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

December 31, 2022
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 January 27,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
9
10
10
10
11
12
12
13
13
13
13
Item 2.
15
Item 4.
18
PART
II.
18
Item 1.
18
Item 1A.
18
Item 2.
18
Item 5.
18
Item 6.
18
21
 
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)
December 2022
September 2022
Assets
Cash and cash equivalents
$
327
$
300
Accounts receivable, less allowances of $
63
and $
109
, respectively
57,755
68,215
Other receivables
2,396
1,402
Income tax receivable
1,363
1,969
Inventories, net
258,891
248,538
Prepaid expenses and other current assets
4,114
2,755
Total current assets
324,846
323,179
Property, plant and equipment, net of accumulated depreciation of $
111,194
and $
108,565
, respectively
72,771
74,109
Goodwill
37,897
37,897
Intangibles, net
23,427
24,026
Deferred income taxes
1,342
1,342
Operating lease assets
49,313
50,275
Equity method investment
9,045
9,886
Other assets
2,800
2,967
Total assets
$
521,441
$
523,681
Liabilities and Equity
Liabilities:
Accounts payable
$
79,844
$
83,553
Accrued expenses
20,808
27,414
Income taxes payable
321
379
Current portion of finance leases
8,603
8,163
Current portion of operating leases
8,585
8,876
Current portion of long-term debt
9,514
9,176
Total current liabilities
127,675
137,561
Long-term income taxes payable
2,841
2,841
Long-term finance leases
18,465
16,776
Long-term operating leases
42,015
42,721
Long-term debt
148,899
136,750
Deferred income taxes
2,232
4,310
Total liabilities
$
342,127
$
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 December 2022 and September
2022, respectively
96
96
Additional paid-in capital
60,559
61,961
Retained earnings
163,035
166,600
Accumulated other comprehensive income
210
141
Treasury stock -
2,645,952
and
2,731,309
shares as of December 2022 and September 2022,
respectively
(43,896)
(45,420)
Equity attributable to Delta Apparel, Inc.
180,004
183,378
Equity attributable to non-controlling interest
(690)
(656)
Total equity
179,314
182,722
Total liabilities and equity
$
521,441
$
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
December 2022
December 2021
Net sales
$
107,295
$
110,746
Cost of goods sold
93,672
87,743
Gross profit
13,623
23,003
Selling, general and administrative expenses
18,870
17,482
Other (income), net
(2,621)
(395)
Operating (loss) income
(2,626)
5,916
Interest expense, net
2,890
1,598
(Loss) earnings before provision for income taxes
(5,516)
4,318
(Benefit from) provision for income taxes
(1,917)
648
Consolidated net (loss) earnings
(3,599)
3,670
Net (loss) income attributable to non-controlling interest
(34)
25
Net (loss) earnings attributable to shareholders
$
(3,565)
$
3,645
Basic (loss) income per share
$
(0.51)
$
0.52
Diluted (loss) income per share
$
(0.51)
$
0.51
Weighted average number of shares outstanding
6,954
6,999
Dilutive effect of stock awards
-
86
Weighted average number of shares assuming dilution
6,954
7,085

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
December 2022
December 2021
Net (loss) income attributable to shareholders
$
(3,565)
$
3,645
Other comprehensive income related to unrealized gain
on derivatives, net of income tax
69
212
Consolidated comprehensive (loss) income
$
(3,496)
$
3,857

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)
Purchase of common
stock
-
-
-
-
-
-
-
-
-
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
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

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)
Three Months Ended
December 2022
December 2021
Operating activities:
Consolidated net (loss) earnings
$
(3,599)
$
3,670
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation and amortization
3,844
3,629
Amortization of deferred financing fees
84
81
(Benefit from) provision for deferred income taxes
(2,101)
754
Change in inventory market reserves
163
851
Non-cash stock compensation
665
140
Gain on disposal of equipment
58
2
Other, net
(89)
(390)
Changes in operating assets and liabilities:
-
-
Accounts receivable
9,466
1,993
Inventories, net
(10,516)
(22,206)
Prepaid expenses and other current assets
(1,443)
(1,449)
Other non-current assets
1,188
699
Accounts payable
(3,723)
7,584
Accrued expenses
(5,030)
(7,572)
Net operating lease liabilities
(35)
206
Income taxes
(854)
(140)
Other liabilities
-
(1,050)
Net cash used in operating activities
(11,922)
(13,198)
Investing activities:
Purchases of property and equipment, net
(2,081)
(1,822)
Proceeds from equipment under finance leases
4,417
-
Cash paid for intangible asset
-
(51)
Cash paid for business
-
(583)
Net cash provided by (used in) investing activities
2,336
(2,456)
Financing activities:
Proceeds from long-term debt
133,918
138,543
Repayment of long-term debt
(121,431)
(121,293)
Repayment of capital financing
(2,332)
(1,783)
Repurchase of common stock
-
(1,718)
Payment of withholding taxes on stock awards
(542)
(1,092)
Net cash provided by financing activities
9,613
12,657
Net increase (decrease) in cash and cash equivalents
27
(2,997)
Cash and cash equivalents at beginning of period
300
9,376
Cash and cash equivalents at end of period
$
327
$
6,379
Supplemental cash flow information
Finance lease assets exchanged for finance lease liabilities
$
4,461
$
20
Operating lease assets exchanged for operating lease liabilities
$
1,807
$
1,401

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)

 

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
8,500
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% 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 firstthird 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
December 2021
Fiscal 2022
January 1, 2022
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

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 nine months ended December 2022 June 2023 are not necessarily indicative of the results that may be expected for our fiscal 2023. Although our various
product lines are
sold on a
year-round basis,
the demand for
specific products or
styles reflects some
seasonality. By
diversifying our product
lines and go-to-market
strategies over
the years,
we have
reduced the
overall seasonality
of our
business. Consumer
demand for
apparel is
cyclical and
dependent upon
the overall
level of
demand for soft goods, which may or may not coincide with the overall level of discretionary consumer spending. These levels of demand change as regional, domestic
and international economic conditions
change. Therefore, the distribution
of sales by quarter in fiscal
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 threenine months ended December
June 2023 and June 2022, and December 2021, we received dividends
from this investment of $
0.9
1.2million and $
0.6
1.1million, respectively. Our Ceiba Textiles manufacturing facility is leased
under
an
operating
lease
arrangement with
this
Honduran
company.
During
the
three
ninemonths
ended
December
June 2023 and June 2022,
and
December
2021, we
paid
approximately
$
0.4
$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
December 2022
December 2021
Retail
$
3,455
3
%
$
2,903
3
%
Direct-to-consumer ecommerce
1,509
2
%
1,345
1
%
Wholesale
102,331
95
%
106,498
96
%
Net sales
$
107,295
100
%
$
110,746
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 December 2022
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
97,010
0.1
%
0.2
%
99.7
%
Salt Life Group
10,285
33.0
%
12.7
%
54.3
%
Total
$
107,295
Three Months Ended December 2021
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
101,921
0.2
%
0.3
%
99.5
%
Salt Life Group
8,825
30.4
%
12.0
%
57.6
%
Total
$
110,746

Note E—Inventories

Inventories, net of reserves of $

17.8
$14.0 million and $
17.7
$17.7 million as of December 2022 June 2023 and September 2022, respectively, consisted of the
following (in thousands):
December 2022
September 2022
Raw materials
$
22,166
$
22,603
Work in process
20,352
23,501
Finished goods
216,373
202,434
$
258,891
$
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.

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, and August
28, 2020.
On 2020,June 2, 2022,January 3, 2023, February 3, 2023, and March 23, 2023.

On June 2,2022, the Borrowers entered into athe Seventh Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bankand the other lenders set forth therein (the “Agent”“Seventh Amendment”). The Seventh Amendment, (i) removes LIBOR based borrowing 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-month3-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
must to not be less than
1.0
(previously
1.1
 (previously 1.1).

On January 3, 2023, the Borrowers entered into the Eighth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Eighth Amendment”).

The Eighth Amendment essentially clarifies the Amended Credit Agreement’s provisions regarding the inclusion of eligible in-transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include 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 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; and (d) at all times thereafter, $0; (ii) the FCCR covenant is suspended; (iii) Borrowers must maintain specified minimum EBITDA levels for trailing three-month periods starting March 4, 2023; (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.

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 ("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 December 2022, June 2023, we had

$
142.3
126.4million outstanding under our U.S. revolving credit facility
at an average interest rate of
6.7
%7.8%. Our cash on hand combined with
the availability under the
U.S. revolving credit facility totaled $
27.2
14.4million. At December 2022 June 2023 and September 2022, there was $
23.1
16.4million and $
24.9
$24.9 million, respectively, of
retained earnings free of restrictions to make cash dividends
dividend payments or stock repurchases.
See Note P—Subsequent Events for a discussion of the Eighth and Ninth Amendmentsrepurchases to the Fifth Amended and Restated Credit Agreement entered into on January 3,
2023, and February 3, 2023, respectively.
10
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
December 2022 March 2023 is listed as part of the long-term debt schedule
above.
below.

Additional information about these loans and the outstanding balances

as of December 2022 June 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 

 
December 2022
Revolving credit facility with Banco Ficohsa, a Honduran bank,
interest at
7.25
%, due August 2025
$
3,083
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.5
%, quarterly installments which began September 2021 and
are due through
December 2025
6,086
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.5
%, quarterly installments beginning March 2023 through May
2027
3,656
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
2,878

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
$
5.4
$5.2 million
and $
5.5
$5.6 million for the DecemberJune 2023 and June 2022 quarters, respectively. Distribution costs included in SG&A expenses totaled $16.3 million and December 2021 quarters, $16.8 million for the nine months ended June 2023 and 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. Unvested awards, while
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
DecemberJune 2023 and June 2022 and
December 2021 quarters,
we recognized $
0.5
$0.6 million and $
0.4
$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 $
0.1
$0.2 million, respectively, for each of the three-monththree-month periods ended June 2023 and June 2022. During the nine-months ended June 2023 and June 2022, we recognized $1.6 million and $2.4 million respectively, in stock-based compensation expense. Associated with the compensation cost are income tax benefits recognized of $0.5 million and $0.4 million, respectively, for each of the nine-months periods ended June 2023 and June 2022.

During the December 2022 and

December 2021.
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 December

2022, June 2023, there was $
3.3
$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
1.9
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 December 2022,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
$
22,294
Finished fabric
4,435
Finished products
9,517
$
36,246
Table of Contents
 
11

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 multi-facility fulfillment footprint across
the United States, DTG2Go offers
a robust digital supply chain
shipping custom graphic products
within 24 to 48 hours
to consumers in the United
States and to over
100
countries worldwide. internationally. DTG2Go has made significant investments in its “digital first” retail model providing digital graphic prints that meet the high-quality standards of
brands, retailers and intellectual property holders.
Through integration with Delta Activewear, DTG2Go also services
the eRetailer, ad-specialty, promotional and screen
print marketplaces, among others.

Delta Activewear is a preferred supplier of

activewear apparel to regional and global
brands as well as direct to 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
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 "ranger panty."
Complementing the Delta and Soffe
brand apparel, we offer
customers a broad range of
nationally recognized branded products including polos,
outerwear, headwear,
bags and other accessories. Our Soffe products are also available
direct to consumers at
www.soffe.com
.

Our Global

Brands channel
serves as a
key supply chain
partner to
large multi-national
brands, major branded
sportswear companies, trendy
regional brands, and
all
branches of the United States armed forces,
providing services ranging from custom product development
to the shipment of branded products with “retail-ready”
value-
added value-added services including embellishment, hangtags, and
ticketing.

Our Retail Direct

channel serves brick
and mortar and
online retailers by
providing our portfolio
of Delta, Delta
Platinum, and
Soffe products directly
to the retail
locations
and
ecommerce fulfillment
centers of
a
diversified customer
base including
sporting goods
and
outdoor retailers,
specialty and
resort shops,
farm and
fleet
stores,
department stores, and
mid-tier and mass
retailers. As a
key element of
the integrated Delta
Group segment, each
of Activewear’s
primary channels offer
a seamless
solution for replenishment strategies, small-run decoration
needs, and quick reaction programs with on-demand digital
print services, powered by DTG2Go.

The Salt Life Group is

comprised of our Salt Life business, which
is built on the authentic, aspirational Salt Life
lifestyle brand that represents a passion for
the ocean,
the salt air, and, more importantly, a way of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. The Salt Life brand combines
function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the
cotton graphic tees and logo decals that originally
drove awareness for the brand, and expanded
into performance apparel, swimwear, board shorts, sunglasses, bags,
and
accessories. Consumers can also seamlessly experience the Salt Life
brand through retail partners including surf shops, specialty stores,
department stores, and outdoor
merchants or by accessing our Salt Life ecommerce site
at
www.saltlife.com
.

Our Chief Operating Decision 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 earnings").
Our segment operating earnings may not be
comparable to similarly titled measures used
by other companies. The
accounting policies
of our
reportable segments
are the
same as
those described
in Note
2 in
our Annual
Report on
Form 10-K
10-K for fiscal
2022, filed
with the
SEC.
Intercompany transfers
between operating
segments are
transacted
at
cost and
have been
eliminated within
the
segment amounts
shown in
the
following table
(in
(in thousands).
Three Months Ended
December 2022
December 2021
Segment net sales:
Delta Group
$
97,010
$
101,921
Salt Life Group
10,285
8,825
Total net sales
$
107,295
$
110,746
Segment operating earnings:
Delta Group
$
123
$
8,438
Salt Life Group
218
156
Total segment operating earnings
$
341
$
8,594
12

  

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) incomeearnings before provision for income
taxes (in thousands):
Three Months Ended
December 2022
December 2021
Segment operating earnings
$
341
$
8,594
Unallocated corporate expenses
2,967
2,678
Unallocated interest expense
2,890
1,598
Consolidated (loss) income 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 

$
(5,516)
$
4,31813
Table of Contents
 

Note K—Income Taxes

The Tax

Cuts and Jobs
Act of 2017
(the “2017 Tax
Legislation”) 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
("CFC") 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 three-months

nine-months ended December 2022 June 2023 was
35.0
% 27.0% compared to a rate of
15.1
% 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 expense decreased relative to prior periods due to US operating losses expected to generate a US tax benefit.

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 December
2022, June 2023, all of our other
comprehensive income was attributable
to shareholders; none related to
the non-controlling
interest.
Outstanding instruments as of December 2022 June 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 December 2022 June 2023 and September 2022 (in(in thousands):
December 2022
September 2022
Deferred tax assets
$
(70)
$
(48)
Other non-current liabilities
280
189
Accumulated other comprehensive loss
$
210
$
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 December
2022 June 2023 and September 2022.

ASC 820,Fair Value

Measurements and Disclosures (“ASC
820”), defines fair value,
establishes a framework for measuring
fair value and expands
disclosures about
fair value measurements.
Assets and liabilities measured
at fair value
are grouped in
three levels. The
levels prioritize the
inputs used to
measure the fair value
of the
assets or liabilities. These levels are:

○

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

○

Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.

○

Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

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
Table of Contents
13

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
December 2022
$
280
-
$
280
-
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 December 2022 June 2023 and September 2022,
book value for fixed rate
debt approximated
approximates 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
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
t
notpurchase
any
shares
of
our
common
stock
during
the
December
2022
quarter.
Through
December
2022, we
have
purchased
3,735,114
shares of
our common
stock during the June 2023 quarter. Through June 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 December 2022, June 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

 
date.

Note O—Goodwill and Intangible Assets

Components of intangible assets consist of the following

(in (in thousands):
December 2022
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
$
(4,984)
$
11,016
$
16,000
$
(4,851)
$
11,149
20
–
30
yrs
Customer relationships
7,400
(3,398)
4,002
7,400
(3,213)
4,187
20
yrs
Technology
10,083
(2,834)
7,249
10,083
(2,610)
7,473
10
yrs
License agreements
2,100
(966)
1,134
2,100
(940)
1,160
15
–
30
yrs
Non-compete
agreements
1,657
(1,631)
26
1,657
(1,600)
57
4
–
8.5
yrs
Total intangibles
$
37,240
$
(13,813)
$
23,427
$
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 December 2022, June 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
December
June 2023 and June 2022
quarters was $0.6 million and
December
2021
quarters
$0.6 million, respectively. Amortization expense for the nine-months ended June 2023 and June 2022 was
$
0.6
$1.8 million
and
$
0.6
$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 each of the yearyears ended September 2024
and 2025,and approximately $
1.4
$2.2 million for each of the
years ended September 2025, 2026 and 2027.

Note P—Subsequent Events

None.

16
On January 3, 2023, Delta Apparel, Inc. and its
subsidiaries, M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life,
LLC, and
DTG2Go, LLC (f/k/a Art
Gun, LLC) (collectively, the “Borrowers”)
entered into an Eighth
Amendment to the Fifth
Amended and Restated Credit
Agreement with Wells
Fargo Bank (the
“Agent”) and
the other lenders
set forth therein
(the “Eighth
Amendment”). The Eighth
Amendment essentially
clarifies the Amended
Credit Agreement’s
Contents
14
times thereafter, $
0
; (ii) the Fixed
Charge Coverage Ratio (“FCCR”)
covenant is suspended;
(iii) Borrowers must
maintain specified minimum
EBITDA levels for
trailing
three-month periods starting March 4, 2023; (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
.
The Ninth Amendment
also, among other
things, (i) amends
the FILO maximum
amount
calculation by reloading
5
% of eligible accounts receivable (capped at $
3,000,000
) and deferring the applicable amortization schedules to August 1, 2023; (ii) defers
the
monthly amortization payments for
real estate, machinery
and equipment, and intellectual
property assets to August
1, 2023; (iii) requires weekly
reporting of availability
through the date following
September
30, 2023, upon which
Borrowers satisfy minimum availability thresholds;
and (iv) prohibits certain
restricted payments through
the date following September 30, 2023, upon which Borrowers
satisfy minimum availability thresholds.
The foregoing summary of the Eighth and Ninth Amendments and the
transactions contemplated thereby does not purport to be complete and is qualified
in its entirety
by reference to the text of the
Eighth and Ninth Amendments, which are filed herewith as
Exhibits 10.1 and 10.2 to this
Quarterly Report on Form 10-Q and which are
incorporated herein by reference.
We
expect the Eighth
and Ninth Amendments will
enhance our borrowing base
and allow us to
access more of our
availability under the Amended
Credit Agreement
while easing the financial covenant restrictions for the remainder
of fiscal 2023.
See Part II, Item 5. Other Information for additional
detail regarding the Ninth Amendment.
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

We were pleased to start our 2023 fiscal year

with double-digit sales growth across
fourare seeing indications of our five go-to-market
channels, including record sales
and almost 20% growth
in our DTG2Go
digital print channel
as well as
record sales
and 17% growth
in our Salt
Life lifestyle
brand channel.
Our topline performance
this quarter
further illustrates
the resiliency of our multi-pronged business
model, which allowed us to overcome
the soft demand for basic
tees impacting the mass retail supply
chain and our Delta
Direct channel for the last several quarters.
The
milestone
sales
in
our
Delta
Group
segment’s
DTG2Go
channel
highlight the
market’s
growing
interest in
our
digital
print
and
fulfillment
strategies and
its
appreciation for the reduced working capital
investment; lower inventory risk; faster order-to-porch
cycle; replenishment and quick activation
capability; unlimited color
and design choice; and other
benefits they provide. DTG2Go continues
to effectively leverage two very
unique advantages that differentiate
it in the market
– a multi-
facility footprint facilitating one-to-two day shipping speed to 99% of United States consumers and priority access to our Delta Direct channel’s
low-cost vertical blank
tee and
fleece supply.
DTG2Go’s “Digital
First” strategy continues
to generate substantial
new customer demand
and we are
encouraged with the
productivity gains
achieved on the new technology. Further improvements in
machine efficiency, quality and production rates are
necessary for us to realize our long-term
objectives in this
business.
Our Delta Group segment’s Global Brands channel delivered double-digit sales growth for the quarter and continues to add value to the supply chains of multi-national,
regional and major sportswear brands and the United States armed forces as a preferred supplier of custom decorated products. We also achieved double-digit growth in
our Delta
Group segment’s
Retail Direct
channel where
we provide
decorated and
“retail ready”
products directly
to the
brick and
mortar locations
and eCommerce
fulfillment centers of sporting goods and outdoor retailers,
farm and fleet stores, department stores, and mid-tier
and mass retailers.
The growth in our
Global Brands and
Retail Direct channels was
accelerated by new
business resulting from
the Activewear industry’s burgeoning emphasis
on nearshore
sourcing strategies like those offered
by our vertical platform in
Central America coupled with our
ability to meet the service
and compliance requirements of the
world’s
leading brands and
retailers.
We expect
the focus on
U.S. proximity sourcing strategies
to continue and believe
that both of
these channels are positioned
to generate
growth opportunities across our Delta Group segment over
time.
As expected, our Delta Group segment’s
results for the quarter were impacted by
the reducedstabilizing demand in the massactivewear 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 we were able to work through much of the associated manufacturing

shutdowns that we, like many
across the industry,
initiated to recalibrate output as
well as elevated raw material, energy
and labor costs.
Although the price of cotton,
onetrailing expense impacts of our key raw materials, has moderated fromcurtailed production levels and last year’s notable highs, that high-costhistorically high-priced cotton continues to flowflowing through our cost of sales duesales.  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 production cadences
and pressures margins accordingly.
capacity, we believe our Activewear business is well-positioned to take advantage of market improvements going forward.   

We expect to cyclecomplete 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 an 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 most of that higher-priced cotton in our

second fourth quarter and beginplan to see the benefit of lower input costs
in our results as
we progress through the
second half of our
fiscal year. We
will continue to leverage
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 flexibilityquarter, 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

vertical manufacturing omni-channel consumer strategy until we
see
better equilibrium between inventories and demanddata-driven approach to retail store site selection, with ecommerce order activity in New Jersey and also focusNew York and adjacent states consistently among the most active on opportunitiesour site in higher
margin areas of our Delta Direct channel outside
of the mass retail supply
ecosystem.
The momentum in our Salt Life Group segment continues with this quarter’s record sales
and excellent bottom line performance as it moves into its traditionally strong
Spring selling season. The
escalating growth across
recent periods. We expect for Salt Life’s direct-to-consumer retail
and eCommerceecommerce channels
should to continue as
it expands its brick
to expand and mortar retail
and digital footprints to
keep pace with the
brand’s consumer base
stretching across the country.
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 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 targeting

sixpoised to eight new
store openings thisfurther 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 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 move into our next fiscal

year.  For fiscal year
including debut locations
2024, we currently anticipate net sales in New
Jerseya range of $410 to $425 million generating operating profit margins of 3.25% to 4.25%, with gross margins sequentially increasing into the low-to-mid 20% range and Virginia,
bringing its total
store count to
approximately 30 locations
across nine states
spanningimproving operating profit margins beginning in the U.S.
coastline from
California to Florida to New Jersey.
Salt Life’s consumer
eCommerce site,
www.saltlife.com, now ships
to all
50 states,
including significant
order flows
to states outside
second quarter, as well as revenue growth in the second half of the brand’s
traditional southeastern
base,year.  We remain keenly focused on growth, profitability, and its wholesale business also continuesabove all, creating value for shareholders for many years to expand.
There are now approximately 1,800 customer retail doors across 48 states and foreign countries offering Salt
Life products.
We continue to see a tremendous runway for growth for the Salt Life brand across the United
States and internationally.
Looking ahead, we
will further rely on
the versatility of
our multiple go-to-market
strategies and focus on
organic growth through
both new customer
acquisition and
expansion of existing relationships. We see outstanding opportunities deriving from our investments in DTG2Go’s
digital technology platform and Salt Life’s authentic
lifestyle brand
positioning. Moreover,
we are
now seeing
some welcome
cost stabilization
in our
Delta Group
segment and
expect these
trends to
positively impact
profitability as we progress
throughout the year.
Along the way,
we will continue to
prudently manage our working capital
and expenses while pursuing
opportunities
generated by our diversified business model.
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 $107.3$106.3 million in the firstthird quarter of fiscal

2023, a decreasedecline of 3.1%16% compared to the prior year firstthird quarter net sales
of $110.7$126.9 million.
   For the first nine months, net sales were $323.9 million compared to prior year period net sales of $369.3 million.

Net sales in the Delta Group segment declined 4.8%16% to $97.0$89.1 million in the firstthird quarter of fiscal 2023 compared to $101.9$106.0 million in the prior year firstthird quarter.

We saw record first quarter Delta Direct channel sales were down from the prior year 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 our DTG2Go business and
growth in our Global Brands and Retail Direct
channels, offset by diminished demand in the mass
retail supply chain driving reducedDelta Group segment for the first nine months of fiscal 2023 were $277.5 million, a 14% decrease from the prior year.

Net sales in our Delta Direct

channel.
Thethe Salt Life Group segment first
for the third quarter of fiscal 2023 revenue grew
16.5%declined 18% to $10.3$17.2 million compared to
$8.8 $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 quarter. The segment’s
record first quarternine months of 2023, net sales were driven by growth in both direct-to-consumer
and wholesale channels.
$46.5 million, up $0.5 million from the prior year's net sales of $46.0 million.

Gross margins were 12.7%13.1% for the firstthird quarter of fiscal 2023, declining

810 basis pointsa 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 were 22.7%.  Gross margins for the first quarternine 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 margin of 20.8%margins for the first nine months were 22.7%.

The Delta Group segment gross margins were 8.0%

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 quarternine months of fiscal
2023 a decline of 100 basis points
declined from 19.6% in the prior year first quarter
margins of
18.0%. Grossto 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 were primarily impacted
by higher inventory costs from inflationary
raw material and other input pricing
in fiscal 2022 flowing through
sales during the quarter, in addition to $3.4 million in plant curtailment costs.
17.2%.

The Salt Life Group segment gross margins improved to 57.0%were 50.5% in the firstthird quarter of fiscal 2023, an improvement of 37030 basis points compared to 53.3%50.2% in the

prior year firstthird quarter resulting from a favorable mix
of sales, including increased Salt Life branded retail store
and ecommerce sales.
For the first nine months of fiscal year 2023, gross margins grew to 55.4% of sales from 51.6% in the prior year.

Selling, general, and administrative expenses ("SG&A") were $18.9$18.5 million in the first

third quarter of fiscal 2023, or 17.6%17.4% of sales, compared to $17.5$22.4 million,
or 15.8%17.7% of
sales, in the prior year firstyear's third quarter.
The increasedecrease in SG&A expenses of $1.3$3.9 million compared to the prior year firstthird quarter
was primarily driven by higherlower variable selling and distribution costs
driven by our expanded Salt Life retail footprint, as well as lower compensation costs. SG&A expenses for the first nine months of fiscal 2023 were $56.7 million, or 17.5% of sales, compared to $59.6 million, or 16.1% of sales, in addition
to increased distribution and administrative costs.
the prior year. 

Other income for the 2023 and 2022 firstthird fiscal quarters includes

include profits related to our Green Valley Industrial Park equity method investment. Additionally,Other income for the third fiscal quarter of 2022 also includes a valuation change in our contingent consideration liabilities of $0.8 million. Other income for the first
quarter nine months of fiscal 2023 we recognizedincludes a discrete gain of
$2.5 $2.5 million from the settlement of a commercial litigation matter.
Operating lossmatter recorded in the first quarter of fiscal 2023
as well as profits in our Honduran equity method investment, offset by costs incurred to better align our offshore manufacturing cost structure with market demand. Other income for the first nine months of fiscal 2022, included profits related to our Honduran equity method investment and a valuation adjustment of our contingent consideration.

Operating loss in the third quarter of fiscal 2023 was $2.6 million.

$4.5 million, or (4.2)% of sales. This compares to operating incomeis a decrease of $5.9 million
in148.0% over the prior year third fiscal quarter's $9.3 million of operating profit. However, excluding the Production Curtailment & Cotton Costs, third quarter adjusted operating income was $5.8 million, or 5.5% of sales. Operating income for the first nine months of fiscal quarter.
17
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 nine months of fiscal year 2022, operating income was $29.6 million.

The Delta Group segment hadexperienced an operating incomeloss of $0.1$3.6 million in the firstthird fiscal quarter of 2023, or 0.1%(4.1%) of net sales, compared to $8.4operating profit of $10.7 million,

or 8.3%10.1% of net
sales, in the
prior year first
third quarter. The decreaseExcluding the Production Curtailment & Cotton Costs, third quarter adjusted operating income was $6.7 million, or 7.5% of net sales. Operating loss was $11.0 million, or (4.0)% of sales, for the first nine months of fiscal 2023, compared to operating income of $33.6 million, or 10.4% of sales, in
the prior year period.  However, excluding the Production Curtailment & Cotton Costs and Restructuring Costs, Delta Group segment adjusted operating profitincome was
driven by declining
gross margins due
to increased inflationary
costs and plant
curtailment
costs.
$22.0 million, or 7.9% of sales.

The Salt Life Group segment hadachieved operating income of $0.3$1.6 million in the firstthird fiscal

quarter of 2023, or 2.5%9.6% of net sales, compared to $0.1$3.6 million,
or 1.5%17% of
net sales, in the prior year firstthird quarter.
The increase inlower operating profitincome was driven by higherlower sales volume and increased gross
marginsselling costs partially offset by higher sellingincreased gross margins as a percentage of sales.  For the first nine months of fiscal 2023, operating income was $6.6 million, or 14.1% of sales, compared to $7 million, or 15.3% of sales, in the prior year period.

Net interest expense for the third quarters of fiscal year 2023 and

distribution costs.
2022 was $4.0 million and $2.0 million, respectively. Net interest expense for the first quartersnine months of each2023 was $10.7 million compared to $5.4 million in the prior year first nine months. The increases in interest expense are over the prior year periods is primarily due to increased interest rates.

18
Table of fiscal years
2023 and 2022 was $2.9 million and $1.6 million,
respectively.
Contents

Our effective tax rate on operations for the three-monthnine-month period ended December 2022June 2023 was 35.0%27.0%. This compares

to an effective tax rate of 15.1%17.2% for the same period in
the prior year
and 17.9% for
the full fiscal
year 2022. 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 third fiscal quarter of 2023 was $6.3 million, or $0.90 per diluted share, compared to net income of $6.2 million, or $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 nine months of fiscal quarter of 2023

was $3.6$16.8 million,
or a loss of $0.51$2.41 per diluted share, compared to net income of
$3.6 $20.0 million, or
$0.51 $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 $57.8$41.7 million

at December 2022,June 2023, compared
to $68.2 million as of September
2022. Days sales outstanding ("DSO")
as of December 2022
June 2023 were
47 36 days compared to 52 days at September 2022.

Net inventory as of December 2022June 2023 was

$258.9 $226.2 million,
an increase a decrease of $10.4$22.3 million from September 20222022. The inventory value is lower than both the prior third quarter and
$75.8 million from December 2021. The increase from
September 2022 stemmed primarily from timely Salt Life first
quarter inventory deliveries compared to last year’s supply
chain delays pushing scheduled deliveries into
the second quarter.
fiscal year end as a result of lower input costs impacting materials, transportation and labor combined with a decrease in units on hand.

Total net debt, including capital lease financing and cash on hand,

was $185.2$166.2 million asat June 2023, a decrease of December 31, 2022, an increase of $14.6$4.4 million from September 2022 and
$39 million from
December 2021.2022. Cash on
hand and availability under
the Company’s
our U.S. revolving credit facility
totaled $27.2$14.4 million as
of December 31, 2022,
at June 2023, a
$20.3 million decrease of $7.5 million from
September 2022 and $5.8 million from
December 2021, with the increase from
September 2022 principally driven by investments in the
business to support working capital needs.
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 demand across 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 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 $11.9$10.8 million for the three
nine months ended December 2022June 2023 compared to $13.2
million ofnet cash used in operations of $13.4 million in the
prior year.year period. The
improvement increase in cash used inprovided by operating cash flows in the current year areis due to a decline in 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 timing of payments from customers and to vendors, in addition to reduced inventory
suppliers in the first quarter of fiscal 2023 compared to the prior
year as a result of reduced customer demand.
current period.

Investing Cash Flows

Cash outflows for capital expenditures were $2.1$3.5 million during the first threenine months of 2023 compared to $1.8$11.6 million in the same period in the prior year. During the

three-months ended June 2022, there were $0.1 million ofWe anticipate our fiscal 2023 capital expenditures,
including those financed under a capital lease arrangement. We
currently expectleases, to spend lessbe approximately $8.0 million for fiscal 2023 and to be focused primarily on capital
expenditures in 2023 as
compared to 2022, with
our expenditures expected to focus
on digital print equipment,
information technology manufacturing
efficiency, and
direct-to-consumer investments,
including newadditional Salt Life retail store openings.

Financing Activities

During the threenine months ended December 2022,June 2023, cash provided byused in financing

activities was $9.6$11.7 million 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. Additionally,
a significant deteriorationOur availability at June 2023 was above the applicable minimum thresholds specified in our
business credit agreement, and we were in compliance with the applicable EBITDA covenant minimum thresholds.

We currently believe that our results could

causeof operations should be sufficient to allow us to satisfy our
availability liquidity needs and comply with the covenants in our U.S. revolving credit facility. Our ability to
fall below
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 minimum thresholds thereby
requiring us
applicable to maintain
that covenant increase in the minimum
FCCR specified in
coming quarter. Means for improving our credit
agreement,profitability include successfully meeting sales targets, expense management and the realization of pricing, productivity and efficiency initiatives, as well as increased production volumes, all of which
we may
not be
able within our control. If we are unable to
maintain. Refer achieve the improved results required to Item 5. Other Informationcomply with this covenant, we will need to pursue certain actions including, but not limited to, reducing capital expenditures for
further information regarding machinery & equipment and technology and seeking to implement additional cost reductions within the organization, all of which may not be within our currentcontrol. Some of those actions might adversely affect our results of operations and financial covenants. While
our availability at December 2022 was
above the
minimum thresholds
specified in
our credit
agreement, a
significant deterioration
in our
business could
cause our
availability to
fall below
such thresholds,
thereby
requiring us to maintain the minimum FCCR specified in
our credit agreement.
performance.

Share Repurchase Program

The Company

We did not

purchase any shares under
our previously announced share
repurchase program in the
first quarter of fiscal
2023. June 2023 quarter. The total amount
repurchased
during the life of
the program is $56.4 million.
At the end of
the firstthird quarter of
fiscal 2023, the Companywe had
$3.6 $3.6 million of remaining repurchase capacity under
its
our 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
18
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” “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 December

2022June 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
Ninth

Item 5.

Other Information

Amendment to the Fifth Amended and Restated

Credit Agreement
On February 3, 2023, Delta Apparel, Inc. and its subsidiaries, M.J. Soffe, LLC,
Culver City Clothing Company (f/k/a Junkfood Clothing Company)2020 Stock Plan to Include "Double Trigger" Vesting Provisions

On August 2, 2023 (“Effective Date”), Salt Life,

LLC, and
DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the “Borrowers”Board of Directors of Delta Apparel, Inc. (“Board”) enteredapproved the recommendation of the Compensation Committee of the Board (“Committee”) to enter into a NinthDeclaration of Amendment (“Amendment”) to the Fifth Amended and Restated Credit Agreement with Wells
Fargo Bank (the “Agent”) and the other lenders set forth therein
(“Ninth Amendment”Delta Apparel, Inc. 2020 Stock Plan (“Plan”).  The Fifth AmendedPlan was approved by the shareholders on February 6, 2020, and Restated Credit Agreement, dated as of May 10, 2016,
was filed as
Exhibit 10.1 to
Delta Apparel’s Quarterly
Report on Form
10-Q filed with
the SEC on
May 12, 2016.
The First Amendment
to the Amended
Credit Agreement
was filed as
Exhibit 10.2.5 to
Delta Apparel’s
Annual Report on
Form 10-K filed
with the SEC
on November 28,
2017. The Consent
and Second Amendment
to the
Amended Credit Agreement was filed
as Exhibit 10.1 to
Delta Apparel’s Form 8-K
filed with the SEC
on March 13, 2018.
The Consent and Third Amendment
to the
Amended Credit Agreement was filed as Exhibit 10.1 to Delta
Apparel’s Form 8-K filed with the SEC on
October 9, 2018. The Consent and Fourth Amendment to the
Amended Credit Agreement
was filed as
Exhibit 10.2.8 to
Delta Apparel's Annual
Report on Form
10-K filed with
the SEC on November
21, 2019. The
Fifth Amendment
to the
Amended Credit
Agreement was
filed
as Exhibit
10.1 to
Delta Apparel’s
Quarterly Report
on
Form 10-Q
filed
with the
SEC on
April 30,
2020.
The Sixth
Amendment to the Amended Credit Agreement was
filed as Exhibit 10.11 to Delta Apparel’s Form 8-KProxy Statement filed with the
SEC on August 31, 2020. December 17, 2019.

The Seventh Amendment

essentially operates to add “double trigger” vesting provisions to the Amended Credit Agreement was filed as Exhibit
10.1 to Delta Apparel’s Form 8-K filedPlan in the event of a Change in Control. More specifically, the Amendment replaces Section 9(c) of the Plan entirely with the SEC on June 3, 2022.
The Ninth Amendment adds an
Accommodation Period beginning onfollowing terms that apply to grants of Awards made to Participants after the amendment dateEffective Date and
continuing through in the date following September 30,
2023, upon which
Borrowers satisfy minimum availability thresholds
and during which:event of a Change in Control: (i)
the minimum borrowing availability thresholds
applicable to the Amended
Creditextent 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
are (a) through (and including) April 1, 2023, $7,500,000,
(b) on and after April 2, 2023 through (and including)
June 4, 2023, $9,000,000, (c) on and after June 5, 2023,
through states otherwise, if the date following September 30, 2023,Participant has entered into an employment agreement or similar agreement or arrangement, the Participant is entitled to the greater of benefits provided upon which Borrowers satisfy minimum availability thresholds, $10,000,000; and (d) at all
times thereafter, $0; (ii) the
Fixed Charge Coverage
Ratio (“FCCR”)
covenant is
suspended; (iii)
Borrowers must
maintain specified
minimum EBITDA
levels for trailing
three-month periods
starting
March 4, 2023; (iv) the Applicable Margin with respect to loans
a Change in Control under the Amended Credit Agreement is increased by
50 basis points; and (v) a Cash Dominion Trigger
19
Event occurs if availability
is less than $2,000,000.
Plan or the respective employment agreement or similar agreement or arrangement. The Ninth Amendment also
among other things, (i)
amends provides that Awards outstanding as of the FILO maximum
amount calculationEffective Date shall continue in accordance with their terms and are not affected by reloading
5%
of eligible
accounts receivable
(capped at
$3,000,000) and
deferring the
applicable amortization
schedules to
August 1,
2023; (ii)
defers the
monthly amortization
payments
for real
estate, machinery and
equipment, and
intellectual property assets
to August 1,
2023; (iii)
requires weekly reporting
of availability through
the date
following
September 30, 2023, upon which Borrowers
satisfy minimum availability thresholds;
and (iv) prohibits certain restricted payments
through the date following September
30, 2023, upon which Borrowers satisfy minimum availability
thresholds.
We expect the Ninth Amendment will enhance
our borrowing base and allow
us to access more of
our availability under the Amended
Credit Agreement while easing
the
financial covenant restrictions for the remainder of fiscal 2023.
Amendment. 

The foregoing summary of the Ninth Amendment and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference

to the text of the Ninth Amendment, which is filed herewith
as Exhibit 10.210.1 to this Quarterly Report on Form 10-Q
and which is incorporated herein by reference.

Separate from
the relationship
related to
the
Amended Credit
Agreement, as
amended, certain
lenders thereunder
have engaged
in, or
may in
the future
engage in,
transactions with, and perform services for, Delta Apparel, Inc. and/or its
subsidiaries in the ordinary course of business
20
Item 6.
Exhibits
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

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21
10.1
Table of Contents

Eighth AmendmentSIGNATURES

Pursuant to Fifth Amended and Restated Credit Agreement, datedJanuary 3, 2023, among Delta Apparel, Inc., M.J. Soffe,LLC, Culver City

10.2
10.3
31.1
31.2
32.1
32.2
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21
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
February 7, 2023
By:
/s/Nancy P. Bubanich
Nancy P. Bubanich
Chief Accounting Officer
22