UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 30, 2017
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission File Number 1-15583
DELTA APPAREL, INC.
Georgia | 58-2508794 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
2750 Premier Parkway, Suite 100 | ||
Duluth, Georgia | 30097 | |
(Address of principal executive offices) | (Zip Code) |
(678) 775-6900
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.01 | DLA | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of a “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of
FINANCIAL INFORMATION |
Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
June 2022 | September 2021 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 542 | $ | 9,376 | ||||
Accounts receivable, less allowances of $91 and $251, respectively | 68,435 | 66,973 | ||||||
Other receivables | 1,433 | 761 | ||||||
Income tax receivable | 0 | 356 | ||||||
Inventories, net | 227,671 | 161,703 | ||||||
Prepaid expenses and other current assets | 3,798 | 3,794 | ||||||
Total current assets | 301,879 | 242,963 | ||||||
Property, plant and equipment, net of accumulated depreciation of $105,998 and $99,225, respectively | 75,144 | 67,564 | ||||||
Goodwill | 37,897 | 37,897 | ||||||
Intangibles, net | 24,627 | 26,291 | ||||||
Deferred income taxes | 1,164 | 1,854 | ||||||
Operating lease assets | 47,570 | 45,279 | ||||||
Equity method investment | 10,277 | 10,433 | ||||||
Other assets | 2,893 | 2,007 | ||||||
Total assets | $ | 501,451 | $ | 434,288 | ||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 76,244 | $ | 52,936 | ||||
Accrued expenses | 25,936 | 29,949 | ||||||
Income taxes payable | 666 | 379 | ||||||
Current portion of finance leases | 8,265 | 6,621 | ||||||
Current portion of operating leases | 8,044 | 8,509 | ||||||
Current portion of long-term debt | 7,615 | 7,067 | ||||||
Current portion of contingent consideration | 563 | 0 | ||||||
Total current liabilities | 127,333 | 105,461 | ||||||
Long-term income taxes payable | 2,841 | 3,220 | ||||||
Long-term finance leases | 18,802 | 15,669 | ||||||
Long-term operating leases | 40,940 | 38,546 | ||||||
Long-term debt | 128,230 | 101,680 | ||||||
Long-term contingent consideration | 0 | 1,897 | ||||||
Other non-current liabilities | 1,591 | 3,621 | ||||||
Total liabilities | $ | 319,737 | $ | 270,094 | ||||
Shareholder's equity: | ||||||||
Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding | 0 | 0 | ||||||
Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 6,914,939 and 6,974,660 shares outstanding as of June 2022 and September 2021, respectively | 96 | 96 | ||||||
Additional paid-in capital | 60,822 | 60,831 | ||||||
Retained earnings | 166,882 | 146,860 | ||||||
Accumulated other comprehensive loss | (7 | ) | (786 | ) | ||||
Treasury stock - 2,732,033 and 2,672,312 shares as of June 2022 and September 2021, respectively | (45,432 | ) | (42,149 | ) | ||||
Equity attributable to Delta Apparel, Inc. | 182,361 | 164,852 | ||||||
Equity attributable to non-controlling interest | (647 | ) | (658 | ) | ||||
Total equity | 181,714 | 164,194 | ||||||
Total liabilities and equity | $ | 501,451 | $ | 434,288 |
December 30, 2017 | September 30, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 603 | $ | 572 | |||
Accounts receivable, less allowances of $1,502 and $1,433, respectively | 51,010 | 47,557 | |||||
Income tax receivable | 404 | 352 | |||||
Inventories, net | 174,505 | 174,551 | |||||
Note receivable | 1,031 | 2,016 | |||||
Prepaid expenses and other current assets | 3,885 | 2,646 | |||||
Total current assets | 231,438 | 227,694 | |||||
Property, plant and equipment, net of accumulated depreciation of $69,320 and $67,780, respectively | 45,449 | 42,706 | |||||
Goodwill | 19,917 | 19,917 | |||||
Intangibles, net | 15,925 | 16,151 | |||||
Deferred income taxes | 2,656 | 5,002 | |||||
Other assets | 6,277 | 6,332 | |||||
Total assets | $ | 321,662 | $ | 317,802 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 45,597 | $ | 47,183 | |||
Accrued expenses | 13,503 | 17,704 | |||||
Current portion of long-term debt | 6,600 | 7,548 | |||||
Total current liabilities | 65,700 | 72,435 | |||||
Long-term debt, less current maturities | 99,360 | 85,306 | |||||
Income tax payable | 8,058 | — | |||||
Other liabilities | 4,734 | 2,574 | |||||
Contingent consideration | 1,300 | 1,600 | |||||
Total liabilities | $ | 179,152 | $ | 161,915 | |||
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 7,227,374 and 7,300,297 shares outstanding as of December 30, 2017, and September 30, 2017, respectively | 96 | 96 | |||||
Additional paid-in capital | 59,856 | 61,065 | |||||
Retained earnings | 117,402 | 127,358 | |||||
Accumulated other comprehensive income (loss) | 51 | (35 | ) | ||||
Treasury stock —2,419,598 and 2,346,675 shares as of December 30, 2017, and September 30, 2016, respectively | (34,895 | ) | (32,597 | ) | |||
Total shareholders’ equity | 142,510 | 155,887 | |||||
Total liabilities and shareholders' equity | $ | 321,662 | $ | 317,802 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2022 | June 2021 | June 2022 | June 2021 | |||||||||||||
Net sales | $ | 126,875 | $ | 118,666 | $ | 369,319 | $ | 322,015 | ||||||||
Cost of goods sold | 96,182 | 88,427 | 282,100 | 246,677 | ||||||||||||
Gross profit | 30,693 | 30,239 | 87,219 | 75,338 | ||||||||||||
Selling, general and administrative expenses | 22,416 | 19,914 | 59,613 | 53,005 | ||||||||||||
Other (income), net | (1,018 | ) | (1,578 | ) | (1,947 | ) | (218 | ) | ||||||||
Operating income | 9,295 | 11,903 | 29,553 | 22,551 | ||||||||||||
Interest expense, net | 1,971 | 1,735 | 5,370 | 5,225 | ||||||||||||
Earnings before provision for income taxes | 7,324 | 10,168 | 24,183 | 17,326 | ||||||||||||
Provision for income taxes | 1,087 | 2,019 | 4,149 | 4,032 | ||||||||||||
Consolidated net earnings | 6,237 | 8,149 | 20,034 | 13,294 | ||||||||||||
Net (loss) income attributable to non-controlling interest | (3 | ) | (12 | ) | 11 | (149 | ) | |||||||||
Net earnings attributable to shareholders | $ | 6,240 | $ | 8,161 | $ | 20,023 | $ | 13,443 | ||||||||
Basic earnings per share | $ | 0.90 | $ | 1.17 | $ | 2.87 | $ | 1.93 | ||||||||
Diluted earnings per share | $ | 0.88 | $ | 1.14 | $ | 2.84 | $ | 1.90 | ||||||||
Weighted average number of shares outstanding | 6,946 | 6,975 | 6,966 | 6,956 | ||||||||||||
Dilutive effect of stock awards | 119 | 153 | 95 | 121 | ||||||||||||
Weighted average number of shares assuming dilution | 7,065 | 7,128 | 7,061 | 7,077 |
Three Months Ended | |||||||
December 30, 2017 | December 31, 2016 | ||||||
Net sales | $ | 90,342 | $ | 85,335 | |||
Cost of goods sold | 73,972 | 67,777 | |||||
Gross profit | 16,370 | 17,558 | |||||
Selling, general and administrative expenses | 14,979 | 17,311 | |||||
Change in fair value of contingent consideration | (300 | ) | (100 | ) | |||
Other income, net | (47 | ) | (122 | ) | |||
Operating income | 1,738 | 469 | |||||
Interest expense, net | 1,334 | 1,301 | |||||
Income (loss) before provision for income taxes | 404 | (832 | ) | ||||
Provision for (benefit from) income taxes | 10,356 | (225 | ) | ||||
Net loss | $ | (9,952 | ) | $ | (607 | ) | |
Basic loss per share | $ | (1.37 | ) | $ | (0.08 | ) | |
Diluted loss per share | $ | (1.37 | ) | $ | (0.08 | ) | |
Weighted average number of shares outstanding | 7,268 | 7,598 | |||||
Dilutive effect of stock options and awards | — | — | |||||
Weighted average number of shares assuming dilution | 7,268 | 7,598 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Loss
(Amounts in thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2022 | June 2021 | June 2022 | June 2021 | |||||||||||||
Net earnings attributable to shareholders | $ | 6,240 | $ | 8,161 | $ | 20,023 | $ | 13,443 | ||||||||
Other comprehensive income related to unrealized gain on derivatives, net of income tax | 186 | 105 | 779 | 429 | ||||||||||||
Consolidated comprehensive income | $ | 6,426 | $ | 8,266 | $ | 20,802 | $ | 13,872 |
Three Months Ended | |||||||
December 30, 2017 | December 31, 2016 | ||||||
Net loss | $ | (9,952 | ) | $ | (607 | ) | |
Other comprehensive income related to unrealized gain on derivatives, net of income tax | 85 | 49 | |||||
Comprehensive loss | $ | (9,867 | ) | $ | (558 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)thousands, except share amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Interest | Total | ||||||||||||||||||||||||||||
Balance as of September 2020 | 9,646,972 | $ | 96 | $ | 61,005 | $ | 126,564 | $ | (1,322 | ) | 2,756,854 | $ | (43,133 | ) | $ | (524 | ) | $ | 142,686 | |||||||||||||||||
Net earnings | - | 0 | 0 | 883 | 0 | - | 0 | 0 | 883 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 125 | - | 0 | 0 | 125 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | (40 | ) | (40 | ) | |||||||||||||||||||||||||
Vested stock awards | 0 | 0 | (2,117 | ) | 0 | 0 | (84,542 | ) | 984 | 0 | (1,133 | ) | ||||||||||||||||||||||||
Stock based compensation | - | 0 | 676 | 0 | 0 | - | 0 | 0 | 676 | |||||||||||||||||||||||||||
Balance as of December 2020 | 9,646,972 | $ | 96 | $ | 59,564 | $ | 127,447 | $ | (1,197 | ) | 2,672,312 | $ | (42,149 | ) | $ | (564 | ) | $ | 143,197 | |||||||||||||||||
Net earnings | - | 0 | 0 | 4,398 | 0 | - | 0 | 0 | 4,398 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 199 | - | 0 | 0 | 199 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | (97 | ) | (97 | ) | |||||||||||||||||||||||||
Vested stock awards | - | 0 | 0 | 0 | 0 | - | 0 | 0 | 0 | |||||||||||||||||||||||||||
Purchase of common stock | - | 0 | 0 | 0 | 0 | - | 0 | 0 | 0 | |||||||||||||||||||||||||||
Stock based compensation | - | 0 | 278 | 0 | 0 | - | 0 | 0 | 278 | |||||||||||||||||||||||||||
Balance as of March 2021 | 9,646,972 | $ | 96 | $ | 59,842 | $ | 131,845 | $ | (998 | ) | 2,672,312 | $ | (42,149 | ) | $ | (661 | ) | $ | 147,975 | |||||||||||||||||
Net earnings | - | 0 | 0 | 8,161 | 0 | - | 0 | 0 | 8,161 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 105 | - | 0 | 0 | 105 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | (12 | ) | (12 | ) | |||||||||||||||||||||||||
Stock based compensation | - | 0 | 442 | 0 | 0 | - | 0 | 0 | 442 | |||||||||||||||||||||||||||
Balance as of June 2021 | 9,646,972 | $ | 96 | $ | 60,284 | $ | 140,006 | $ | (893 | ) | 2,672,312 | $ | (42,149 | ) | $ | (673 | ) | $ | 156,671 |
Three Months Ended | |||||||
December 30, 2017 | December 31, 2016 | ||||||
Operating activities: | |||||||
Net loss | $ | (9,952 | ) | $ | (607 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 2,433 | 2,415 | |||||
Amortization of deferred financing fees | 76 | 78 | |||||
Provision for deferred income taxes | 2,346 | (194 | ) | ||||
Non-cash stock compensation | 437 | 369 | |||||
Change in the fair value of contingent consideration | (300 | ) | (100 | ) | |||
Loss on disposal of equipment | — | 5 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | (3,453 | ) | 15,448 | ||||
Inventories, net | 46 | (14,791 | ) | ||||
Prepaid expenses and other assets | (1,252 | ) | (770 | ) | |||
Other non-current assets | 61 | — | |||||
Accounts payable | (1,902 | ) | 3,063 | ||||
Accrued expenses | (4,290 | ) | (5,264 | ) | |||
Income taxes | 8,007 | (150 | ) | ||||
Other liabilities | (71 | ) | 44 | ||||
Net cash used in operating activities | (7,814 | ) | (454 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment, net | (2,162 | ) | (1,883 | ) | |||
Proceeds from sale of Junkfood assets | 1,000 | — | |||||
Proceeds from sale of fixed assets | 1 | — | |||||
Net cash used in investing activities | (1,161 | ) | (1,883 | ) | |||
Financing activities: | |||||||
Proceeds from long-term debt | 119,529 | 115,707 | |||||
Repayment of long-term debt | (106,424 | ) | (111,749 | ) | |||
Repayment of capital financing | (257 | ) | (101 | ) | |||
Repurchase of common stock | (2,897 | ) | (965 | ) | |||
Payment of withholding taxes on stock awards | (945 | ) | (542 | ) | |||
Net cash provided by financing activities | 9,006 | 2,350 | |||||
Net increase in cash and cash equivalents | 31 | 13 | |||||
Cash and cash equivalents at beginning of period | 572 | 397 | |||||
Cash and cash equivalents at end of period | $ | 603 | $ | 410 | |||
Supplemental cash flow information: | |||||||
Cash paid during the period for interest | $ | 1,094 | $ | 1,209 | |||
Cash paid during the period for income taxes | $ | 19 | $ | 94 | |||
Non-cash financing activity - capital lease agreements | $ | 3,050 | $ | 1,619 |
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | Non- | ||||||||||||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Controlling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | Interest | Total | ||||||||||||||||||||||||||||
Balance as of September 2021 | 9,646,972 | $ | 96 | $ | 60,831 | $ | 146,860 | $ | (786 | ) | 2,672,312 | $ | (42,149 | ) | $ | (658 | ) | $ | 164,194 | |||||||||||||||||
Net earnings | - | 0 | 0 | 3,645 | 0 | - | 0 | 0 | 3,645 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 212 | - | 0 | 0 | 212 | |||||||||||||||||||||||||||
Net income attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | 25 | 25 | |||||||||||||||||||||||||||
Purchase of common stock | 0 | 0 | 0 | 0 | 0 | 74,232 | (2,143 | ) | 0 | (2,143 | ) | |||||||||||||||||||||||||
Vested stock awards | 0 | 0 | (1,766 | ) | 0 | 0 | (76,460 | ) | 674 | 0 | (1,092 | ) | ||||||||||||||||||||||||
Stock based compensation | - | 0 | 140 | 0 | 0 | - | 0 | 0 | 140 | |||||||||||||||||||||||||||
Balance as of December 2021 | 9,646,972 | $ | 96 | $ | 59,205 | $ | 150,505 | $ | (574 | ) | 2,670,084 | $ | (43,618 | ) | $ | (633 | ) | $ | 164,981 | |||||||||||||||||
Net earnings | - | 0 | 0 | 10,137 | 0 | - | 0 | 0 | 10,137 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 381 | - | 0 | 0 | 381 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | (11 | ) | (11 | ) | |||||||||||||||||||||||||
Purchase of common stock | 0 | 0 | 0 | 0 | 0 | 28,015 | (846 | ) | 0 | (846 | ) | |||||||||||||||||||||||||
Stock based compensation | - | 0 | 714 | 0 | 0 | - | 0 | 0 | 714 | |||||||||||||||||||||||||||
Balance as of March 2022 | 9,646,972 | $ | 96 | $ | 59,919 | $ | 160,642 | $ | (193 | ) | 2,698,099 | $ | (44,464 | ) | $ | (644 | ) | $ | 175,356 | |||||||||||||||||
Net earnings | - | 0 | 0 | 6,240 | 0 | - | 0 | 0 | 6,240 | |||||||||||||||||||||||||||
Other comprehensive income | - | 0 | 0 | 0 | 186 | - | 0 | 0 | 186 | |||||||||||||||||||||||||||
Net loss attributable to non-controlling interest | - | 0 | 0 | 0 | 0 | - | 0 | (3 | ) | (3 | ) | |||||||||||||||||||||||||
Purchase of common stock | 0 | 0 | 0 | 0 | 0 | 33,934 | (968 | ) | 0 | (968 | ) | |||||||||||||||||||||||||
Stock based compensation | - | 0 | 903 | 0 | 0 | - | 0 | 0 | 903 | |||||||||||||||||||||||||||
Balance as of June 2022 | 9,646,972 | $ | 96 | $ | 60,822 | $ | 166,882 | $ | (7 | ) | 2,732,033 | $ | (45,432 | ) | $ | (647 | ) | $ | 181,714 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended | ||||||||
June 2022 | June 2021 | |||||||
Operating activities: | ||||||||
Consolidated net earnings | $ | 20,034 | $ | 13,294 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 11,272 | 10,212 | ||||||
Amortization of deferred financing fees | 244 | 244 | ||||||
Provision for inventory market reserves | 1,484 | 1,447 | ||||||
Change in reserves for allowances on accounts receivable, net | (160 | ) | (511 | ) | ||||
Provision for deferred income taxes | 488 | 912 | ||||||
Non-cash stock compensation | 1,756 | 1,396 | ||||||
Loss (gain) on disposal of equipment | 348 | (2 | ) | |||||
Other, net | (2,263 | ) | (1,672 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (1,251 | ) | (5,458 | ) | ||||
Inventories, net | (67,452 | ) | (8,244 | ) | ||||
Prepaid expenses and other current assets | 602 | (2,136 | ) | |||||
Other non-current assets | 199 | 1,264 | ||||||
Accounts payable | 23,390 | (5,191 | ) | |||||
Accrued expenses | (1,737 | ) | 3,592 | |||||
Net operating lease liabilities | 409 | 543 | ||||||
Income taxes | 264 | 1,939 | ||||||
Other liabilities | (1,049 | ) | (626 | ) | ||||
Net cash (used in) provided by operating activities | (13,422 | ) | 11,003 | |||||
Investing activities: | ||||||||
Purchases of property and equipment | (10,931 | ) | (1,676 | ) | ||||
Proceeds from equipment purchased under finance leases | 0 | 2,312 | ||||||
Proceeds from sale of equipment | 33 | 422 | ||||||
Cash paid for intangible asset | (132 | ) | (6,655 | ) | ||||
Cash paid for business | (583 | ) | (2,527 | ) | ||||
Net cash used in investing activities | (11,613 | ) | (8,124 | ) | ||||
Financing activities: | ||||||||
Proceeds from long-term debt | 411,600 | 346,841 | ||||||
Repayment of long-term debt | (383,919 | ) | (346,131 | ) | ||||
Repayment of finance lease obligations | (5,604 | ) | (5,415 | ) | ||||
Payment of contingent consideration | 0 | (2,110 | ) | |||||
Payment of deferred financing cost | (850 | ) | 0 | |||||
Repurchase of common stock | (3,934 | ) | 0 | |||||
Payment of withholding taxes on stock awards | (1,092 | ) | (1,133 | ) | ||||
Net cash provided by (used in) financing activities | 16,201 | (7,948 | ) | |||||
Net decrease in cash and cash equivalents | (8,834 | ) | (5,069 | ) | ||||
Cash and cash equivalents at beginning of period | 9,376 | 16,458 | ||||||
Cash and cash equivalents at end of period | $ | 542 | $ | 11,389 | ||||
Supplemental cash flow information | ||||||||
Finance lease assets exchanged for finance lease liabilities | $ | 10,381 | $ | 12,290 | ||||
Operating lease assets exchanged for operating lease liabilities | $ | 6,869 | $ | 1,032 |
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and Descriptionother subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is a vertically-integrated, international apparel company. With approximately 9,100 employees worldwide, we design, manufacture, source, and market a diverse portfolio of Business
We design and internally manufacture the majority of our products. More than 90% of the apparel units that we sell are sewn in our owned or leased facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador, Honduras, and Mexico, and we 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 in Duluth, Georgia. Our common stock trades on the NYSE American under the symbol “DLA."
We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2022 fiscal year is a 52-week year and will end on October 1, 2022 ("fiscal 2022"). Accordingly, this Form 10-Q presents our third quarter of fiscal 2022. Our 2021 fiscal year was a 52-week year and ended on October 2, 2021 ("fiscal 2021").
For presentation purposes herein, all references to period ended relate to the following fiscal years and dates:
Period Ended | Fiscal Year | Date Ended |
June 2021 | Fiscal 2021 | July 3, 2021 |
September 2021 | Fiscal 2021 | October 2, 2021 |
December 2021 | Fiscal 2022 | January 1, 2022 |
March 2022 | Fiscal 2022 | April 2, 2022 |
June 2022 | Fiscal 2022 | July 2, 2022 |
We prepared the accompanying interim condensed consolidated financial statementsCondensed Consolidated Financial Statements in accordance with the instructions for Form 10-Q10-Q and Article 10 of Regulation S-X.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-month periodthree-month and nine-month periods ended
Our Condensed Consolidated Financial Statements include the “Company”, “we”, “us” and “our” are used interchangeably to refer toaccounts of Delta Apparel Inc. together with our domesticand its wholly-owned subsidiaries, including M.J. Soffe, LLC (“Soffe”), Culver City Clothing Company (f/k/a Junkfood Clothing Company) (“Junkfood”), Salt Life, LLC (“Salt Life”), and Art Gun, LLC (“Art Gun”), and other international subsidiaries, as appropriate to the context. On March 31, 2017, we sold substantially all of the assets comprising our Junkfood business to JMJD Ventures, LLC. See Note D—Divestitures, for further information on this transaction.
We make available copies of materials we file with, or furnish to, better serve our customers with same-day shippingthe SEC free of charge at https://ir.deltaapparelinc.com. The information found on our catalog productswebsite is not part of this, or any other, report that we file with, or furnish to, the SEC. In addition, we will provide upon request, at no cost, paper or electronic copies of our reports and weekly replenishmentsother filings made with the SEC. Requests should be directed to: Investor Relations Department, Delta Apparel, Inc., 2750 Premiere Parkway, Suite 100, Duluth, Georgia 30097. Requests can also be made by telephone to retailers.
Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form 10-K10-K for theour fiscal year ended September 30, 2017,2021, filed with the SEC. See Note C for consideration of recently issued accounting standards.
Recently Adopted Standards
In July 2015, December 2019, the FinancialFASB issued ASU No.2019-12,Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards BoardCodification ("FASB"ASC") 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective as of the beginning of our fiscal year 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The impact of the adoption of provision of ASU 2019-12 did not have a material impact to our financial condition, results of operations, cash flows, and disclosures.
Standards Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update ("ASU"ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326) No. 2015-11,
In May 2014, March 2020, the FASB issued ASU No. 2014-09,
.
Our Condensed Consolidated Statements of Operations include revenue streams from retail sales at our fiscal year beginning September 29, 2019. We are evaluating the effect that ASU 2016-02 will havebranded retail stores; direct-to-consumer ecommerce sales on our Consolidated Financial Statementsconsumer-facing web sites; and related disclosures.
Three Months Ended | ||||||||||||||||
June 2022 | June 2021 | |||||||||||||||
Retail | $ | 4,412 | 3 | % | $ | 3,543 | 3 | % | ||||||||
Direct-to-consumer ecommerce | 1,145 | 1 | % | 2,105 | 2 | % | ||||||||||
Wholesale | 121,318 | 96 | % | 113,018 | 95 | % | ||||||||||
Net sales | $ | 126,875 | 100 | % | $ | 118,666 | 100 | % |
Nine Months Ended | ||||||||||||||||
June 2022 | June 2021 | |||||||||||||||
Retail | $ | 9,685 | 3 | % | $ | 8,429 | 3 | % | ||||||||
Direct-to-consumer ecommerce | 3,199 | 1 | % | 5,393 | 2 | % | ||||||||||
Wholesale | 356,435 | 96 | % | 308,193 | 95 | % | ||||||||||
Net sales | $ | 369,319 | 100 | % | $ | 322,015 | 100 | % |
The table below provides net sales by reportable segment and the percentage of net sales by distribution channel for each reportable segment (in thousands):
Three Months Ended June 2022 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 106,020 | 0.1 | % | 0.4 | % | 99.5 | % | ||||||||
Salt Life Group | 20,855 | 20.8 | % | 3.4 | % | 75.8 | % | |||||||||
Total | $ | 126,875 |
Three Months Ended June 2021 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 102,562 | 0.2 | % | 0.3 | % | 99.5 | % | ||||||||
Salt Life Group | 16,104 | 20.6 | % | 11.1 | % | 68.3 | % | |||||||||
Total | $ | 118,666 |
Nine Months Ended June 2022 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 323,276 | 0.1 | % | 0.3 | % | 99.6 | % | ||||||||
Salt Life Group | 46,043 | 20.3 | % | 5.0 | % | 74.7 | % | |||||||||
Total | $ | 369,319 |
Nine Months Ended June 2021 | ||||||||||||||||
Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
Delta Group | $ | 284,404 | 0.3 | % | 0.3 | % | 99.4 | % | ||||||||
Salt Life Group | 37,611 | 20.6 | % | 12.1 | % | 67.3 | % | |||||||||
Total | $ | 322,015 |
Inventories, net of $9.9reserves of $17.4 million and $9.8$15.9 million in reserves, as of December 30, 2017, June 2022 and September 30, 2017, 2021, respectively, consisted of the following (in thousands):
December 30, 2017 | September 30, 2017 | ||||||
Raw materials | $ | 8,639 | $ | 8,973 | |||
Work in process | 16,179 | 18,543 | |||||
Finished goods | 149,687 | 147,035 | |||||
$ | 174,505 | $ | 174,551 |
June 2022 | September 2021 | |||||||
Raw materials | $ | 23,660 | $ | 17,204 | ||||
Work in process | 23,005 | 20,954 | ||||||
Finished goods | 181,006 | 123,545 | ||||||
$ | 227,671 | $ | 161,703 |
Raw materials include finished yarn and direct materials for the Delta Group, undecorated garments for the DTG2Go business, and direct embellishment materials for the Salt Life Group.
Credit Facility
On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (the(as further amended, 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, Culver City Clothing Company, (f/k/a Junkfood Clothing Company), Salt Life, LLC, and Art Gun,DTG2Go, LLC (together with(collectively, the Company, the “Companies”"Borrowers"), are co-borrowers under the Amended Credit Agreement.
On June 2, 2022, the “Borrowers”)Borrowers entered into a FirstSeventh Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “First“Seventh Amendment”).
The Amended Credit Agreement allows us to borrow up to $145$170 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
As of June 2022, we had $122.8 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.4%. Our cash on hand combined with the availability under the U.S. credit facility totaled $30.8 million. At June 2022 and September 2021 there was $25.0 million and $19.0 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.
Promissory Note
On October 8, 2018, we acquired Salt Life andsubstantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In conjunction with the acquisition, we issued twoa promissory notesnote 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$7.0 million. The promissory note beared interest at 6% with quarterly installments, commencing on March 31, 2015, which began January 2, 2019, with the final installment due on June 30, 2019. October 1, 2021. 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% onfinal payment, in accordance with the promissory note that matured June 30, 2016, andagreement, was paid in full as required. We impute interest at 3.62% onmade during the promissory note that matures on June 30, 2019. At three-months ended December 30, 2017, the discounted value of the promissory note outstanding was $3.9 million.
Honduran Debt
Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and revolving credit facility with Banco Ficohsa, both with five-year terms, and simultaneously settled the prior term loans and revolving credit facility with outstanding balances at the time of settlement of $1.1 million and $9.5 million, respectively. Additionally, in May 2022, we entered into a new term loan with a five-year term with a principal amount of $3.7 million. Each of these loans isare secured by a first-priorityfirst-priority lien on the assets of our Honduran operations and is not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. TheAs 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 objective covenants, and we intend to re-borrow funds, subject to those covenants, the amounts have been classified as long-term debt.
June 2022 | ||||
Revolving credit facility established December 2020, interest at 7.25%, due August 2025 | $ | 2,000 | ||
Term loan established December 2020, interest at 7.5%, quarterly installments beginning September 2021 through December 2025 | 7,100 | |||
Term loan established May 2022, interest at 7.5%, quarterly installments beginning March 2023 through May 2027 | 3,656 |
December 30, 2017 | |||
Revolving credit facility established March 2011, interest at 8.0% due March 2019 | $ | 4,804 | |
Term loan established March 2011, interest at 7.0%, payable monthly with a seven-year term | 243 | ||
Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term | 1,850 | ||
Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term | 1,286 | ||
Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term | 3,817 |
We include in selling, general and administrative ("SG&A") expenses the 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 $3.9$5.6 million and $3.5$5.2 million for the three-month periodsJune 2022 and 2021 quarters, respectively. Distribution costs included in SG&A expenses totaled $16.8 million and $15.6 million for the nine-months ended December 30, 2017, June 2022 and December 31, 2016,2021, 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.
On February 4, 2015, 6, 2020, our shareholders re-approvedapproved the Delta Apparel, Inc. 20102020 Stock Plan ("2010("2020 Stock Plan") thatto replace the 2010 Stock Plan, which was originally approvedpreviously re-approved by our shareholders on November 11, 2010.
Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the June 2022 and 2021 quarters, we recognized $1.1 million and $0.5 million in stock-based compensation expense, respectively. Associated with the compensation cost are income tax benefits recognized of $0.2 million and $0.1 million, respectively, for each of the three-month periods ended June 2022 and June 2021, respectively. During the nine-months ended June 2022 and June 2021, we recognized $2.4 million and $2.0 million, respectively, in stock-based compensation expense. Associated with the compensation cost are income tax benefits recognized of $0.4 million and $0.5 million, respectively, for each of the nine-months periods ended June 2022 and June 2021.
During the December 2021 quarter, performance stock units and restricted stock units representing 54,60247,700 and 92,06895,000 shares of our common stock, respectively, vested uponwith the filing of our Annual Report on Form 10-K10-K for the fiscal year ended September 30, 2017,2021, and were issued in accordance with their respective agreements. One-half of the restricted stock unitsOf these vested awards, 96,350 were payable in common stock and one-half46,350 were payable in cash. Of the performance units, 72,138 were payable in common stock and 19,930 were payable in cash.
During the three-month period ended December 30, 2017,2021 quarter, restricted stock units and performance stock units, each consisting of 55,750representing 5,000 shares of our common stock were issuedgranted and are eligible to vest upon the filing of our Annual Report on Form 10-K10-K for fiscal 2022 and are payable in common stock.
During the fiscal year ended September 28, 2019. One-half of theDecember 2021 quarter, performance stock units and restricted stock units representing 59,625 and one-half59,625 shares of our common stock, respectively, were granted and are eligible to vest upon the performance unitsfiling of our Annual Report for fiscal 2023. Of these shares, 64,625 are payable in common stock and one-half54,625 are payable in cash.
During the three-month period ended December 31, 2016,2021 quarter, restricted stock units and performance units representing 8,438 and 53,24813,000 shares of our common stock respectively, vestedwere granted and are eligible to vest upon the filing of our Annual Report on Form 10-K10-K for fiscal 2024 and are payable in common stock.
During the fiscal year ended October 1, 2016, and were issued in accordance with their respective agreements. TheMarch 2022 quarter, restricted stock units representing 42,000 shares of our common stock were granted and performance unitsare eligible to vest upon the filing of our Annual Report for fiscal 2023. Of these shares, 21,000 are payable one-half in common stock and one-half21,000 are payable in cash.
During the March 2022 quarter, restricted stock units representing 42,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report for fiscal 2024. Of these shares, 21,000 are payable in common stock and 21,000 are payable in cash.
During the June 2022 quarter, restricted stock units representing 10,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for fiscal 2022 and are payable in common stock. Additionally, restricted stock units representing 10,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report for fiscal 2023. Of these shares, 5,000 are payable in common stock and 5,000 are payable in cash. Additionally, restricted stock units representing 10,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report for fiscal 2024. Of these shares, 5,000 are payable in common stock and 5,000 are payable in cash.
During the June 2022 quarter, performance stock units representing 10,000 were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for fiscal 2023. Of these shares, 5,000 are payable in common stock and 5,000 are payable in cash. Additionally, performance stock units representing 10,000 were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for fiscal 2024. Of these shares, 5,000 are payable in common stock and 5,000 are payable in cash.
As of December 30, 2017, June 2022, there was $4.1 million$4.9 million of total unrecognized compensation cost related to unvested awards granted under the 20102020 Stock Plan. This cost is expected to be recognized over a period of 32.4 years.
We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At December 30, 2017,June 2022, minimum payments under these contracts were as follows (in thousands):
Yarn | $ | 30,480 | ||
Finished fabric | 7,620 | |||
Finished products | 11,059 | |||
$ | 49,159 |
Yarn | $ | 3,252 | |
Finished fabric | 2,271 | ||
Finished products | 21,995 | ||
$ | 27,518 |
Our operations are managed and reported in two segments, Delta Group and Salt Life Group, which reflect the manner in which the business is managed and results are reviewed by the Chief Executive Officer, who is our business in two distinct segments: branded and basics.
The basics segmentDelta Group is comprised of our business units primarily focused on garmentcore activewear styles, characterized by low fashion risk, and includes our DTG2Go and Delta Activewear (which includes Delta Catalog and FunTees) and Art Gun business units. We are a market distributeleader in the on-demand, direct-to-garment digital print and manufacture unembellished knitfulfillment industry, bringing technology and innovation to the supply chain of our many customers. We use highly-automated factory processes and our proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Our Activewear business is organized around key customer channels and how they source their various apparel needs. Delta Activewear is a preferred supplier of activewear apparel to regional and global brands, direct to retail and through wholesale markets. We offer a broad portfolio of apparel and accessories under the main brandsDelta, Delta Platinum, Soffe, and sourced-branded products that we distribute utilizing our network of fulfillment centers. Delta Platinum™, Delta Dri®, Delta Magnum Weight®,Direct services key channels, such as the screen print, promotional, and Delta Pro Weight® for saleeRetailer channels as well as the retail licensing channel, whose customers sell through to many mid-tier and mass market retailers. In our Global Brands & Retail Direct business we serve our customers as their supply chain partner, from product development to shipment of their branded products, with the majority of products being sold with value-added services including embellishment, hangtags, and ticketing. We also serve retailers by providing our portfolio of products directly to their retail stores and through their ecommerce channels. We sell our products to a diversified audience, ranging from large licensed screen printers to small independent businesses.including sporting goods and outdoor retailers, specialty and resort shops, farm and fleet stores, department stores, and mid-tier retailers. We also manufacture private label products forservice custom apparel to major branded sportswear companies, trendy regional brands, retailers, and sports-licensed apparel marketers. Typicallyall branches of the United States armed forces. We also offer our private labelSoffe products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so that
The branded segmentSalt Life Group is comprised of our business unitslifestyle brand focused on specializeda broad range of apparel garments, headwear and related accessories to meet consumer preferences and fashion trends, and includes our Salt Life Soffe, and Coast business units. Our branded segment also included our Junkfood business unit prior to its disposition on March 31, 2017.unit. These branded products are sold through specialty and boutique shops, traditional department stores, and mid-tieroutdoor retailers, sporting goods stores, e-retailers and the U.S. military, as well as direct-to-consumer through branded ecommerce sites and "brick and mortar"branded retail stores. Products in this segment are marketed under our lifestyle brandsbrand of Salt Life®, Soffe®, and COAST®, as well as other labels.
Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, and income taxes and special charges ("segment operating earnings"). Our segment operating earnings 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 Annual Report on Form 10-K10-K for the fiscal year ended September 30, 2017,2021, filed with the SEC.
Three Months Ended | |||||||
December 30, 2017 | December 31, 2016 | ||||||
Segment net sales: | |||||||
Basics | $ | 73,176 | $ | 60,838 | |||
Branded | 17,166 | 24,497 | |||||
Total net sales | $ | 90,342 | $ | 85,335 | |||
Segment operating income (loss): | |||||||
Basics | $ | 4,189 | $ | 4,684 | |||
Branded | 458 | (1,000 | ) | ||||
Total segment operating income | $ | 4,647 | $ | 3,684 |
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2022 | June 2021 | June 2022 | June 2021 | |||||||||||||
Segment net sales: | ||||||||||||||||
Delta Group | $ | 106,020 | $ | 102,562 | $ | 323,276 | $ | 284,404 | ||||||||
Salt Life Group | 20,855 | 16,104 | 46,043 | 37,611 | ||||||||||||
Total net sales | $ | 126,875 | $ | 118,666 | $ | 369,319 | $ | 322,015 | ||||||||
Segment operating earnings: | ||||||||||||||||
Delta Group (1) | $ | 10,701 | $ | 13,869 | $ | 33,557 | $ | 28,394 | ||||||||
Salt Life Group | 3,574 | 2,916 | 7,037 | 4,726 | ||||||||||||
Total segment operating earnings | $ | 14,275 | $ | 16,785 | $ | 40,594 | $ | 33,120 |
(1) In fiscal 2021, the Delta Group operating earnings included $1.3 million of expense, reported within "Other loss (income), net", related to two catastrophic hurricanes that disrupted operations during the December 2020 quarter.
The following table reconciles the segment operating incomeearnings to the consolidated income (loss)earnings before provision for (benefit from) income taxes (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
June 2022 | June 2021 | June 2022 | June 2021 | |||||||||||||
Segment operating earnings | $ | 14,275 | $ | 16,785 | $ | 40,594 | $ | 33,120 | ||||||||
Unallocated corporate expenses | 4,980 | 4,882 | 11,041 | 10,569 | ||||||||||||
Unallocated interest expense | 1,971 | 1,735 | 5,370 | 5,225 | ||||||||||||
Consolidated earnings before provision for income taxes | $ | 7,324 | $ | 10,168 | $ | 24,183 | $ | 17,326 |
Three Months Ended | |||||||
December 30, 2017 | December 31, 2016 | ||||||
Segment operating income | $ | 4,647 | $ | 3,684 | |||
Unallocated corporate expenses | 2,909 | 3,215 | |||||
Unallocated interest expense | 1,334 | 1,301 | |||||
Consolidated income (loss) before provision for (benefit from) income taxes | $ | 404 | $ | (832 | ) |
The Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was enacted. The New Tax Legislationenacted on December 22, 2017, which significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax ("transition tax") on deemed repatriated cumulative earnings of foreign subsidiaries. Duringsubsidiaries which will be paid over eight years. In addition, new taxes were imposed related to foreign income, including a tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the three-month period ended December 30, 2017, we recognized provisional amounts totaling $10.6 milliondeduction for business interest expense (“Section 163(j)"). GILTI is the excess of tax expense.the shareholder’s net controlled foreign corporations ("CFC") net tested income over the net deemed tangible income. GILTI income is eligible for a deduction of up to 50% of the income inclusion, but the deduction is limited to the amount of U.S. adjusted taxable income. The Section 163(j) limitation does not allow the amount of deductible interest to exceed the sum of the taxpayer's business interest income and 30% of the taxpayer’s adjusted taxable income. We have made reasonable estimatesincluded in our calculation of our effective tax rate the effectsestimated impact of GILTI and Section 163(j). We have elected to account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our existing deferred tax balances and the one-time transition tax; however, these amounts may change as more information becomes available. We accounted for the $10.6 million provisional amount as a discrete item for tax provision purposes, recording tax expense on our best estimate of the effect of the New Tax Legislation. Excluding the effect of this discrete item, theforeign subsidiaries.
Our effective income tax rate on operations for the three-month periodnine-months ended December 30, 2017, June 2022 was (46.4%). This tax benefit relates17.2% compared to stock option excess benefits as a result from our adoption of ASU 2016-09. This compares to an effective income tax rate of 27.0% for23.1% in the same period inof the prior year, and 5.9%an effective rate of 21.9% for the fiscal year ended September 30, 2017.
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 income and are reclassified into interest expense as the related interest payments are made. As of June 2022, all of our other comprehensive income was attributable to shareholders; none related to the non-controlling interest. Outstanding instruments as of December 30, 2017, June 2022 are as follows:
Notional | ||||||||
Effective Date | Amount | Fixed LIBOR Rate | Maturity Date | |||||
Interest Rate Swap | July | $ | 3.18% | July | ||||
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 June 2022 and September 2021 (in thousands):
June 2022 | September 2021 | |||||||
Deferred tax assets | $ | 1 | $ | 266 | ||||
Other non-current liabilities | (8 | ) | (1,052 | ) | ||||
Accumulated other comprehensive loss | $ | (7 | ) | $ | (786 | ) |
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.
ASC 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:○ | 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 ornomarket activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques. |
The following financial assets (liabilities)liabilities are measured at fair value on a recurring basis (in thousands):
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 30, 2017 | $ | 83 | — | $ | 83 | — | |||||||||
September 30, 2017 | (56 | ) | — | (56 | ) | — | |||||||||
Cotton Options | |||||||||||||||
December 30, 2017 | $ | (1 | ) | $ | (1 | ) | — | — | |||||||
September 30, 2017 | (125 | ) | (125 | ) | — | — | |||||||||
Contingent Consideration | |||||||||||||||
December 30, 2017 | $ | (1,300 | ) | — | — | $ | (1,300 | ) | |||||||
September 30, 2017 | (1,600 | ) | — | — | (1,600 | ) |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Period Ended | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Interest Rate Swaps | ||||||||||||||||
June 2022 | $ | (8 | ) | 0 | $ | (8 | ) | 0 | ||||||||
September 2021 | $ | (1,052 | ) | 0 | $ | (1,052 | ) | 0 | ||||||||
Contingent Consideration | ||||||||||||||||
June 2022 | $ | (563 | ) | 0 | 0 | $ | (563 | ) | ||||||||
September 2021 | $ | (1,897 | ) | 0 | 0 | $ | (1,897 | ) |
The fair value of the interest rate swap agreements was derived from a 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. At December 31, 2017,June 2022 and September 2021, 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 summarizesDTG2Go acquisition purchase price consisted of additional payments contingent on the fair value and presentation in the
December 30, 2017 | September 30, 2017 | ||||||
Other assets | $ | 83 | $ | — | |||
Deferred tax assets | — | 21 | |||||
Accrued expenses | — | (56 | ) | ||||
Deferred tax liabilities | (32 | ) | — | ||||
Accumulated other comprehensive income (loss) | $ | 51 | $ | (35 | ) |
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 adverse effect on our operations, financial condition, or liquidity.
As of December 30, 2017, September 28, 2019, our Board of Directors authorized management to use up to $50.0$60.0 million to repurchase stock in open market transactions under our Stock Repurchase Program.
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 1, 2017 to November 4, 2017 | 29,081 | $21.04 | 29,081 | $10.7 | million | |||||||
November 5, 2017 to December 2, 2017 | 46,444 | 20.67 | 46,444 | 9.7 | million | |||||||
December 3, 2017 to December 30, 2017 | 69,599 | 20.56 | 69,599 | 8.3 | million | |||||||
Total | 145,124 | $20.69 | 145,124 | $8.3 | million |
Components of intangible assets consist of the following (in thousands):
December 30, 2017 | September 30, 2017 | ||||||||||||||||||||
Cost | Accumulated Amortization | Net Value | Cost | Accumulated Amortization | Net Value | Economic Life | |||||||||||||||
Goodwill | $ | 19,917 | $ | — | $ | 19,917 | $ | 19,917 | $ | — | $ | 19,917 | N/A | ||||||||
Intangibles: | |||||||||||||||||||||
Tradename/trademarks | $ | 16,090 | $ | (2,329 | ) | $ | 13,761 | $ | 16,090 | $ | (2,193 | ) | $ | 13,897 | 20 – 30 yrs | ||||||
Technology | 1,220 | (978 | ) | 242 | 1,220 | (947 | ) | 273 | 10 yrs | ||||||||||||
License agreements | 2,100 | (449 | ) | 1,651 | 2,100 | (423 | ) | 1,677 | 15 – 30 yrs | ||||||||||||
Non-compete agreements | 1,037 | (766 | ) | 271 | 1,037 | (733 | ) | 304 | 4 – 8.5 yrs | ||||||||||||
Total intangibles | $ | 20,447 | $ | (4,522 | ) | $ | 15,925 | $ | 20,447 | $ | (4,296 | ) | $ | 16,151 |
June 2022 | September 2021 | |||||||||||||||||||||||||
Cost | Accumulated Amortization | Net Value | Cost | Accumulated Amortization | Net Value | Economic Life | ||||||||||||||||||||
Goodwill | $ | 37,897 | $ | — | $ | 37,897 | $ | 37,897 | $ | — | $ | 37,897 | N/A | |||||||||||||
Intangibles: | ||||||||||||||||||||||||||
Tradename/trademarks | $ | 16,000 | $ | (4,717 | ) | $ | 11,283 | $ | 16,000 | $ | (4,317 | ) | $ | 11,683 | 20 – 30 yrs | |||||||||||
Customer relationships | 7,400 | (3,028 | ) | 4,372 | 7,400 | (2,473 | ) | 4,927 | 20 yrs | |||||||||||||||||
Technology | 10,083 | (2,385 | ) | 7,698 | 9,952 | (1,715 | ) | 8237 | 10 yrs | |||||||||||||||||
License agreements | 2,100 | (914 | ) | 1,186 | 2,100 | (837 | ) | 1,263 | 15 – 30 yrs | |||||||||||||||||
Non-compete agreements | 1,657 | (1,569 | ) | 88 | 1,657 | (1,476 | ) | 181 | 4 – 8.5 yrs | |||||||||||||||||
Total intangibles | $ | 37,240 | $ | (12,613 | ) | $ | 24,627 | $ | 37,109 | $ | (10,818 | ) | $ | 26,291 |
Goodwill represents the acquired goodwill net of the cumulative$0.6 million impairment losses recorded in fiscal year 20112011. As of $0.6June 2022, the Delta Group segment assets include $18.0 million of goodwill, and the Salt Life segment assets include $19.9 million. The goodwill
Depending on the type of intangible asset, amortization is recorded on our financial statements is included in the branded segment.
On June 1, 2021, DTG2Go, LLC acquired specified net assets of Fan Print Inc., which primarily included its Autoscale.ai technology as well as immaterial net working capital. The costs to acquire the net assets were $8.0 million, of which $6.6 million was paid at closing through our existing U.S. credit facility and $1.4 million will be paid in three installments, one installment in our third quarter of fiscal 2022 and two installments remaining. The acquisition qualified as an asset acquisition in accordance with ASU 2017-01,Clarifying the Definition of a Business, as substantially all of the fair value of the net assets acquired or $8.1 million were assigned to the technology intangible asset with an estimated economic life of 10 years. The acquisition cost also consists of additional payments contingent on the adjusted operating profits resulting from the Autoscale.ai technology for the period from June 1, 2021 through October 2, 2021, as well as for our fiscal years 20182022 through 2026. These contingent earnout liabilities are recognized when the contingency is probable and 2019, approximately $0.7 million forreasonably estimable, which generally results in recognition, if earned, during the fourth quarter of each fiscal year 2020, and approximately $0.6 million for eachwhich would increase the value of fiscal years 2021 and 2022.the technology intangible asset.
None.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, in our press releases, and in other reports to our shareholders. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. The words “plan”, “estimate”, “project”, “forecast”, “outlook”, “anticipate”, “expect”, “intend”, “seek’“remain”, “seek", “believe”, “may”, “should” and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are subject to a number of business risks and inherent uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following:
● | the general U.S. and international economic conditions; | |
● | the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations, financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and supply chain disruptions; |
● | significant interruptions or disruptions within our manufacturing, distribution or other operations; |
● | deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers; |
● | the volatility and uncertainty of cotton and other raw material prices and availability; |
● | the competitive conditions in the apparel industry; |
● | our ability to predict or react to changing consumer preferences or trends; |
● | our ability to successfully open and operate new retail stores in a timely and cost-effective manner; |
● | the ability to grow, achieve synergies and realize the expected profitability of acquisitions; |
● | changes in economic, political or social stability at our offshore locations in areas in which we, or our suppliers or vendors, operate; |
● | our ability to attract and retain key management; |
● | the volatility and uncertainty of energy, fuel and related costs; |
● | material disruptions in our information systems related to our business operations; |
● | compromises of our data security; |
● | significant changes in our effective tax rate; |
● | significant litigation in either domestic or international jurisdictions; |
● | recalls, claims and negative publicity associated with product liability issues; |
● | the ability to protect our trademarks and other intellectual property; |
● | changes in international trade regulations; |
● | our ability to comply with trade regulations; |
● | changes in employment laws or regulations or our relationship with employees; |
● | negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors; |
● | the inability of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us; | |
● | restrictions on our ability to borrow capital or service our indebtedness; |
● | interest rate fluctuations increasing our obligations under our variable rate indebtedness; |
● | the ability to raise additional capital; |
● | the impairment of acquired intangible assets; |
● | foreign currency exchange rate fluctuations; |
● | the illiquidity of our shares; and |
● | price volatility in our shares and the general volatility of the stock market. |
A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations is describedset forth in Part 1 under the subheading "Risk Factors" in our Annual Report on Form 10-K for our fiscal year ended September 30, 2017,2021, filed with the SEC. Any forward-looking statements in this Quarterly Report on Form 10-Q do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake to publicly update or revise the forward-looking statements, except as required by the federal securities laws.
Business Outlook
The results of our third quarter fiscal 2022 reflect a continuation of the solid performance we achieved in the first half of fiscal 2022, which we believe thathas been driven by strong consumer demand for our strong first quarterproducts. While sales continue to grow year over year, our operating margin was negatively impacted by inflationary pressures, resulting in higher variable selling and distribution costs and lower operating margins. Our bottom line results including double-digit salesachieved diluted earnings per share of $0.88 for the third quarter.
Our five focused go-to-market strategies and our vertical manufacturing supply chain are driving growth across all of our businesses and pre-tax profitability in what is seasonally our most challenging period, provide solid momentum asthe channels we move further into our fiscal year 2018. That momentum, coupled with our recent efforts to rationalize our business, should have us well-positioned to take advantage of opportunities wherever and whenever they may arise.
The Salt Life segment exceeded the prior year third quarter with successes insales increasing by 30%. Our wholesale channel continued to demonstrate strength, and the military and strategic sporting goods channels provides good velocity in that business moving forward. Soffe’s growth was augmented by significant gross margin expansion and profitability improvement during the quarter. Soffe has many ongoing initiatives to continue its growth and further bolster its top and bottom-line performance in the coming quarters. In addition, Soffe's latestSalt Life branded retail location, recently openedfootprint was further expanded with the opening of new locations in Jacksonville, North Carolina,
Results of Operations
Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis and, in certain limited instances, we have presented our financial results on a GAAP and non-GAAP (“adjusted”) basis, which is further described in the sections entitled “Non-GAAP Financial Measures.”
Net sales were $126.9 million in the third quarter of fiscal 2022, an increase of 7% compared to the prior year third quarter net sales of $118.7 million.
Net sales in the Delta Group segment grew 3% to $106.0 million in the third quarter of fiscal 2022 compared to $102.6 million in the prior year third quarter. Delta Direct, Retail Direct and Global Brands grew 3% from prior year. Net sales for the first nine months of 2022 were $323.3 million, a 14% increase over the prior year.
The Salt Life Group segment third quarter of fiscal year 2018 were $90.32022 revenue grew 30% to $20.9 million compared to $85.3$16.1 million in the prior year period. After adjusting forthird quarter. The segment’s growth was primarily driven by growth in our wholesale channel and retail stores. For the $9.4first nine months of 2022, net sales were $46.0 million, of salesup over $8.4 million from the since-divested Junkfood business in the prior year quarter, first quarter sales grew 19% year-over-year. Each business unit achieved double-digit sales growth over the prior year quarter.
Gross margins were 18.1%24.2% for the firstthird quarter compared with 20.6% in the prior year period. Basics segment gross margins declined 270of fiscal 2022, declining 130 basis points from the prior year third quarter primarily from higher cost raw materials partially offset by the benefitsgross margin of the manufacturing realignment. Branded25.5%.
The Delta Group segment gross margins were 19.1% for the third quarter of fiscal 2022, a decline of 260 basis points from the prior year third quarter margins of 21.7%. Gross margins were primarily impacted by increased input costs. Margins for the first nine months of fiscal 2022 declined from 20.2% in prior year to 19.6% of sales in the current year.
The Salt Life Group segment gross margins improved to 37.2%50.2% in the third quarter of fiscal 2022, an improvement of 50 basis points compared to 31.1%49.7% in the prior year period.
Selling, general, and administrative expenses ("SG&A") were $15.0$22.4 million in the third quarter of fiscal 2022, or 16.6%17.7% of sales, for the quarter ended December 30, 2017, compared to 17.3$19.9 million, or 20.3%16.8% of sales, in the prior year period. When adjustedthird quarter. The increase in SG&A expenses of $2.5 million compared to exclude resultsprior year third quarter was primarily driven by higher variable selling and distribution costs. SG&A expenses for the first nine months of 2022 were $59.6 million, or 16.1% of sales, compared to $53.0 million, or 16.5% of sales, in the since-divested Junkfood businessprior year.
Other income for the 2022 and 2021 third fiscal quarters includes profits related to our Green Valley Industrial Park equity method investment. Other income for the third fiscal quarter of 2022 also includes a valuation change in our contingent consideration liabilities of $0.8 million. The first nine months of 2022 other income was $1.9 million, including profits related to our Green Valley Industrial Park equity method investment and a valuation adjustment to our contingent consideration. Other expense in the first nine months of 2021 include $1.9 million of expenses related to the impact of two hurricanes that disrupted our Honduran manufacturing facilities in the December 2020 quarter in addition to $0.4 million of long-lived asset impairment charges as the result of a strategic decision in the June 2021 quarter to exit branded Soffe retail stores.
Operating profit in the third quarter of fiscal 2022 was $9.3 million. This is a decrease of 22% over the prior year third fiscal quarter of $11.9 million of operating profit. For the first nine months of fiscal year 2022, operating income was $29.5 million.
The Delta Group segment had operating income of $10.7 million in the third fiscal quarter of 2022, or 10.1% of net sales, compared to $13.9 million, or 13.5% of net sales, in the prior year quarter, such expenses were $14.2third quarter. The decrease in operating profit was driven by declining gross margins. Operating income was $33.6 million, or 18.7%10.4% of sales, withfor the quarter's increasefirst nine months of $0.8 million primarily due to variable selling costs on significantly higher sales volumes.
The change is principally due to the reduced remaining timeSalt Life Group segment had operating income of $3.6 million in the measurement period. Thethird fiscal quarter of 2022, or 17.1% of net sales, expectations for calendar year 2019 have been reduced from the sales expectations used in the valuation of contingent consideration at acquisition due to our current view of the retail environment. Our expectations are consistent with those at September 30, 2017.
Net interest expense for the third quarters of fiscal year 2022 and 2021 was $2.0 million and $1.7 million, respectively. Net interest expense for the first quarternine months of each2022 was $5.4 million compared to $5.2 million in the prior year first nine months.
Our effective tax rate on operations for the three-monthnine-month period ended December 30, 2017,June 2022 was (46.4%)17.2%. This tax benefit relates to stock option excess benefits as a result from our adoption of ASU 2016-09. This compares to an effective income tax rate of 27.0%23.1% for the same period in the prior year and 5.9%21.9 % for the full fiscal year ended September 30, 2017.
Net income attributable to among other things, changes in interpretations and assumptions made regarding the New Tax Legislation, guidance that may be issued and actions we may take as a result of the New Tax Legislation.
Accounts receivable were $51.0$68.4 million at June 2022, compared to $48.2 million at December 31, 2016, and $47.6$67.0 million as of September 30, 2017.2021. Days sales outstanding ("DSO") decreased from 53as of June 2022 were 49 days in the prior yearcompared to 48 days, and was in line with the 49
Net inventory as of June 2022 was $227.7 million, an increase of $66.0 million from September 2021 and $75.4 million from June 2021. The improvement in DSO frominventory value is higher than both the prior third quarter and the fiscal year resultsend as a result of higher input costs impacting materials, transportation and labor combined with an increase in units on hand.
Total net debt, including capital lease financing and cash on hand, was $162.4 million at June 2022, an increase of $40.6 million from the since-divested Junkfood business, which carried higher DSO thanSeptember 2021. Cash on hand and availability under our other business units.
Non-GAAP Financial Measures
We provide all information required in accordance with U.S. GAAP, but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only U.S. GAAP financial measures. In an effort to provide investors with additional information regarding the Company'sour results, we also provide non-GAAP information that management believes is useful to investors. We discuss adjustedoperating income, adjustednet income and earnings per diluted share adjusted gross margin, adjusted selling general and administrative expenses performance measures that are, for comparison purposes, adjusted to eliminate items or results stemming from discrete events. We do this because management uses these measures in evaluating the Company'sour underlying performance on a consistent basis across periods. We also believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the Company'sour ongoing performance. These non-GAAP measures have limitationsimitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis of the Company'sor our results as reported under U.S. GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.
Liquidity and Capital Resources
Operating Cash Flows
Operating activities used $7.8resulted in a cash usage of $13.4 million and $0.5for the nine months ended June 2022 compared to $11.0 million of cash provided in the prior year. The decrease in cash provided in operating cash flows in the first three months of fiscal years 2018 and 2017, respectively. The increased use of cash from the priorcurrent year isare due to a build in inventory as a result of increased input costs and manufacturing output. This was partially offset by increased earnings in the business and change in timing of payments to suppliers to improve timing of payments and higher receivables from our customers fromin the higher sales compared to the prior year. This is offset partially by the prior year having a larger seasonal inventory build.
Investing Cash Flows
Cash outflows for capital expenditures were $10.9 million during the first threenine months of fiscal year 2018 were $2.2 million2022 compared to $1.9$1.7 million in the same period lastin the prior year. Capital expenditures in both periods primarily related to machinery and equipment, along with investments in our direct-to-consumer initiatives and information technology systems. ThereDuring the nine-months ended June 2022, there were $3.1$10.4 million inof capital expenditures financed under a capital lease arrangement and
Financing Activities
During the threenine months ended December 30, 2017,June 2022, cash provided by financing activities was $9.0$16.2 million compared to $2.4 million provided by financing activities for the three months ended December 31, 2016. The cash provided by our financing activities during the first three months of fiscal year 2018 was usedand primarily related to fund our operating activities, as well as share repurchases.
Future Liquidity and Capital Resources
See Note F – Debt to the Condensed Consolidated Financial Statements for discussion of our operations and funds available undervarious financing arrangements, including the terms of our revolving U.S. credit facility.
Our credit facility, should be sufficientas well as cash flows from operations, are intended to service our debt payment requirements, to satisfyfund our day-to-day working capital needs, and along with capital lease financing arrangements, to fund our planned capital expenditures. AnyHowever, any material deterioration in our results of operations, however, may result in the loss of our ability to borrow under our U.S. revolving credit facility and to issue letters of credit to suppliers, or may cause the borrowing availability under that facility to be insufficient for our needs. Availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness. Additionally, a significant deterioration in our business results could cause our availability to fall below minimum thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit agreement, which we may not be able to maintain. Moreover, our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in our U.S. credit agreement, our fixed charge coverage ratio (FCCR) for the preceding 12-month period must not be less than 1.1 to 1.0. While our availability at December 30, 2017,June 2022 was above the minimum thresholds specified in our credit agreement, a significant deterioration in our business could cause our availability to fall below such thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit agreement.
Share Repurchase Program
In the three months ended December 30, 2017, wethird quarter of fiscal 2022 under the previously announced share repurchase program, the Company purchased 145,12433,934 shares for $1.0 million, bringing the total amount repurchased to $56.4 million during the life of our common stock for an aggregate amountthe program. At the end of $3.0 million (see Note N-Repurchasethe third quarter of Common Stock). As of December 30, 2017, there was $8.3fiscal 2022, the Company had $3.6 million of remaining repurchase authorization remainingcapacity under our Stock Repurchase Program. We evaluate current leverage, working capital requirements, our free cash flow outlook, stock valuation and future business opportunities to determine when we believe the repurchaseits existing authorization.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared in accordance with U.S. GAAP. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounts receivable and related reserves, inventory and related reserves, the carrying value of goodwill, and the accounting for income taxes.
A detailed discussion of critical accounting policies is contained in the Significant Accounting Policies included in Note 2 to the Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2021, and there have been no changes in those policies since the filing of that Annual Report on Form 10-K with the SEC.
Environmental and Other Regulatory Matters
We are subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions and solid waste disposal. The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States. Our plants generate small quantities of hazardous waste, whichinternational operations are either recycled or disposed of off-site.
The environmental and other regulations applicable to our business are becoming increasingly stringent, and we incur capital and other expenditures annually to achieve compliance with these environmental standards.standards and regulations. We currently do not expect that the amount of expenditures required to comply with these environmental lawsstandards or other regulatory matters will have a material adverse affecteffect on our operations, financial condition or liquidity. There can be no assurance, however, that future changes in federal, state, or local regulations, interpretations of existing regulations or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, while we believe that we are currently in material compliance with all applicable environmental and other regulatory requirements, the extent of our liability, if any, for past failures to
Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to reasonably assure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s requirements. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of Changes in Internal Control Over Financial Reporting There OTHER INFORMATION Legal Proceedings See Note M—Legal Proceedings, in Part I, Item 1, which is incorporated herein by reference. Risk Factors None Unregistered Sales of Equity Securities and Use of Proceeds (c) Repurchases of Common Stock See Note N—Repurchase of Common Stock, Part I, in Item 1, which is incorporated herein by reference. Other Information None Exhibits Exhibits 31.1 31.2 32.1 32.2 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DELTA APPAREL, INC. (Registrant) Date August 4, 2022 By: /s/ Simone Walsh |