Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

April July 1, 2023

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

☐

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.

(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 Premier Parkway
,
Suite 100
Duluth
,
Georgia
30097
(Address of principal executive offices)
(Zip Code)
(
678
)

Georgia

58-2508794

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2750 Premier Parkway, Suite 100

Duluth, Georgia

30097

(Address of principal executive offices)

(Zip Code)

(678) 775-6900

(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
Common Stock, par value $0.01
DLA
NYSE American
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
☑
No
☐

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01

DLA

NYSE American

Indicate by check mark whether the

registrant (1) has submitted electronically every Interactive Data Filefiled all reports required to
be submitted pursuant to Rule 405filed by Section 13 or 15(d) of
Regulation S-T
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 ☑ No ☐

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).

Yes

☑
No
☐

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 “accelerated filer”,
“smaller “smaller reporting company”
and "emerging growth
company" in Rule
12b-2 of the
Exchange
Act.
Large accelerated filer
☐
Accelerated filer
☑
Non-accelerated filer
☐
Smaller reporting company
☑
Emerging growth company
☐

Large accelerated filer ☐

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 (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☑

As of

April 28, August 4, 2023,
there were outstanding
7,001,020
7,010,020 shares of the
registrant’s common
stock, par value
of $0.01
per share,
which is the
only class of
outstanding
common or voting stock of the registrant.

Table of Contents
 

TABLE OF CONTENTS

Page

PART I.

Financial Information

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets — June 2023 and September 2022

3

Condensed Consolidated Statements of Operations — Three and Nine Months ended June 2023 and June 2022

4

Condensed Consolidated Statements of Comprehensive (Loss) Income — Three and Nine Months ended June 2023 and June 2022

5

Condensed Consolidated Statements of Shareholders' Equity — Three and Nine Months ended June 2023 and June 2022

6

Condensed Consolidated Statements of Cash Flows — Nine Months ended June 2023 and June 2022

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Note A—Basis of Presentation and Description of Business

8

Note B—Accounting Policies9
Note C—New Accounting Standards9
Note D—Revenue Recognition10
Note E—Inventories11
Note F—Debt11
Note G—Selling, General and Administrative Expense11
Note H—Stock-Based Compensation12
Note I—Purchase Contracts12
Note J—Business Segments13
Note K—Income Taxes14
Note L—Derivatives and Fair Value Measurements14
Note M—Legal Proceedings15
Note N—Repurchase of Common Stock15
Note O—Goodwill and Intangible Assets16
Note P—Subsequent Events16

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 4.

Controls and Procedures

20

PART II.

Other Information

Item 1.

Legal Proceedings

20

Item 1A.Risk Factors20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 5.

Other Information

20

Item 6.

Exhibits

21

Signatures

22

Exhibits

EX-10.1

EX-31.1

EX-31.2

EX-32.1

EX-32.2

 
Page
PART
I.
Financial InformationTable of Contents
Item 1.
3
4
5
6
7
8
8
8
8
9
9
10
11
11
11
11
12
13
13
13
14
14
Item 2.
15
Item 4.
18
PART
II.
18
Item 1.
18
Item 1A.
18
Item 2.
18
Item 5.
18
Item 6.
18
20
 
3
PART 1.
FINANCIAL INFORMATION
Item 1.
Financial Statements

PART 1.

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

 $296  $300 

Accounts receivable, less allowances of $98 and $109, respectively

  41,733   68,215 

Other receivables

  889   1,402 

Income tax receivable

  1,898   1,969 

Inventories, net

  226,196   248,538 

Prepaid expenses and other current assets

  4,221   2,755 

Total current assets

  275,233   323,179 
         

Property, plant and equipment, net of accumulated depreciation of $115,383 and $108,534, respectively

  69,040   74,109 

Goodwill

  37,897   37,897 

Intangibles, net

  22,264   24,026 

Deferred income taxes

  3,105   1,342 

Operating lease assets

  54,054   50,275 

Equity method investment

  9,356   9,886 

Other assets

  2,020   2,967 

Total assets

 $472,969  $523,681 
         

Liabilities and Equity

        

Liabilities:

        

Accounts payable

 $63,897  $83,553 

Accrued expenses

  17,424   27,414 

Income taxes payable

  695   379 

Current portion of finance leases

  8,942   8,163 

Current portion of operating leases

  8,980   8,876 

Current portion of long-term debt

  10,180   9,176 

Total current liabilities

  110,118   137,561 
         

Long-term income taxes payable

  2,131   2,841 

Long-term finance leases

  15,871   16,776 

Long-term operating leases

  46,664   42,721 

Long-term debt

  131,461   136,750 

Deferred income taxes

  -   4,310 

Total liabilities

 $306,245  $340,959 
         

Shareholder's equity:

        

Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding

  -   - 

Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 7,001,020 and 6,915,663 shares outstanding as of June 2023 and September 2022, respectively

  96   96 

Additional paid-in capital

  61,448   61,961 

Retained earnings

  149,756   166,600 

Accumulated other comprehensive income

  21   141 

Treasury stock - 2,645,952 and 2,731,309 shares as of June 2023 and September 2022, respectively

  (43,896)  (45,420)

Equity attributable to Delta Apparel, Inc.

  167,425   183,378 

Equity attributable to non-controlling interest

  (701)  (656)

Total equity

  166,724   182,722 

Total liabilities and equity

 $472,969  $523,681 
(Unaudited)
March 2023
September 2022
Assets
Cash and cash equivalents
$
625
$
300
Accounts receivable, less allowances of $
124
and $
109
, respectively
62,020
68,215
Other receivables
1,125
1,402
Income tax receivable
1,680
1,969
Inventories, net
243,167
248,538
Prepaid expenses and other current assets
4,096
2,755
Total current assets
312,713
323,179
Property, plant and equipment, net of accumulated depreciation of $
114,569
and $
108,565
, respectively
70,739
74,109
Goodwill
37,897
37,897
Intangibles, net
22,834
24,026
Deferred income taxes
1,342
1,342
Operating lease assets
56,174
50,275
Equity method investment
9,036
9,886
Other assets
2,239
2,967
Total assets
$
512,974
$
523,681
Liabilities and Equity
Liabilities:
Accounts payable
$
66,071
$
83,553
Accrued expenses
18,581
27,414
Income taxes payable
671
379
Current portion of finance leases
8,843
8,163
Current portion of operating leases
8,861
8,876
Current portion of long-term debt
8,962
9,176
Total current liabilities
111,989
137,561
Long-term income taxes payable
2,131
2,841
Long-term finance leases
17,483
16,776
Long-term operating leases
48,804
42,721
Long-term debt
159,591
136,750
Deferred income taxes
337
4,310
Total liabilities
$
340,335
$
340,959
Shareholder's equity:
Preferred stock - $
0.01
par value,
2,000,000
shares authorized, none issued and outstanding
-
-
Common stock $
0.01
par value,
15,000,000
authorized,
9,646,972
shares issued, and
7,001,020
and
6,915,663
shares outstanding as of March 2023 and September 2022,
respectively
96
96
Additional paid-in capital
60,912
61,961
Retained earnings
156,043
166,600
Accumulated other comprehensive income
180
141
Treasury stock -
2,645,952
and
2,731,309
shares as of March 2023 and September 2022,
respectively
(43,896)
(45,420)
Equity attributable to Delta Apparel, Inc.
173,335
183,378
Equity attributable to non-controlling interest
(696)
(656)
Total equity
172,639
182,722
Total liabilities and equity
$
512,974
$
523,681

See accompanying Notes to Condensed Consolidated Financial Statements.

 
Statements.

3
Table of Contents
 
4

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

 $106,319  $126,875  $323,949  $369,319 

Cost of goods sold

  92,384   96,182   280,181   282,100 

Gross profit

  13,935   30,693   43,768   87,219 
                 

Selling, general and administrative expenses

  18,491   22,416   56,658   59,613 

Other (income), net

  (95)  (1,018)  (452)  (1,947)

Operating (loss) income

  (4,461)  9,295   (12,438)  29,553 
                 

Interest expense, net

  4,049   1,971   10,662   5,370 

(Loss) earnings before (benefit from) provision for income taxes

  (8,510)  7,324   (23,100)  24,183 

(Benefit from) provision for income taxes

  (2,218)  1,087   (6,214)  4,149 

Consolidated net (loss) earnings

  (6,292)  6,237   (16,886)  20,034 

Net (loss) income attributable to non-controlling interest

  (5)  (3)  (45)  11 

Net (loss) earnings attributable to shareholders

 $(6,287) $6,240  $(16,841) $20,023 
                 

Basic (loss) earnings per share

 $(0.90) $0.90  $(2.41) $2.87 

Diluted (loss) earnings per share

 $(0.90) $0.88  $(2.41) $2.84 
                 

Weighted average number of shares outstanding

  7,001   6,946   6,985   6,966 

Dilutive effect of stock awards

  -   119   -   95 

Weighted average number of shares assuming dilution

  7,001   7,065   6,985   7,061 
(Unaudited)
Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Net sales
$
110,335
$
131,698
$
217,630
$
242,444
Cost of goods sold
94,126
98,176
187,798
185,919
Gross profit
16,209
33,522
29,832
56,525
Selling, general and administrative expenses
19,298
19,714
38,168
37,197
Other expense (income), net
2,265
(533)
(356)
(929)
Operating (loss) income
(5,354)
14,341
(7,980)
20,257
Interest expense, net
3,723
1,801
6,613
3,399
(Loss) income before (benefit from) provision for income taxes
(9,077)
12,540
(14,593)
16,858
(Benefit from) provision for income taxes
(2,079)
2,414
(3,996)
3,062
Consolidated net (loss) income
(6,998)
10,126
(10,597)
13,796
Net (loss) income attributable to non-controlling interest
(6)
(11)
(40)
14
Net (loss) earnings attributable to shareholders
$
(6,992)
$
10,137
$
(10,557)
$
13,782
Basic (loss) income per share
$
(1.00)
$
1.46
$
(1.51)
$
1.98
Diluted (loss) income per share
$
(1.00)
$
1.44
$
(1.51)
$
1.95
Weighted average number of shares outstanding
7,001
6,953
6,978
6,976
Dilutive effect of stock awards
-
87
-
87
Weighted average number of shares assuming dilution
7,001
7,040
6,978
7,063

See accompanying Notes to Condensed Consolidated Financial Statements.

4
Statements.
Table of Contents
 
5

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) 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

 $(6,287) $6,240  $(16,841) $20,023 

Other comprehensive (loss) income related to unrealized (loss) gain on derivatives, net of income tax

  (159)  186   (121)  779 

Consolidated comprehensive (loss) income

 $(6,446) $6,426  $(16,962) $20,802 
(Unaudited)
Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Net (loss) income attributable to shareholders
$
(6,992)
$
10,137
$
(10,557)
$
13,782
Other comprehensive (loss) gain related to unrealized (loss)
gain on
derivatives, net of income tax
(30)
381
39
593
Consolidated comprehensive (loss) income
$
(7,022)
$
10,518
$
(10,518)
$
14,375

See accompanying Notes to Condensed Consolidated Financial Statements.

5
Statements.
Table of Contents
 
6

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

  9,646,972  $96  $61,961  $166,600  $141   2,731,309  $(45,420) $(656) $182,722 
                                     

Net loss

  -   -   -   (3,565)  -   -   -   -   (3,565)

Other comprehensive income

  -   -   -   -   69   -   -   -   69 

Net loss attributable to non-controlling interest

  -   -   -   -   -   -   -   (34)  (34)

Vested stock awards

  -   -   (2,067)  -   -   (85,357)  1,524   -   (543)

Stock based compensation

  -   -   665   -   -   -   -   -   665 

Balance as of December 2022

  9,646,972  $96  $60,559  $163,035  $210   2,645,952  $(43,896) $(690) $179,314 
                                     

Net loss

  -   -   -   (6,992)  -   -   -   -   (6,992)

Other comprehensive loss

  -   -   -   -   (30)  -   -   -   (30)

Net loss attributable to non-controlling interest

  -   -   -   -   -   -   -   (6)  (6)

Stock based compensation

  -   -   353   -   -   -   -   -   353 

Balance as of March 2023

  9,646,972  $96  $60,912  $156,043  $180   2,645,952  $(43,896) $(696) $172,639 
                                     

Net loss

  -   -   -   (6,287)  -   -   -   -   (6,287)

Other comprehensive loss

  -   -   -   -   (159)  -   -   -   (159)

Net loss attributable to non-controlling interest

  -   -   -   -   -   -   -   (5)  (5)

Stock based compensation

  -   -   536   -   -   -   -   -   536 

Balance as of June 2023

  9,646,972  $96  $61,448  $149,756  $21   2,645,952  $(43,896) $(701) $166,724 

(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 2021

  9,646,972  $96  $60,831  $146,860  $(786)  2,672,312  $(42,149) $(658) $164,194 
                                     

Net income

  -   -   -   3,645   -   -   -   -   3,645 

Other comprehensive income

  -   -   -   -   212   -   -   -   212 

Net income attributable to non-controlling interest

  -   -   -   -   -   -   -   25   25 

Purchase of common stock

  -   -   -   -   -   74,232   (2,143)  -   (2,143)

Vested stock awards

  -   -   (1,766)  -   -   (76,460)  674   -   (1,092)

Stock based compensation

  -   -   140   -   -   -   -   -   140 

Balance as of December 2021

  9,646,972  $96  $59,205  $150,505  $(574)  2,670,084  $(43,618) $(633) $164,981 
                                     

Net income

  -   -   -   10,137   -   -   -   -   10,137 

Other comprehensive income

  -   -   -   -   381   -   -   -   381 

Net loss attributable to non-controlling interest

  -   -   -   -   -   -   -   (11)  (11)

Vested stock awards

  -   -   -   -   -   -   -   -   - 

Purchase of common stock

  -   -   -   -   -   28,015   (846)  -   (846)

Stock based compensation

  -   -   714   -   -   -   -   -   714 

Balance as of March 2022

  9,646,972  $96  $59,919  $160,642  $(193)  2,698,099  $(44,464) $(644) $175,356 
                                     

Net income

  -   -   -   6,240   -   -   -   -   6,240 

Other comprehensive income

  -   -   -   -   186   -   -   -   186 

Net loss attributable to non-controlling interest

  -   -   -   -   -   -   -   (3)  (3)

Purchase of common stock

  -   -   -   -   -   33,934   (968)  -   (968)

Stock based compensation

  -   -   903   -   -   -   -   -   903 

Balance as of June 2022

  9,646,972  $96  $60,822  $166,882  $(7)  2,732,033  $(45,432) $(647) $181,714 
Accumulated
Additional
Other
Non-
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Controlling
Shares
Amount
Capital
Earnings
Income
Shares
Amount
Interest
Total
Balance as of September
2022
9,646,972
$
96
$
61,961
$
166,600
$
141
2,731,309
$
(45,420)
$
(656)
$
182,722
Net loss
-
-
-
(3,565)
-
-
-
-
(3,565)
Other comprehensive income
-
-
-
-
69
-
-
-
69
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(34)
(34)
Vested stock awards
-
-
(2,067)
-
-
(85,357)
1,524
-
(543)
Stock based compensation
-
-
665
-
-
-
-
-
665
Balance as of December
2022
9,646,972
$
96
$
60,559
$
163,035
$
210
2,645,952
$
(43,896)
$
(690)
$
179,314
Net loss
-
-
-
(6,992)
-
-
-
-
(6,992)
Other comprehensive loss
-
-
-
-
(30)
-
-
-
(30)
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(6)
(6)
Stock based compensation
-
-
353
-
-
-
-
-
353
Balance as of March 2023
9,646,972
$
96
$
60,912
$
156,043
$
180
2,645,952
$
(43,896)
$
(696)
$
172,639
Accumulated
Additional
Other
Non-
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Controlling
Shares
Amount
Capital
Earnings
(Loss)
Shares
Amount
Interest
Total
Balance as of September 2021
9,646,972
$
96
$
60,831
$
146,860
$
(786)
2,672,312
$
(42,149)
$
(658)
$
164,194
Net income
-
-
-
3,645
-
-
-
-
3,645
Other comprehensive income
-
-
-
-
212
-
-
-
212
Net income attributable to
non-controlling interest
-
-
-
-
-
-
-
25
25
Purchase of common stock
-
-
-
-
-
74,232
(2,143)
-
(2,143)
Vested stock awards
-
-
(1,766)
-
-
(76,460)
674
-
(1,092)
Stock based compensation
-
-
140
-
-
-
-
-
140
Balance as of December 2021
9,646,972
$
96
$
59,205
$
150,505
$
(574)
2,670,084
$
(43,618)
$
(633)
$
164,981
Net income
-
-
-
10,137
-
-
-
-
10,137
Other comprehensive income
-
-
-
-
381
-
-
-
381
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(11)
(11)
Purchase of common stock
-
-
-
-
-
28,015
(846)
-
(846)
Stock based compensation
-
-
714
-
-
-
-
-
714
Balance as of March 2022
9,646,972
$
96
$
59,919
$
160,642
$
(193)
2,698,099
$
(44,464)
$
(644)
$
175,356

See accompanying Notes to Condensed Consolidated Financial Statements.

6
Statements.
Table of Contents
 
7

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

 $(16,886) $20,034 

Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities:

        

Depreciation and amortization

  11,397   11,272 

Amortization of deferred financing fees

  519   244 

Provision for inventory market reserves

  (3,707)  1,484 

Change in reserves for allowances on accounts receivable

  (11)  (160)

(Benefit from) provision for deferred income taxes

  (6,033)  488 

Non-cash stock compensation

  1,554   1,756 

Loss on disposal of equipment

  135   348 

Loss on impairment

  831   - 

Other, net

  (710)  (2,263)

Changes in operating assets and liabilities:

        

Accounts receivable

  27,006   (1,251)

Inventories

  26,049   (67,452)

Prepaid expenses and other current assets

  (1,985)  602 

Other non-current assets

  2,023   199 

Accounts payable

  (19,524)  23,390 

Accrued expenses

  (9,816)  (1,737)

Net operating lease liabilities

  268   409 

Income taxes

  (323)  264 

Other liabilities

  -   (1,049)

Net cash provided by (used in) operating activities

  10,787   (13,422)

Investing activities:

        

Purchases of property and equipment

  (3,551)  (10,931)

Proceeds from sale/leaseback

  4,417   - 

Proceeds from sale of equipment

  19   33 

Cash paid for intangible asset

  -   (132)

Cash paid for business

  -   (583)

Net cash used in investing activities

  885   (11,613)

Financing activities:

        

Proceeds from long-term debt

  363,438   411,600 

Repayment of long-term debt

  (367,723)  (383,919)

Repayment of finance lease obligations

  (6,849)  (5,604)

Payment of deferred financing cost

  -   (850)

Repurchase of common stock

  -   (3,934)

Payment of withholding taxes on stock awards

  (542)  (1,092)

Net cash (used in) provided by financing activities

  (11,676)  16,201 

Net decrease in cash and cash equivalents

  (4)  (8,834)

Cash and cash equivalents at beginning of period

  300   9,376 

Cash and cash equivalents at end of period

 $296  $542 
         

Supplemental cash flow information

        

Finance lease assets exchanged for finance lease liabilities

 $6,708  $10,381 

Operating lease assets exchanged for operating lease liabilities

 $11,039  $6,869 
(Unaudited)
Six Months Ended
March 2023
March 2022
Operating activities:
Consolidated net (loss) earnings
$
(10,597)
$
13,796
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation and amortization
7,642
7,434
Amortization of deferred financing fees
268
162
Change in inventory market reserves
(3,540)
1,290
(Benefit from) provision for deferred income taxes
(3,986)
583
Non-cash stock compensation
1,018
854
Loss on disposal of equipment
69
383
Loss on impairment of equipment
860
-
Other, net
(390)
(1,180)
Changes in operating assets and liabilities:
Accounts receivable
6,472
(10,524)
Inventories
8,911
(37,278)
Prepaid expenses and other current assets
(1,609)
(66)
Other non-current assets
2,019
1,014
Accounts payable
(17,657)
11,742
Accrued expenses
(8,659)
(3,215)
Change in net operating lease liabilities
169
243
Income taxes
(129)
1,352
Other liabilities
-
(1,049)
Net cash used in operating activities
(19,139)
(14,459)
Investing activities:
Purchases of property and equipment, net
(2,495)
(7,670)
Proceeds from sale of property and equipment
-
33
Proceeds from equipment under financed leases
4,417
-
Cash paid for intangible asset
-
(109)
Cash paid for business
-
(583)
Net cash provided by (used in) investing activities
1,922
(8,329)
Financing activities:
Proceeds from long-term debt
254,103
265,034
Repayment of long-term debt
(231,476)
(243,483)
Repayment of capital financing
(4,543)
(3,630)
Repurchase of common stock
-
(2,989)
Payment of withholding taxes on stock awards
(542)
(1,092)
Net cash provided by financing activities
17,542
13,840
Net increase (decrease) in cash and cash equivalents
325
(8,948)
Cash and cash equivalents at beginning of period
300
9,376
Cash and cash equivalents at end of period
$
625
$
428
Supplemental cash flow information
Finance lease assets exchanged for finance lease liabilities
$
5,930
$
5,379
Operating lease assets exchanged for operating lease liabilities
$
10,991
$
4,397

See accompanying Notes to Condensed Consolidated Financial Statements.

7
Statements.
Table of Contents
8

Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 
(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
7,000
7,100 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®, Soffe®, and Delta. We are a
market leader in the on-demand, digital print and
fulfillment industry,
bringing DTG2Go's proprietary
technology and innovation
to our customers'
supply chains. 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, eRetailers, the U.S.
military, and through our
business-to-business digital platform. Our products are also
made available direct-to-consumer
on our ecommerce sites
and in our
branded retail stores.
Our diversified go-to-market
strategy allows us
to capitalize on
our strengths in
providing 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, with more
than
90
%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

52-5352-53 week
fiscal year
ending on
the Saturday
closest to
September 30.
Our 2023 fiscal
year is
a 52-week
52-week year and
will end
on September
30, 2023 ("("fiscal
2023"). Accordingly, this Quarterly Report on Form 10-Q10-Q presents our results for our secondthird quarter of fiscal 2023. Our 2022 fiscal year was a 52-week52-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
March 2022
Fiscal 2022
April 2, 2022
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

Period EndedFiscal YearDate Ended
June 2022Fiscal 2022July 2, 2022
September 2022

Fiscal 2022

October 1, 2022
December 2022Fiscal 2023December 31, 2022
March 2023Fiscal 2023April 1, 2023
June 2023Fiscal 2023July 1, 2023

We prepared the accompanying interim Condensed Consolidated

Financial Statements in accordance
with the instructions for Form
10-Q10-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 sixnine months ended MarchJune 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-
marketgo-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
2023may 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-K10-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
31
% 31% of
the outstanding
capital stock
of a
Honduran company.
During the
sixnine months
ended March
June 2023 and MarchJune 2022,
we received dividends
from this investment
of $
1.2
million and $
1.1
million, respectively.
Our Ceiba Textiles
manufacturing facility is
leased
under an operating lease
arrangement with this Honduran
company. During the sixnine months
ended MarchJune 2023
and MarchJune 2022, we
paid approximately $
0.9
$1.3 million in rent under
this arrangement.

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,
864-232-5200,or via email at investor.relations@deltaapparel.com.

8
Table of Contents
 

Note B—Accounting Policies

Our accounting policies are consistent with those described

in our Significant Accounting Policies in our Annual
Report on Form 10-K10-K for our fiscal 2022, filed with
the
SEC. See Note C for consideration of recently issued accounting standards.

 
accounting standards.

Note C—New Accounting Standards

Standards Not Yet Adopted

In June 2016, the FASB

issued ASU No. 2016-13,
2016-13,Financial Instruments - Credit Losses
(Topic 326) (Topic 326):
Measurement of Credit
Losses on Financial Instruments
(“ASU
2016-13”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
2016-13,2016-13, 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.

9
Table of Contents

 
9

Note D—Revenue Recognition

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 sales and sales in our DTG2Go business.
 sales.  The table
below identifies the amount and percentage of net sales
by distribution channel (in thousands):
Three Months Ended
March 2023
March 2022
Retail
$
3,157
3
%
$
2,370
1
%
Direct-to-consumer ecommerce
1,509
1
%
710
1
%
Wholesale
105,669
96
%
128,618
98
%
Net sales
$
110,335
100
%
$
131,698
100
%
Six Months Ended
March 2023
March 2022
Retail
$
6,611
3
%
$
5,273
2
%
Direct-to-consumer ecommerce
2,672
1
%
2,054
1
%
Wholesale
208,347
96
%
235,117
97
%
Net sales
$
217,630
100
%
$
242,444
100
%

  

Three Months Ended

 
  

June 2023

  

June 2022

 

Retail

 $4,830   5% $4,412   3%

Direct-to-consumer ecommerce

  1,870   2%  1,145   1%

Wholesale

  99,619   93%  121,318   96%

Net sales

 $106,319   100% $126,875   100%

  

Nine Months Ended

 
  

June 2023

  

June 2022

 

Retail

 $11,441   4% $9,685   3%

Direct-to-consumer ecommerce

  4,542   1%  3,199   1%

Wholesale

  307,966   95%  356,435   96%

Net sales

 $323,949   100% $369,319   100%

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

 $89,118   0.0%  0.4%  99.6%

Salt Life Group

  17,201   28.0%  8.9%  63.1%

Total

 $106,319             

  

Three Months Ended June 2022

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $106,020   0.1%  0.4%  99.5%

Salt Life Group

  20,855   20.8%  3.4%  75.8%

Total

 $126,875             

  

Nine Months Ended June 2023

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $277,471   0.1%  0.3%  99.6%

Salt Life Group

  46,478   24.4%  8.2%  67.4%

Total

 $323,949             

  

Nine Months Ended June 2022

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $323,276   0.1%  0.3%  99.6%

Salt Life Group

  46,043   20.3%  5.0%  74.7%

Total

 $369,319             

10
Table of Contents
 
Three Months Ended March 2023
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
91,344
0.0
%
0.3
%
99.7
%
Salt Life Group
18,991
16.5
%
6.9
%
76.6
%
Total
$
110,335
Three Months Ended March 2022
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
115,335
0.1
%
0.1
%
99.8
%
Salt Life Group
16,363
14.1
%
3.3
%
82.6
%
Total
$
131,698
Six Months Ended March 2023
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
188,354
0.1
%
0.2
%
99.7
%
Salt Life Group
29,276
22.3
%
7.8
%
69.9
%
Total
$
217,630
Six Months Ended March 2022
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
217,256
0.1
%
0.2
%
99.7
%
Salt Life Group
25,188
19.8
%
6.3
%
73.9
%
Total
$
242,444

Note E—Inventories

Inventories, net of reserves of $

14.1
$14.0 million and $
17.7
$17.7 million as of MarchJune 2023 and September 2022, respectively, consisted of the
following (in thousands):
March 2023
September 2022
Raw materials
$
18,796
$
22,603
Work in process
18,574
23,501
Finished goods
205,797
202,434
$
243,167
$
248,538

  

June 2023

  

September 2022

 

Raw materials

 $20,500  $22,603 

Work in process

  18,684   23,501 

Finished goods

  187,012   202,434 
  $226,196  $248,538 

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.

 
10

Note F—Debt

Credit Facility

On May 10,2016,

we entered into
a Fifth Amended
and Restated Credit Agreement
(as (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,
(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
10
bps for 1 month and
15
bps for 3-month
tenors, (iii) sets the SOFR floor to
0
bps, (iv) reloads the fair market value
of real estate and intellectual property within the
borrowing base calculation and resets their
respective amortization
schedules, (v) sets
the maturity
date to
5
years from
the closing
date, and
(vi) updates the
requirement for
our Fixed
Charge Coverage
Ratio
(“FCCR”) for the preceding 12-month period to not be less than
1.0
(previously
1.1
).
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 EighthSeventh Amendment to

the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set
forth therein (the “Eighth“Seventh Amendment”). The Eighth
Seventh Amendment, essentially clarifies(i) removes LIBOR based borrowing and utilizes SOFR (Secured Overnight Financing Rate) as the Amended
Credit Agreement’s provisions regardingprimary pricing structure, (ii) amends the inclusionpricing structure based on SOFR plus a CSA (Credit Spread Adjustment) defined as 10 bps for 1 month and 15 bps for 3-month tenors, (iii) sets the SOFR floor to 0 bps, (iv) reloads the fair market value of eligible in-
transit inventory inreal estate and intellectual property within the borrowing base calculation and
amends resets their respective amortization schedules, (v) sets the definition of Increased Reporting Eventmaturity date to include
12.5
% of5 years from the lesser of
closing date, and (vi) updates the borrowing base andrequirement for our Fixed Charge Coverage Ratio (“FCCR”) for the maximum
revolver amount as opposedpreceding 12-month period to
12.5
% of the line cap.
not be less than 1.0 (previously 1.1).

On FebruaryJanuary 3, 2023, the Borrowers entered into

the NinthEighth 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 12.5% of the lesser of the borrowing base and the maximum revolver amount as opposed to 12.5% of the line cap. 

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,
$
7,500,000,
, (b) on
and after April
2, 2023 through
(and (and including) June
4, 2023, $
9,000,000,
,
(c) on and after June 5, 2023, through
the date following September 30, 2023,
upon which Borrowers satisfy minimum availability
thresholds, $
10,000,000
;10,000,000; and (d) at all
times thereafter,
$
0
;0; (ii)
the FCCR covenant
is suspended; (iii)
Borrowers must maintain
specified minimum EBITDA
levels for trailing
three-monththree-month periods starting
March 4, 2023; (iv)(iv) the Applicable Margin with respect to loans under
the Amended Credit Agreement is increased by
50
basis points; and (v) a Cash Dominion Trigger
Event occurs if availability is less than $
2,000,000
.
$2,000,000.

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 $
170
$170 million (subject to borrowing base limitations), including
a maximum of $
25
$25 million in letters of credit.
Provided that no event of default exists,
we have the option to increase the
maximum credit to $
200
$200 million (subject to borrowing base limitations),
conditioned upon the
Administrative Agent's ability to secure
additional commitments and customary closing conditions. The
Amended Credit Agreement contains a
subjective acceleration
clause and a “springing”
lockbox arrangement (as defined in
ASC 470, Debt) whereby
remittances from customers will be
forwarded to our general bank
account and
will not reduce
the outstanding debt until
and unless a
specified event or an
event of default occurs.
We classify
borrowings under the Amended
Credit Agreement as
long-term debt with consideration of current maturities.

As of MarchJune 2023, we had

$
153.1
126.4million outstanding under our U.S. revolving credit facility
at an average interest rate of
7.6
%7.8%. Our cash on hand combined
with the
availability under the U.S. revolving
credit facility totaled $
12.8
14.4million. At MarchJune 2023 and September
2022, there was $
19.6
16.4million and $
24.9
$24.9 million, respectively, of
retained earnings free of restrictions to make cash dividend
payments or stock repurchases to the extent
permitted under our U.S. revolving credit facility.

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
five
-
year-year terms, and
simultaneously settled
the prior term
loans and revolving
credit facility with
outstanding balances
at the time
of settlement of
$
1.1
$1.1 million and
$
9.5
$9.5 million,
respectively. Additionally, in May 2022, we entered
into a new term
loan with a
five
-year term with a
principal amount of $
3.7
$3.7 million. These loans are
secured by a first-
priorityfirst-priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities.
These loans are denominated in U.S. dollars, and the carrying value of
the debt approximates its fair value. As the revolving
credit facility permits us to re-borrow funds up
to the amount repaid, subject to certain
objective covenants, and we
intend to re-borrow funds, subject to those covenants, the amounts
borrowed are classified as long-term debt.

El Salvador Debt

In September 2022, we entered into

a new term loan with
a
five
-year term with a principal amount of
$
3.0
$3.0 million with Banco Ficohsa, a Panamanian bank,
to finance
investments in our
El Salvador operations.
This loan is secured
by a first-priorityfirst-priority lien
on the assets
of our El Salvador
operations and is
not guaranteed by
our U.S. entities.
The loan is
denominated in U.S.
dollars, and the
carrying value of
the debt approximates
its fair value.
Information about this
loan and
the outstanding balance
as of
March 2023 is listed as part of the long-term debt schedule below.

Additional information about these loans and the outstanding balances

as of MarchJune 2023 is as follows (in thousands):

  

June 2023

 

Revolving credit facility with Banco Ficohsa, a Honduran bank, with interest at 7.9%, due August 2025

 $3,909 

Term loan with Banco Ficohsa, a Honduran bank, interest at 7.75%, quarterly installments which began September 2021 and are due through December 2025.

  5,072 

Term loan with Banco Ficohsa, a Honduran bank, interest at 7.75%, quarterly installments which began March 2023 and are due through May 2027.

  3,308 

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 August 2027.

  2,627 

 
March 2023
Revolving credit facility with Banco Ficohsa, a Honduran bank,
with interest at
7.9
%, due August 2025
$
3,300
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.75
%, quarterly installments which began September 2021
and are due through
December 2025
5,579
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.75
%, quarterly installments which began March 2023 and are
due through May
2027
3,483
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
August 2027
2,754
11

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
$
5.7
$5.2 million
and $
5.6
$5.6 million for the MarchJune 2023 and MarchJune 2022
quarters, respectively. Distribution costs included in SG&A expenses
totaled $
11.2
$16.3 million and $16.8 million for both the six-months
nine months ended MarchJune 2023 and 2022.June 2022, respectively. In addition, SG&A expenses include costs related to
sales associates, administrative personnel, advertising and marketing expenses, retail
store build-outs, and other general and administrative expenses.

11
Table of Contents

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-
approvedre-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, 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 MarchJune 2023 and March

June 2022 quarters, we recognized $
0.4
$0.6 million and $
0.9
$1.1 million in stock-based compensation expense, respectively.
Associated with this compensation cost are
income tax
benefits recognized of $
0.2
$0.2 million and $
0.2
$0.2 million, respectively, for each of the three-monththree-month periods ended MarchJune 2023 and March
June 2022. During the six-monthsnine-months ended
MarchJune 2023 and March
June 2022, we recognized $
1.0
$1.6 million and $
1.3
$2.4 million respectively, in stock-based compensation
expense. Associated with
the compensation cost
are income
tax benefits recognized of $
0.3
$0.5 million and $
0.2
$0.4 million, respectively, for each of the six-monthsnine-months periods ended MarchJune 2023 and March
June 2022.

During the December 2022 quarter, restricted

stock units representing
105,000
shares of our common stock
vested with the filing of
our Annual Report on Form
10-K10-K for
fiscal 2022 and were issued in accordance with their respective
agreements. Of these vested awards, all were payable in
common stock.

During the

December 2022 quarter,
performance stock units
and restricted stock
units representing
5,000
and
18,000
shares of our
common stock, respectively,
were
forfeited.

As of MarchJune 2023, there was $

2.7
$2.0 million of total unrecognized compensation cost related to unvested awards granted under the 2020
Stock Plan. This cost is expected
to be recognized over a period of
2.7
2.4 years.

 
years.

Note I—Purchase Contracts

We

have entered
into agreements,
and have
fixed prices,
to purchase
yarn, finished
fabric, and
finished apparel
and headwear
products. At
March June 2023,
minimum
payments under these contracts were as follows (in thousands):

Yarn

 $19,123 

Finished fabric

  1,952 

Finished products

  7,542 
  $28,617 

12
Yarn
$
14,985
Finished fabric
4,102
Finished products
4,797
$
23,884
Table of Contents
 

Note J—Business Segments

Our operations are managed and reported in two 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
seven digital
multi-facility fulfillment facilities
throughoutfootprint 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 worldwide. internationally. DTG2Go
has made
significant investments in
its “digital-first”“digital first” retail
model providing digital
graphic prints that
meet the high-
qualityhigh-quality standards required
forof brands, retailers
and intellectual property
holders. Through integration
with Delta Activewear,
DTG2Go also services
the eRetailer,
ad-
specialty, 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 retaildirect-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 "anchored in the military,
grounded in training"
and offers everything
12
from physical training
gear certified by
the respective branches of
the military,
classic base layers
that include the
favored
3-pack3-pack tees, and
the iconic "ranger
panty."
Complementing the
Delta and
Soffe brand
apparel, we
offer
our customers
a
broad range
of
product categories
with nationally
recognized brands
branded products including polos,
outerwear, headwear, bags and other accessories. Our Soffe products are also available direct to consumers
at www.soffe.com.
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 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.
www.saltlife.com.

Our Chief Operating Decision Makerchief 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 (loss)
earnings"). Our
segment operating
(loss) 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-K10-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 (in thousands).
Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Segment net sales:
Delta Group
$
91,344
$
115,335
$
188,354
$
217,256
Salt Life Group
18,991
16,363
29,276
25,188
Total net sales
$
110,335
$
131,698
$
217,630
$
242,444
Segment operating (loss) earnings:
Delta Group
$
(7,487)
$
14,417
$
(7,363)
$
22,854
Salt Life Group
4,649
3,306
4,866
3,463
Total segment operating (loss) earnings
$
(2,838)
$
17,723
$
(2,497)
$
26,317

  

Three Months Ended

  

Nine Months Ended

 
  

June 2023

  

June 2022

  

June 2023

  

June 2022

 

Segment net sales:

                

Delta Group

 $89,118  $106,020  $277,471  $323,276 

Salt Life Group

  17,201   20,855   46,478   46,043 

Total net sales

 $106,319  $126,875  $323,949  $369,319 
                 

Segment operating earnings:

                

Delta Group

 $(3,616) $10,701  $(10,974) $33,557 

Salt Life Group

  1,642   3,574   6,509   7,037 

Total segment operating (loss) earnings

 $(1,974) $14,275  $(4,465) $40,594 

The following table reconciles the segment operating (loss)

earnings to the consolidated (loss) 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

 $(1,974) $14,275  $(4,465) $40,594 

Unallocated corporate expenses

  2,487   4,980   7,973   11,041 

Unallocated interest expense

  4,049   1,971   10,662   5,370 

Consolidated (loss) earnings before (benefit from) provision for income taxes

 $(8,510) $7,324  $(23,100) $24,183 

13
Table of Contents
 
Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Segment operating (loss) earnings
$
(2,838)
$
17,723
$
(2,497)
$
26,317
Unallocated corporate expenses
2,516
3,382
5,483
6,060
Unallocated interest expense
3,723
1,801
6,613
3,399
Consolidated (loss) earnings before (benefit from) provision
for income
taxes
$
(9,077)
$
12,540
$
(14,593)
$
16,858

Note K—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)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)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)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
six-monthsnine-months ended MarchJune 2023 was
27.5
% 27.0% compared to a rate
of
18.2
% 17.2% in the same
period of the prior year,
and an
effective rate of
17.9
% 17.9% for fiscal 2022. We generally benefit from having income in
foreign jurisdictions that are either exempt from income taxes or have tax rates that
are lower
than those
in the
United States.
As such,
changes in
the mix
of U.S.
taxable income
compared to
profits in
tax-free or
lower-tax jurisdictions
can have
a
significant impact on our overall effective tax rate. The current year tax
rate expense decreased relative to prior periods due to US operating losses expected
to generate a US tax benefit.

 
13

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 March
June 2023, all of our
other comprehensive income was
attributable to shareholders; none related to
the non-controlling
interest.
Outstanding instruments as of MarchJune 2023 are as follows:
Effective Date
Notional Amount
Fixed LIBOR
Rate
Maturity Date
Interest Rate Swap
July 25, 2018
$
20.0
million
3.18%
July 25, 2023

Notional

Effective Date

Amount

Fixed LIBOR Rate

Maturity Date

Interest Rate Swap

July 25, 2018

$20.0 million

3.18%

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 MarchJune 2023 and September 2022 (in(in thousands):
March 2023
September 2022
Deferred tax assets
$
(60)
$
(48)
Other non-current liabilities
240
189
Accumulated other comprehensive income
$
180
$
141

  

June 2023

  

September 2022

 

Deferred tax assets

 

$

(7

) 

$

(48

)

Other assets

  

28

 

  

189

 

Accumulated other comprehensive gain

 

$

21

 

 

$

141

 

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 MarchJune 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.

14
Level 1 – Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Table of Contents
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
Active Markets
Other
Significant
for
Observable
Unobservable
Identical Assets
Inputs
Inputs
Period Ended
Total
(Level 1)
(Level 2)
(Level 3)
Interest Rate Swaps
March 2023
$
240
-
$
240
-
September 2022
$
189
-
$
189
-

      Fair Value Measurements Using 
      

Quoted Prices in

  

Significant Other

  

Significant

 
      

Active Markets for

  

Observable

  

Unobservable

 
      

Identical Assets

  

Inputs

  

Inputs

 

Period Ended

 

Total

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Interest Rate Swaps

                

June 2023

 $21   —  $21   — 

September 2022

 $141   —  $141   — 
                 

The fair value

of the interest rate
swap agreements was
derived from a discounted
cash flow analysis
based on the
terms of the contract
and the forward
interest rate curves
adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. At MarchJune 2023 and September 2022, book value for fixed rate debt approximatedapproximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).

 
fair value
based on
quoted market
prices for
the
same or
similar issues
or
on the
current
rates offered
to us
for debt
of
the
same
remaining maturities
(a Level
2
fair value
measurement).

Note M—Legal Proceedings

At times,

we are
party to various
legal claims,
actions and
complaints. We believe
that, as
a result
of legal
defenses, insurance
arrangements, and
indemnification provisions
with parties believed to be financially capable, such actions
should not have a material adverse effect on our operations, financial
condition, or liquidity.

Note N—Repurchase of Common Stock

As of September 28,2019,

our Board of
Directors authorized management to
use up to
$
60.0
$60.0 million to repurchase stock
in open market
transactions under our Stock
Repurchase Program. We did
no
tnot purchase any shares of our common stock during the MarchJune 2023
quarter. Through MarchJune 2023, we have purchased
3,735,114
shares
of our common stock
for an aggregate
of $
56.4
$56.4 million under our
Stock Repurchase Program
since its inception.
All purchases were
made at the
discretion of management
and pursuant to
the safe harbor
provisions of SEC
Rule 10b-18.10b-18. As
of MarchJune 2023,
$
3.6
million remained available
for future purchases
under our Stock
Repurchase
Program, which does not have an expiration date.

15
Table of Contents

 
14

Note O—Goodwill and Intangible Assets

Components of intangible assets consist of the following

(in (in thousands):
March 2023
September 2022
Accumulated
Net
Accumulated
Net
Economic
Cost
Amortization
Value
Cost
Amortization
Value
Life
Goodwill
$
37,897
$
-
$
37,897
$
37,897
$
-
$
37,897
N/A
Intangibles:
Tradename/trademarks
$
16,000
$
(5,117)
$
10,883
$
16,000
$
(4,851)
$
11,149
20
–
30
yrs
Customer relationships
7,400
(3,583)
3,817
7,400
(3,213)
4,187
20
yrs
Technology
10,083
(3,059)
7,024
10,083
(2,610)
7,473
10
yrs
License agreements
2,100
(992)
1,108
2,100
(940)
1,160
15
–
30
yrs
Non-compete
agreements
1,657
(1,655)
2
1,657
(1,600)
57
4
–
8.5
yrs
Total intangibles
$
37,240
$
(14,406)
$
22,834
$
37,240
$
(13,214)
$
24,026

  

June 2023

  

September 2022

   
  

Cost

  

Accumulated Amortization

  

Net Value

  

Cost

  

Accumulated Amortization

  

Net Value

 Economic Life 
                           

Goodwill

 $37,897  $—  $37,897  $37,897  $—  $37,897 N/A 
                           

Intangibles:

                          

Tradename/trademarks

 $16,000  $(5,251) $10,749  $16,000  $(4,851) $11,149 

20 – 30 yrs

 

Customer relationships

  7,400   (3,768)  3,632   7,400   (3,213)  4,187 

20 yrs

 

Technology

  10,083   (3,284)  6,799   10,083   (2,610)  7473 

10 yrs

 

License agreements

  2,100   (1,017)  1,083   2,100   (940)  1,160 

15 – 30 yrs

 

Non-compete agreements

  1,657   (1,656)  1   1,657   (1,600)  57 

4 – 8.5 yrs

 

Total intangibles

 $37,240  $(14,976) $22,264  $37,240  $(13,214) $24,026   

Goodwill represents the

acquired goodwill net
of the $
0.6
$0.6 million impairment losses recorded
in fiscal year
2011. As
of MarchJune 2023,
the Delta Group
segment assets
include $
18.0
$18.0 million of goodwill, and the Salt Life Group segment assets
include $
19.9
million.
$19.9 million of goodwill.

Depending on the type

of intangible asset, amortization is
recorded under cost of goods
sold or selling, general and
administrative expenses. Amortization expense for
intangible assets for
the MarchJune 2023
and MarchJune 2022
quarters was $
0.6
$0.6 million and $
0.6
$0.6 million, respectively. Amortization
expense for the
six-monthsnine-months ended March
June 2023 and MarchJune 2022 was $
1.2
$1.8 million and $
1.2
$1.8 million, respectively. Amortization expense is estimated to be
approximately $
1.4
$2.3 million for the year ended September
2023, approximately $
1.4
2.3million for the year ended September 2024, and approximately
$
1.4
million foreach of the years ended September 2024 and 2025, and approximately $2.2 million for each of the years ended September 2026 and2027.

 
2027.

Note P—Subsequent Events

None.

16
None.
Table of Contents
 
15

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of

1995 provides a safe harbor for forward-looking
statements made by or on behalf
of the Company. We may from time to
time make written or oral statements that
are “forward-looking,” including statements
contained in this report and other filings
with the SEC, in our press releases,
and in
other reports to our shareholders.
All statements, other than
statements of historical fact,
which address activities,
events or developments
that we expect or
anticipate will
or may
occur in the
future are forward-looking
statements. The words
“plan” “plan”, “estimate”, “project”,
“forecast” “forecast”, “outlook”, “anticipate”, “expect”,
“intend” “intend”, “remain”,
“seek" “seek", “believe”, “may”, “should” and similar expressions, and discussions
of strategy or intentions, are intended to identify forward-looking
statements.

Forward-looking statements

are neither
historical facts
nor assurances
of future
performance. Instead,
they are
based on
our current
expectations and
are necessarily
dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may
be incorrect, incomplete or imprecise. Forward-looking statements
are subject to a number of business risks and inherent uncertainties, any of which could cause actual results to differ materially from those set
forth in or implied by the
forward-looking statements. Therefore,
you should not rely on
any of these forward-looking
statements. Important factors that
could cause our actual results
and financial
condition to differ materially from those indicated in forward-looking
statements include, among others, the following:
●
the general U.S. and international economic conditions;
●
the
impact of
the
COVID-19 pandemic
on
our
operations,
financial condition,
liquidity,
and
capital investments,
including recent
labor
shortages,
inventory constraints, and supply chain disruptions;
●
significant interruptions or disruptions within our manufacturing,
distribution or other operations;
●
deterioration in the financial condition of our customers and suppliers
and changes in the operations and strategies of our customers
and suppliers;
●
the volatility and uncertainty of cotton and other raw material
prices and availability;
●
the competitive conditions in the apparel industry;
●
our ability to predict or react to changing consumer preferences
or trends;
●
our ability to successfully open and operate new retail stores in
a timely and cost-effective manner;
●
the ability to grow, achieve synergies and realize the expected profitability of acquisitions;
●
changes in economic, political or social stability at
our offshore locations or in areas in which we, or our suppliers
or vendors, operate;
●
our ability to attract and retain key management;
●
the volatility and uncertainty of energy, fuel and related costs;
●
material disruptions in our information systems related to our
business operations;
●
compromises of our data security;
●
significant changes in our effective tax rate;
●
significant litigation in either domestic or international jurisdictions;
●
recalls, claims and negative publicity associated with product
liability issues;
●
the ability to protect our trademarks and other intellectual
property;
●
changes in international trade regulations;
●
our ability to comply with trade regulations;
●
changes in employment laws or regulations or our relationship
with employees; or our ability to attract and retain
employees;
●
negative publicity
resulting from violations
of manufacturing standards
or labor
laws or
unethical business practices
by our
suppliers or independent
contractors;
●
the inability of suppliers or other third-parties, including those providing key equipment, transportation, and other services, to perform their obligations
or fulfill the terms of their contracts with us;
●
restrictions on our ability to borrow capital or service our
indebtedness;
●
interest rate fluctuations increasing our obligations under our
variable rate indebtedness;
●
the ability to raise additional capital;
●
the impairment of acquired intangible assets;
●
foreign currency exchange rate fluctuations;
●
the illiquidity of our shares; and
●
price volatility in our shares and the general volatility of the stock
market.

●the general U.S. and international economic conditions;

●

the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations, financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and supply chain disruptions;

●

significant interruptions or disruptions within our manufacturing, distribution or other operations;

●

deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers;

●

the volatility and uncertainty of cotton and other raw material prices and availability;

●

the competitive conditions in the apparel industry;

●

our ability to predict or react to changing consumer preferences or trends;

●

our ability to successfully open and operate new retail stores in a timely and cost-effective manner;

●

the ability to grow, achieve synergies and realize the expected profitability of acquisitions;

●

changes in economic, political or social stability at our offshore locations or in areas in which we, or our suppliers or vendors, operate;

●

our ability to attract and retain key management;

●

the volatility and uncertainty of energy, fuel and related costs;

●

material disruptions in our information systems related to our business operations;

●

compromises of our data security;

●

significant changes in our effective tax rate;

●

significant litigation in either domestic or international jurisdictions;

●

recalls, claims and negative publicity associated with product liability issues;

●

the ability to protect our trademarks and other intellectual property;

●

changes in international trade regulations;

●

our ability to comply with trade regulations;

●

changes in employment laws or regulations or our relationship with employees;

●

negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;

●the inability of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their contracts with us;

●

restrictions on our ability to borrow capital or service our indebtedness;

●

interest rate fluctuations increasing our obligations under our variable rate indebtedness;

●

the ability to raise additional capital;

●

the impairment of acquired intangible assets;

●

foreign currency exchange rate fluctuations;

●

the illiquidity of our shares; and

●

price volatility in our shares and the general volatility of the stock market.

A detailed discussion

of significant risk
factors that have
the potential to
cause actual results
to differ materially
from our expectations
is set forth
in Part 1
under the
subheading "Risk Factors" in our
Annual Report on Form 10-K
for fiscal 2022, filed with
the SEC. Any forward-looking statements
in this Quarterly Report on
Form 10-
Q10-Q do not purport to be predictions
of future events or circumstances and
may not be realized. Further, any forward-looking
statements are made only as
of the date of this
Quarterly Report on Form 10-Q, and we do not undertake to
publicly update or revise the forward-looking statements,
except as required by the federal securities law.

17
Table of Contents
16

Business Outlook

Our second

We are seeing indications of stabilizing demand in the activewear market and believe that the elevated inventory levels in the retail supply chain following last year’s heavy buying activity may be moderating. In addition, we continue to make steady progress towards a more normalized operating environment for our business, with our decision last year to reduce production levels to align with the lower demand environment and purchase less price-inflated cotton proving effective in positioning Delta Apparel for improved operating results going forward. 

During our third quarter

performance showcases we were able to work through much of the
resiliency in our
operating model and
the versatility provided
by our multiple market
strategies.
We were pleased to report
double-digit revenue growth across three trailing expense impacts of our fivecurtailed production levels and last year’s historically high-priced cotton flowing through our cost of sales.  Our Activewear business, which houses our nearshore manufacturing platform and serves the channels hit hardest by the over-inventoried retail environment, was the most directly impacted by these unique cost-driving events. Now that we are inputting lower cotton cost in our inventory and running our manufacturing facilities at levels closer to capacity, we believe our Activewear business is well-positioned to take advantage of market improvements going forward.   

We expect to complete a significant strategic initiative before the end of our fiscal year involving the transition of our more expensive offshore production capacity into our lower cost Central American platform. This initiative, along with several other recent restructuring activities, should generate annual cost savings of up to $6 million.  We also made substantial progress during the quarter on inventory and debt reduction initiatives intended to counteract the challenging operating environment seen in recent periods, including record

secondan approximately 20% reduction in inventory and an approximately 15% reduction in long-term debt from our most recent high points. We expect further inventory and debt reductions as we move through our fourth quarter performanceand plan to continue to tightly manage our spending and reduce capital expenditures year-over-year. 

Our Salt Life business continued to expand its direct-to-consumer footprint during the quarter, opening its 24th and 25th retail locations across the country.  Salt Life’s branded retail footprint now extends across nine states including California, Texas, Alabama, Georgia, Florida, South Carolina, Delaware, New Jersey and, most recently, two locations in New York.  In addition, Salt Life’s ecommerce business grew over 100% during the June quarter and achieved significant gains across key metrics including site traffic and conversion rates.  Salt Life’s four new retail locations in the Northeast U.S. market are a great example of  our omni-channel consumer strategy and data-driven approach to retail store site selection, with ecommerce order activity in New Jersey and New York and adjacent states consistently among the most active on our site in recent periods. We expect for Salt Life’s direct-to-consumer retail and ecommerce channels to continue to expand and anticipate additional sales growth at Salt Life going forward.

Our DTG2Go business recently achieved a variety of key milestones, including the recalibration of our entire “Digital First” technology fleet, a consumer satisfaction initiative involving the rationalization of size and DTG2Go with year-over-year

color offerings within our “Digital First” channel, and the launch of a proprietary online portal geared towards quick reaction programs not suited for traditional decoration platforms. The gains flowing from these initiatives and the near-term demand creation opportunities from the new portal should provide a solid foundation for improved operating results and double-digit sales growth
at DTG2Go going forward. Moreover, DTG2Go is poised to further capitalize on the ongoing digital disruption in the decorated apparel market through its industry-leading print capacity, nationwide fulfillment network, proprietary technology and processes, and vertical blank supply through Delta Direct.

With two very significant cost-driving trends now moving behind us and a streamlined cost structure in place moving ahead, Delta Apparel is in an excellent position to take advantage of 16%favorable changes in demand as they arise across our five go-to-market channels. We expect to see steady improvement in our overall operating results as we close out our fourth quarter and 19%move into our next fiscal year.  For fiscal year 2024, we currently anticipate net sales in a range of $410 to $425 million generating operating profit margins of 3.25% to 4.25%, respectively,with gross margins sequentially increasing into the low-to-mid 20% range and improving operating profit margins beginning in the second quarter, as well as double-digit salesrevenue growth in our Retail Direct

channel.
Salt Life’s success during the quarter spanned across all channels of distribution and consumer recognitionsecond half of the brand continuesyear.  We remain keenly focused on growth, profitability, and above all, creating value for shareholders for many years to proliferate across the United States
and internationally. Salt Life just recently opened its 23rd branded
retail store and first in the state
of New Jersey and plans to further expand
its footprint in the northeast
market later this year with
its first locations in New
York. Salt Life’s wholesale channel continues to expand
geographically, with approximately 1,800 retail
doors spread
across 48 states and other territories, and the www.saltlife.com eCommerce site receives
orders from all 50 states.
Salt Life also entered the multi-billion dollar home furnishings market during the quarter through a license agreement for
the Salt Life Home collection to be offered to
consumers across the
country. We
expect the future
royalty income generated
by Salt
Life’s expanding
license portfolio to
serve as
another primary revenue
channel
going forward.
DTG2Go’s exceptional top
line results during
the quarter were accompanied
by a strategic consolidation
of more digital
capacity into its locations
integrated with our
Delta Direct
channel’s
vertical blank
garment supply
and the
related closing
of a
single-purpose location
acquired in
connection with
a prior
acquisition. DTG2Go
continues to enhance selling price strategies, make productivity gains, and grow sales outside
of the December holiday quarter. DTG2Go’s digital first strategy has been
particularly instrumental in increasing
sales throughout the year
and we are seeing
greater adoption of Delta
Direct blank tees in that
channel. In addition,
the print quality
and consistency
on the
first generation
technology used
in DTG2Go’s
digital first
program is
improving and
DTG2Go continues
to tailor
its strategies
and product
offerings to meet the requirements of its key digital first customer
base.
DTG2Go expects to
launch an exciting new
on-demand portal in
the third fiscal
quarter designed to
allow customers to
seamlessly submit orders for
small run, quick
reaction, and overflow
replenishment orders.
The portal will
provide DTG2Go with
another avenue
to capitalize on
the cost and
speed limitations
of traditional screenprint
operations as well as the growing market for personalized
on-demand apparel documenting consumer experiences and events.
In our Delta Direct channel, the well-publicized
high inventory levels and lower demand
across the blank tee industry continued
to impact our business and drove
overall
sales below our
expectations for the
quarter. The retail license
customer base selling
into mid-tier and
mass retail supply
chains continues to
be the primary
area of softness
in this channel.
We are also seeing indications of an over-inventoried supply
chain in parts of our Global
Brands channel where we provide
custom decorated product to large brands
and
sportswear companies
as well as
all branches
of the United
States military, among
others. While
the high inventory
levels among
brands and retailers
is currently
pressuring
our demand, we continue to see positive macrotrends
from brand and retailer nearshore sourcing strategies
targeting manufacturing and fulfillment platforms like ours
in
Central America.
The double-digit sales growth during the quarter in our Retail Direct channel,
where we provide decorated, “retail ready” products to brick and mortar and e-commerce
merchants, is indicative of
the momentum we see
in nearshoring strategies.
This channel is one
of several areas of
our business, including Salt
Life, DTG2Go, and Global
Brands, where
we sell
decorated products
directly to
consumers or
to customers
adjacent to
the consumer
point-of-sale. Sales
in these
channels typically
carry more
consistent margins due to
the decoration and other value-adding services
they require, along with the
potential to pass through raw
material cost risks in selling prices.
These channels are also more working capital friendly given they turn our inventory quicker. We plan to prioritize these sales opportunities as we look for more ways to
optimize the return on our capital investments in the current
high interest rate environment.
Looking ahead, we believe our decisive action throughout the last three quarters in calibrating our production levels to the lower demand for blank tees, moderating our
inventory build, and streamlining our offshore manufacturing
cost structure have us well-positioned to capitalize
on upticks in demand and improve our
operating results
as we move
through the second half
of our fiscal
year.
We will
continue to focus on
incrementally reducing our inventory and
debt levels in the
coming quarters and
believe we should see sequential improvement in our margins as we
cycle through our higher-cost inventory through the back half of our fiscal
year.
come.

Results of Operations

Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis.

basis and, in certain limited instances, we have presented our financial results on a GAAP and non-GAAP (“adjusted”) basis, which is further described in the sections entitled “Non-GAAP Financial Measures.”

Net sales were $110.3$106.3 million in the secondthird quarter of fiscal 2023, a

decrease decline of 16% compared to the prior year second
third quarter net sales of $131.7$126.9 million.
Net sales
in the
Delta Group segment
decreased 21%
to $91.3
million in the
second quarter of
fiscal 2023
compared to $115.3
million in
the prior
year second
quarter. Sales in our Delta Direct and Global Brands
channels declined from the prior
year period. This was offset by record second
quarter DTG2Go sales, up 18%
from prior year, and
increased sales in our Retail Direct
channel during the quarter.
Net sales for   For the first six
nine months, of 2023 were $188.4 million, a 13%
decline
from the prior year period.
The Salt Life Group
segment’s net sales for
the second quarter
of fiscal 2023
grew 16% and
reached a second
quarter record $19.0
were $323.9 million compared to
$16.4 million
in the prior year second quarter. The segment’s
growth was driven by increases in both our wholesale and direct to consumer channels. For
the first six months of
fiscal 2023, net sales in the Salt Life segment were $29.3 million,
up 16% from prior year period net sales of $25.2$369.3 million.
Gross margins were 14.7% for

Net sales in the secondDelta Group segment declined 16% to $89.1 million in the third quarter of fiscal 2023

declining compared to $106.0 million in the prior year third quarter. Delta Direct channel sales were down from the prior year second quarter gross margin of 25.5%.
but sequentially grew 9% from the March quarter. Retail Direct and Global Brand channel sales declined primarily due to customers being overstocked. Net sales  in the Delta Group segment gross
margins were 5.5%
for the second quarter
first nine months of fiscal 2023 were $277.5 million, a
decline 14% decrease from the prior year
second quarter margins
of 21.6%. Gross
margins
were primarily impacted by higher
inventory costs from inflationary
raw material and other input
pricing in fiscal 2022
flowing throughyear.

Net sales during the

quarter.
Plant curtailment costs of $0.9 million in the secondSalt Life Group segment for the third quarter of fiscal 2023 also impacteddeclined 18% to $17.2 million compared to $20.9 million in the prior year third quarter. Salt Life direct-to-consumer sales continued their strong growth trend with over 100% sales growth in ecommerce and 11% sales growth in the branded Salt Life stores over the prior year.  This was offset by lower wholesale sales year-over-year due to sales in the prior year quarter being skewed by significant sales shifting from the March quarter to the June quarter in connection with transportation delays. For the first nine months of 2023, net sales were $46.5 million, up $0.5 million from the prior year's net sales of $46.0 million.

Gross margins were 13.1% for the third quarter of fiscal 2023, a decline from 24.2% in the prior year third quarter driven by production curtailments to match manufacturing output with market demand as well as inflationary cotton costs (collectively "Production Curtailment & Cotton Costs"). Excluding these Production Curtailment & Cotton Costs, third quarter adjusted gross margins

and second quarter gross margins adjusted for these costs
were 6.5%22.7%.  Gross margins for the
first sixnine months were 13.5% compared to 23.6% in the prior year period, driven primarily by the Production Curtailment & Cotton Costs coupled with the impacts of the restructuring actions actions we undertook to better optimize our overall cost structure (collectively "Restructuring Costs").  Excluding the Production Curtailment & Cotton Costs and Restructuring Costs, adjusted gross margins for the first nine months were 22.7%.

The Delta Group segment gross margins were 5.9% for the third quarter of fiscal 2023 compared to 19.1% in the prior year third quarter. Excluding the Production Curtailment & Cotton Costs, adjusted gross margins were 17.4%. Gross margins for the first nine months of fiscal 2023 declined from 19.9%19.6% in

the prior year period to 6.8% of
sales. Adjusted for $4.3 million of plant
curtailment costs,6.5% in the current year. However, when excluding the Production Curtailment & Cotton Costs and Restructuring Costs we took earlier this year, Delta Group segment adjusted gross margins for the six-months ended March
2023 were 9.1%17.2%.

The Salt Life Group segment gross margins improved to 59.0%were 50.5% in

the secondthird quarter of fiscal 2023, an improvement
of 66030 basis points compared to 52.4%50.2% in the
prior year secondthird quarter resulting
from a favorable mix of sales,
including increased direct-to-consumer sales
through both our ecommerce and
Salt Life branded retail channels.store sales. For
the first sixnine months of fiscal year 2023, gross margins grew to
58.3% 55.4% of sales from 52.7%51.6% in the prior year period.
year.

Selling, general, and administrative expenses ("SG&A") were

$19.3 $18.5 million in the secondthird quarter of fiscal 2023, or 17.5%17.4% of sales,
compared to $19.7$22.4 million, or 15.0%
17.7% of sales, in the prior year secondyear's third quarter.  The increasedecrease in SG&A as a percentageexpenses of sales was driven by the further expansion of Salt Life’s branded retail store footprint
and the deleveraging effect of overall lower sales
relative$3.9 million compared to the prior year period.third quarter was primarily driven by lower variable selling and distribution costs as well as lower compensation costs. SG&A
expenses for the first sixnine months of fiscal
2023 were $38.2$56.7 million, or 17.5% of
sales, compared to $37.2$59.6 million, or 15.3%16.1% of sales, and driven
by fixed costs period-over-period compared to lower sales in the
current prior year.
17

Other lossincome for the 2023

second and 2022 third fiscal quarter includes $1.6 million of expenses
incurred in our Central American and Mexican
manufacturing operations to better align
our cost structure with market demand.
We also incurred $0.9 million in expense in our DTG2Go business
as we shifted the digital production capacity
from our legacy,
single-purpose Clearwater, Florida facility into our national footprint of dual-purpose facilities housing digital printing and blank garment distribution under one roof to
advance our integrated on-demand model and
further leverage the distinct competitive advantages it
provides DTG2Go.
In addition, the second fiscal quarter
includes
profits of $0.3
million related
to our Honduran
equity method
investment. Other
income for the
second
quarter of fiscal
2022 included a
valuation change
in our contingent
consideration liabilities of $0.5 million, a loss on disposal
of assets of $0.4 million, as well asquarters include profits related to our Honduran
Green Valley Industrial Park equity method investmentinvestment. Other income for the third fiscal quarter of $0.32022 also includes a valuation change in our contingent consideration liabilities of $0.8 million.
Other income for the first six
nine months of fiscal 2023 includes a discrete
gain of $2.5 million from the
settlement of a commercial litigation matter
recorded in the first quarter of
fiscal
2023
as
well
as
profits
in
our
Honduran
equity
method
investment,
which
were
offset
by
the
above-referenced
costs
incurred
to
better
align
our
offshore
manufacturing cost structure with market
demand. Other income for the first
six nine months of fiscal 2022,
was $0.9 million, including
included profits related to our Honduran
equity
method investment and a valuation adjustment of our contingent consideration.

Operating loss in the second

third quarter of fiscal 2023 was
$5.3 $4.5 million, or (4.2)% of sales. This is a decrease fromof 148.0% over the
prior year secondthird fiscal quarter
quarter's $9.3 million of operating profitprofit. However, excluding the Production Curtailment & Cotton Costs, third quarter adjusted operating income was $5.8 million, or 5.5% of $14.4 million.
sales. Operating income for the first nine months of fiscal 2023 declined year-over-year from $29.6 million, or 8% of sales, to an operating loss of $12.4 million, or (3.8%) of  sales. However, excluding the Production Curtailment & Cotton Costs and Restructuring Costs, operating income was $20.5 million, or 6.3% of sales. For the first six
nine months of fiscal year 2023, operating loss was $7.9 million,
declining from the prior year2022, operating income of $20.2was $29.6 million.

The Delta Group segment experienced an operating loss of

$7.5 $3.6 million in the secondthird fiscal quarter of fiscal 2023, or 8.2%
(4.1%) of net sales, compared to operating incomeprofit of
$14.4 $10.7 million, or 12.5%10.1% of net
sales, in the prior year second
third quarter. The decline
inExcluding the Production Curtailment & Cotton Costs, third quarter adjusted operating profitincome was driven by lower
gross margins.$6.7 million, or 7.5% of net sales. Operating loss was
$7.4
$11.0 million, or 3.9%(4.0)% of sales, for the first halfnine months of fiscal
2023, compared to operating income of $22.9$33.6 million,
or 10.5%10.4% of sales, in the prior year period.
  However, excluding the Production Curtailment & Cotton Costs and Restructuring Costs, Delta Group segment adjusted operating income was $22.0 million, or 7.9% of sales.

The Salt Life Group

segment earnedachieved operating
income of $4.6$1.6 million
in the secondthird fiscal quarter
of fiscal 2023, or
24.5% 9.6% of net sales,
compared to $3.3$3.6 million,
or 20.2%
17% of net
sales, in the
prior year second
third quarter. The
increase in lower operating
income as a
percentage of sales
was driven by
improved lower sales volume and increased selling costs partially offset by increased gross margins.
margins as a percentage of sales.  For the first
six
nine months of fiscal 2023, operating income improved by $1.4was $6.6 million,
or 14.1% of sales, compared to $4.8 million.
$7 million, or 15.3% of sales, in the prior year period.

Net interest expense for the second quarterthird quarters of fiscal year 2023 and 2022 was $3.7$4.0 million

and $2.0 million, respectively. Net interest expense for the second quarter of fiscal year 2022 was $1.8 million. Net interest expense
for
the first sixnine months of fiscal 2023 was $6.6$10.7 million compared
to $3.4$5.4 million in the prior year first sixnine months. The increases in interest expense are over the prior year periods is primarily due to increased interest rates.

18
Table of Contents

Our effective tax rate on

operations for the six-monthnine-month period ended MarchJune 2023
was 27.5%27.0%. This compares to an
effective tax rate of 18.2%
17.2% for the same period in the
prior year and 17.9 %17.9% for the full fiscal year 2022. See Note
K—Income taxes for more information.
Changes in the mix of U.S. taxable income compared to profits in tax-free or lower-tax jurisdictions drove this change in our effective tax rate.

Net loss attributable to shareholders for the secondthird fiscal

quarter of 2023 was $7.0$6.3 million, or $1.00$0.90 per diluted share,
compared to net income of $10.1$6.2 million, or $1.44
$0.88 per diluted share, in the prior year. Excluding the Production Curtailment & Cotton Costs, third quarter adjusted net income was $1.2 million, or $0.17 per diluted share. Net loss attributable to shareholders for the first sixnine months of fiscal 2023 was $10.6$16.8 million, or $1.51$2.41 per diluted share, compared to
net income of $13.8$20.0 million, or $1.95$2.84 per diluted share, in the
prior year.
 However, excluding the Production Curtailment & Cotton Costs along with Restructuring Costs, adjusted net income was $7.2 million, or $1.02 per diluted share, for the first nine months of fiscal 2023.

Accounts receivable were $62.0

$41.7 million at MarchJune 2023,
compared to $68.2 million
as of September 2022.
Days sales outstanding ("DSO")
as of March
June 2023 were 45
36 days compared to 52 days at September 2022.

Net inventory as of MarchJune 2023 was $243.2$226.2 million, a decrease of $5.4$22.3 million from September 2022 and an increase of $45.5 million from March 2022. The inventory

value is higher
lower than both the prior year
secondthird quarter and fiscal year end as a
result of increasedlower input
costs; however, it
represents costs impacting materials, transportation and labor combined with a sequential decline
from the December 2022
quarter as a
result of production adjustments to align with demand during the
second quarter of fiscal 2023.
decrease in units on hand.

Total net debt, including capital lease financing and cash on hand, was $194.3$166.2 million at MarchJune 2023, an

increasea decrease of $23.7$4.4 million from September 2022. Cash on hand
and availability under our
U.S. revolving credit
facility totaled $12.8
$14.4 million at MarchJune 2023,
a $21.9$20.3 million decrease
from September 2022
principally driven
by investments in the business to support working
capital needs and increased input costs due to inflationary pressures.

Non-GAAP Financial Measures

We provide all information required in accordance with U.S. GAAP, but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only U.S. GAAP financial measures. In an effort to provide investors with additional information regarding our results, we also provide non-GAAP information that management believes is useful to investors. We discuss gross margins, operating income and net income performance measures that are, for comparison purposes, adjusted to eliminate items or results stemming from discrete events. We do this because management uses these measures in evaluating our underlying performance on a consistent basis across periods. We also believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of our ongoing performance. These non-GAAP measures have limitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis or our results as reported under U.S. GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Reconciliation of GAAP gross margins to non-GAAP gross margins, GAAP operating income to non-GAAP operating income, and GAAP net income to non-GAAP net income are presented below. A description of the amounts excluded on a non-GAAP basis are provided in conjunction with the below information. Non-GAAP gross margin, non-GAAP operating income, and non-GAAP net income should be evaluated in light of the Company's financial statements prepared in accordance with GAAP.

Reconciliation of Gross Margin, Operating Income and Net Income to Non-GAAP Measures Adjusted Gross Margin, Adjusted Operating Income, and Adjusted Net Income

Unaudited

(in thousands)

  

Three Months Ended

  

Nine Months Ended

  
  

June 2023

  

June 2022

  

June 2023

  

June 2022

  

 

                 
Gross Margin 

$

13,935

  

$

30,693

  

$

43,768

  

$

87,219

  
Production Curtailment Costs (1)  

3,340

   

-

   

7,589

   

-

  

Cotton Costs (2)

  6,906   -   

22,027

  

 

-

  

Adjusted Gross Margin

 $24,181  $30,693  $73,384  $87,219  
Percent of Sales  22.7%   24.2%   22.7%   23.6%  
                  
Operating (Loss) Income 

$

(4,461)

  

$

9,295

  

$

(12,438)  

$

29,553

  
Production Curtailment Costs (1)  

3,340

   

-

   

7,589

   

-

  
Cotton Costs (2)  6,906   -   22,027   -  

Restructuring Costs (3)

  32   -   

3,344

  

 

-

  

Adjusted Operating Income

 $5,817  $9,295  $20,522  $29,553  
                  

Net (Loss) Income

 

$

(6,287)

  

$

6,240

  

$

(16,841)  

$

20,023

  
Production Curtailment Costs (1)  

3,340

   

-

   

7,589

   

-

  
Cotton Costs (2)  6,906   -   22,027   -  
Restructuring Costs (3)  32   -   3.344   -  

Tax Impact

  (2,775)   -   

(8,950)

  

 

-

  

Adjusted Operating Income

 $1,216  $6,240  $7,169  $20,023  

Reconciliation of Delta Group Segment Gross Margin and Operating Income to Delta Group Segment Adjusted Gross Margin and Adjusted Operating Income

Unaudited

(in thousands)

  

Three Months Ended

  

Nine Months Ended

  
  

June 2023

  

June 2022

  

June 2023

  

June 2022

  

 

                 
Gross Margin 

$

5,254

  

$

20,227

  

$

18,013

  

$

63,470

  
Production Curtailment Costs (1)  

3,340

   

-

   

7,589

   

-

  

Cotton Costs (2)

  6,906   -   

22,027

  

 

-

  

Adjusted Gross Margin

 $15,500  $20,227  $47,629  $63,470  
Percent of Sales  17.4%   19.1%   17.2%   19.6%  
                  
Operating (Loss) Income 

$

(3,621)

  

$

10,701

  

$

(10,979)  

$

33,557

  
Production Curtailment Costs (1)  

3,340

   

-

   

7,589

   

-

  
Cotton Costs (2)  6,906   -   22,027   -  

Restructuring Costs (3)

  32   -   

3,344

  

 

-

  

Adjusted Operating Income

 $6,657  $10,701  $21,981  $33,557
Percent of Sales  7.5%   10.1%   7.9%   10.4%

(1) Production Curtailment Costs consist of unabsorbed fixed costs, temporary unemployment benefit payments, and other expense items resulting from the Company's decision to reduce production levels to better align with the significantly reduced consumer demand impacting our

customersacross the activewear industry due to high inventory levels stemming from the heavy replenishment activity following pandemic-related supply chain challenges.

(2) Cotton Costs consist of the amount of the cotton component of the Company's cost of sales in excess of the average price per pound of cotton over a recent 10-year period ($0.78 per pound) as well as inflationary input costs.

a reasonable estimate of the additional cost for what the industry refers to as "basis" typically required to be purchased in connection with the delivery of cotton ($0.15 per pound). As such, Cotton Costs consist of the cotton component of the Company's cost of sales in excess of $0.93 per pound.

(3) Restructuring Costs consist of employee severance benefits paid in connection with the transition of our more expensive Mexico manufacturing capacity to our more efficient Central America manufacturing platform, employee severance benefits paid in connection of leadership restructuring, expenses incurred in connection with the closure of a legacy facility we acquired via acquisition and the absorption of the print capacity at that facility into our nationwide network of dual purpose digital print and blank garment distribution facilities, and additional cost items incurred from restructuring activities.

Liquidity and Capital Resources

Operating Cash Flows

Operating activities resulted in a cash

usage provided of $19.1$10.8 million for the sixnine months
ended MarchJune 2023 compared to $14.5
million ofnet cash used in operations of $13.4 million in the
prior year.year period. The increase
in cash
used in provided by operating cash
flows in the
current year is
due to
the timing
of payments from
customers and to
vendors, a decline in
addition inventory compared to the
prior year build from increased input costs and manufacturing output. This was partially offset by decreased earnings in
the
business and change in the first halftiming of fiscal 2023.
payments to suppliers in the current period.

Investing Cash Flows

Cash outflows for capital expenditures were $2.5$3.5 million during the first sixnine months of 2023 compared to $7.7$11.6 million in the same period in the

prior year. We
currently
expect to spend less on
anticipate our fiscal 2023 capital expenditures, inincluding those financed under capital leases, to be approximately $8.0 million for fiscal 2023 comparedand to
2022, with be focused primarily on our expenditures expected
to focus oninformation technology and direct-to-consumer investments, including
new additional Salt
Life retail store openings,
information technology, and manufacturing efficiencies.
openings.

Financing Activities

During the sixnine months

ended MarchJune 2023,
cash provided by
used in financing activities was
$17.5 $11.7 million compared to
$13.8 million in
the prior year,and primarily
related to funding
repayments of debt partially offset by debt drawdowns to fund our operating activities, working capital needs, and certain
capital investments offset by scheduled loan principal payments.

Future Liquidity and Capital Resources

See Note F – Debt to the Condensed

Consolidated Financial Statements for a discussion
of our various financing arrangements,
including the terms of our revolving U.S.
credit facility.

Our credit facility, as well as cash flows

from operations, are intended
to fund our day-to-day working
capital needs, and along with
capital lease financing arrangements,
to fund our planned capital expenditures. However,
any material deterioration in our results of
operations, may result in the loss
of our ability to borrow under
our U.S.
revolving credit facility and to issue letters of credit to suppliers, or may cause the borrowing availability under that facility to be insufficient for our needs. Availability
under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A significant deterioration in our accounts receivable or inventory
levels could restrict our
ability to borrow additional
funds or service our
indebtedness. Our availability at
March June 2023 was above
the applicable minimum thresholds specified
in our
credit agreement, and we were compliantin compliance with the
applicable EBITDA covenant minimum thresholds.

We

note currently believe that our results of operations should be sufficient to allow us to satisfy our liquidity needs and comply with the executioncovenants in our U.S. revolving credit facility. Our ability to satisfy our liquidity needs and meet the covenants in our U.S. revolving credit facility is dependent upon our ability to achieve operating results that reflect improvement over our results for the nine months ended June 2023. Although we are currently in compliance with the applicable EBITDA covenant in our U.S. revolving credit facility as of June 2023, the Ninth
Amendmentminimum thresholds applicable to that covenant increase in the Fifth
Amendedcoming quarter. Means for improving our profitability include successfully meeting sales targets, expense management and Restated
Credit Agreement suspended
applicationthe realization of pricing, productivity and efficiency initiatives, as well as increased production volumes, all of which may not be within our control. If we are unable to achieve the
FCCR improved results required to comply with this covenant, until
we will need to pursue certain actions including, but not limited to, reducing capital expenditures for machinery & equipment and technology and seeking to implement additional cost reductions within the expirationorganization, all of
its Accommodation Period.
Refer to Note
F for further
information.
18
which may not be within our control. Some of those actions might adversely affect our results of operations and financial performance.

Share Repurchase Program

The Company

We did not purchase any

shares under our previously announced share repurchase program
in the MarchJune 2023 quarter.
The total amount repurchased during
the life of the program
is $56.4 million.
At the end of the second
third quarter of fiscal 2023, the
Companywe had $3.6 million of
remaining repurchase capacity
under itsour existing
authorization.

19
Table of Contents

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared

in accordance with
U.S. GAAP. The preparation of
our Condensed Consolidated
Financial Statements requires
us to make estimates
and judgments that
affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. We base our estimates and judgments on historical experience and various other
factors that we believe to be reasonable under the circumstances,
the results of which form the basis for
making judgments about the carrying values
of assets and liabilities that are
not readily apparent from other sources. Actual
results
may
differ
from these
estimates under
different
assumptions or
conditions. The
most significant
estimates and
assumptions relate
to
revenue recognition,
accounts
receivable and related reserves, inventory and related reserves,
the carrying value of goodwill, and the accounting for
income taxes.

A

detailed discussion
of
critical
accounting policies
is
contained in
the
Significant
Accounting Policies
included
in
Note 2
to
the
Audited Consolidated
Financial
Statements included in our Annual Report
on Form 10-K for fiscal 2022, and
there have been no changes in those
policies since the filing of that Annual
Report on Form
10-K with the SEC.
SEC, except as disclosed in Note C—New Accounting Standards related to the adoption of the cloud computing standard.

Environmental and Other Regulatory Matters

We

are subject
to various
federal, state
and local
environmental laws
and regulations
concerning, among
other things,
wastewater discharges,
storm water
flows, air
emissions and
solid waste
disposal. The
labeling, distribution, importation,
marketing, and
sale of
our products
are subject
to extensive
regulation by various
federal
agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States. Our international operations
are also subject to compliance with the U.S. Foreign
Corrupt Practices Act (the “FCPA”) and other anti-bribery laws applicable to our operations.

The environmental and other regulations applicable to our business are becoming increasingly

stringent, and we incur capital and other expenditures annually to achieve
compliance with these environmental
standards and regulations. We currently do not
expect that the amount of
expenditures required to comply with
these environmental
standards or other regulatory
matters will have
a material adverse
effect on our operations,
financial condition or
liquidity. There can be no
assurance, however, that future
changes in
federal, state,
or
local regulations,
interpretations of
existing regulations
or
the discovery
of
currently unknown
problems or
conditions will
not
require
substantial additional expenditures. Similarly, while we believe that we are currently in
compliance with all applicable environmental and other regulatory requirements,
the extent of
our liability, if any, for past
failures to comply
with laws, regulations
and permits applicable
to our operations
cannot be determined
and could have
a material
adverse effect on our operations, financial condition and liquidity.
Item 4.
Controls and Procedures

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures

that are designed to reasonably assure that information required
to be disclosed in the reports that
we file
or submit
under the
Exchange Act
is recorded,
processed, summarized
and reported
within the
time periods
specified in
the SEC’s
requirements. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or
submit under
the
Exchange Act
is
accumulated and
communicated to
our management,
including our
Chief Executive
Officer
and principal
accounting officer,
as
appropriate to allow timely decisions regarding required disclosure.

Our management, with the

participation of our Chief
Executive Officer and principal
accounting officer, has
evaluated the effectiveness of our
disclosure controls and
procedures as of the end of the period covered by this quarterly report ("the Evaluation Date") and, based on their evaluation, our
Chief Executive Officer and principal
accounting officer have concluded that these controls and procedures
were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting

There were

no changes during
the MarchJune 2023 quarter
that have materially
affected, or
are reasonably likely
to materially
affect, our
internal control
over financial
reporting.
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

See Note M—Legal Proceedings, in Part I, Item 1, which

is incorporated herein by reference.
Item 1A.
Risk Factors

Item 1A.

Risk Factors

None

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) Repurchases of Common Stock

See Note N—Repurchase of Common Stock, Part I, in Item

1, which is incorporated herein by reference.
Item 5.
Other Information
None
19
Item 6.
Exhibits
Exhibits
10.1
31.1
CertificationDirectors of Delta Apparel, Inc. (“Board”) approved the recommendation of the Chief Executive OfficerpursuantCompensation Committee of the Board (“Committee”) to Rule 13a-14(a)enter into a Declaration of Amendment (“Amendment”) to the Delta Apparel, Inc. 2020 Stock Plan (“Plan”).  The Plan was approved by the shareholders on February 6, 2020, and filed as Exhibit 1 to Delta Apparel’s Proxy Statement filed on December 17, 2019.

The Amendment essentially operates to add “double trigger” vesting provisions to the Plan in the event of a Change in Control. More specifically, the Amendment replaces Section 9(c) of the Plan entirely with the following terms that apply to grants of Awards made to Participants after the Effective Date and in the event of a Change in Control: (i) to the extent a successor or surviving company does not assume or substitute an Award granted prior to the Change in Control, the Award shall become fully vested, exercisable (if applicable), earned and payable to the fullest extent of the original grant of the applicable Award, provided that, performance-based Awards shall be deemed earned at target unless otherwise provided in an individual Award Agreement; (ii) if a successor or surviving company assumes, continues, or substitutes an Award granted prior to the Change in Control on substantially similar terms and if the employment or Service of a Participant is terminated for Cause or Good Reason within one year after the effective date of the Change in Control, the Award will become fully vested, exercisable (if applicable), earned and payable to the fullest extent of the original grant of the applicable Award, provided that, performance-based Awards shall be deemed earned at target; (iii) definitions are provided for the terms Cause and Good Reason; and (iv) unless an individual Award Agreement states otherwise, if the Participant has entered into an employment agreement or similar agreement or arrangement, the Participant is entitled to the greater of benefits provided upon a Change in Control under the Plan or the respective employment agreement or similar agreement or arrangement. The Amendment also provides that Awards outstanding as of the Effective Date shall continue in accordance with their terms and are not affected by the Amendment. 

The foregoing summary of the Amendment does not purport to be complete and is qualified in its entirety by reference to the text of the Amendment, which is filed herewith as Exhibit 10.1 to this Quarterly Report on Form 10-Q and which is incorporated herein by reference.

20
Table of Contents

Item 6.

Exhibits

Exhibits

10.1Exhibit 10.1 Declaration of Amendment of Delta Apparel, Inc. 2020 Stock Plan.

31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

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Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

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104Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

21
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,as adopted pursuant to

31.2
32.1
32.2
101.INS
Inline XBRL Instance
Document - the
instance document does not
appear in the
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Cover Page Interactive Data File - (formatted as Inline XBRL
and contained in Exhibit 101)
20
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)

Date

August 9, 2023

By:

/s/ Nancy P. Bubanich

Nancy P. Bubanich
Chief Accounting Officer

DELTA
APPAREL, INC.
(Registrant)
Date
May 4, 2023
By:
/s/Nancy P. Bubanich
Nancy P. Bubanich
Chief Accounting Officer
22