UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
DELTA APPAREL, INC.
(Exact name of registrant as specified in its charter)
| |
| |
| (State or Other Jurisdiction of |
| (I.R.S. Employer |
| Incorporation or Organization) |
| Identification No.) |
|
|
|
|
| |
|
|
| |
| |
| (Address of principal executive offices) |
| (Zip Code) |
(
(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 | ||
| | | |
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 every Interactive Data File required to be submitted 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 such files).
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 “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 ☐ |
| |
| 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 July 23, 2020, there were outstanding
| FINANCIAL INFORMATION |
| Item 1. |
Financial Statements |
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
| June 27, 2020 | September 28, 2019 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowances of and , respectively | ||||||||
| Other receivables | ||||||||
| Income tax receivable | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net of accumulated depreciation of and , respectively | ||||||||
| Goodwill | ||||||||
| Intangibles, net | ||||||||
| Deferred income taxes | ||||||||
| Operating lease assets | ||||||||
| Equity method investment | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of contingent consideration | ||||||||
| Current portion of finance leases | ||||||||
| Current portion of operating leases | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term taxes payable | ||||||||
| Long-term contingent consideration | ||||||||
| Long-term finance leases, less current maturities | ||||||||
| Long-term operating leases, less current maturities | ||||||||
| Long-term debt, less current maturities | ||||||||
| Deferred income taxes | ||||||||
| Other non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Shareholder's equity: | ||||||||
| Preferred stock - par value, shares authorized, issued and outstanding | ||||||||
| Common stock - par value, authorized, shares issued, and and shares outstanding as of June 27, 2020, and September 28, 2019, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock - and shares as of June 27, 2020, and September 28, 2019, respectively | ( | ) | ( | ) | ||||
| Equity attributable to Delta Apparel, Inc. | ||||||||
| Equity attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| June 27, 2020 |
June 29, 2019 |
June 27, 2020 |
June 29, 2019 |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Selling, general and administrative expenses |
||||||||||||||||
| Other loss (income), net |
( |
) | ( |
) | ||||||||||||
| Operating (loss) income |
( |
) | ( |
) | ||||||||||||
| Interest expense, net |
||||||||||||||||
| (Loss) earnings before (benefit from) provision for income taxes |
( |
) | ( |
) | ||||||||||||
| (Benefit from) provision for income taxes |
( |
) | ( |
) | ||||||||||||
| Consolidated net (loss) earnings |
( |
) | ( |
) | ||||||||||||
| Net loss attributable to non-controlling interest |
||||||||||||||||
| Net (loss) earnings attributable to shareholders |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Basic (loss) earnings per share |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Diluted (loss) earnings per share |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Weighted average number of shares outstanding |
||||||||||||||||
| Dilutive effect of stock awards |
||||||||||||||||
| Weighted average number of shares assuming dilution |
||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Amounts in thousands)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| June 27, 2020 |
June 29, 2019 |
June 27, 2020 |
June 29, 2019 |
|||||||||||||
| Net (loss) earnings attributable to shareholders | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Other comprehensive income (loss) related to unrealized gain (loss) on derivatives, net of income tax |
( |
) | ( |
) | ( |
) | ||||||||||
| Consolidated comprehensive (loss) income | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Amounts in 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 29, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Vested stock awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Purchase of common stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of December 29, 2018 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net earnings | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Purchase of common stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of March 30, 2019 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net earnings | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Purchase of common stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of June 29, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| 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 28, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Net earnings | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Vested stock awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of December 28, 2019 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net earnings | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Vested stock awards | ( | ) | ||||||||||||||||||||||||||||||||||
| Purchase of common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of March 28, 2020 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of June 27, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
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 27, 2020 |
June 29, 2019 |
|||||||
| Operating activities: |
||||||||
| Consolidated net (loss) earnings | $ | ( |
) | $ | ||||
| Adjustment to reconcile net (loss) earnings to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of deferred financing fees |
||||||||
| Provision for (benefit from) allowances on accounts receivable | ( |
) | ||||||
| Provision for inventory market reserves | ||||||||
| (Benefit from) provision for deferred income taxes |
( |
) | ||||||
| Non-cash stock compensation |
||||||||
| (Gain) loss on disposal of equipment |
( |
) | ||||||
| Other, net |
( |
) | ( |
) | ||||
| Changes in operating assets and liabilities, net of effect of acquisition |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories, net |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Other non-current assets |
( |
) | ( |
) | ||||
| Accounts payable |
||||||||
| Accrued expenses |
( |
) | ( |
) | ||||
| Change in net operating lease liabilities | ||||||||
| Income taxes |
( |
) | ( |
) | ||||
| Other liabilities |
||||||||
| Net cash provided by (used in) operating activities | ( |
) | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment, net |
( |
) | ( |
) | ||||
| Cash paid for business |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities: |
||||||||
| Proceeds from long-term debt |
||||||||
| Repayment of long-term debt |
( |
) | ( |
) | ||||
| Repayment of capital financing |
( |
) | ( |
) | ||||
| Payment of contingent consideration | ( |
) | ( |
) | ||||
| Payment of deferred financing costs |
( |
) | ||||||
| Repurchase of common stock |
( |
) | ( |
) | ||||
| Payment of withholding taxes on stock awards |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
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 and Description of Business
We prepared the accompanying interim Condensed Consolidated Financial Statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. We believe these Condensed Consolidated Financial Statements include all normal recurring adjustments considered necessary for a fair presentation. Operating results for the three and nine-month periods ended June 27, 2020, are not necessarily indicative of the results that may be expected for our fiscal year ending October 3, 2020. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality, with sales in our June quarter generally being the highest and sales in our December quarter generally being the lowest. The COVID-19 pandemic occurred during the seasonally strongest months of the business. As such, the historic seasonality may not be indicative of future results. In addition, during the June quarter of fiscal year 2020, we incurred approximately $
Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is a vertically-integrated, international apparel company. With approximately 8,700 employees worldwide, we design, manufacture, source, and market a diverse portfolio of core activewear and lifestyle apparel products under our primary brands of Salt Life®, COAST®, Soffe®, and Delta. We are a market leader in the direct-to-garment digital print and fulfillment industry, bringing DTG2Go technology and innovation to the supply chain of our customers. We specialize in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through our business-to-business ecommerce sites. Our products are also made available direct-to-consumer on our websites and in our branded retail stores. This diversified distribution allows us to capitalize on our strengths to provide our activewear and lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.
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 Greenville, South Carolina. 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 2020 fiscal year is a 53-week year and will end on October 3, 2020. Our 2019 fiscal year was a 52-week year and ended on September 28, 2019.
We make available copies of materials we file with, or furnish to, the SEC free of charge at https://ir.deltaapparelinc.com. The information found on our website 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 other filings made with the SEC. Requests should be directed to: Investor Relations Department, Delta Apparel, Inc., 322 South Main Street, Greenville, South Carolina 29601. Requests can also be made by telephone to 864-232-5200, or via email at investor.relations@deltaapparel.com.
Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended September 28, 2019, filed with the SEC. See Note C for consideration of recently issued accounting standards.
Note C—New Accounting Standards
Recently Adopted Standards
In August 2017, the Financial Accounting Standards Board, ("FASB"), issued Accounting Standards Update, ("ASU"), No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, ("ASU 2017-12"). The amendments in ASU 2017-12 apply to any entity that elects to apply hedge accounting in accordance with U.S. GAAP. ASU 2017-12 permits more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments, and the ability to hedge risk components for nonfinancial hedges. In addition, this ASU requires an entity to present the earnings effect of hedging the instrument in the same income statement line in which the earnings effect of the hedge item is reported. In addition, companies no longer need to separately measure and report hedge ineffectiveness and can use an amortization approach or continue with mark-to-market accounting. We adopted ASU 2017-12 as of September 29, 2019. The provisions of ASU 2017-12 did not have a material effect on our financial condition, results of operations, cash flows or disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and other (Topic 350), Simplifying the Test for Goodwill Impairment, ("ASU 2017-04"). To simplify the subsequent measurement of goodwill, ASU 2017-04 eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We early adopted ASU 2017-04 as of September 29, 2019. The provisions of ASU 2017-04 did not have a material effect on our financial condition, results of operations, cash flows or disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to include most leases on the balance sheet as lease liabilities with an associated right-of-use ("ROU") asset. Since the issuance of ASU 2016-02, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the allowable adoption methods. These standards have been collectively codified within Accounting Standard Codification, ("ASC ") 842, Leases (“ASC 842”). We adopted ASC 842 using the modified retrospective method and applied the standard to all leases existing as of September 29, 2019. Information for prior years presented has not been restated and continues to reflect the authoritative accounting standards in effect for those periods. We elected to use the package of practical expedients that allows us to carryforward our historical assessments of whether existing contracts contain leases, determinations of lease classification, and treatments of initial direct costs. As of September 29, 2019, we recognized total operating lease liabilities of $
Standards Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which will require customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs will be required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. ASU 2018-15 is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those annual periods. ASU 2018-15 will therefore be effective for us as of October 4, 2020 including the interim periods within our fiscal year 2021 annual period. The standard allows changes to be applied either retrospectively or prospectively. We are evaluating the effect that ASU 2018-15 will have on our financial statements and related disclosures.
Our revenue streams consist of retail stores, direct-to-consumer ecommerce, and wholesale channels which are included in our Condensed Consolidated Statements of Operations. The table below identifies the amount and percentage of net sales by revenue stream (in thousands):
| Three Months Ended | ||||||||||||||||
| June 27, 2020 | June 29, 2019 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Retail | $ | % | $ | % | ||||||||||||
| Direct-to-consumer ecommerce | % | % | ||||||||||||||
| Wholesale | % | % | ||||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Nine Months Ended | ||||||||||||||||
| June 27, 2020 | June 29, 2019 | |||||||||||||||
| $ | % | $ | % | |||||||||||||
| Retail | $ | % | $ | % | ||||||||||||
| Direct-to-consumer ecommerce | % | % | ||||||||||||||
| Wholesale | % | % | ||||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
The table below provides net sales by reportable segment (in thousands) and the percentage of net sales by distribution channel for each reportable segment:
| Third Quarter Fiscal Year 2020 | ||||||||||||||||
| Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
| Delta Group | $ | % | % | % | ||||||||||||
| Salt Life Group | % | % | % | |||||||||||||
| Total | $ | |||||||||||||||
| Third Quarter Fiscal Year 2019 | ||||||||||||||||
| Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
| Delta Group | $ | % | % | % | ||||||||||||
| Salt Life Group | % | % | % | |||||||||||||
| Total | $ | |||||||||||||||
| Year To Date Fiscal Year 2020 | ||||||||||||||||
| Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
| Delta Group | $ | % | % | % | ||||||||||||
| Salt Life Group | % | % | % | |||||||||||||
| Total | $ | |||||||||||||||
| Year To Date Fiscal Year 2019 | ||||||||||||||||
| Net Sales | Retail | Direct-to-consumer ecommerce | Wholesale | |||||||||||||
| Delta Group | $ | % | % | % | ||||||||||||
| Salt Life Group | % | % | % | |||||||||||||
| Total | $ | |||||||||||||||
In determining our estimates for discounts, allowances, chargebacks, and returns, we consider historical and current trends, agreements with our customers and retailer performance. We record these discounts, returns and allowances as a reduction to net sales in our Condensed Consolidated Statements of Operations and as a refund liability in our accrued expenses in our Condensed Consolidated Balance Sheets, with the estimated value of inventory expected to be returned in prepaid and other current assets in our Condensed Consolidated Balance Sheets. As of June 27, 2020, and September 28, 2019, there was $
Inventories, net of reserves of $
| June 27, 2020 | September 28, 2019 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
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 (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 DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the "Borrowers"), are co-borrowers under the Amended Credit Agreement. The Borrowers entered into amendments to the Amended Credit Agreement with Wells Fargo and the other lenders on November 27, 2017, March 9, 2018, and October 8, 2018.
On November 19, 2019, the Borrowers entered into a Consent and Fourth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the "Fourth Amendment"). The Fourth Amendment, among other things, (i) increased the borrowing capacity under the Amended Credit Agreement from $
On April 27, 2020, the Borrowers entered into a Fifth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Fifth Amendment”). The Fifth Amendment amends the financial covenant provisions from the amendment date through October 3, 2020, including effectively lowering the minimum availability thresholds and removing the requirement that our Fixed Charge Coverage Ratio (“FCCR”) for the preceding
The Amended Credit Agreement allows us to borrow up to $
As of June 27, 2020, there was $
Promissory Note
On October 8, 2018, we acquired substantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In conjunction with the acquisition, we issued a promissory note in the principal amount of $
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. Each of these loans is secured by a first-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 Honduran lempiras and the carrying value of the debt approximates its fair value. The revolving credit facility requires minimum payments during each six-month period of the
Additional information about these loans and the outstanding balances as of June 27, 2020, is as follows (in thousands):
| June 27, | ||||
| 2020 | ||||
| Revolving credit facility established March 2011, weighted average interest at expiring | $ | |||
| Term loan established November 2014, interest at , payable monthly with a -year term | ||||
| Term loan established June 2016, interest at , payable monthly with a -year term | ||||
| Term loan established October 2017, interest at , payable monthly with a -year term | ||||
We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Honduras, El Salvador, and Mexico. We also lease machinery and equipment in the U.S. under finance lease arrangements. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities and the related assets as the present value of the lease payments over the related term. We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Condensed Consolidated Balance Sheet. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and are reflected as a component of lease cost within our Condensed Consolidated Statements of Operations. Our operating lease agreements for buildings generally include provisions for the payment of our proportional share of operating costs, property taxes, and other variable payments. These incremental payments are excluded from our calculation of operating lease liabilities and right of use assets. We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.
Generally, the rate implicit in our operating leases is not readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases as of June 27, 2020, was
The following table presents the future undiscounted payments due on our operating and finance lease liabilities as well as a reconciliation of those payments to our operating and finance lease liabilities, recorded as of June 27, 2020 (in thousands):
| Operating | Finance | |||||||
| Leases | Leases | |||||||
| 2020 | $ | | $ | |||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Undiscounted fixed lease payments | $ | $ | ||||||
| Discount due to interest | ( | ) |
| |||||
| Total lease liabilities | $ | $ | ||||||
| Less current maturities | ( | ) | ( | ) | ||||
| Lease liabilities, excluding current maturities | $ | $ | ||||||
As of June 27, 2020, we have entered into certain operating leases that have not yet commenced and which will result in annual fixed lease payments that range from $
Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with a Honduran company, of which we own
As of June 27, 2020, we had $
The weighted average remaining lease terms for our operating leases and finance leases were approximately
The components of total lease expense were as follows for the nine months ended June 27, 2020 (in thousands):
| Operating lease fixed expense | $ | |||
| Operating lease variable cost expense | ||||
| Finance lease amortization of ROU assets expense | ||||
| Finance lease interest expense | ||||
| Total lease expense | $ |
Total operating lease expense, excluding variable lease costs, recognized during the nine months ended June 29, 2019, prior to the adoption of ASC 842, was $
Cash outflows for operating lease payments and for interest payments on finance leases during the nine months ended June 27, 2020, were $
During the three month period ended June 27, 2020, in response to the COVID-19 pandemic, the Company entered into certain lease arrangements deferring approximately $
ROU assets obtained in exchange for operating lease and finance lease liabilities during the nine months ended June 27, 2020, were $
We do not have significant leasing transactions in which we are the lessor.
Note H—Selling, General and Administrative Expense
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 $
Note I—Stock-Based Compensation
On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("2020 Stock Plan") to replace the 2010 Stock Plan, which was previously re-approved by our shareholders on February 4, 2015 and was scheduled to expire by its terms on September 14, 2020. The 2020 Stock Plan is substantially similar in both form and substance to the 2010 Stock Plan. The purpose of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to offer a variety of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its executives, key employees and directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. If a participant dies or becomes disabled (as defined in the 2020 Stock Plan) while employed by the Company or serving as a director, all unvested awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make any other determinations that it deems necessary. The aggregate number of shares of common stock that may be delivered under the 2020 Stock Plan is
Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards under the 2010 Stock Plan and 2020 Stock Plan.
Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the three-month periods ended June 27, 2020, and June 29, 2019, we recognized $
On May 11, 2020, restricted stock units representing
On February 5, 2020, restricted stock units representing
During the three months ended December 28, 2019, restricted stock units and performance units, each consisting of
As of June 27, 2020, there was $
We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At June 27, 2020, minimum payments under these contracts were as follows (in thousands):
| Yarn | $ | |||
| Finished fabric | ||||
| Finished products | ||||
| $ |
Our operations are managed and reported in 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 chief operating decision maker.
The Delta Group is comprised of our business units primarily focused on core activewear styles, and includes our Delta Activewear (encompassing our Delta Catalog and FunTees businesses), Soffe, and DTG2Go business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Soffe®, Delta Platinum, Delta Pro Weight®, and Delta Magnum Weight® for sale to a diversified audience ranging from large licensed screen printers to small independent businesses. Through our FunTees business, we serve our customers as their supply chain partner, from product development to shipment of their branded products, with the majority of products sold with value-added services including embellishment, hangers, hangtags and ticketing, so that they are ready for retail sale to the end consumers. We assist our customers in managing their production and inventory needs and provide technology tools to help them manage and grow their business. We sell our products to a diversifi