Annual report pursuant to Section 13 and 15(d)

Business Segments

Business Segments

12 Months Ended

Sep. 30, 2017

BUSINESS SEGMENTS

We operate our business in two distinct segments: basics and branded. Although the two segments are similar in their production processes and regulatory environments, they are distinct in their economic characteristics, products, marketing, and distribution methods.

The basics segment is comprised of our business units primarily focused on garment styles characterized by low fashion risk, and includes our Delta Activewear (which includes Delta Catalog and FunTees) and Art Gun business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Delta Pro Weight^®and Delta Magnum Weight^® for sale to a diversified audience ranging from large licensed screen printers to small independent businesses. We also manufacture private label products for major branded sportswear companies, trendy regional brands, retailers, and sports licensed apparel marketers. Typically, our private label products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so that they are fully ready for retail. Using digital print equipment and its proprietary technology, Art Gun embellishes garments to create private label, custom decorated apparel servicing the fast-growing e-retailer channels, as well as the ad specialty, promotional products and retail marketplaces.

The branded segment is comprised of our business units focused on specialized 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 The Game and Junkfood business units prior to their dispositions on March 2, 2015, and March 31, 2017, respectively. These branded products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, e-retailers and the U.S. military, as well as direct-to-consumer through branded ecommerce sites and "brick and mortar" retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life®, Soffe®, and COAST®, as well as other labels. On August 30, 2016, we purchased substantially all of the assets comprising our Coast Apparel business ("Coast"), continuing our strategy of building lifestyle brands that take advantage of our creative capabilities, direct-to-consumer infrastructure, vertical manufacturing platform and sourcing competencies. The results of the Coast business have been included in the branded segment since its acquisition on August 30, 2016.

Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges ("segment operating earnings"). 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. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).



	Fiscal Year Ended
	September 30, 2017		October 1, 2016		October 3, 2015
Segment net sales:
Basics	$	280,283	$	277,146	$	282,467
Branded	104,799		148,103		166,675
Total net sales	385,082		425,249		449,142

Segment operating income:
Basics	24,189		22,307		13,060
Branded	3,943		6,950		12,379
Total segment operating income	28,132		29,257		25,439

Purchases of property, plant and equipment:
Basics	4,829		10,734		6,037
Branded	2,111		1,501		689
Corporate	145		80		1,047
Total purchases of property, plant and equipment	7,085		12,315		7,773

Depreciation and amortization:
Basics	6,553		6,437		6,208
Branded	2,647		2,772		2,902
Corporate	409		416		432
Total depreciation and amortization	9,609		9,625		9,542

The following reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):



	Fiscal Year Ended
	September 30, 2017		October 1, 2016		October 3, 2015
Segment operating income	$	28,132	$	29,257	$	25,439
Unallocated corporate expenses	11,953		12,925		9,320
Unallocated interest expense	5,011		5,287		6,021
Consolidated income before provision for income taxes	$	11,168	$	11,045	$	10,098

Our revenues include sales to domestic and foreign customers. Foreign customers are composed of companies whose headquarters are located outside of the United States. Supplemental information regarding our revenues by geographic area based on the location of the customer is as follows (in thousands):



	Fiscal Year Ended
	September 30, 2017		October 1, 2016		October 3, 2015
United States	$	383,672	$	418,627	$	442,207
Foreign	1,410		6,622		6,935
Total net sales	$	385,082	$	425,249	$	449,142

Our total assets and equity investment by segment are as follows (in thousands):



	As of
	September 30, 2017	October 1, 2016
Total assets by segment:
Basics	191,585	178,347
Branded	117,437	156,119
Corporate	8,780	10,186
Total assets	317,802	344,652

Equity investment in joint venture:
Basics	4,140	3,593
Branded	—	—
Total equity investment in joint venture	4,140	3,593

Our long-lived assets, excluding goodwill and intangible assets, consist of property, plant and equipment for all locations. We attribute our property, plant and equipment to a particular country based on the location of the long-lived assets. Summarized financial information by geographic area is as follows (in thousands):



	As of
	September 30, 2017		October 1, 2016

United States	$	19,587	$	18,523

Honduras	18,151		19,650
El Salvador	3,853		4,215
Mexico	1,115		1,115
All foreign countries	23,119		24,980

Total long-lived assets, excluding goodwill and intangibles	$	42,706	$	43,503