /s/ Deborah H. Merrill |
Deborah H. Merrill Vice President, Chief Financial Officer and Treasurer |
1. | I have reviewed this quarterly report on Form 10-Q of Delta Apparel, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 2, 2011 | /s/ Robert W. Humphreys | |
Chairman and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Delta Apparel, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 2, 2011 | /s/ Deborah H. Merrill | |
Vice President, Chief Financial Officer and Treasurer |
1. | The Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2011 of the Company, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | November 2, 2011 | ||
/s/ Robert W. Humphreys | |||
Robert W. Humphreys | |||
Chairman and Chief Executive Officer |
1. | The Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2011 of the Company, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | November 2, 2011 | ||
/s/ Deborah H. Merrill | |||
Deborah H. Merrill Vice President, Chief Financial Officer and Treasurer |
Section 1. | AWARD OF RESTRICTED STOCK UNITS AND PERFORMANCE UNITS |
(a) | The death of the Participant; or |
(b) | Disability of the Participant. |
Section 3. | VESTING OF UNITS BASED ON PERFORMANCE REQUIREMENTS |
Granted Units Earned based on Average Return on Capital Employed | Fiscal Years 20__ and 20__ Return on Capital Employed Requirement |
Minimum ___% | __% |
Par ______% | ____% |
Maximum ______% | ____% |
(a) | The death of the Participant; or |
(b) | Disability of the Participant. |
Section 5. | PAYMENT UPON VESTING OF RESTRICTED STOCK UNITS AND PERFORMANCE UNITS |
(a) | No Shares will be payable upon the vesting of a Restricted Stock Unit or Performance Unit unless and until the Participant satisfies any Federal, state or local withholding tax obligation required by law to be withheld in respect of this Award. The Participant acknowledges and agrees that to satisfy any such tax obligation the Company may deduct and retain from the Shares payable upon vesting of the Restricted Stock Units or Performance Units such number of Shares as is equal in value to the Company's minimum statutory withholding obligations with respect to the income recognized by the Participant upon such vesting (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such income). The number of such Shares to be deducted and retained shall be based on the closing price of the Shares on the day prior to the applicable RSU Vesting Date or PSU Vesting Date. |
(b) | The Participant acknowledges that in the event an election under Section 83(b) of the Internal Revenue Code of 1986 is filed with respect to this Award, Participant must give a copy of the election to the Company within ten days after filing with the Internal Revenue Service. |
(a) | No Representations or Warranties. Neither the Company nor the Committee or any of their representatives or agents has made any representations or warranties to the Participant with respect to the income tax or other consequences of the transactions contemplated by this Agreement, and the Participant is in no manner relying on the Company, the Committee or any of their representatives or agents for an assessment of such tax or other consequences. |
(b) | Employment. Nothing in this Agreement or in the Plan or in the making of the Award shall confer on the Participant ay right to or guarantee of continued employment with the Company or any of its Subsidiaries or in any way limit the right of the Company or any of its Subsidiaries to terminate the employment of the Participant at any time. |
(c) | Investment. The Participant hereby agrees and represents that any Shares payable upon Vesting of the Restricted Stock Units and Performance Units shall be held for the Participant's own account for investment purposes only and not with a view of resale or distribution unless the Shares are registered under the Securities Act of 1933, as amended. |
(d) | Necessary Acts. The Participant and the Company hereby agree to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. |
(e) | Severability. The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially enforceable provision to the extent enforceable in any jurisdiction, shall nevertheless be binding and enforceable. |
(f) | Waiver. The waiver by the Company of a breach of any provision of this Agreement by the Participant shall not operate or be construed as a waiver of any subsequent breach by the Participant. |
(g) | Binding Effect; Applicable Law. This Agreement shall bind and inure to the benefit of the Company and its successors and assigns, and the Participant and any heir, legatee, or legal representative of the Participant. This Agreement shall be construed, administered and enforced in accordance with and subject to the terms of the Plan and the laws of the State of Georgia. |
(h) | Administration. The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan. Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding. |
(i) | Amendment. This Agreement may be amended by written agreement of the Participant and the Company, without the consent of any other person. |
Condensed Consolidated Balance Sheets Parenthetical (USD $) | Oct. 01, 2011 | Jul. 02, 2011 |
---|---|---|
Shareholders' equity: | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 15,000,000 | 15,000,000 |
Common stock, shares issued | 9,646,972 | 9,646,972 |
Common stock, shares outstanding | 8,491,787 | 8,421,863 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Treasury stock, shares | 1,155,185 | 1,225,109 |
Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data | 3 Months Ended | |
---|---|---|
Oct. 01, 2011 | Oct. 02, 2010 | |
Net sales | $ 123,523 | $ 107,916 |
Cost of goods sold | 92,270 | 82,007 |
Gross profit | 31,253 | 25,909 |
Selling, general and administrative expenses | 24,562 | 22,896 |
Other (income) expense, net | (7) | 57 |
Operating income | 6,698 | 2,956 |
Interest expense, net | 893 | 601 |
Income before provision for income taxes | 5,805 | 2,355 |
Provision for income taxes | 1,393 | 707 |
Net income | $ 4,412 | $ 1,648 |
Basic earnings per share | $ 0.52 | $ 0.19 |
Diluted earnings per share | $ 0.50 | $ 0.19 |
Weighted average number of shares outstanding | 8,450 | 8,523 |
Dilutive effect of stock options | 310 | 257 |
Weighted average number of shares assuming dilution | 8,760 | 8,780 |
Document and Entity Information | 3 Months Ended | |
---|---|---|
Oct. 01, 2011 | Oct. 25, 2011 | |
Entity Information | ||
Entity Registrant Name | DELTA APPAREL, INC | |
Entity Central Index Key | 0001101396 | |
Current Fiscal Year End Date | --06-30 | |
Entity Filer Category | Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Oct. 01, 2011 | |
Document Fiscal Year Focus | 2012 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 8,475,760 |
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Stock Options and Incentive Stock Awards | 3 Months Ended |
---|---|
Oct. 01, 2011 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Stock Options and Incentive Stock Awards On November 11, 2010, the shareholders of the Company approved the Delta Apparel, Inc. 2010 Stock Plan (“2010 Stock Plan”). We will not be granting additional awards under either the Delta Apparel Stock Option Plan or the Delta Apparel Incentive Stock Award Plan. Instead, all future stock awards will be granted under the 2010 Stock Plan. The aggregate number of shares of common stock that may be delivered under the 2010 Stock Plan is 500,000 plus any shares of common stock subject to outstanding awards under the prior plans that are subsequently forfeited or terminated for any reason before being exercised. We expense stock compensation costs in the cost of sales and selling, general and administrative expense line items of our consolidated statements of operations over the vesting periods of each grant. Delta Apparel, Inc. 2010 Stock Plan (“2010 Stock Plan”) During the quarter ended October 1, 2011, we granted restricted stock units for 91,450 of our shares. These units will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 29, 2013. In addition, performance units for 143,450 shares were granted. Of these units, 52,000 will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 30, 2012 and are based on the achievement of performance criteria for the one year period ending June 30, 2012. The remaining 91,450 units will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 29, 2013 and are based on the achievement of performance criteria for the two year period ending June 29, 2013. For the three months ended October 1, 2011, we expensed $0.5 million in connection with outstanding awards made under the 2010 Stock Plan. As of October 1, 2011 there was $3.4 million of total unrecognized compensation cost related to non-vested awards granted under the 2010 Stock Plan. This cost is expected to be recognized over a period of 1.92 years. Delta Apparel Stock Option Plan (“Option Plan”) We expensed $43 thousand and $44 thousand during the first quarter of fiscal years 2012 and 2011, respectively, in connection with our Option Plan. As of October 1, 2011, there was $0.1 million of total unrecognized compensation cost related to non-vested stock options under the Option Plan, which is expected to be recognized over a period of 0.75 years. During the quarter ended October 1, 2011, vested options representing 2,000 shares of our common stock were exercised, and the shares issued, in accordance with their respective agreements. Delta Apparel Incentive Stock Award Plan (“Award Plan”) For the first quarter of fiscal years 2012 and 2011, we expensed $0.1 million and $0.5 million, respectively, in connection with our Award Plan. The compensation expense includes the cost associated with the tax-assistance component of the awards, which is included in accrued liabilities until payment of the taxes associated with the vesting of the awards. |
Legal Proceedings | 3 Months Ended |
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Oct. 01, 2011 | |
Legal Proceedings [Abstract] | |
Legal Matters and Contingencies [Text Block] | Legal Proceedings We are party to various legal claims, actions and complaints arising from time to time in the normal course of business. While litigation is subject to inherent uncertainties, we currently believe that, due to legal defenses, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions, individually and in the aggregate, should not have a material effect on our operations, financial condition, or liquidity. |
New Accounting Standards | 3 Months Ended |
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Oct. 01, 2011 | |
New Accounting Standards [Abstract] | |
New Accounting Standards [Text Block] | New Accounting Standards In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”). ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity must consider whether there are any adverse qualitative factors indicating an impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. ASU 2010-28 was adopted on July 3, 2011, and the adoption had no impact on our financial statements. In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805) - Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”). This standard update clarifies that, when presenting comparative financial statements, Securities and Exchange Commission registrants should disclose revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010, with early adoption permitted. We adopted ASU 2010-29 on July 3, 2011. We expect that ASU 2010-29 may impact our disclosures for any future business combinations. In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"). The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (U.S. GAAP) and International Financial Reporting Standards (IFRS). Additional disclosure requirements in ASU 2011-04 include: (a) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (b) for the use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (c) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (d) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and applied on a prospective basis. ASU 2011-04 is therefore effective for our fiscal year ending June 29, 2013 and we are currently evaluating the impact on our financial statements. In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income("ASU 2011-05"). This standard update requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and applied on a retrospective basis. ASU 2011-05 is therefore effective for our fiscal year ending June 29, 2013 and we do not expect the adoption to have a material effect on our financial position. |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | Segment Reporting We operate our business in two distinct segments: branded and basics. Although the two segments are similar in their production processes and regulatory environment, they are distinct in their economic characteristics, products and distribution methods. The branded segment is comprised of our business units focused on specialized apparel garments and headwear to meet consumer preferences and fashion trends, and includes Soffe (which includes The Cotton Exchange as the bookstore division of Soffe), Junkfood, To The Game and Art Gun. These branded embellished and unembellished products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, college bookstores and the U.S. military. Products in this segment are marketed under our primary brands of Soffe®, Intensity Athletics®, The Cotton Exchange®, Junk Food®, and The Game®, licensed brands of Salt Life® and Realtree Outfitters®, as well as other labels. The results of The Cotton Exchange have been included in the branded segment since its acquisition on July 12, 2010. The basics segment is comprised of our business units primarily focused on garment styles that are characterized by low fashion risk, and includes our Delta Catalog and FunTees businesses. Within the Delta Catalog business, we market, distribute and manufacture unembellished knit apparel under the brands of Delta Pro Weight®, Delta Magnum Weight®, Quail Hollow®, Healthknit® and FunTees®. These products are primarily sold to screen printing and advertising specialty companies. We also manufacture private label products for major branded sportswear companies, retailers, corporate industry programs, and sports licensed apparel marketers. Typically these products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so that they are fully ready for retail. The majority of the private label products are sold through the FunTees business. Our Chief Operating Decision Maker ("CODM"), Robert W. Humphreys, and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges (“Segment Operating Income”). Our Segment Operating Income may not be comparable to similarly titled measures used by other companies. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table. Information about our operations as of and for the three months ended October 1, 2011 and October 2, 2010, by operating segment, is as follows (in thousands):
The following table reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):
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Repurchase of Common Stock | 3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Repurchase of Common Stock [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury Stock [Text Block] | Repurchase of Common Stock On August 17, 2011, our Board of Directors approved a $5 million increase in our Stock Repurchase Program, bringing the total amount authorized to $20.0 million. During the three months ended October 1, 2011, we purchased 92,756 shares of our common stock for a total cost of $1.5 million. Since the inception of the Stock Repurchase Program, we have purchased 1,294,283 shares of our common stock for an aggregate of $13.0 million. All purchases were made at the discretion of our management. As of October 1, 2011, $7.0 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date. The following table summarizes the purchases of our common stock for the quarter ended October 1, 2011:
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Income Taxes | 3 Months Ended |
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Oct. 01, 2011 | |
Income Tax Disclosure [Abstract] | |
Income Tax Disclosure [Text Block] | Income Taxes Our effective income tax rate for the three months ended October 1, 2011 was 24.0%, compared to an effective tax rate of 30.0% for the same period in the prior year and an effective tax rate of 23.6% for the fiscal year ended July 2, 2011. The decrease from the same period in the prior year is due to having a higher percentage of pre-tax earnings in foreign tax-free locations compared to earnings in the United States and foreign taxable locations. During the third quarter of fiscal year 2011, we further developed our tax planning strategies, allowing us to keep more profits in Honduras, a tax-free zone, thereby reducing our overall effective tax rate. We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for our tax years before 2007. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities. |
Purchase Contracts | 3 Months Ended | ||||||||||||||||||||||||||||
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Purchase Contracts [Abstract] | |||||||||||||||||||||||||||||
Purchase and Supply Commitment, Excluding Long-term Commitment [Text Block] | Purchase Contracts We have entered into agreements, and have fixed prices, to purchase yarn, natural gas, finished fabric, finished apparel and headwear products. At October 1, 2011, minimum payments under these contracts were as follows (in thousands):
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Basis of Presentation | 3 Months Ended |
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Oct. 01, 2011 | |
Basis of Presentation [Abstract] | |
Basis of Accounting [Text Block] | Basis of Presentation We prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. We believe these condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation. Operating results for the three months ended October 1, 2011 are not necessarily indicative of the results that may be expected for our fiscal year ending June 30, 2012. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality, with sales in our fourth fiscal quarter generally being the highest and sales in our second fiscal quarter generally being the lowest. For more information regarding our results of operations and financial position, refer to the consolidated financial statements and footnotes included in our Form 10-K for our fiscal year ended July 2, 2011, filed with the Securities and Exchange Commission (“SEC”). “Delta Apparel”, the “Company”, and “we”, “us” and “our” are used interchangeably to refer to Delta Apparel, Inc. together with our domestic wholly-owned subsidiaries, M.J. Soffe, LLC (“Soffe”), Junkfood Clothing Company (“Junkfood”), To The Game, LLC (“To The Game”), Art Gun, LLC (“Art Gun”), TCX, LLC (“The Cotton Exchange”) and our international subsidiaries, as appropriate to the context. We have made certain reclassifications to the presentation of the prior year results in order to conform to the current year presentation. In our Condensed Consolidated Statement of Cash Flows for the three months ended October 2, 2010, we reclassified the amount of amortization expense associated with our deferred financing costs as well as the amount of excess tax benefits from the exercise of stock options. These reclassifications had no impact on our results of operations or financial position. Delta Apparel, Inc. is an international design, marketing, manufacturing and sourcing company that features a diverse portfolio of lifestyle branded activewear apparel and headwear, and produces high-quality private label programs. We specialize in selling casual and athletic products through a variety of distribution channels. Our products are sold across distribution tiers and in most store types, including specialty stores, boutiques, department stores, mid-tier and mass channels. From a niche distribution standpoint, we also have strong distribution at college bookstores and the U.S. military. Our products are made available direct-to-consumer on our websites at www.soffe.com, www.junkfoodclothing.com, www.saltlife.com and www.deltaapparel.com. Additional products can be viewed at www.2thegame.com and www.thecottonexchange.com. We were incorporated in Georgia in 1999 and our headquarters is located at 322 South Main Street, Greenville, South Carolina 29601 (telephone number: 864-232-5200). Our common stock trades on the NYSE Amex under the symbol “DLA”. We operate on a 52-53 week fiscal year ending on the Saturday closest to June 30. |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Text Block] | Inventories Inventories, net of reserves, consist of the following (in thousands):
Raw materials include finished yarn and direct materials for the basics segment and include direct embellishment materials and undecorated garments and headwear for the branded segment. |
Debt | 3 Months Ended |
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Oct. 01, 2011 | |
Debt Disclosure [Abstract] | |
Debt Disclosure [Text Block] | Debt On May 27, 2011, Delta Apparel, Soffe, Junkfood, To The Game, Art Gun and TCX entered into a Fourth Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with the financial institutions named in the Amended Loan Agreement as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Capital Finance, LLC, as Sole Lead Arranger, and Wells Fargo Capital Finance, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Bookrunners. In connection with the Amended Loan Agreement, Israel Discount Bank of New York was removed from the syndicate of lenders under the credit facility, and Bank of America, N.A. was added to the syndicate of lenders. Pursuant to the Amended Loan Agreement, the maturity of the loans under the previously existing credit facility was extended to May 26, 2016 and the line of credit was increased to $145 million (subject to borrowing base limitations), which represents an increase of $35 million in the amount that was previously available under the credit facility. Under the Amended Loan Agreement, provided that no event of default exists, we have the option to increase the maximum credit available under the facility to $200 million (subject to borrowing base limitations), conditioned upon the Agent's ability to secure additional commitments and customary closing conditions. The credit facility is secured by a first-priority lien on substantially all of the real and personal property of Delta Apparel, Junkfood, Soffe, To The Game, Art Gun, and TCX. All loans bear interest at rates, at the Company's option, based on either (a) an adjusted LIBOR rate plus an applicable margin or (b) a base rate plus an applicable margin, with the base rate equal to the greatest of (i) the federal funds rate plus 0.5%, (ii) the LIBOR rate plus 1.0%, or (iii) the prime rate announced by Wells Fargo, National Association. The facility requires monthly installment payments of approximately $0.2 million in connection with fixed asset amortizations, and these amounts reduce the amount of availability under the facility. Annual facility fees are 0.25% or 0.375% (subject to average excess availability) of the amount by which $145 million exceeds the average daily principal balance of the outstanding loans and letters of credit accommodations. The annual facility fees are charged monthly based on the principal balances during the immediately preceding month. At October 1, 2011, we had $94.5 million outstanding under our credit facility at an average interest rate of 2.3% and had the ability to borrow an additional $48.7 million. Our credit facility includes the financial covenant that if the amount of availability falls below an amount equal to 12.5% of the lesser of the borrowing base or $145 million, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Loan Agreement) for the preceding 12 month period must not be less than 1.1 to 1.0. In addition, the credit facility includes customary conditions to funding, representations and warranties, covenants, and events of default. The covenants include, among other things, limitations on asset sales, consolidations, mergers, liens, indebtedness, loans, investments, guaranties, acquisitions, dividends, stock repurchases, and transactions with affiliates. Proceeds of the loans may be used for permitted acquisitions (as defined in the Amended Loan Agreement), general operating, working capital, or other corporate purposes, and to finance credit facility fees and expenses. Under our credit agreement, we are allowed to make cash dividends and stock repurchases if (i) as of the date of the payment or repurchase and after giving effect to the payment or repurchase, we have availability on that date of not less than $15 million and average availability for the 30 day period immediately preceding that date of not less than $15 million; and (ii) the aggregate amount of dividends and stock repurchases after May 27, 2011 does not exceed $19 million plus 50% of our cumulative net income (as defined in the Amended Loan Agreement) from the first day of fiscal year 2012 to the date of determination. At October 1, 2011, there was $19.5 million of retained earnings free of restrictions to make cash dividends or stock repurchases. The credit facility contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in ASC 470, Debt), whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. Pursuant to ASC 470, we classify borrowings under the facility as non-current debt. |
The Cotton Exchange Acquisition | 3 Months Ended |
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Oct. 01, 2011 | |
The Cotton Exchange Acquisition [Abstract] | |
The Cotton Exchange Acquisition [Text Block] | The Cotton Exchange Acquisition On June 11, 2010, we formed a new North Carolina limited liability company, TCX, LLC, as a wholly-owned subsidiary of M.J. Soffe, LLC. Pursuant to an Asset Purchase Agreement dated July 5, 2010, on July 12, 2010, TCX acquired substantially all of the net assets of HPM Apparel, Inc. d/b/a The Cotton Exchange, including accounts receivable, inventory, and fixed assets, and assumed certain liabilities. The total purchase price, which included a post-closing working capital adjustment, was $9.9 million. We finalized the valuation for the assets acquired and liabilities assumed and have determined the final allocation of the purchase price. No goodwill or other intangible assets were recorded in conjunction with the acquisition of The Cotton Exchange. |
Selling, General and Administrative Expense | 3 Months Ended |
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Oct. 01, 2011 | |
Selling, General and Administrative Expense [Abstract] | |
Selling, General and Administrative Expense [Text Block] | Selling, General and Administrative Expense We include in selling, general and administrative expenses, costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking and packing, and shipping goods for delivery to our customers. Distribution costs included in selling, general and administrative expenses totaled $3.8 million and $3.6 million for the first quarter of fiscal years 2012 and 2011, respectively. In addition, selling, general and administrative expenses include costs related to sales associates, administrative personnel cost, advertising and marketing expenses, royalty payments on licensed products and other general and administrative expenses. |
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Goodwill and Contingent Consideration [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Contingent Consideration [Text Block] | Goodwill and Intangible Assets Components of intangible assets consist of the following (in thousands):
Amortization expense for intangible assets was $0.2 million for the quarter ended October 1, 2011 and $0.6 million for the fiscal year ended July 2, 2011. Amortization expense is estimated to be approximately $0.6 million each for fiscal years 2012, 2013, 2014, 2015 and 2016. |
Accounting Policies | 3 Months Ended |
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Oct. 01, 2011 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies [Text Block] | Accounting Policies Our accounting policies are consistent with those described in our Significant Accounting Policies in our Form 10-K for our fiscal year ended July 2, 2011, filed with the Securities and Exchange Commission. |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives and Fair Value [Text Block] | Derivatives and Fair Value Measurements From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. We include all derivative instruments at fair value in our Condensed Consolidated Balance Sheets. For derivatives designated as cash flow hedges, to the extent effective, we recognize the changes in fair value in accumulated other comprehensive income (loss) until the hedged item is recognized in income. Any ineffectiveness in the hedge is recognized immediately in income in the line item that is consistent with the nature of the hedged risk. We formally document all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions, at the inception of the transactions. We are exposed to counterparty credit risks on all derivatives. Because these amounts are recorded at fair value, the full amount of our exposure is the carrying value of these instruments. We only enter into derivative transactions with well established institutions and therefore we believe the counterparty credit risk is minimal. On August 2, 2011, we entered into three separate interest rate swap agreements, effectively converting $30 million of floating rate debt under our credit facility to fixed obligations at available LIBOR rates. The $15 million interest rate swap agreement that had been entered into on March 1, 2010 matured on September 1, 2011. The outstanding financial instruments as of October 1, 2011 are as follows:
These agreements have been designated and qualify as cash flow hedging instruments and, as such changes in the fair value are recorded in accumulated other comprehensive income/loss to the extent the agreements are effective hedges. The following table summarizes the fair value and presentation in the consolidated balance sheets for derivatives as of October 1, 2011 and July 2, 2011 (in thousands):
Changes in the derivative’s fair value is deferred and recorded as a component of accumulated other comprehensive loss (“AOCL”) until the underlying transaction is recorded. When the hedged item affects income, gains or losses are reclassified from AOCL to the Condensed Consolidated Statements of Operations as interest income/expense. Any ineffectiveness in our hedging relationships, which currently is de minimis, would be recognized immediately in the Condensed Consolidated Statement of Operations. The change in fair value recognized in accumulated other comprehensive loss resulted in a loss, net of taxes, of $0.1 million and $13 thousand for the three months ended October 1, 2011 and October 2, 2010, respectively. Assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
The following financial liabilities are measured at fair value on a recurring basis (in thousands):
The fair value of the interest rate swap agreements was derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curve adjusted for our credit risk, which fall in level 2 of the fair value hierarchy. We use the projected cash flows, discounted as necessary, to remeasure the fair value of the contingent consideration for Art Gun at the end of each reporting period. Accordingly, the fair value measurement for contingent consideration falls in level 3 of the fair value hierarchy. The fair value of contingent consideration for Art Gun was determined to be de minimis as of October 1, 2011 and July 2, 2011. |
License Agreements | 3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Oct. 01, 2011 | |||||||||||||||||||||||||||||||||||||
License Agreements [Abstract] | |||||||||||||||||||||||||||||||||||||
License Agreements [Text Block] | License Agreements We have entered into license agreements that provide for royalty payments on net sales of licensed products as set forth in the agreements. These license agreements are within our branded segment. We have incurred royalty expense (included in selling, general and administrative expenses) of approximately $5.5 million and $3.9 million for the first quarter of fiscal years 2012 and 2011, respectively. Based on minimum sales requirements, future minimum royalty payments required under these existing license agreements are (in thousands):
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