UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberDecember 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ---------------- ---------------____________
Commission File number 1-15583
DELTA APPAREL, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-2508794
----------------------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(678) 775-6900
------------
(Registrant's telephone number, including area code)
(Not Applicable)
----------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ].
As of October 25, 2000,January 24, 2001, there were outstanding 2,411,6432,411,743 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
PART I. Financial Information:Information Page
------
Item 1. Financial Statements
Interim Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets--
SeptemberDecember 30, 2000 and July 1, 2000 3
Condensed Consolidated Statements of Operations--
Three months and six months ended
SeptemberDecember 30, 2000 and October 2,1999January 1, 2000 4
Condensed Consolidated Statements of Cash Flows--
ThreeSix months ended
SeptemberDecember 30, 2000 and October 2,1999January 1, 2000 5
Notes to Condensed Consolidated Financial Statements 66-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-8
Item 3. Quantitative and Qualitative Disclosures about Market Risks 8Risk 9
Part II. Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 910
Signatures 1011
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
(Unaudited)
SeptemberDecember 30, July 1,
2000 2000
------------- -------------
Assets------------ ------------
Assets
Current assets:
Cash $ 3,899218 415
Accounts receivable, net 18,59918,190 22,115
Inventories 32,01639,508 28,207
Prepaid expenses and other current assets 1,2781,188 1,186
Deferred income taxes 672516 -
------------- -------------Income tax receivable 930 -
------------ ------------
Total current assets 56,46460,550 51,923
Property, plant and equipment, net 25,63424,655 26,871
Noncurrent deferred income taxes 28 -
Other assets 280206 313
------------- ------------------------- ------------
Total assets $ 82,40685,411 79,107
============= ========================= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 13,68814,250 15,116
Income taxes payable 1,426 -
Current portion of long-term debt 2,000 2,000
------------- ------------------------- ------------
Total current liabilities 17,11416,250 17,116
Long-term debt 7,1679,642 7,667
Other liabilities 696724 522
------------- -------------Noncurrent deferred income taxes 22 -
------------ ------------
Total liabilities 24,97726,638 25,305
------------- ------------------------- ------------
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized;
none issued and outstanding - -
Common stock, par value $0.01 a share, 7,500,000
shares authorized, 2,411,6432,411,743 and 2,399,8032,399,863 issued and
outstanding at SeptemberDecember 30, 2000 and July 1, 2000, repectively. 24 24
Additional paid-in capital 53,88753,889 53,778
Retained earnings 3,5184,912 -
------------- ------------------------- ------------
58,825 53,802
Less treasury stock, at cost (3,300 shares) (52) -
------------ ------------
Total stockholders' equity 57,42958,773 53,802
------------- ------------------------- ------------
Total liabilities and stockholders' equity $ 82,40685,411 79,107
============= ========================= ============
See accompanying notes to condensed consolidated financial statements.
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
(Unaudited)
Three Months Ended ------------------------------
SeptemberSix Months Ended
------------------ ----------------
December 30, October 2,January 1, December 30, January 1,
2000 1999
------------- -------------2000 2000 2000
------------ ------------ ------------ ------------
Net sales $ 30,649 28,65926,370 21,562 $ 57,019 50,221
Cost of goods sold 23,408 24,966
------------- -------------21,653 18,545 45,062 43,511
------------ ------------ ------------ ------------
Gross profit 7,241 3,6934,717 3,017 11,957 6,710
Selling, general and administrative expenses 2,444 1,8812,345 1,681 4,789 3,563
Provision for bad debts 216 24417 92 633 116
Other (income)/expense (6) 11
------------- -------------(8) 1 (14) 12
------------ ------------ ------------ ------------
Operating income 4,587 1,7771,963 1,243 6,549 3,019
Interest expense, net 295 2,213
------------- -------------261 2,074 556 4,286
------------ ------------ ------------ ------------
Income (loss) before income taxes 4,292 (436)1,702 (831) 5,993 (1,267)
Provision for income taxes 774 23
------------- -------------305 (82) 1,079 (59)
------------ ------------ ------------ ------------
Net income (loss) $ 3,518 (459)
============= =============1,397 (749) $ 4,914 (1,208)
============ ============ ============ ============
Weighted average shares outstanding (1999(2000 Proforma):
Basic 2,407,937 2,379,9002,411,679 2,386,400 2,409,775 2,383,200
Diluted 2,417,142 2,379,900
============= =============2,453,363 2,386,400 2,451,438 2,383,200
============ ============ ============ ============
Net income (loss) per common share (1999(2000 Proforma):
Basic $ 1.460.58 $ (0.19)(0.31) $ 2.04 $ (0.51)
Diluted $ 1.460.57 $ (0.19)
============= =============(0.31) $ 2.00 $ (0.51)
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
DELTA APPAREL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
ThreeSix Months Ended
SeptemberDecember 30, October 2,January 1,
2000 1999
-------------- --------------2000
------------ ----------
Cash flows from operating activities:
Net income (loss) $ 3,518 (459)4,914 (1,208)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,649 1,6393,312 3,293
Deferred income taxes (700) 24(494) -
Loss (gain) on sale of property and equipment 1 (1)6
Other - 38
Changes in operating assets and liabilities:
Accounts receivable 3,516 8,0313,925 10,326
Inventories (3,809) 1,318(11,301) (2,415)
Prepaid expenses and other current assets (92) (76)(45) (42)
Other noncurrent assets 32 22107 44
Accounts payable and accrued expenses (1,318) 2,585(756) 301
Other liabilities 174 16202 -
Income taxes payable 1,426 -
-------------- --------------(930) 312
------------ ----------
Net cash (used in) provided by operating activities 4,397 13,099(1,065) 10,655
Cash flows used in investing activities:
Purchases of property, plant and equipment (413) (80)(1,096) (1,017)
Proceeds from sale of property, plant and equipment - 3
-------------- --------------43 17
------------ ----------
Net cash used in investing activities (413) (77)(1,053) (1,000)
Cash flows used in(used in) provided by financing activities:
Repayment ofProceeds from/(repayment of) long-term financing (500) (60)1,975 (120)
Change in due to related parties, net - (13,262)
-------------- --------------(9,868)
Dividends paid (2) -
Repurchase common stock (52) -
------------ ----------
Net cash used in(used in) provided by financing activities (500) (13,322)
-------------- --------------1,921 (9,988)
------------ ----------
Net increase (decrease)decrease in cash 3,484 (300)(197) (333)
Cash balance at beginning of period 415 402
-------------- -------------------------- ----------
Cash balance at end of period $ 3,899 102
============== ==============218 69
============ ==========
Supplemental cash flow information:
Cash paid during the period for interest $ 286 6
============== ==============537 11
============ ==========
Cash paid during the period for income taxes $ 482,503 -
============== ========================== ==========
Noncash financing activity--issuance of common stock $ 110 -
============== ========================== ==========
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
Prior to June 30, 2000, Delta Apparel, Inc. (together with its predecessors, the
"Company") was a wholly owned subsidiary of Delta Woodside Industries, Inc.
("Delta Woodside" or the "Parent"). In connection with a plan to separate its
two apparel businesses, Delta Woodside transferred to the Company the assets,
liabilities, and operations of its apparel business previously conducted by the
following divisions or subsidiaries of Delta Woodside: Delta Apparel Company and
the Edgefield yarn plant. Effective June 30, 2000, Delta Woodside distributed
all the common stock of the Company to the Delta Woodside stockholders (the
"Distribution"). In connection with the Distribution, Delta Woodside
contributed, as contributions to capital, all net debt amounts owed to it by the
Company, with certain exceptions. Borrowings related to the Company under Delta
Woodside's credit agreement were repaid with the proceeds from borrowings under
the Company's new credit agreement.
The interim condensed consolidated financial statements for the three months and
six months ended SeptemberDecember 30, 2000 and October 2, 1999,January 1, 2000, 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 generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months and six months ended
SeptemberDecember 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2001. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended July 1, 2000, filed with
the Securities and Exchange Commission.
Note B--Inventories
Inventories consist of the following:
SeptemberDecember 30, July 1,
2000 2000
----------------- ----------------
Raw materials $ 2,5762,977 2,785
Work in process 11,43816,145 11,903
Finished goods 18,00220,386 13,519
----------------- ----------------
$ 32,01639,508 28,207
================= ================
Note C--Income Taxes
The effective income tax rate on pretax income for the threesix months ended SeptemberDecember
30, 2000 was 18.0%, compared to 1.3% for the fiscal year ended July 1, 2000.
Based on results to date and projections for the remainder of fiscal year 2001,
the Company expects to use its remaining federal net operating loss
carryforwards and be subject to income taxes on a portion of its income. Based
on these projections, management estimates that the valuation allowances on the
tax benefit resulting from net operating loss carryforwards will be reduced or
eliminated, resulting in an annualized forecasted effective income tax rate of
18.0%.
Note D--Cotton Procurements
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At SeptemberDecember 30, 2000, minimum
payments under these contracts with non-cancelable contract terms were $9,825.$9,884.
Note E--Computation of Basic and Diluted Net Earnings per Share (EPS) and
Proforma EPS
Basic net earnings per share is calculated by dividing the net earnings by the
weighted average common shares outstanding of Delta Apparel, Inc. For the
purposes of earnings per share, the diluted weighted average common shares
outstanding includes the shares covered by options or awards granted under the
Company's Stock Option Plan and the Company's Incentive Stock Award Plan.
Proforma net earnings per share is calculated by dividing the net earnings by
the weighted average common shares outstanding of Delta Woodside Industries,
Inc., adjusted for the distribution ratio assuming that shares distributed in
the Distribution were outstanding for the three and six months ended October 2, 1999.January 1,
2000.
The weighted average shares do not include securities that would be
anti-dilutive for each of the periods presented.
Note F--Stockholders' Equity
On November 1, 2000, the Board of Directors authorized the repurchase by the
Company in open market transactions of up to $3.0 million of Delta Apparel
common stock ("Stock Repurchase Program"). All purchases are made at the
discretion of management in accordance with IRS guidelines for share repurchases
after a spin-off. In connection with the Stock Repurchase Program, during the
three months ended December 30, 2000, the Company purchased 3,300 shares of
Delta Apparel common stock for an aggregate of $52,000.
The Company also issued a $2,412 dividend on November 30, 2000 in connection
with the redemption of all of its outstanding rights under the Shareholder
Rights Agreement dated January 27, 2000. The Redemption occurred pursuant to
resolutions adopted by the Company's Board of Directors on November 1, 2000,
which set the record date for the Redemption at November 16, 2000. Pursuant to
the provisions of the Rights Agreement, the redemption price was $0.001 per
Right. The effect of the Redemption is that the Rights are no longer outstanding
or exercisable.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains various "forward-looking statements". All
statements, other than statements of historical fact, that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future are forward-looking statements. Examples are statements that
concern future revenues, future costs, future capital expenditures, business
strategy, competitive strengths, competitive weaknesses, goals, plans,
references to future success or difficulties and other similar information. The
words "estimate", "project", "forecast", "anticipate", "expect", "intend",
"believe" and similar expressions, and discussions of strategy or intentions,
are intended to identify forward-looking statements.
The forward-looking statements in this Quarterly Report are based on the
Company's expectations and are necessarily dependent upon assumptions, estimates
and data that the Company believes are reasonable and accurate but may be
incorrect, incomplete or imprecise. Forward-looking statements are also subject
to a number of business risks and uncertainties, any of which could cause actual
results to differ materially from those set forth in or implied by the
forward-looking statements. The risks and uncertainties include, among others,
changes in the retail demand for apparel products, the cost of raw materials,
competitive conditions in the apparel and textile industries, the relative
strength of the United States dollar as against other currencies, changes in
United states trade regulations and the discovery of unknown conditions (such as
with respect to environmental matters and similar items). Accordingly, any
forward-looking statements do not purport to be predictions of future events or
circumstances and may not be realized.
The Company does not undertake publicly to update or revise the forward-looking
statements even if it becomes clear that any projected results will not be
realized.
RESULTS OF OPERATIONS
Net sales in the firstsecond quarter of fiscal year 2001 were $30.6increased 22.3% to $26.4
million an
increase of $2.0 million, or 6.9%, from net sales of $28.7 million in the firstsecond quarter of the prior fiscal year. The increase in net
sales was almost entirely the result of increased unit sales (up 8.5%21.6%,
accounting for $2.4$4.7 million). For the six months ended December 30, 2000, net
sales were $57.0 million, an increase of $6.8 million, or 13.5%, from net sales
in the six months ended January 1, 2000. The increase in net sales for the six
month period is the result of increased unit sales (up 14.4%, accounting for
$7.2 million) offset by slightly lower unit prices (down 1.4%0.7%, accounting for $0.4
million). The pricing declines were dueAs part of the marketing strategy to an average 8.0-10.0% decline in same style pricing, partially offset by an
increase inunit sales and increase
the sales of higher priced products.margin products, the Company lowered the sales prices of
some key products to generate increased sales volume. For fiscal year 2001, the
Company currently projects a sales growth at an annualized rate approachingof approximately
10% and an operating earningsprofit growth at a multiple of approximately 20% over the sales growth rate.prior fiscal
year. The Company's midrange sales expectations for the balance of fiscal year
2001 are dependent on no additional significantmaterial declines in same style pricing.
Gross profit increased to $7.2$4.7 million, or 23.6%17.9% of sales, in the first three months
of fiscal 2001ended December 30, 2000 from $3.7$3.0 million, or 12.9%14.0% of sales, in the same period
of fiscal 2000. For the first six months of fiscal year 2001, gross profit was
$12.0 million, or 21.0% of sales, an increase of $5.2 million from the first six
months of fiscal year 2000. The increased gross profit resulted fromin the three and six
months ended December 30, 2000 was the result of increased volume and the change
of the product mix towards the sale of higher margin products.
Selling, general and administrative expenses for the quarter ended December 30,
2000 were $2.8 million, or 10.5% of sales, an increase of $1.0 million, or 8.2%
of sales, in the same quarter of last year. During the threesecond quarter of fiscal
year 2001, the Company incurred $0.2 million in legal and other fees
successfully defending itself against a proxy contest and increased bad debt
reserves by $.3 million due to the Chapter 11 filing of a customer. Commissions
also increased by $0.2 million resulting from the increased sales of higher
margin products. For the six months ended SeptemberDecember 30, 2000, selling, general
and administrative expenses were $2.7 million, as compared to $1.9 million during
the three months ended October 2, 1999,9.5% of sales, an increase from 7.3% of $0.8 million or 39.6%.
For the first quarter of fiscal 2001, expenses in this category were 8.7% of net
sales as compared to 6.6% of net sales
for the first quarter of fiscalsix months ended January 1, 2000. The increase in selling, general and administrative expenses was driven by an
increase of $0.6 million in administrative costs and an increase of bad debt
expense of $0.2 million. The higher administrative costs resulted fromprimarily due to the
move of the corporate headquarters, the proxy contest, higher commission expense
resulting from the increased sales of higher margin products, public reporting
expenses, and an increase in distribution expense and increased bad debt expense.
Bad debt expense in thisThe Company's operating income increased $0.7 million to $2.0 million for the
second quarter was 0.7% of sales and is
consistent with our expectations. Thefiscal year 2001, an increase of 57.9% from the same quarter
of fiscal year 2000. For the six months ended December 30, 2000, was due to bad debt expense being unusually low in that quarter.
The Company's operating
income was $4.6increased 116.9% to $6.5 million forfrom the first quarter of fiscal
2001, compared to $1.8 million in fiscal 2000, an increase of $2.8 million or
158.1%. Delta Apparel's improvedsix months ended January 1,
2000. Improved gross profit, offset by slightly higher selling, general and
administrative costs contributed to the improvement in operating income in the first quarter of fiscal year 2001 due to the factors
described above. The Company's operating income as a percentage of net sales
increased to 15.0% for the first quarter of fiscal 2001 compared to 6.2% for the
first quarter of fiscal 2000.income.
For the three months ended SeptemberDecember 30, 2000, net interest expense was $0.3
million, as compared to $2.2$2.1 million for the three months ended October 2, 1999.
January 1, 2000.
Net interest expense for the six months ended December 30, 2000 was $0.6
million, a decrease of $3.7 million from the same period of fiscal year 2000.
This reduction was a result of the contribution to equity of the intercompany debt
in connection with the spin-off from Delta Woodside Industries, Inc. on June 30,
2000.
The effective income tax rate on pretax income for the three months and six
months ended SeptemberDecember 30, 2000 was 18.0%, compared to 1.3% for the fiscal year
ended July 1, 2000. Based on results to date and projections for the remainder
of fiscal year 2001, the Company expects to use its remaining federal net
operating loss carryforwards and be subject to income taxes on a portion of its
income. Based on these projections, management estimates that the valuation
allowances on the tax benefit resulting from net operating loss carryforwards
will be reduced or eliminated, resulting in an annualized forecasted effective
income tax rate of 18.0%.
Net income for the firstsecond quarter of fiscal year 2001 was $3.5$1.4 million, asor 5.3%
of sales compared to a net loss of $0.5$0.7 million for the firstsecond quarter of fiscal
year 2000. For the six months ended December 30, 2000, net income increased $6.1
million to $4.9 million from the loss in the six months ended January 1, 2000.
The improved net income was due to the factors described above.
Delta Apparel's order backlog at SeptemberDecember 30, 2000 was $13.0$12.8 million, a $7.2$0.4
million decrease from the $20.2$13.2 million order backlog at October 2, 1999.January 1, 2000. The
decrease in backlog is due to the reduction of forward purchase commitments
given by distributors and the increase in short notice orders from catalog
customers. This is due tothe result of the decrease in sales to distributors from
approximately 38%34% of sales in the first quartersix months of fiscal 2000 to 25%24% of
sales in the first quartersix months of fiscal 2001. As a growing percentage of the
Company's business isgoods are sold on an immediate shipment basis, Delta Apparel
believes that backlog order levels may no longer give a general indication of
future sales.
Inventories at SeptemberDecember 30, 2000 totaled $32.0$39.5 million, compared to $28.2
million at July 1, 2000. The increase in inventories is due to an increase in
manufacturing capacity which will allow the Company to meet its projected sales
growth. The Company will continue to build its inventory levels as it prepares
for its anticipated sales growth for the balance of the fiscal year.
Capital expenditures in the three months ended SeptemberDecember 30, 2000 were $0.4$0.7
million as compared to $0.1$0.9 million in the three months ended October 2, 1999.
These investmentsJanuary 1, 2000.
For the first six months of fiscal year 2001, capital expenditures were $1.1
million which was consistent with the first six months of fiscal year 2000. The
expenditures in fiscal year 2001 were primarily related to E-commerce and the
Company's expansion into Mexico.
LIQUIDITY AND CAPITAL RESOURCES
Delta Apparel's operating activities providedused cash of $4.4 million and $13.1$1.1 million in the first quartersix
months of fiscal year 2001 and the first quarter of fiscal
year 2000, respectively.2001. The cash provided in the first quarter of fiscal year
2001used was primarily due tothe result of an
increase in inventory and a decrease in accrued expenses, offset by net income
and a reduction in accounts receivable,
offset by an increase in inventory. The cash provided in the first quarter of
fiscal year 2000 was primarily due to a reduction in accounts receivable and an
increase in accounts payable and accrued expenses.receivables.
In mid-May 2000, Delta Apparel entered into a credit agreement with a lending
institution, under which the lender provided Delta Apparel with a $10 million
term loan and a 3-year $25 million revolving credit facility. All loans under
the credit agreement bear interest at rates based on an adjusted LIBOR rate plus
an applicable margin or a bank's prime rate plus an applicable margin. Delta
Apparel granted the lender a first mortgage lien on or security interest in
substantially all of its assets. Delta Apparel has the option to increase the
revolving credit facility from $25 million to $30 million, provided that no
event of default exists under the facility.
Delta Apparel expects that its peak borrowing needs will be in its third and
fourth fiscal
quartersquarter and that during those quartersthat quarter it may need to draw on the revolver or set
aside for letters of credit approximately $7.0$10.0 million under its revolving
credit facility for working capital purposes and letters of credit. At December
30, 2000, the Company had $3.0 million outstanding under the revolving credit
facility at an interest rate of 9.5%. The interest rate at December 30, 2000 on
the term loan at September 30, 2000 was 8.63%8.74%.
Based on these expectations, Delta Apparel believes that its $25 million
revolving credit facility should be sufficient to satisfy its foreseeable
working capital needs, and that the cash flow generated by its operations and
funds available under its revolving credit line should be sufficient to service
its debt payment requirements, to satisfy its day-to-day working capital needs
and to fund its planned capital expenditures. Any material deterioration in
Delta Apparel's results of operations, however, may result in Delta Apparel
losing its ability to borrow under its revolving credit facility and to issue
letters of credit to suppliers or may cause the borrowing availability under
that facility to be insufficient for Delta Apparel's needs.
On November 1, 2000, the Board of Directors authorized the repurchase by the
Company in open market transactions of up to $3.0 million of Delta Apparel
common stock ("Stock Repurchase Program"). All purchases are made at the
discretion of management in accordance with IRS guidelines for share repurchases
after a spin-off. In connection with the Stock Repurchase Program, during the
three months ended December 30, 2000, the Company purchased 3,300 shares of
Delta Apparel common stock for an aggregate of $52,000. The Company has
authorization to spend up to $3 million under its bank credit agreement for
share repurchases.
Item 3. Quantitative and Qualitative Disclosures about Market RisksRisk
COMMODITY RISK SENSITIVITY
The Company purchases cotton from approximately seven established merchants with
whom it has long standing relationships. The majority of the Company's purchases
are executed using "on-call" contracts. These on-call arrangements are used to
insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts.
Cotton on-call with a fixed price at SeptemberDecember 30, 2000 was valued at $9.8$9.9
million, and is scheduled for delivery between October, 2000January, 2001 and March,September,
2001. At SeptemberDecember 30, 2000, the Company had unpriced contracts for deliveries
between January,April, 2001 and September, 2001. Based on the prevailing price at
SeptemberDecember 30, 2000, the value of these unpriced commitments is approximately $8.2$4.3
million. Daily price fluctuations are minimal, yet long-term trends in price
movement can result in unfavorable pricing of cotton for Delta Apparel. Delta
Apparel does not use financial instruments to hedge commodity price risk. At
SeptemberDecember 30, 2000, a 10% decline in the market price of the cotton covered by
Delta Apparel's fixed price contracts would have had a negative impact of
approximately $1.0 million on the value of the contracts.
INTEREST RATE SENSITIVITY
Delta Apparel's credit agreement provides that the interest rate on outstanding
amounts owed shall bear interest at variable rates. If the amount of outstanding
indebtedness at SeptemberDecember 30, 2000 under the revolver and term loan had been the
amount outstanding during the entire three months ended SeptemberDecember 30, 2000 and
the interest rate on this outstanding indebtedness had been increased by 1%,
Delta Apparel's expense would have been approximately $0.1 million$29,000, or 11.1%, higher
during the quarter. The actual increase in interest expense resulting from a
change in interest rates would depend on the magnitude of the increase in rates
and the average principal balance outstanding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company previously reported a product liability and wrongful death lawsuit,
captioned Scelza, et al. v. Caldor, Inc., et al. This case was settled and the
full amount of the settlement and legal fees were covered by insurance.
On December 4, 2000, the Company was notified about a product liability lawsuit,
captioned Holly Shipp, et al. v. Chico Unified School District, et al. that was
filed in the Superior Court of the State of California in Butte County,
California, against the Company and other parties. The lawsuit seeks an unknown
amount of damages plus punitive damages and attorneys' fees for the injury
sustained by Holly Shipp in September, 1999 caused by her shirt catching fire
while she was in welding class. The case is still in the preliminary stages and
very little discovery has been completed. Delta Apparel believes that any
reasonably likely judgment in the lawsuit would be covered by insurance and,
therefore, does not believe that the lawsuit will have a material adverse effect
on Delta Apparel's operations, financial condition or liquidity.
Item 2. Changes in Securities and Use of Proceeds
Pursuant to the Company's incentive stock award plan, on July 31,On November 28, 2000 the Company issued an aggregate of 11,780100 shares of the
Company's common stock to officers and key and middle management employees of the Company in exchangeappreciation for $117.80 aggregate consideration ($0.01 per share, as provided bytheir
service to the incentive
stock award plan). IssuanceCompany. The Company believes that the issuance of these shares
to such officers and key and middle
management employees was exempt from registration under the Securities Act of 1933, as
amended, by reason of Section 4(2) of that Act.
On November 30, 2000, the Company redeemed (the "Redemption") all of its
outstanding rights (the "Rights"), the terms of which are set forth in that
certain Shareholder Rights Agreement dated January 27, 2000 (the "Rights
Agreement"), by and between the Company and First Union National Bank, as rights
agent. The Rights Agreement and the Rights are commonly referred to as a "poison
pill." Prior to their redemption, one Right was attached to each share of the
Company's issued and outstanding common stock, and the Rights were exercisable
only upon the occurrence of certain events as provided in the Rights Agreement.
The Redemption occurred pursuant to resolutions adopted by the Company's Board
of Directors on November 1, 2000, which set the record date for the Redemption
at November 16, 2000. Pursuant to the provisions of the Rights Agreement, the
redemption price was $0.001 per Right. The effect of the Redemption is that the
Rights are no longer outstanding or exercisable.
Item 4. Submission of Matters to a Vote of Security Holders
The following summarizes the votes at the Annual Meeting of the Company's
shareholders held on November 7, 2000:
Election of Broker
Directors For Against Withheld Abstentions Nonvotes
- ------------------------------------------------------------------------------------------------------------------------------
William F. Garrett 1,658,660 N/A 8,100 N/A N/A
C.C. Guy 1,658,655 N/A 8,105 N/A N/A
Robert W. Humphreys 1,658,630 N/A 8,130 N/A N/A
Dr. James F. Kane 1,658,615 N/A 8,145 N/A N/A
Dr. Max Lennon 1,658,618 N/A 8,142 N/A N/A
E. Erwin Maddrey, II 1,658,658 N/A 8,102 N/A N/A
Buck A. Mickel 1,658,658 N/A 8,102 N/A N/A
Donald P. Howard 414,307 N/A 375 N/A N/A
Jack J. Jackson 414,307 N/A 375 N/A N/A
Talmadge Knight 414,307 N/A 375 N/A N/A
Bettis C. Rainsford 414,307 N/A 375 N/A N/A
Roger H. Timpson 414,296 N/A 386 N/A N/A
Grace G. Young 414,307 N/A 375 N/A N/A
Ratification of Appointment of
KPMG LLP as Independent Auditors
for Fiscal Year 2001 2,073,487 7,653 N/A 302 N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.10 Employment Agreement between Delta Apparel, Inc. and Herbert M. Mueller
dated November 7, 2000
10.11 Employment Agreement between Delta Apparel, Inc. and Martha M. Watson
dated November 7, 2000
(b) No reports on Form 8-K were filed by the Company during the fiscal quarter
ended SeptemberDecember 30, 2000.
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)
October 26, 2000January 30, 2001 /s/ Herbert M. Mueller
- ------------------------- --------------------------------------------------------- -----------------------
By: Herbert M. Mueller
Vice President, Chief Financial Officer
Andand Treasurer