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)
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(State or Other Jurisdiction of |
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Incorporation or Organization) |
| Identification No.) |
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(Address of principal executive offices) |
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(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 | ||
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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.
Large accelerated filer ☐ |
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| 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 August 4, 2023, 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 2023 | September 2022 | |||||||
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 | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Income taxes payable | ||||||||
Current portion of finance leases | ||||||||
Current portion of operating leases | ||||||||
Current portion of long-term debt | ||||||||
Total current liabilities | ||||||||
Long-term income taxes payable | ||||||||
Long-term finance leases | ||||||||
Long-term operating leases | ||||||||
Long-term debt | ||||||||
Deferred income taxes | ||||||||
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 2023 and September 2022, respectively | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Accumulated other comprehensive income | ||||||||
Treasury stock - and shares as of June 2023 and September 2022, 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 2023 |
June 2022 |
June 2023 |
June 2022 |
|||||||||||||
Net sales |
$ | $ | $ | $ | ||||||||||||
Cost of goods sold |
||||||||||||||||
Gross profit |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Other (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) income 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 Income
(Amounts in thousands)
(Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
June 2023 |
June 2022 |
June 2023 |
June 2022 |
|||||||||||||
Net (loss) earnings attributable to shareholders |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Other comprehensive (loss) income related to unrealized (loss) gain 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 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Vested stock awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of December 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of March 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
Net loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of June 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ |
Accumulated |
||||||||||||||||||||||||||||||||||||
Additional |
Other |
Non- |
||||||||||||||||||||||||||||||||||
Common Stock |
Paid-In |
Retained |
Comprehensive |
Treasury Stock |
Controlling |
|||||||||||||||||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Income (Loss) | Shares |
Amount |
Interest |
Total |
||||||||||||||||||||||||||||
Balance as of September 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest |
- | - | ||||||||||||||||||||||||||||||||||
Purchase of common stock |
- | 74,232 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Vested stock awards |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of December 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Vested stock awards |
||||||||||||||||||||||||||||||||||||
Purchase of common stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of March 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||
Net loss attributable to non-controlling interest |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Purchase of common stock |
- | 33,934 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Stock based compensation |
- | - | ||||||||||||||||||||||||||||||||||
Balance as of June 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ |
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 2023 |
June 2022 |
|||||||
Operating activities: |
||||||||
Consolidated net (loss) earnings |
$ | ( |
) | $ | ||||
Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
||||||||
Amortization of deferred financing fees |
||||||||
Provision for inventory market reserves |
( |
) | ||||||
Change in reserves for allowances on accounts receivable |
( |
) | ( |
) | ||||
(Benefit from) provision for deferred income taxes |
( |
) | ||||||
Non-cash stock compensation |
||||||||
Loss on disposal of equipment |
||||||||
Loss on impairment |
||||||||
Other, net |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) | ||||||
Inventories |
( |
) | ||||||
Prepaid expenses and other current assets |
( |
) | ||||||
Other non-current assets |
||||||||
Accounts payable |
( |
) | ||||||
Accrued expenses |
( |
) | ( |
) | ||||
Net operating lease liabilities |
||||||||
Income taxes |
( |
) | ||||||
Other liabilities |
( |
) | ||||||
Net cash provided by (used in) operating activities |
( |
) | ||||||
Investing activities: |
||||||||
Purchases of property and equipment |
( |
) | ( |
) | ||||
Proceeds from sale/leaseback |
||||||||
Proceeds from sale of equipment |
||||||||
Cash paid for intangible asset |
( |
) | ||||||
Cash paid for business |
( |
) | ||||||
Net cash used in investing activities |
( |
) | ||||||
Financing activities: |
||||||||
Proceeds from long-term debt |
||||||||
Repayment of long-term debt |
( |
) | ( |
) | ||||
Repayment of finance lease obligations |
( |
) | ( |
) | ||||
Payment of deferred financing cost |
( |
) | ||||||
Repurchase of common stock |
( |
) | ||||||
Payment of withholding taxes on stock awards |
( |
) | ( |
) | ||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ | $ | ||||||
Supplemental cash flow information |
||||||||
Finance lease assets exchanged for finance lease liabilities |
$ | $ | ||||||
Operating lease assets exchanged for operating lease liabilities |
$ | $ |
See accompanying Notes to Condensed Consolidated Financial Statements.
Delta Apparel, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A— Description of Business and Basis of Presentation
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
We design and internally manufacture the majority of our products, with more than 90% of the apparel units that we sell sewn in our own facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador, Honduras, and Mexico, and we use domestic and foreign contractors as additional sources of production. Our distribution facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly replenishments to retailers. We were incorporated in Georgia in 1999, and our headquarters is located in Duluth, Georgia. Our common stock trades on the NYSE American exchange under the symbol “DLA."
We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2023 fiscal year is a 52-week year and will end on September 30, 2023 ("fiscal 2023"). Accordingly, this Quarterly Report on Form 10-Q presents our results for our third quarter of fiscal 2023. Our 2022 fiscal year was a 52-week year and ended on October 1, 2022 ("fiscal 2022").
For presentation purposes herein, all references to period ended relate to the following fiscal years and dates:
Period Ended | Fiscal Year | Date Ended |
June 2022 | Fiscal 2022 | July 2, 2022 |
September 2022 | Fiscal 2022 | October 1, 2022 |
December 2022 | Fiscal 2023 | December 31, 2022 |
March 2023 | Fiscal 2023 | April 1, 2023 |
June 2023 | Fiscal 2023 | July 1, 2023 |
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 months ended June 2023 are not necessarily indicative of the results that may be expected for our fiscal 2023. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality. By diversifying our product lines and go-to-market strategies over the years, we have reduced the overall seasonality of our business. Consumer demand for apparel is cyclical and dependent upon the overall level of demand for soft goods, which may or may not coincide with the overall level of discretionary consumer spending. These levels of demand change as regional, domestic and international economic conditions change. Therefore, the distribution of sales by quarter in fiscal 2023 may not be indicative of the distribution in future years. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for our fiscal 2022, filed with the United States Securities and Exchange Commission (“SEC”).
Our Condensed Consolidated Financial Statements include the accounts of Delta Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries. We apply the equity method of accounting for our investment in
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., 2750 Premiere Parkway, Suite 100, Duluth, Georgia 30097. 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 our fiscal 2022, filed with the SEC. See Note C for consideration of recently issued accounting standards.
Note C—New Accounting Standards
Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. These standards have been collectively codified within ASC Topic 326, Credit Losses (“ASC 326”). As a smaller reporting company as defined by the SEC, the provisions of ASC 326 are effective as of the beginning of our fiscal year 2024. We are currently evaluating the impacts of the provisions of ASC 326 on our financial condition, results of operations, cash flows, and disclosures.
Our Condensed Consolidated Statements of Operations include revenue streams from retail sales at our branded retail stores; direct-to-consumer ecommerce sales on our consumer-facing websites; and sales from wholesale channels, which includes our business-to-business ecommerce and DTG2Go sales. The table below identifies the amount and percentage of net sales by distribution channel (in thousands):
Three Months Ended |
||||||||||||||||
June 2023 |
June 2022 |
|||||||||||||||
Retail |
$ | % | $ | % | ||||||||||||
Direct-to-consumer ecommerce |
% | % | ||||||||||||||
Wholesale |
% | % | ||||||||||||||
Net sales |
$ | % | $ | % |
Nine Months Ended |
||||||||||||||||
June 2023 |
June 2022 |
|||||||||||||||
Retail |
$ | % | $ | % | ||||||||||||
Direct-to-consumer ecommerce |
% | % | ||||||||||||||
Wholesale |
% | % | ||||||||||||||
Net sales |
$ | % | $ | % |
The table below provides net sales by reportable segment and the percentage of net sales by distribution channel for each reportable segment (in thousands):
Three Months Ended June 2023 |
||||||||||||||||
Net Sales |
Retail |
Direct-to-consumer ecommerce |
Wholesale |
|||||||||||||
Delta Group |
$ | % | % | % | ||||||||||||
Salt Life Group |
% | % | % | |||||||||||||
Total |
$ |
Three Months Ended June 2022 |
||||||||||||||||
Net Sales |
Retail |
Direct-to-consumer ecommerce |
Wholesale |
|||||||||||||
Delta Group |
$ | % | % | % | ||||||||||||
Salt Life Group |
% | % | % | |||||||||||||
Total |
$ |
Nine Months Ended June 2023 |
||||||||||||||||
Net Sales |
Retail |
Direct-to-consumer ecommerce |
Wholesale |
|||||||||||||
Delta Group |
$ | % | % | % | ||||||||||||
Salt Life Group |
% | % | % | |||||||||||||
Total |
$ |
Nine Months Ended June 2022 |
||||||||||||||||
Net Sales |
Retail |
Direct-to-consumer ecommerce |
Wholesale |
|||||||||||||
Delta Group |
$ | % | % | % | ||||||||||||
Salt Life Group |
% | % | % | |||||||||||||
Total |
$ |
Inventories, net of reserves of $
June 2023 |
September 2022 |
|||||||
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, and Regions Bank. Our subsidiaries M.J. Soffe, LLC, Culver City Clothing Company, Salt Life, LLC, and DTG2Go, 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, October 8, 2018, November 19, 2019, April 27, 2020, August 28, 2020, June 2, 2022, January 3, 2023, February 3, 2023, and March 23, 2023.
On June 2, 2022, the Borrowers entered into the Seventh Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Seventh Amendment”). The Seventh Amendment, (i) removes LIBOR based borrowing and utilizes SOFR (Secured Overnight Financing Rate) as the primary pricing structure, (ii) amends the pricing structure based on SOFR plus a CSA (Credit Spread Adjustment) defined as
On January 3, 2023, the Borrowers entered into the Eighth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Eighth Amendment”). The Eighth Amendment essentially clarifies the Amended Credit Agreement’s provisions regarding the inclusion of eligible in-transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include
On February 3, 2023, the Borrowers entered into the Ninth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (“Ninth Amendment”). The Ninth Amendment adds an Accommodation Period beginning on the amendment date and continuing through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i) the minimum borrowing availability thresholds applicable to the Amended Credit Agreement are (a) through (and including) April 1, 2023, $
On March 23, 2023, the Borrowers entered into the Tenth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein to account for specified costs and expenses in calculating EBITDA for purposes of the Amended Credit Agreement.
The Amended Credit Agreement allows us to borrow up to $
As of June 2023, we had $
Honduran Debt
Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance investments in both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and revolving credit facility with Banco Ficohsa, both with
El Salvador Debt
In September 2022, we entered into a new term loan with a
Additional information about these loans and the outstanding balances as of June 2023 is as follows (in thousands):
June 2023 | ||||
Revolving credit facility with Banco Ficohsa, a Honduran bank, with interest at %, due | $ | |||
Term loan with Banco Ficohsa, a Honduran bank, interest at %, quarterly installments which began September 2021 and are due through . | ||||
Term loan with Banco Ficohsa, a Honduran bank, interest at %, quarterly installments which began March 2023 and are due through . | ||||
Term loan with Banco Ficohsa, a Panamanian bank, interest at the prevailing market rate within the Panamanian Banking Market, monthly installments which began October 2022 and are due through . |
Note G—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 H—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 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, stock performance units, and other stock and cash awards. While employed by the Company or serving as a director, unvested awards become fully vested under certain circumstances as defined in the 2020 Stock Plan. Such circumstances include, but are not limited to, the participant’s death or disability. 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. Similar to the 2010 Stock Plan, the 2020 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards under the 2020 Stock Plan. On August 2, 2023, our Board of Directors, upon the recommendation of its Compensation Committee, approved a Declaration of Amendment to the 2020 Stock Plan. See Part II, Item 5 of this Quarterly Report on Form 10-Q for more information.
Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the June 2023 and June 2022 quarters, we recognized $
During the December 2022 quarter, restricted stock units representing
During the December 2022 quarter, performance stock units and restricted stock units representing
As of June 2023, there was $
We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At June 2023, 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 the following business units, which are primarily focused on core activewear styles: DTG2Go and Delta Activewear.
DTG2Go is a market leader in the on-demand, direct-to-garment digital print and fulfillment industry, bringing technology and innovation to the supply chains of our many customers. Our ‘On-Demand DC’ digital solution provides retailers and brands with immediate access to utilize DTG2Go’s broad network of print and fulfillment facilities, while offering the scalability to integrate digital fulfillment within the customer's own distribution facilities. We use highly-automated factory processes and our proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Via our multi-facility fulfillment footprint across the United States, DTG2Go offers a robust digital supply chain shipping custom graphic products within 24 to 48 hours to consumers in the United States and to over 100 countries internationally. DTG2Go has made significant investments in its “digital first” retail model providing digital graphic prints that meet the high-quality standards of brands, retailers and intellectual property holders. Through integration with Delta Activewear, DTG2Go also services the eRetailer, ad-specialty, promotional and screen print marketplaces, among others.
Delta Activewear is a preferred supplier of activewear apparel to regional and global brands as well as direct-to-retail and wholesale markets. The Activewear business is organized around three key customer channels – Delta Direct, Global Brands, and Retail Direct – that are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs. Our Delta Direct channel services the screen print, promotional, and eRetailer markets as well as retail licensing customers that sell through to many mid-tier and mass market retailers. Delta Direct products include a broad portfolio of apparel and accessories under the Delta, Delta Platinum, and Soffe brands as well as sourced items from select third party brands. Our fashion basics line includes our Platinum Collection, which offers fresh, fashionable silhouettes with a luxurious look and feel, as well as versatile fleece offerings. We offer innovative apparel products, including the Delta Dri line of performance shirts built with moisture-wicking material to keep athletes dry and comfortable; ringspun garments with superior comfort, style and durability; and Delta Soft, a collection with an incredible feel and price. We also offer our heritage, mid- and heavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.
The iconic Soffe brand offers activewear for spirit makers and record breakers and is widely known for the original "cheer short" with the signature roll-down waistband. Soffe carries a wide range of activewear for the entire family. Soffe's heritage is anchored in the military, and we continue to be a proud supplier to both active duty and veteran United States military personnel worldwide. The Soffe men's assortment features the tagline "anchored in the military, grounded in training" and offers everything from physical training gear certified by the respective branches of the military, classic base layers that include the favored 3-pack tees, and the iconic "ranger panty." Complementing the Delta and Soffe brand apparel, we offer customers a broad range of nationally recognized branded products including polos, outerwear, headwear, bags and other accessories. Our Soffe products are also available direct to consumers at www.soffe.com.
Our Global Brands channel serves as a key supply chain partner to large multi-national brands, major branded sportswear companies, trendy regional brands, and all branches of the United States armed forces, providing services ranging from custom product development to the shipment of branded products with “retail-ready” value-added services including embellishment, hangtags, and ticketing.
Our Retail Direct channel serves brick and mortar and online retailers by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to the retail locations and ecommerce fulfillment centers of a diversified customer base including sporting goods and outdoor retailers, specialty and resort shops, farm and fleet stores, department stores, and mid-tier and mass retailers. As a key element of the integrated Delta Group segment, each of Activewear’s primary channels offer a seamless solution for replenishment strategies, small-run decoration needs, and quick reaction programs with on-demand digital print services, powered by DTG2Go.
The Salt Life Group is comprised of our Salt Life business, which is built on the authentic, aspirational Salt Life lifestyle brand that represents a passion for the ocean, the salt air, and, more importantly, a way of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. The Salt Life brand combines function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the cotton graphic tees and logo decals that originally drove awareness for the brand, and expanded into performance apparel, swimwear, board shorts, sunglasses, bags, and accessories. Consumers can also seamlessly experience the Salt Life brand through retail partners including surf shops, specialty stores, department stores, and outdoor merchants or by accessing our Salt Life ecommerce site at www.saltlife.com.
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 in our Annual Report on Form 10-K for fiscal 2022, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).
Three Months Ended |
Nine Months Ended |
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June 2023 |
June 2022 |
June 2023 |
June 2022 |
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Segment net sales: |
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Delta Group |
$ | $ | $ | $ | ||||||||||||
Salt Life Group |
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Total net sales |
$ | $ | $ | $ | ||||||||||||
Segment operating earnings: |
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Delta Group |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Salt Life Group |
||||||||||||||||
Total segment operating (loss) earnings |
$ | ( |
) | $ | $ | ( |
) | $ |
The following table reconciles the segment operating (loss) earnings to the consolidated earnings before (benefit from) provision for income taxes (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
June 2023 |
June 2022 |
June 2023 |
June 2022 |
|||||||||||||
Segment operating (loss) earnings |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Unallocated corporate expenses |
||||||||||||||||
Unallocated interest expense |
||||||||||||||||
Consolidated (loss) earnings before (benefit from) provision for income taxes |
$ | ( |
) | $ | $ | ( |
) | $ |
The Tax Cuts and Jobs Act of 2017 enacted on December 22, 2017, significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax ("transition tax") on deemed repatriated cumulative earnings of foreign subsidiaries which will be paid over eight years. In addition, new taxes were imposed related to foreign income, including a tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the deduction for business interest expense (“Section 163(j)"). GILTI is the excess of the shareholder’s net controlled foreign corporations net tested income over the net deemed tangible income. GILTI income is eligible for a deduction of up to 50% of the income inclusion, but the deduction is limited to the amount of U.S. adjusted taxable income. The Section 163(j) limitation does not allow the amount of deductible interest to exceed the sum of the taxpayer's business interest income and 30% of the taxpayer’s adjusted taxable income. We have included in our calculation of our effective tax rate the estimated impact of GILTI and Section 163(j). In addition, we have elected to account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.
Our effective income tax rate on operations for the nine-months ended June 2023 was
Note L—Derivatives and Fair Value Measurements
From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. We have designated our interest rate swap contracts as cash flow hedges of our future interest payments. As a result, the gains and losses on the swap contracts are reported as a component of other comprehensive income and are reclassified into interest expense as the related interest payments are made. As of June 2023, all of our other comprehensive income was attributable to shareholders; none related to the non-controlling interest. Outstanding instruments as of June 2023 are as follows:
Notional |
||||||||
Effective Date |
Amount |
Fixed LIBOR Rate |
Maturity Date |
|||||
Interest Rate Swap |
July 25, 2018 |
|
July 25, 2023 |
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of June 2023 and September 2022 (in thousands):
June 2023 |
September 2022 |
|||||||
Deferred tax assets |
$ |
( |
) | $ |
( |
) | ||
Other assets |
|
|
|
|
||||
Accumulated other comprehensive gain |
$ |
|
|
$ |
|
|
From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized and unrealized gains and losses associated with them are recorded within cost of goods sold on the Condensed Consolidated Statement of Operations. No such cotton contracts were outstanding at June 2023 and September 2022.
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
○ |
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|
○ |
Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active. |
|
○ |
Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques. |
The following financial liabilities are measured at fair value on a recurring basis (in thousands):
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in |
Significant Other |
Significant |
||||||||||||||
Active Markets for |
Observable |
Unobservable |
||||||||||||||
Identical Assets |
Inputs |
Inputs |
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Period Ended |
Total |
(Level 1) |
(Level 2) |
(Level 3) |
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Interest Rate Swaps |
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June 2023 |
$ | $ | ||||||||||||||
September 2022 |
$ | $ |