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-31.1 | ||
EX-31.2 | ||
EX-32.1 | ||
EX-32.2 |
PART 1. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
December 31, 2016 | October 1, 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 410 | $ | 397 | |||
Accounts receivable, less allowances of $2,549 and $1,978, respectively | 48,161 | 63,609 | |||||
Income tax receivable | 236 | 86 | |||||
Inventories, net | 179,038 | 164,247 | |||||
Prepaid expenses and other current assets | 4,887 | 4,145 | |||||
Total current assets | 232,732 | 232,484 | |||||
Property, plant and equipment, net of accumulated depreciation of $65,474 and $63,585, respectively | 43,167 | 43,503 | |||||
Goodwill | 36,729 | 36,729 | |||||
Intangibles, net | 20,587 | 20,922 | |||||
Deferred income taxes | 5,440 | 5,246 | |||||
Other assets | 5,710 | 5,768 | |||||
Total assets | $ | 344,365 | $ | 344,652 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 54,223 | $ | 51,395 | |||
Accrued expenses | 15,060 | 21,706 | |||||
Current portion of long-term debt | 8,600 | 9,192 | |||||
Total current liabilities | 77,883 | 82,293 | |||||
Long-term debt, less current maturities | 111,154 | 106,603 | |||||
Other liabilities | 2,464 | 1,241 | |||||
Contingent consideration | 2,400 | 2,500 | |||||
Total liabilities | $ | 193,901 | $ | 192,637 | |||
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 7,608,306 and 7,609,727 shares outstanding as of December 31, 2016 and October 1, 2016, respectively | 96 | 96 | |||||
Additional paid-in capital | 60,318 | 60,847 | |||||
Retained earnings | 116,072 | 116,679 | |||||
Accumulated other comprehensive loss | (63 | ) | (112 | ) | |||
Treasury stock —2,038,666 and 2,037,245 shares as of December 31, 2016 and October 1, 2016, respectively | (25,959 | ) | (25,495 | ) | |||
Total shareholders’ equity | 150,464 | 152,015 | |||||
Total liabilities and shareholders' equity | $ | 344,365 | $ | 344,652 |
Three Months Ended | |||||||
December 31, 2016 | January 2, 2016 | ||||||
Net sales | $ | 85,335 | $ | 90,171 | |||
Cost of goods sold | 67,777 | 71,292 | |||||
Gross profit | 17,558 | 18,879 | |||||
Selling, general and administrative expenses | 17,311 | 16,892 | |||||
Change in fair value of contingent consideration | (100 | ) | (200 | ) | |||
Other income, net | (122 | ) | (40 | ) | |||
Operating income | 469 | 2,227 | |||||
Interest expense, net | 1,301 | 1,276 | |||||
(Loss) income before (benefit from) provision for income taxes | (832 | ) | 951 | ||||
(Benefit from) provision for income taxes | (225 | ) | 270 | ||||
Net (loss) income | $ | (607 | ) | $ | 681 | ||
Basic (loss) earnings per share | $ | (0.08 | ) | $ | 0.09 | ||
Diluted (loss) earnings per share | $ | (0.08 | ) | $ | 0.09 | ||
Weighted average number of shares outstanding | 7,598 | 7,761 | |||||
Dilutive effect of stock options and awards | — | 193 | |||||
Weighted average number of shares assuming dilution | 7,598 | 7,954 |
Three Months Ended | |||||||
December 31, 2016 | January 2, 2016 | ||||||
Net (loss) income | $ | (607 | ) | $ | 681 | ||
Other comprehensive income related to unrealized gain on derivatives, net of income tax | 49 | 226 | |||||
Comprehensive (loss) income | $ | (558 | ) | $ | 907 |
Three Months Ended | |||||||
December 31, 2016 | January 2, 2016 | ||||||
Operating activities: | |||||||
Net (loss) income | $ | (607 | ) | $ | 681 | ||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |||||||
Depreciation and amortization | 2,415 | 2,342 | |||||
Amortization of deferred financing fees | 78 | 125 | |||||
Excess tax benefits from stock awards | — | (89 | ) | ||||
(Benefit from) provision for deferred income taxes | (194 | ) | 994 | ||||
Non-cash stock compensation | 369 | 412 | |||||
Change in the fair value of contingent consideration | (100 | ) | (200 | ) | |||
Loss (gain) on disposal of equipment | 5 | (1 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | 15,448 | 14,377 | |||||
Inventories, net | (14,791 | ) | (10,836 | ) | |||
Prepaid expenses and other assets | (770 | ) | (2,479 | ) | |||
Accounts payable | 3,063 | (1,644 | ) | ||||
Accrued expenses | (5,264 | ) | (3,826 | ) | |||
Income taxes | (150 | ) | (625 | ) | |||
Other liabilities | 44 | (240 | ) | ||||
Net cash used in operating activities | (454 | ) | (1,009 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment, net | (1,883 | ) | (1,753 | ) | |||
Proceeds from sale of fixed assets | — | 16 | |||||
Net cash used in investing activities | (1,883 | ) | (1,737 | ) | |||
Financing activities: | |||||||
Proceeds from long-term debt | 115,707 | 118,629 | |||||
Repayment of long-term debt | (111,749 | ) | (114,660 | ) | |||
Repayment of capital financing | (101 | ) | (36 | ) | |||
Repurchase of common stock | (965 | ) | (1,117 | ) | |||
Payment of withholding taxes on stock awards | (542 | ) | (163 | ) | |||
Excess tax benefits from stock awards | — | 89 | |||||
Net cash provided by financing activities | 2,350 | 2,742 | |||||
Net increase (decrease) in cash and cash equivalents | 13 | (4 | ) | ||||
Cash and cash equivalents at beginning of period | 397 | 300 | |||||
Cash and cash equivalents at end of period | $ | 410 | $ | 296 | |||
Supplemental cash flow information: | |||||||
Cash paid during the period for interest | $ | 1,209 | $ | 982 | |||
Cash paid during the period for income taxes, net of refunds received | $ | 94 | $ | 33 | |||
Non-cash financing activity - capital lease agreements | $ | 1,619 | $ | 1,336 |
Fiscal Year Ended | ||||
October 1, 2016 | ||||
Excess manufacturing costs related to the shutdown and start-up operations | $ | 1,096 | ||
Total expenses included in cost of goods sold | 1,096 | |||
Employee termination costs | 597 | |||
Fixed asset impairment | 607 | |||
Inventory and supply part impairment | 144 | |||
Other costs to exit facility | 393 | |||
Total restructuring costs | 1,741 | |||
Total manufacturing realignment expenses | $ | 2,837 |
December 31, 2016 | October 1, 2016 | ||||||
Raw materials | $ | 12,273 | $ | 11,442 | |||
Work in process | 18,526 | 18,158 | |||||
Finished goods | 148,239 | 134,647 | |||||
$ | 179,038 | $ | 164,247 |
December 31, 2016 | |||
Revolving credit facility established March, 2011, interest at 8.0% due March, 2019 | $ | 4,995 | |
Term loan established March, 2011, interest at 7.0%, payable monthly with a seven-year term | $ | 1,216 | |
Term loan established November, 2014, interest at 7.5%, payable monthly with a six-year term | $ | 2,450 | |
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term | $ | 1,577 | |
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term | $ | 4,583 |
Yarn | $ | 2,205 | |
Finished fabric | 5,875 | ||
Finished products | 20,127 | ||
$ | 28,207 |
Three Months Ended | |||||||
December 31, 2016 | January 2, 2016 | ||||||
Segment net sales: | |||||||
Basics | $ | 60,838 | $ | 61,515 | |||
Branded | 24,497 | 28,656 | |||||
Total net sales | 85,335 | 90,171 | |||||
Segment operating income (loss): | |||||||
Basics | 4,684 | 5,769 | |||||
Branded | (1,000 | ) | (750 | ) | |||
Total segment operating income | 3,684 | 5,019 |
Three Months Ended | |||||||
December 31, 2016 | January 2, 2016 | ||||||
Segment operating income | $ | 3,684 | $ | 5,019 | |||
Unallocated corporate expenses | 3,215 | 2,792 | |||||
Unallocated interest expense | 1,301 | 1,276 | |||||
Consolidated (loss) income before (benefit from) provision for income taxes | $ | (832 | ) | $ | 951 |
Effective Date | Notational Amount | Fixed LIBOR Rate | Maturity Date | |||||
Interest Rate Swap | September 9, 2013 | $15 million | 1.6480 | % | September 11, 2017 | |||
Interest Rate Swap | September 19, 2013 | $15 million | 1.4490 | % | September 19, 2017 |
◦ | 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 | ||||||||||||||
Period Ended | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Interest Rate Swaps | ||||||||||||||
December 31, 2016 | $ | (101 | ) | — | $ | (101 | ) | — | ||||||
October 1, 2016 | $ | (182 | ) | — | $ | (182 | ) | — | ||||||
Contingent Consideration | ||||||||||||||
December 31, 2016 | $ | (2,400 | ) | — | — | $ | (2,400 | ) | ||||||
October 1, 2016 | $ | (2,500 | ) | — | — | $ | (2,500 | ) |
December 31, 2016 | October 1, 2016 | ||||||
Deferred tax assets | 38 | 70 | |||||
Accrued expenses | (101 | ) | (182 | ) | |||
Accumulated other comprehensive loss | $ | (63 | ) | $ | (112 | ) |
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 | ||||||||
October 2, 2016 to November 5, 2016 | 23,609 | $15.83 | 23,609 | $8.7 | million | |||||||
November 6, 2016 to December 3, 2016 | 17,232 | $19.12 | 17,232 | $8.4 | million | |||||||
December 4, 2016 to December 31, 2016 | 5,802 | $20.32 | 5,802 | $8.3 | million | |||||||
Total | 46,643 | $17.60 | 46,643 | $8.3 | million |
Fiscal Year | Amount | ||
2017 | $ | 368 | |
2018 | 238 | ||
$ | 606 |
December 31, 2016 | October 1, 2016 | ||||||||||||||||||||
Cost | Accumulated Amortization | Net Value | Cost | Accumulated Amortization | Net Value | Economic Life | |||||||||||||||
Goodwill | $ | 36,729 | $ | — | $ | 36,729 | $ | 36,729 | $ | — | $ | 36,729 | N/A | ||||||||
Intangibles: | |||||||||||||||||||||
Tradename/trademarks | $ | 17,620 | $ | (2,670 | ) | $ | 14,950 | $ | 17,620 | $ | (2,514 | ) | $ | 15,106 | 20 – 30 yrs | ||||||
Customer relationships | 7,220 | (4,106 | ) | 3,114 | 7,220 | (4,016 | ) | 3,204 | 20 yrs | ||||||||||||
Technology | 1,220 | (856 | ) | 364 | 1,220 | (826 | ) | 394 | 10 yrs | ||||||||||||
License agreements | 2,100 | (346 | ) | 1,754 | 2,100 | (320 | ) | 1,780 | 15 – 30 yrs | ||||||||||||
Non-compete agreements | 1,287 | (882 | ) | 405 | 1,287 | (849 | ) | 438 | 4 – 8.5 yrs | ||||||||||||
Total intangibles | $ | 29,447 | $ | (8,860 | ) | $ | 20,587 | $ | 29,447 | $ | (8,525 | ) | $ | 20,922 |
• | the volatility and uncertainty of cotton and other raw material prices; |
• | the general U.S. and international economic conditions; |
• | the competitive conditions in the apparel industry; |
• | restrictions on our ability to borrow capital or service our indebtedness; |
• | the inability to successfully implement or achieve the expected cost savings associated with certain strategic initiatives; |
• | deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers; |
• | our ability to predict or react to changing consumer preferences or trends; |
• | pricing pressures and the implementation of cost reduction strategies; |
• | changes in economic, political or social stability at our offshore locations; |
• | our ability to attract and retain key management; |
• | the effect of unseasonable weather conditions on purchases of our products; |
• | significant changes in our effective tax rate; |
• | interest rate fluctuations increasing our obligations under our variable rate indebtedness; |
• | the ability to raise additional capital; |
• | the ability to grow, achieve synergies and realize the expected profitability of acquisitions; |
• | the volatility and uncertainty of energy and fuel prices; |
• | material disruptions in our information systems related to our business operations; |
• | data security or privacy breaches; |
• | significant interruptions within our manufacturing or distribution operations; |
• | changes in or our ability to comply with safety, health and environmental regulations; |
• | significant litigation in either domestic or international jurisdictions: |
• | the ability to protect our trademarks and other intellectual property; |
• | the ability to obtain and renew our significant license agreements; |
• | the impairment of acquired intangible assets; |
• | changes in ecommerce laws and regulations; |
• | changes in international trade regulations; |
• | changes in employment laws or regulations or our relationship with employees; |
• | cost increases and reduction in future profitability due to recent healthcare legislation; |
• | foreign currency exchange rate fluctuations; |
• | violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors; |
• | the illiquidity of our shares; |
• | price volatility in our shares and the general volatility of the stock market; and |
• | the costs required to comply with the regulatory landscape regarding public company governance and disclosure. |
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 |
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. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
DELTA APPAREL, INC. (Registrant) | |||
Date | February 6, 2017 | By: | /s/ Deborah H. Merrill |
Deborah H. Merrill Chief Financial Officer and President, Delta Basics |
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 |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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: | February 6, 2017 | /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; |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 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: | February 6, 2017 | /s/ Deborah H. Merrill | |
Chief Financial Officer and President, Delta Basics |
1. | The Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2016, 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: | February 6, 2017 | ||
/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 December 31, 2016, 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: | February 6, 2017 | ||
/s/ Deborah H. Merrill | |||
Deborah H. Merrill Chief Financial Officer and President, Delta Basics |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 24, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | DELTA APPAREL, INC | |
Entity Central Index Key | 0001101396 | |
Current Fiscal Year End Date | --09-30 | |
Entity Filer Category | Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2016 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 7,608,306 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Oct. 01, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowances for accounts receivable | $ 2,549 | $ 1,978 |
Accumulated Depreciation | $ 65,474 | $ 63,585 |
Shareholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 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 |
Common stock, par value (in dollars per share) | $ 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 | 7,608,306 | 7,609,727 |
Treasury stock, shares | 2,038,666 | 2,037,245 |
Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Income Statement [Abstract] | ||
Net sales | $ 85,335 | $ 90,171 |
Cost of goods sold | 67,777 | 71,292 |
Gross profit | 17,558 | 18,879 |
Selling, general and administrative expenses | 17,311 | 16,892 |
Change in fair value of contingent consideration | (100) | (200) |
Other income, net | (122) | (40) |
Operating income | 469 | 2,227 |
(Loss) income before (benefit from) provision for income taxes | (832) | 951 |
(Benefit from) provision for income taxes | (225) | 270 |
Net (loss) income | $ (607) | $ 681 |
Basic earnings per share (in dollars per share) | $ (0.08) | $ 0.09 |
Diluted earnings per share (in dollars per share) | $ (0.08) | $ 0.09 |
Weighted average number of shares outstanding (in shares) | 7,598 | 7,761 |
Dilutive effect of stock options and awards (in shares) | 0 | 193 |
Weighted average number of shares assuming dilution (in shares) | 7,598 | 7,954 |
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Comprehensive income (loss): | ||
Net (loss) income | $ (607) | $ 681 |
Other comprehensive income related to unrealized gain on derivatives, net of income tax | 49 | 226 |
Comprehensive (loss) income | $ (558) | $ 907 |
Basis of Presentation and Description of Business |
3 Months Ended |
---|---|
Dec. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Description of Business | Basis of Presentation and Description of Business 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 ("U.S. GAAP") for complete financial statements. We believe these Condensed Consolidated Financial Statements include all normal recurring adjustments considered necessary for a fair presentation. Operating results for the three months ended December 31, 2016, are not necessarily indicative of the results that may be expected for our fiscal year ending September 30, 2017. 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 June quarter generally being the highest and sales in our December 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 October 1, 2016, filed with the United States Securities and Exchange Commission (“SEC”). “Delta Apparel”, the “Company”, “we”, “us” and “our” are used interchangeably to refer to Delta Apparel, Inc. together with our domestic wholly-owned subsidiaries, including M.J. Soffe, LLC (“Soffe”), Junkfood Clothing Company (“Junkfood”), Salt Life, LLC (“Salt Life”), and Art Gun, LLC (“Art Gun”), and other international subsidiaries, as appropriate to the context. Delta Apparel, Inc. is an international apparel design, marketing, manufacturing and sourcing company that features a diverse portfolio of lifestyle basics and branded activewear apparel, headwear and related accessory products. We specialize in selling casual and athletic products through a variety of distribution channels and distribution tiers, including specialty stores, boutiques, department stores, mid and mass channels, e-retailers, and the U.S. military. Our products are also made available direct-to-consumer on our websites and in our retail stores. We believe this diversified distribution allows us to capitalize on our strengths to provide casual activewear to consumers purchasing from most types of retailers. We design and internally manufacture the majority of our products, which allows us to offer a high degree of consistency and quality controls as well as leverage scale efficiencies. One of our strengths is the speed with which we can reach the market from design to delivery. We have manufacturing operations located in the United States, El Salvador, Honduras and Mexico, and use domestic and foreign contractors as additional sources of production. Our distribution facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly replenishments to retailers. 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 MKT under the symbol “DLA”. We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2017 fiscal year is a 52-week year and will end on September 30, 2017. Our 2016 fiscal year was a 52-week year and ended on October 1, 2016. |
Accounting Policies |
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Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Accounting Policies | Accounting Policies Our accounting policies are consistent with those described in our Significant Accounting Policies in our Form 10-K for the fiscal year ended October 1, 2016, filed with the SEC. |
New Accounting Standards |
3 Months Ended |
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Dec. 31, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Accounting Standards | New Accounting Standards Standards Not Yet Adopted In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09"). This new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for annual periods beginning after December 15, 2017, for public business entities and permits the use of either the retrospective or cumulative effect transition method. Early application is permitted only for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will therefore be effective in our fiscal year beginning September 30, 2018. We are evaluating the effect that ASU 2014-09 will have on our Consolidated Financial Statements and related disclosures. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern, ("ASU 2014-15"). The new guidance requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable). Management is required to make this evaluation for both annual and interim reporting periods. When management identifies events or conditions that indicate that it is probable that the entity will be unable to meet its obligations as they become due, the standard allows management to consider the mitigating effect of its plans to determine whether substantial doubt is alleviated. Management will have to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. This guidance is effective for annual periods ending after December 15, 2016, and for interim periods within annual periods beginning thereafter, but may be adopted earlier. ASU 2014-15 will therefore be effective for our annual period ended September 30, 2017. The adoption will not have a material impact on our Consolidated Financial Statements and related disclosures. In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, ("ASU 2015-11"). This new guidance requires an entity to measure inventory at the lower of cost and net realizable value. Currently, entities measure inventory at the lower of cost or market. ASU 2015-11 replaces market with net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured under last-in, first-out or the retail inventory method. ASU 2015-11 requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities. Early application is permitted. ASU 2015-11 will therefore be effective in our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 2015-11 will have on our Consolidated Financial Statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. All leases will be required to be recorded on the balance sheet with the exception of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. ASU 2016-02 will therefore be effective in our fiscal year beginning September 29, 2019. We are evaluating the effect that ASU 2016-02 will have on our Consolidated Financial Statements and related disclosures. In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. ASU 2016-09 will therefore be effective in our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 2016-09 will have on our Consolidated Financial Statements and related disclosures. In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, ("ASU 2016-15"). ASU 2016-15 clarifies how entities should classify certain cash receipts and payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2018, and interim periods with within fiscal years beginning after December 31, 2019. ASU 2016-15 will therefore be effective in our fiscal year ending October 3, 2020. We are evaluating the effect that ASU 2016-15 will have on our Consolidated Financial Statements and related disclosures. |
Restructuring Plan |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Plan | Restructuring Plan On May 10, 2016, in connection with certain strategic manufacturing initiatives, we announced plans to realign our manufacturing operations with the closing of our textile manufacturing facility in Maiden, North Carolina, the consolidation of sew facilities in Mexico, and the expansion of production at our lower-cost Ceiba Textiles facility in Honduras. In September 2016, we sold the real estate and certain machinery, equipment and supply parts used in the Maiden facility for approximately $1.7 million. As part of the closing of the Maiden facility and the expansion of operations at our offshore facilities, we incurred the following costs in our basics segment during the third and fourth quarters of fiscal year 2016 (in thousands):
We paid $0.4 million of the above-referenced employee termination benefits during fiscal year 2016 and $0.1 million during the first quarter of fiscal year 2017, with $0.1 million remaining accrued at December 31, 2016. We do not expect to incur any significant expense related to these manufacturing initiatives in fiscal year 2017. |
Inventories |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Inventories Inventories, net of reserves of $9.1 million and $8.8 million as of December 31, 2016, and October 1, 2016, respectively, consist of the following (in thousands):
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Debt |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Debt | Debt On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, National Association and Regions Bank. Our subsidiaries, M.J. Soffe, LLC, Junkfood Clothing Company, Salt Life, LLC, and Art Gun, LLC (together with the Company, the “Companies”), are co-borrowers under the Amended Credit Agreement. The Amended Credit Agreement amends and restates our Fourth Amended and Restated Loan and Security Agreement dated May 27, 2011, which was amended on four occasions and had a maturity date of May 27, 2017. Bank of America, N.A. departed the syndicate of Lenders and Regions Bank joined the syndicate of Lenders for the Amended Credit Agreement. Bank of America, N.A. also ceased to serve as the syndication agent for the facility, and Merrill Lynch, Pierce, Fenner & Smith Incorporated is no longer a joint book runner with Wells Fargo. The Amended Credit Agreement allows us to borrow up to $145 million (subject to borrowing base limitations), including a maximum of $25 million in letters of credit. Provided that no event of default exists, we have the option to increase the maximum credit to $200 million (subject to borrowing base limitations), conditioned upon the Administrative Agent's ability to secure additional commitments and customary closing conditions. The credit facility matures on May 10, 2021. In fiscal year 2016, we paid $1.0 million in financing costs associated with the Amended Credit Agreement. As of December 31, 2016, there was $98.3 million outstanding under our U.S. revolving credit facility at an average interest rate of 2.8%, and additional borrowing availability of $17.4 million. This credit facility includes a financial covenant requiring that if the amount of availability falls below the threshold amounts set forth in the Amended Credit Agreement, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Credit Agreement) for the preceding 12-month period must not be less than 1.1 to 1.0. We were not subject to the FCCR covenant at December 31, 2016, because our availability was above the minimum required under the Amended Credit Agreement. At December 31, 2016, our FCCR was above the required 1.1 to 1.0 ratio and we would have satisfied our financial covenant had we been subject to it. At December 31, 2016, and October 1, 2016, there was $9.6 million and $10.7 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases. The Amended Credit Agreement contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in FASB Codification No. 470, Debt ("ASC 470")), 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 Amended Credit Agreement as long-term debt. In August 2013, we acquired Salt Life and issued two promissory notes in the aggregate principal amount of $22.0 million, which included a one-time installment of $9.0 million that was due and paid as required on September 30, 2014, and quarterly installments commencing on March 31, 2015, with the final installment due on June 30, 2019. The promissory notes are zero-interest notes and state that interest will be imputed as required under Section 1274 of the Internal Revenue Code. We imputed interest at 1.92% on the promissory note that matured June 30, 2016, and was paid in full as required. We impute interest at 3.62% on the promissory notes that matures on June 30, 2019. At December 31, 2016, the discounted value of the promissory note outstanding was $6.7 million. Since March, 2011, we have entered into loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, in order to finance both the operations and capital expansion of our Honduran facilities. Each of these loans are secured by a first-priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars and the carrying value of the debt approximates the fair value. The revolving credit facility requires minimum payments during each six-month period of the 18-month term; however, the loan agreement permits additional drawdowns to the extent payments are made and certain objective covenants are met. The current revolving Honduran debt, by its nature, is not long-term, as it requires scheduled payments each six months. However, as the loan permits us to re-borrow funds up to the amount repaid, subject to certain covenants, and we intend to re-borrow funds, subject to the objective covenants, the amounts have been classified as long-term debt. Information about these loans and the outstanding balance as of December 31, 2016, is as follows (in thousands):
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Selling, General and Administrative Expense |
3 Months Ended |
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Dec. 31, 2016 | |
Selling, General and Administrative Expense [Abstract] | |
Selling, General and Administrative Expense | Selling, General and Administrative Expense We include in selling, general and administrative expenses ("SG&A") costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled $3.5 million and $3.6 million for the three months ended December 31, 2016, and January 2, 2016, respectively. In addition, SG&A expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed products and other general and administrative expenses. |
Stock-Based Compensation |
3 Months Ended |
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Dec. 31, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation On February 4, 2015, our shareholders re-approved the Delta Apparel, Inc. 2010 Stock Plan ("2010 Stock Plan") that was originally approved by our shareholders on November 11, 2010. The re-approval of the 2010 Stock Plan, including the material terms of the performance goals included in the 2010 Stock Plan, enables us to continue to grant equity incentive compensation awards that are structured in a manner intended to qualify as tax deductible, performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986. Since November 2010, no additional awards have been or will be granted under either the Delta Apparel Stock Option Plan ("Option Plan") or the Delta Apparel Incentive Stock Award Plan ("Award Plan"); instead, all stock awards have been and will continue to be granted under the 2010 Stock Plan. Compensation expense is recorded on the SG&A expense line item in our Condensed Consolidated Statements of Operations over the vesting periods. During the three months ended December 31, 2016, and January 2, 2016, we recognized $0.6 million and $0.4 million, respectively, in stock-based compensation expense. 2010 Stock Plan Under the 2010 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and manner in which such awards will vest. The awards available consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. 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 Option Plan or Award Plan that are subsequently forfeited or terminated for any reason before being exercised. The 2010 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and performance stock granted in any given calendar year. If a participant dies or becomes disabled (as defined in the 2010 Stock Plan) while employed by the Company or serving as a director, all unvested awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2010 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2010 Stock Plan, and to make any other determinations that it deems necessary. During the quarter ended December 31, 2016, no restricted stock units or performance units were granted. During the three months ended December 31, 2016, restricted stock units and performance units representing8,438 and 53,248 shares of our common stock, respectively, vested upon the filing of our Annual Report on Form 10-K for the fiscal year ended October 1, 2016, and were issued in accordance with their respective agreements. One-half of the restricted stock units were payable in common stock and one-half were payable in cash. As of December 31, 2016, there was $2.3 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 1.9 years. Option Plan All options granted under the Option Plan vested prior to October 3, 2015. As such, no expense was recognized during each of the three months ended December 31, 2016, and January 2, 2016, nor were any options exercised during those periods. |
Purchase Contracts |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||
Purchase Contracts | Purchase Contracts We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel products. At December 31, 2016, minimum payments under these contracts were as follows (in thousands):
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Business Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segments | Business Segments We operate our business in two distinct segments: branded and basics. Although the two segments are similar in their production processes and regulatory environments, they are distinct in their economic characteristics, products, marketing, and distribution methods. In the second quarter of 2016, in connection with the ongoing evaluation of our current and future strategic initiatives, Robert W. Humphreys, our Chief Operating Decision Maker, began reviewing the performance of the basics and branded segments excluding general corporate expenses. Therefore, we report our financial performance on the two reportable segments, basics and branded, with corporate activities stated separately. Our financial statements reflect this reporting with prior periods adjusted accordingly. The basics segment is comprised of our business units primarily focused on garment styles characterized by low fashion risk, and includes our Delta Activewear (which includes Delta Catalog and FunTees) and Art Gun business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Delta Pro Weight® and Delta Magnum Weight® for sale to a diversified audience ranging from large licensed screen printers to small independent businesses. We also manufacture private label products for major branded sportswear companies, trendy regional brands, retailers, and sports licensed apparel marketers. Typically our private label products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so that they are fully ready for retail. Using digital print equipment and its proprietary technology, Art Gun embellishes garments to create private label, custom decorated apparel servicing the fast-growing e-retailer channels. The branded segment is comprised of our business units which are focused on specialized apparel garments and headwear to meet consumer preferences and fashion trends, and includes our Salt Life, Junkfood, Soffe, and Coast business units. These branded embellished and unembellished products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, e-retailers and the U.S. military. Products in this segment are marketed under our lifestyle brands of Salt Life®, Junk Food®, Soffe®, and COAST®, as well as other labels. The results of the Coast business have been included in the branded segment since acquisition on August 30, 2016. Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges ("segment operating earnings (loss)"). Our segment operating earnings (loss) may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Form 10-K for the fiscal year ended October 1, 2016, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).
The following reconciles the segment operating income to the consolidated (loss) income before (benefit from) provision for income taxes (in thousands):
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Income Taxes |
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Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Our effective income tax rate for the three months ended December 31, 2016, was 27.0%, compared to our effective income tax rate of 28.4% for the same period in the prior year, and 18.8% for the fiscal year ended October 1, 2016. We recorded a benefit of $0.2 million during the quarter ended December 31, 2016. We benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than the United States. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income compared to profits in the offshore taxable and tax-free jurisdictions in which we operate, our estimated annual income tax rate for the fiscal year ending September 30, 2017, is currently expected to be approximately 27.0%. However, changes in the mix of U.S. taxable income compared to profits in tax-free jurisdictions can have a significant impact on our overall effective tax rate. In addition, any changes to tax regulations could adversely affect our financial position and results of operations. We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax years 2012 through 2014, according to statute and with few exceptions, remain open to examination by various federal, state, local and foreign jurisdictions. |
Derivatives and Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives and Fair Value Measurements | 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 have designated our interest rate swap contracts as cash flow hedges of our future interest payments. As a result, the gains and losses on the swap contracts are reported as a component of other comprehensive gain/loss and are reclassified into interest expense as the related interest payments are made. Outstanding instruments as of December 31, 2016, are as follows:
From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized and unrealized gains and losses associated with them are recorded within cost of goods sold on the Condensed Consolidated Statement of Operations. FASB Codification No. 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. 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 were derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. The fair value of the interest rate swap agreements were derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. Book value for fixed rate debt approximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement). The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of December 31, 2016, and October 1, 2016 (in thousands):
In August 2013, we acquired Salt Life and issued contingent consideration payable in cash after the end of calendar year 2019 if financial performance targets involving the sale of Salt Life-branded products are met during the 2019 calendar year. We used a Monte Carlo model utilizing the historical results and projected cash flows based on the contractually defined terms, discounted as necessary, to estimate the fair value of the contingent consideration for Salt Life at acquisition as well as to remeasure the contingent consideration related to the acquisition of Salt Life at each reporting period. Accordingly, the fair value measurement for contingent consideration falls in Level 3 of the fair value hierarchy. At December 31, 2016, we had $2.4 million accrued in contingent consideration related to the Salt Life acquisition, a $0.1 million reduction from the accrual at October 1, 2016. The reduction in the fair value of contingent consideration is based on the inputs into the Monte Carlo model, including the time remaining in the measurement period. We still expect sales in calendar year 2019 to approximate the expectations for calendar 2019 sales used in the valuation of contingent consideration at acquisition. No contingent consideration is expected to be paid under the terms of our acquisition of the Art Gun business. |
Legal Proceedings |
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Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Legal Proceedings | Legal Proceedings The Sports Authority Bankruptcy Litigation Soffe is involved in several related litigation matters stemming from The Sports Authority's ("TSA") March 2, 2016, filing of a voluntary petition(s) for relief under Chapter 11 of the United States Bankruptcy Code (the "TSA Bankruptcy"). Prior to such filing, Soffe provided TSA with products to be sold on a consignment basis pursuant to a "pay by scan" agreement and the litigation matters relate to Soffe's interest in the products it provided TSA on a consignment basis (the "Products") and the proceeds derived from the sale of such products (the "Proceeds"). TSA Stores, Inc. and related entities TSA Ponce, Inc. and TSA Caribe, Inc. filed an action against Soffe on March 16, 2016, in the United States Bankruptcy Court for the District of Delaware (the "TSA Action") essentially seeking a declaratory judgment that: (i) Soffe does not own the Products but rather has a security interest that is not perfected or senior and is avoidable; (ii) Soffe only has an unsecured claim against TSA; (iii) TSA and TSA's secured creditors have valid, unavoidable and senior rights in the Products and the Products are the property of TSA’s estate; (iv) Soffe does not have a perfected purchase money security interest in the Products; (v) Soffe is not entitled to a return of the Products; and (vi) TSA can continue to sell the Products and Soffe is not entitled to any proceeds from such sales other than as an unsecured creditor. The TSA Action also contains claims seeking to avoid Soffe's filing of a financing statement related to the Products as a preference and recover the value of that transfer as well as to disallow Soffe's claims until it has returned preferential transfers or their associated value. TSA also brings a claim for a permanent injunction barring Soffe from taking certain actions. We believe that many of the claims in the TSA Action, including TSA’s claim for injunction, are now moot as a result of Soffe’s agreement to permit TSA to continue selling the Products in TSA’s going-out-of-business sale. On May 16, 2016, TSA lender Wilmington Savings Fund Society, FSB, as Successor Administrative and Collateral Agent ("WSFS"), intervened in the TSA Action seeking a declaratory judgment that: (i) WSFS has a perfected interest in the Products and Proceeds that is senior to Soffe's interest; and (ii) the Proceeds paid to Soffe must be disgorged pursuant to an order previously issued by the court. WSFS's intervening complaint also contains a separate claim seeking the disgorgement of all Proceeds paid to Soffe along with accrued and unpaid interest. Soffe has asserted counterclaims against WSFS in the TSA Action essentially seeking a declaratory judgment that: (i) WSFS is not perfected in the Products; and (ii) WSFS's interest in the Products is subordinate to Soffe's interest. On May 24, 2016, Soffe joined an appeal filed by a number of TSA consignment vendors in the United States District Court for the District of Delaware challenging an order issued in the TSA Bankruptcy that, should WSFS or TSA succeed in the TSA Action, granted TSA and/or WSFS a lien on all Proceeds received by Soffe and requiring the automatic disgorgement of such Proceeds. Soffe and another entity are the remaining consignment vendors pursuing this appeal. This appeal has been stayed pending the resolution of motions filed in the TSA Action. Although we will continue to vigorously defend against the TSA Action and pursue the above-referenced counterclaims and appeal, should TSA and/or WSFS ultimately prevail on their claims, we could be forced to disgorge all Proceeds received and forfeit our ownership rights in any Products that remain in TSA's possession. We believe the range of possible loss in this matter is currently $0 to $3.3 million; however, it is too early to determine the probable outcome and, therefore, no amount has been accrued related to this matter. Other With respect to the other significant legal proceedings for which information was reported in Part I, Item 3 of our Annual Report on Form 10-K filed with the SEC on November 29, 2016, there have been no material changes in such legal proceedings. In addition, at times we are party to various legal claims, actions and complaints. We believe that, as a result of legal defenses, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions should not have a material effect on our operations, financial condition, or liquidity. |
Repurchase of Common Stock |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of Common Stock | Repurchase of Common Stock As of December 31, 2016, our Board of Directors authorized management to use up to $40.0 million to repurchase stock in open market transactions under our Stock Repurchase Program. During the December quarter of fiscal years 2017 and 2016, we purchased 46,643 and 68,330 shares, respectively, of our common stock for a total cost of $0.8 million and $1.1 million, respectively. Through December 31, 2016, we have purchased 2,526,793 shares of our common stock for an aggregate of $31.7 million since the inception of our Stock Repurchase Program. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of December 31, 2016, $8.3 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 December 31, 2016:
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License Agreements |
3 Months Ended | ||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||
License Agreements | 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 incurred royalty expense (included in SG&A expenses) of $1.4 million and $1.9 million in each of the first quarters of fiscal years 2017 and 2016, respectively. At December 31, 2016, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):
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Goodwill and Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets | Goodwill and Intangible Assets Components of intangible assets consist of the following (in thousands):
Amortization expense for intangible assets was $0.3 million for each of the three-month periods ended December 31, 2016, and January 2, 2016. Amortization expense is estimated to be approximately $1.3 million for fiscal years 2017, 2018, and 2019, $1.2 million for fiscal year 2020 and $1.1 million for fiscal year 2021. |
Selling, General and Administrative Expense (Policies) |
3 Months Ended |
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Dec. 31, 2016 | |
Selling, General and Administrative Expense [Abstract] | |
Selling, General and Administrative Expenses | We include in selling, general and administrative expenses ("SG&A") costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. |
Restructuring Plan (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Costs | As part of the closing of the Maiden facility and the expansion of operations at our offshore facilities, we incurred the following costs in our basics segment during the third and fourth quarters of fiscal year 2016 (in thousands):
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Inventories (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories, Net of Reserves | Inventories, net of reserves of $9.1 million and $8.8 million as of December 31, 2016, and October 1, 2016, respectively, consist of the following (in thousands):
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Debt (Tables) |
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | Information about these loans and the outstanding balance as of December 31, 2016, is as follows (in thousands):
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Purchase Contracts (Tables) |
3 Months Ended | ||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||
Purchase contracts minimum payments | At December 31, 2016, minimum payments under these contracts were as follows (in thousands):
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Business Segments (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment reporting information by segment |
The following reconciles the segment operating income to the consolidated (loss) income before (benefit from) provision for income taxes (in thousands):
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Reconciliation of segment operating income to consolidated income before income taxes |
Derivatives and Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding financial instruments | Outstanding instruments as of December 31, 2016, are as follows:
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Financial liabilities measure at fair value on a recurring basis | The following financial liabilities are measured at fair value on a recurring basis (in thousands):
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Summary of fair value and presentation in the consolidated balance sheets for derivatives | The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of December 31, 2016, and October 1, 2016 (in thousands):
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License Agreements (Tables) |
3 Months Ended | ||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||
Schedule of future minimum royalty payments | At December 31, 2016, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):
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Goodwill and Intangible Assets (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Intangible Assets | Components of intangible assets consist of the following (in thousands):
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Inventories (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Oct. 01, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Inventory valuation reserves | $ 9,100 | $ 8,800 |
Inventories, net of reserves: | ||
Raw materials | 12,273 | 11,442 |
Work in process | 18,526 | 18,158 |
Finished goods | 148,239 | 134,647 |
Inventories, net | $ 179,038 | $ 164,247 |
Selling, General and Administrative Expense (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Selling, General and Administrative Expense [Abstract] | ||
Production and Distribution Costs | $ 3.5 | $ 3.6 |
Stock-Based Compensation (Narrative) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Allocated share-based compensation expense | $ 600,000 | $ 400,000 |
Performance Shares | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Vested in the period (shares) | 53,248 | |
Restricted Stock Units (RSUs) | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Vested in the period (shares) | 8,438 | |
2010 Stock Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Aggregate number of shares that may be delivered (shares) | 500,000 | |
Total compensation cost not yet recognized | $ 2,300,000 | |
Period for recognition | 1 year 10 months 24 days | |
Option Plan | Stock Options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Allocated share-based compensation expense | $ 0 |
Purchase Contracts (Details) $ in Thousands |
Dec. 31, 2016
USD ($)
|
---|---|
Long-term Purchase Commitment [Line Items] | |
Outstanding minimum payments | $ 28,207 |
Yarn | |
Long-term Purchase Commitment [Line Items] | |
Outstanding minimum payments | 2,205 |
Finished fabric | |
Long-term Purchase Commitment [Line Items] | |
Outstanding minimum payments | 5,875 |
Finished products | |
Long-term Purchase Commitment [Line Items] | |
Outstanding minimum payments | $ 20,127 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
Sep. 30, 2017 |
Oct. 01, 2016 |
|
Income Tax Contingency [Line Items] | ||||
Effective income tax rate (percent) | 27.00% | 28.40% | 18.80% | |
Income tax benefit | $ 225 | $ (270) | ||
Forecast | ||||
Income Tax Contingency [Line Items] | ||||
Effective income tax rate, excluding gain on sale of business (percentage) | 27.00% |
Legal Proceedings (Details) - The Sports Authority Bankruptcy Litigation |
Dec. 31, 2016
USD ($)
|
---|---|
Minimum | |
Loss Contingencies [Line Items] | |
Range of possible loss | $ 0 |
Maximum | |
Loss Contingencies [Line Items] | |
Range of possible loss | $ 3,300,000 |
Repurchase of Common Stock (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2016 |
Dec. 03, 2016 |
Nov. 05, 2016 |
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Class of Stock [Line Items] | |||||
Authorized amount | $ 40,000,000 | $ 40,000,000 | |||
Shares repurchased (in shares) | 46,643 | 68,330 | |||
Stock repurchased during period, value | $ 800,000 | $ 1,100,000 | |||
Aggregated number of shares repurchased (in shares) | 2,526,793 | 2,526,793 | |||
Aggregated shares repurchased, value | $ 31,700,000 | $ 31,700,000 | |||
Dollar Value of Shares that May Yet Be Purchased Under the Plans | $ 8,300,000 | $ 8,300,000 | |||
Common Stock | |||||
Class of Stock [Line Items] | |||||
Shares repurchased (in shares) | 5,802 | 17,232 | 23,609 | 46,643 | |
Average Price Paid per Share(usd per share) | $ 20.32 | $ 19.12 | $ 15.83 | $ 17.60 | |
Dollar Value of Shares that May Yet Be Purchased Under the Plans | $ 8,300,000 | $ 8,400,000 | $ 8,700,000 | $ 8,300,000 | |
Publicly Announced Plan | Common Stock | |||||
Class of Stock [Line Items] | |||||
Shares repurchased (in shares) | 5,802 | 17,232 | 23,609 | 46,643 |
License Agreements (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Jan. 02, 2016 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Royalty expense | $ 1,400 | $ 1,900 |
License Agreements, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | ||
2017 | 368 | |
2018 | 238 | |
Total due | $ 606 |
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