UNITED STATES SECURITIES AND EXCHANGE COMMISSION
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended March 29, 2003 | ||
| OR | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ____________ to ____________ | ||
Commission File Number 1-15583
DELTA APPAREL, INC.
| GEORGIA | 58-2508794 | |
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| (State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization) | Identification No.) |
2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
(678) 775-6900
(Not Applicable)
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.
As of April 18, 2003, there were outstanding 4,012,480 shares of the registrant’s common stock, par value of $0.01, which is the only class of the outstanding common or voting stock of the registrant.
INDEX
| Page |
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PART 1. |
Financial Information |
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Item 1. |
Financial Statements |
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Interim Condensed Consolidated Financial Statements (Unaudited): |
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Condensed Consolidated Balance Sheets— March 29, 2003 and June 29, 2002 |
3 | |||||
Condensed Consolidated Statements of Income— Three months and nine months ended March 29, 2003 and March 30, 2002 |
4 | |||||
Condensed Consolidated Statements of Cash Flows— Nine months ended March 29, 2003 and March 30, 2002 |
5 | |||||
Notes to Condensed Consolidated Financial Statements |
6-7 | |||||
Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
8-11 | ||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
11 | ||||
Item 4. |
Controls and Procedures |
12 | ||||
PART II. |
Other Information |
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Item 1. |
Legal Proceedings |
12-13 | ||||
Item 6. |
Exhibits and Reports on Form 8-K |
13 | ||||
| Signatures | 14 | |||||
| Certifications | 15-16 | |||||
| Exhibits | 17-18 | |||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| Assets | March 29, | June 29, | |||||||||
| 2003 | 2002 | ||||||||||
Current assets: |
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Cash |
$ | 228 | $ | 4,102 | |||||||
Accounts receivable, net |
20,238 | 22,812 | |||||||||
Inventories |
50,373 | 35,483 | |||||||||
Prepaid expenses and other current assets |
1,745 | 1,835 | |||||||||
Income tax receivable |
667 | — | |||||||||
Deferred income taxes |
695 | 1,119 | |||||||||
Total current assets |
73,946 | 65,351 | |||||||||
Property, plant and equipment, net |
22,157 | 22,992 | |||||||||
Other assets |
68 | 3 | |||||||||
Total assets |
$ | 96,171 | $ | 88,346 | |||||||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ | 17,987 | $ | 17,718 | |||||||
Income tax payable |
— | 1,860 | |||||||||
Current portion of long-term debt |
2,000 | 2,000 | |||||||||
Total current liabilities |
19,987 | 21,578 | |||||||||
Long-term debt |
9,909 | 3,667 | |||||||||
Deferred income taxes |
722 | 700 | |||||||||
Other liabilities |
1,371 | 1,123 | |||||||||
Total liabilities |
31,989 | 27,068 | |||||||||
Stockholders’ equity: |
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Preferred
stock—2,000,000 shares authorized; none issued and outstanding |
— | — | |||||||||
Common
stock * —par value $.01 a share, 7,500,000 shares authorized, 4,823,486 shares issued, and 4,012,480 and 4,029,302 shares outstanding as of March 29, 2003 and June 29, 2002, respectively |
48 | 48 | |||||||||
Additional paid-in capital |
53,889 | 53,889 | |||||||||
Retained earnings |
19,501 | 15,912 | |||||||||
Treasury
stock * —811,006 and 794,184 shares as of March 29, 2003 and June 29, 2002, respectively |
(9,256 | ) | (8,571 | ) | |||||||
Total stockholders’ equity |
64,182 | 61,278 | |||||||||
Total liabilities and stockholders’ equity |
$ | 96,171 | $ | 88,346 | |||||||
* Adjusted to reflect 2-for-1 stock split effective as of September 20, 2002
See accompanying notes to condensed consolidated financial statements.
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| March 29, | March 30, | March 29, | March 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net sales |
$ | 33,870 | $ | 32,860 | $ | 92,755 | $ | 88,211 | ||||||||||
Cost of goods sold |
27,755 | 26,618 | 75,515 | 75,261 | ||||||||||||||
Gross profit |
6,115 | 6,242 | 17,240 | 12,950 | ||||||||||||||
Selling, general and administrative expenses |
3,311 | 2,941 | 9,147 | 8,180 | ||||||||||||||
Provision for bad debts |
175 | 135 | 207 | 236 | ||||||||||||||
Other expense (income) |
12 | 25 | 154 | (149 | ) | |||||||||||||
Operating income |
2,617 | 3,141 | 7,732 | 4,683 | ||||||||||||||
Interest expense, net |
209 | 157 | 527 | 524 | ||||||||||||||
Income before income taxes |
2,408 | 2,984 | 7,205 | 4,159 | ||||||||||||||
Income tax expense |
923 | 1,106 | 2,774 | 1,540 | ||||||||||||||
Net income |
$ | 1,485 | $ | 1,878 | $ | 4,431 | $ | 2,619 | ||||||||||
Earnings per share |
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Basic |
$ | 0.37 | $ | 0.46 | $ | 1.09 | $ | 0.58 | ||||||||||
Diluted |
$ | 0.35 | $ | 0.43 | $ | 1.05 | $ | 0.55 | ||||||||||
Weighted average number of shares outstanding * |
4,053 | 4,075 | 4,056 | 4,495 | ||||||||||||||
Dilutive effect of stock options* |
154 | 244 | 149 | 230 | ||||||||||||||
Weighted average number of shares assuming dilution* |
4,207 | 4,319 | 4,205 | 4,725 | ||||||||||||||
* Adjusted to reflect 2-for-1 stock split effective as of September 20, 2002
See accompanying notes to condensed consolidated financial statements.
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||||||||
| March 29, | March 30, | |||||||||||
| 2003 | 2002 | |||||||||||
Operating activities: |
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Net income |
$ | 4,431 | $ | 2,619 | ||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation |
4,425 | 4,746 | ||||||||||
Deferred income taxes |
446 | (103 | ) | |||||||||
Loss (gain) on sale of property and equipment |
34 | (95 | ) | |||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
2,574 | 4,687 | ||||||||||
Inventories |
(14,890 | ) | 2,256 | |||||||||
Prepaid expenses and other current assets |
90 | 334 | ||||||||||
Other noncurrent assets |
(65 | ) | 87 | |||||||||
Accounts payable and accrued expenses |
979 | (89 | ) | |||||||||
Income taxes |
(2,527 | ) | 2,747 | |||||||||
Other liabilities |
248 | 343 | ||||||||||
Net cash (used in) provided by operating activities |
(4,255 | ) | 17,532 | |||||||||
Investing activities: |
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Purchases of property, plant and equipment |
(3,659 | ) | (1,790 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
35 | 164 | ||||||||||
Net cash used in investing activities |
(3,624 | ) | (1,626 | ) | ||||||||
Financing activities: |
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Proceeds from (repayment of) revolving credit facility, net |
7,742 | (4,685 | ) | |||||||||
Repayment of long-term financing |
(1,500 | ) | (1,500 | ) | ||||||||
Repurchase of common stock |
(1,919 | ) | (9,114 | ) | ||||||||
Proceeds from exercise of stock options |
299 | 23 | ||||||||||
Dividends paid |
(617 | ) | — | |||||||||
Net cash provided by (used in) financing activities |
4,005 | (15,276 | ) | |||||||||
Increase (decrease) in cash |
(3,874 | ) | 630 | |||||||||
Cash at beginning of period |
4,102 | 165 | ||||||||||
Cash at end of period |
$ | 228 | $ | 795 | ||||||||
Supplemental cash flow information: |
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Cash paid during the period for interest |
$ | 364 | $ | 409 | ||||||||
Cash paid during the period for income taxes |
$ | 4,788 | $ | 97 | ||||||||
Noncash financing activity—issuance of common stock |
$ | 710 | $ | 24 | ||||||||
See accompanying notes to condensed consolidated financial statements.
DELTA APPAREL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A—Basis of Presentation
The interim condensed consolidated financial statements for the three and nine months ended March 29, 2003 and March 30, 2002, included herein, have been prepared 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 29, 2003 are not necessarily indicative of the results that may be expected for the year ending June 28, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended June 29, 2002, filed with the Securities and Exchange Commission.
All references in the financial statements and related notes with regard to the number of shares or average number of shares of common stock and related prices, dividends and per share amounts have been restated to reflect the 2-for-1 stock split effective as of September 20, 2002.
Note B—Inventories
Inventories consist of the following:
| March 29, | June 29, | |||||||
| 2003 | 2002 | |||||||
Raw materials |
$ | 5,869 | $ | 4,644 | ||||
Work in process |
16,761 | 10,510 | ||||||
Finished goods |
27,743 | 20,329 | ||||||
| $ | 50,373 | $ | 35,483 | |||||
Note C—Income Taxes
The effective income tax rate on pretax income for the nine months ended March 29, 2003 was 38.5%, compared to 33.0% for the fiscal year ended June 29, 2002. In fiscal year 2002, the Company reversed the valuation allowance against its state net operating loss carryforwards, resulting in the effective tax rate of 33.0%. Based upon its assessment of current results and future outlooks, the Company believes these state net operating losses will be used in the upcoming years. The Company expects its annualized effective tax rate to more closely approximate statutory rates for fiscal year 2003.
Note D—Stock Options and Incentive Stock Awards
The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), requires use of option valuation models that were not developed for use in valuing employee stock options.
The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested options and awards in each period. Information included below has been adjusted to reflect the 2-for-1 stock split effective as of September 20, 2002.
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| March 29, | March 30, | March 29, | March 30, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income, as reported |
$ | 1,485 | $ | 1,878 | $ | 4,431 | $ | 2,619 | |||||||||
Add: Stock-based
employee compensation
expense included in
reported net income,
net of related tax effects |
110 | 89 | 374 | 242 | |||||||||||||
Deduct: Total
stock-based employee
compensation expense determined under fair
value based method for
all options and
awards, net of related
tax effects |
(81 | ) | (53 | ) | (244 | ) | (161 | ) | |||||||||
Pro forma net income |
$ | 1,514 | $ | 1,914 | $ | 4,561 | $ | 2,700 | |||||||||
Earnings per share: |
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Basic—as reported |
$0.37 | $0.46 | $1.09 | $0.58 | |||||||||||||
Basic—pro forma |
$0.37 | $0.47 | $1.12 | $0.60 | |||||||||||||
Diluted—as reported |
$0.35 | $0.43 | $1.05 | $0.55 | |||||||||||||
Diluted—pro forma |
$0.36 | $0.44 | $1.08 | $0.57 | |||||||||||||
Note E—Purchase Contracts