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 January 1,
December 31, 2022

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
)
775-6900

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

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
☐
Indicate by check mark whether the
registrant (1) has filed all reportssubmitted electronically every Interactive Data File required to
be filed by Section 13 or 15(d)submitted pursuant to Rule 405 of the Securities Exchange Act of 1934
Regulation S-T
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, 2022, 2023,
there were outstanding 6,948,873 
7,001,020
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 — December 2021 and September 2021

3

Condensed Consolidated Statements of Operations — Three months ended December 2021 and December 2020

4

Condensed Consolidated Statements of Comprehensive Income — Three months ended December 2021 and December 2020

5

Condensed Consolidated Statements of Shareholders' Equity — Three months ended December 2021 and December 2020

6

Condensed Consolidated Statements of Cash Flows — Three months ended December 2021 and December 2020

7

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Note A—Basis of Presentation and Description of Business

8

Note B—Accounting Policies8
Note C—New Accounting Standards8
Note D—Revenue Recognition9
Note E—Inventories9
Note F—Debt10
Note G—Selling, General and Administrative Expense10
Note H—Stock-Based Compensation10
Note I—Purchase Contracts10
Note J—Business Segments11
Note K—Income Taxes11
Note L—Derivatives and Fair Value Measurements12
Note M—Legal Proceedings12
Note N—Repurchase of Common Stock13
Note O—Goodwill and Intangible Assets13
Note P—Subsequent Events13

Item 2.

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

14

Item 4.

Controls and Procedures

15

PART II.

Other Information

Item 1.

Legal Proceedings

15

Item 1A.Risk Factors15

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

Item 5.

Other Information

15

Item 6.

Exhibits

15

Signatures

16

Exhibits

EX-10.6.5

EX-31.1

EX-31.2

EX-32.1

EX-32.2

 
Page
PART
I.
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
 
 

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial Statements

3
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)

  

December 2021

  

September 2021

 

Assets

        

Cash and cash equivalents

 $6,379  $9,376 

Accounts receivable, less allowances of $183 and $251, respectively

  65,060   66,973 

Other receivables

  681   761 

Income tax receivable

  439   356 

Inventories, net

  183,058   161,703 

Prepaid expenses and other current assets

  5,162   3,794 

Total current assets

  260,779   242,963 
         

Property, plant and equipment, net of accumulated depreciation of $102,014 and $99,225, respectively

  66,350   67,564 

Goodwill

  37,897   37,897 

Intangibles, net

  25,766   26,291 

Deferred income taxes

  1,030   1,854 

Operating lease assets

  43,423   45,279 

Equity method investment

  10,202   10,433 

Other assets

  1,929   2,007 

Total assets

 $447,376  $434,288 
         

Liabilities and Equity

        

Liabilities:

        

Accounts payable

 $60,498  $52,936 

Accrued expenses

  22,823   29,949 

Income taxes payable

  356   379 

Current portion of finance leases

  6,581   6,621 

Current portion of operating leases

  8,197   8,509 

Current portion of long-term debt

  7,265   7,067 

Current portion of contingent consideration

  1,897   0 

Total current liabilities

  107,617   105,461 
         

Long-term income taxes payable

  3,186   3,220 

Long-term finance leases

  13,946   15,669 

Long-term operating leases

  37,208   38,546 

Long-term debt

  118,149   101,680 

Long-term contingent consideration

  0   1,897 

Other non-current liabilities

  2,289   3,621 

Total liabilities

 $282,395  $270,094 
         

Shareholder's equity:

        

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

  0   0 

Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 6,976,888 and 6,974,660 shares outstanding as of December 2021 and September 2021, respectively

  96   96 

Additional paid-in capital

  59,205   60,831 

Retained earnings

  150,505   146,860 

Accumulated other comprehensive loss

  (574)  (786)

Treasury stock - 2,670,084 and 2,672,312 shares as of December 2021 and September 2021, respectively

  (43,618)  (42,149)

Equity attributable to Delta Apparel, Inc.

  165,614   164,852 

Equity attributable to non-controlling interest

  (633)  (658)

Total equity

  164,981   164,194 

Total liabilities and equity

 $447,376  $434,288 

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.

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

 
  

December 2021

  

December 2020

 
         

Net sales

 $110,746  $94,723 

Cost of goods sold

  87,743   74,434 

Gross profit

  23,003   20,289 
         

Selling, general and administrative expenses

  17,482   16,030 

Other (income) loss, net

  (395)  1,190 

Operating income

  5,916   3,069 
         

Interest expense, net

  1,598   1,654 

Earnings before provision for income taxes

  4,318   1,415 

Provision for income taxes

  648   572 

Consolidated net earnings

  3,670   843 

Net (income) loss attributable to non-controlling interest

  (25)  40 

Net earnings attributable to shareholders

 $3,645  $883 
         

Basic earnings per share

 $0.52  $0.13 

Diluted earnings per share

 $0.51  $0.13 
         

Weighted average number of shares outstanding

  6,999   6,920 

Dilutive effect of stock awards

  86   80 

Weighted average number of shares assuming dilution

  7,085   7,000 

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
Table of Contents
 

5
Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Amounts in thousands)

(Unaudited)

  

Three Months Ended

 
  

December 2021

  

December 2020

 
         

Net earnings attributable to shareholders

 $3,645  $883 

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

  212   125 

Consolidated comprehensive income

 $3,857  $1,008 

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
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

  

Loss

  

Shares

  

Amount

  

Interest

  

Total

 

Balance as of September 2020

  9,646,972  $96  $61,005  $126,564  $(1,322)  2,756,854  $(43,133) $(524) $142,686 
                                     

Net earnings

  -   0   0   883   0   -   0   0   883 

Other comprehensive income

  -   0   0   0   125   -   0   0   125 

Net loss attributable to non-controlling interest

  -   0   0   0   0   -   0   (40)  (40)

Vested stock awards

  0   0   (2,117)  0   0   (84,542)  984   0   (1,133)

Stock based compensation

  -   0   676   0   0   -   0   0   676 

Balance as of December 2020

  9,646,972  $96  $59,564  $127,447  $(1,197)  2,672,312  $(42,149) $(564) $143,197 

                  

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 earnings

  -   0   0   3,645   0   -   0   0   3,645 

Other comprehensive income

  -   0   0   0   212   -   0   0   212 

Net income attributable to non-controlling interest

  -   0   0   0   0   -   0   25   25 

Purchase of common stock

  0   0   0   0   0   74,232   (2,143)  0   (2,143)

Vested stock awards

  0   0   (1,766)  0   0   (76,460)  674   0   (1,092)

Stock based compensation

  -   0   140   0   0   -   0   0   140 

Balance as of December 2021

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

7
Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

  

Three Months Ended

 
  

December 2021

  

December 2020

 

Operating activities:

        

Consolidated net earnings

 $3,670  $843 

Adjustments to reconcile net earnings to net cash used in operating activities:

        

Depreciation and amortization

  3,629   3,368 

Amortization of deferred financing fees

  81   81 

Provision for inventory market reserves

  851   (405)

Provision for deferred income taxes

  754   740 

Non-cash stock compensation

  140   676 

Gain on disposal of equipment

  2   30 

Other, net

  (390)  (200)

Changes in operating assets and liabilities:

        

Accounts receivable, net

  1,993   (2,598)

Inventories, net

  (22,206)  (2,601)

Prepaid expenses and other current assets

  (1,449)  (797)

Other non-current assets

  699   394 

Accounts payable

  7,584   387 

Accrued expenses

  (7,572)  (2,044)

Net operating lease liabilities

  206   279 

Income taxes

  (140)  (193)

Other liabilities

  (1,050)  (447)

Net cash used in operating activities

  (13,198)  (2,487)

Investing activities:

        

Purchases of property and equipment

  (1,822)  (408)

Proceeds from equipment purchased under finance leases

  0   196 

Proceeds from sale of equipment

  0   2,312 

Cash paid for intangible asset

  (51)  0 

Cash paid for business

  (583)  (838)

Net cash (used in) provided by investing activities

  (2,456)  1,262 

Financing activities:

        

Proceeds from long-term debt

  138,543   112,506 

Repayment of long-term debt

  (121,293)  (112,557)

Repayment of finance lease obligations

  (1,783)  (1,684)

Payment of contingent consideration

  0   (2,110)

Repurchase of common stock

  (1,718)  0 

Payment of withholding taxes on stock awards

  (1,092)  (1,133)

Net cash provided by (used in) financing activities

  12,657   (4,978)

Net decrease in cash and cash equivalents

  (2,997)  (6,203)

Cash and cash equivalents at beginning of period

  9,376   16,458 

Cash and cash equivalents at end of period

 $6,379  $10,255 
         

Supplemental cash flow information

        

Finance lease assets exchanged for finance lease liabilities

 $20  $3,976 

Operating lease assets exchanged for operating lease liabilities

 $1,401  $0 

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
 

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. Withcompany with approximately 8,700
8,500
employees worldwide, weworldwide. 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 the our customers'
supply chain of our customers. 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, and e-retailers,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 distribution modelgo-to-market
strategy allows us
to capitalize on
our strengths to provide our 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. More products, with more
than 90% of the apparel
units that we sell are sewn
in our owned or leasedown 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 under the
symbol “DLA."

We operate on a52-53
52-53 week
fiscal year
ending on
the Saturday
closest to
September 30.
Our 20222023 fiscal
year is
a 52-week 52-week
year and
will end
on October 1, 2022 ("September
30, 2023 ("fiscal2022"
2023"). Accordingly, this Quarterly Report on Form 10-Q10-Q presents our results for our first quarter of fiscal 2022.2023. Our 20212022 fiscal year was a 52-week52-week year and ended on
October 2, 2021 ("1, 2022 ("fiscal 2021"2022").

For presentation purposes herein, all references to period
ended relate to the following fiscal years and dates:

Period EndedFiscal YearDate Ended

December 2020

Fiscal 2021

January 3, 2021

March 2021Fiscal 2021April 3, 2021
June 2021Fiscal 2021July 3, 2021
September 2021

Fiscal 2021

October 2, 2021
December 2021Fiscal 2022January 1, 2022

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
We prepared the accompanying interim Condensed Consolidated
Financial Statements in accordance
with the instructions for Form10-Q
10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of
the information and footnotes required
by U.S. generally accepted accounting
principles ("U.S. GAAP") for complete
financial
statements.
We
believe
these
Condensed
Consolidated
Financial
Statements include
all
normal
recurring
adjustments considered
necessary
for
a
fair
presentation.
Operating results for the three-month period months ended December 2021 2022 are not necessarily indicative of the results that may be expected for our fiscal 2022.2023. 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 our June quarter generally beingfiscal
2023 may not be indicative
of the highest and salesdistribution in our December quarter generally being the lowest.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 2021,2022, 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 three-months months ended December
2022 and December 2021, and December 2020, we received dividends
from thethis investment of $0.6 $
0.9
million and $0.3 $
0.6
million, respectively. Our Ceiba Textiles manufacturing facility is leased
under
an
operating
lease
arrangement with
this
Honduran
company.
During
the
three-months
months
ended
December
2022
and
December
2021, we
paid
approximately $0.4
$
0.4
million under this arrangement. Payments of approximately $0.8 million were made during the three-months ended December 2020 which included payment of rent deferrals related to the June 2020 quarter as a result of the COVID pandemic.

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.

 

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 2021,2022, filed with
the
SEC. See Note C for consideration of recently issued
accounting standards.

Note C—New Accounting Standards

Recently

Standards Not Yet Adopted Standards

In December 2019, June 2016, the FASB
issued ASU No.2019-12,Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification ("ASC") 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective as of the beginning of our fiscal year 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The impact of the adoption of provision of ASU 2019-12 did not have a material impact to our financial condition, results of operations, cash flows, and disclosures.

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 (“
(“ASU2016-13”
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 ASU2016-13,
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.

In March 2020, the FASB issued ASU 2020-04,Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04provides optional guidance for a limited period of time to ease potential accounting and financial reporting impacts of reference rate reform, including the expected transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This new guidance includes temporary optional practical expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met.  These transactions include contract modifications, hedging relationships and the sale or transfer of debt securities classified as held-to-maturity.  Entities may apply the provisions of the new standard at the beginning of the reporting period when the election is made. This guidance may be applied through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures and has yet to elect an adoption date.

8
 

 

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 web sites;websites; and sales from wholesale channels, which includes our business-to-business ecommerce sales and sales in
our DTG2Go sales.  business.
The table
below identifies the amount and percentage of net sales
by distribution channel (in thousands):

  

Three Months Ended

 
  

December 2021

  

December 2020

 

Retail

 $2,903   3% $2,438   3%

Direct-to-consumer ecommerce

  1,345   1%  1,809   2%

Wholesale

  106,498   96%  90,476   95%

Net sales

 $110,746   100% $94,723   100%

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
%
The table below provides net sales by reportable segment and
the percentage of net sales by distribution channel for
each reportable segment (in thousands):

  

December 2021 Quarter

 
  

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             

  

December 2020 Quarter

 
  

Net Sales

  

Retail

  

Direct-to-consumer ecommerce

  

Wholesale

 

Delta Group

 $87,624   0.2%  0.4%  99.4%

Salt Life Group

  7,099   31.4%  21.1%  47.5%

Total

 $94,723             

 

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 $16.7 $
17.8
million and $15.9 $
17.7
million as of December 20212022 and September 2021, 2022, respectively, consisted of the
following (in thousands):

  

December 2021

  

September 2021

 

Raw materials

 $23,760  $17,204 

Work in process

  23,418   20,954 

Finished goods

  135,880   123,545 
  $183,058  $161,703 

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
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.

9Note F—Debt
 
Credit Facility

Note F—Debt

Credit Facility

On May 10, 2016,

we entered into
a Fifth Amended
and Restated Credit Agreement
(as further amended,
the “Amended Credit
Agreement”) with Wells
Fargo Bank,
National Association
(“Wells Fargo”), as Administrative
Agent, the Sole
Lead Arranger and
the Sole
Book Runner, and
the financial
institutions named
therein as Lenders,
which are Wells Fargo,
PNC Bank,
and Regions
Bank. Our
subsidiaries M.J.
Soffe, LLC, Culver
City Clothing
Company, Salt Life,
LLC, and
DTG2Go, LLC
(collectively,
the "Borrowers"), are co-borrowers under
the Amended Credit Agreement.
The Borrowers entered into amendments
to the Amended Credit Agreement
with Wells Fargo
and the other lenders on November 27, 2017, March 9, 2018, October
8, 2018, November 19, 2019, April 27, 2020, and August
28, 2020.
On June 2, 2022, the Borrowers entered into a Seventh Amendment to the Fifth Amended and Restated Credit Agreement (as further amended, the “Amended Credit Agreement”) with Wells Fargo Bank National Association (“Wells Fargo”(the “Agent”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, and Regions Bank. Our subsidiaries M.J. Soffe, LLC, Culver City Clothing Company, Salt Life, LLC, and DTG2Go, LLC (collectively, the "Borrowers"), are co-borrowers under the Amended Credit Agreement. The Borrowers entered into amendments to the Amended Credit Agreement with Wells Fargo and the
other lenders
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 November 27, 2017, March 9, 2018, October 8, 2018, November 19, 2019, April 27, 2020, SOFR plus a CSA (Credit Spread Adjustment)
defined as
10
bps for 1 month
and
15
bps for
3-month tenors, (iii)
sets the
SOFR floor to
0
bps, (iv)
reloads the fair
market value of
real estate and
intellectual property within
the borrowing base
calculation and August 28, 2020.

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 not be less than
1.0
(previously
1.1
).
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")) 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 2021, 2022, we had $116.0 
$
142.3
million outstanding under our U.S. revolving credit facility
at an average interest rate of 3.2%
6.7
%. Our cash on hand combined with
the availability under the
U.S. credit facility totaled $33.0 $
27.2
million. At December 2021 2022 and September 2021 2022, there was $18.6 $
23.1
million and $19.0 $
24.9
million, respectively, of
retained earnings free of restrictions to make cash dividends
or stock repurchases.

Promissory

See Note

On October 8, 2018, we acquired substantially all P—Subsequent Events for a discussion of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In conjunction withEighth and Ninth Amendments to the acquisition, we issued a promissory note in the principal amount of $7.0 million. The promissory note bears interest at 6% with quarterly installments which began Fifth Amended and Restated Credit Agreement entered into on January 2, 2019, with the final installment due October 1, 2021. The final payment, in accordance with the promissory note agreement, was made during the three-months ended December 2021. 

3,

2023, and February 3, 2023, respectively.
10
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. EachAdditionally, in May 2022, we entered
into a new term
loan with a
five
-year term with a
principal amount of these new$
3.7
million. These loans is are
secured by a first-priorityfirst-
priority lien on the assets of our Honduran operations and is 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 have beenborrowed 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
million with Banco Ficohsa, a Panamanian
bank, to finance
investments in our
El Salvador operations.
This loan is secured
by a first-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 is listed as part of the long-term debt schedule
above.
Additional information about these loans and the outstanding balances
as of December 2021 2022 is as follows (in thousands):

  

December 2021

 

Revolving credit facility established December 2020, interest at 7.25%, due August 2025

 $984 

Term loan established December 2020, interest at 7.5%, quarterly installments beginning September 2021 through December 2025

  8,114 

 

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 $5.5 
$
5.4
million
and $5.2 $
5.5
million for the December 2022 and December 2021and 2020 quarters, 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.

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
employed by the Company or servingsserving as a director, 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 becoming disabled.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.

Compensation expense is
recorded within SG&A
in our
Condensed Consolidated Statements
of Operations
over the
vesting periods.
During the
December 2022 and
December 2021 and 2020quarters,
we recognized $0.4 $
0.5
million and $0.9 $
0.4
million in stock-based
compensation expense, respectively.
Associated with the this
compensation cost are
income tax benefits recognized of $0.1 $
0.2
million and $0.3 $
0.1
million, respectively, for each of the three-monththree-month periods ended December 2021 2022 and
December 2020, respectively. 

2021.

During the December 2021 2022 quarter, performance stock units and restricted stock
units representing 47,700 and 95,000
105,000
shares of our common stock respectively,
vested with the filing of
our Annual Report on Form10-K
10-K for
fiscal 2021,2022 and were issued in accordance with their respective
agreements. Of these vested awards, 96,350all were payable in
common stock and 46,350 were payable in cash.

stock.

During the
December 2021 2022 quarter, restrictive
performance stock units
and restricted stock
units representing 5,000
and 18,000
shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for fiscal 2022 and are payable in common stock.

During the December 2021 quarter, performance stock units and restrictive stock units representing 59,625 and 59,625 shares of our

common stock, respectively,
were granted and are eligible to vest upon the filing of our Annual Report for fiscal 2023. Of these shares, 64,625 are payable in common stock and 54,625 are payable in cash.

During the December 2021 quarter, restrictive stock units representing 13,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for fiscal 2024 and are payable in common stock.

forfeited.
As of December 2021, 
2022, there was $4.2 $
3.3
million of total
unrecognized compensation cost
related to unvested
awards granted under
the 2020 Stock
Plan. This cost
is expected
to be recognized over a period of 2.9 years.

1.9
 

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 2021, 2022, minimum
payments under these contracts were as follows (in thousands):

Yarn

 $28,071 

Finished fabric

  7,808 

Finished products

  18,929 
  $54,808 


Yarn
$
22,294
Finished fabric
4,435
Finished products
9,517
$
36,246
 

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 ourthe following business
units, which are primarily focused on core activewear styles, and includes our styles:
DTG2Go and Delta Activewear business units. We areActivewear.
DTG2Go is a
market leader in the
on-demand, direct-to-garment digital print
and fulfillment industry,
bringing technology and innovation
to the supply chain
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. Our
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. 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, business is organized around key customer channelsDTG2Go also services
the eRetailer, ad-specialty, promotional and how they source their various apparel needs. screen
print marketplaces, among others.
Delta Activewear is a preferred supplier of
activewear apparel to regional and global
brands as well as direct to retail and through
wholesale markets. We offerThe 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, Soffe, and sourced-branded products that we distribute utilizingSoffe
brands as well
as sourced
items from
select third
party brands.
Our fashion
basics line
includes our network of fulfillment centers. Delta Direct services key channels, such as the screen print, promotional,Platinum
Collection, which
offers fresh, fashionable
silhouettes with a luxurious look and eRetailer channels feel,
as well as versatile fleece offerings.
We offer innovative
apparel products, including the retail licensingDelta Dri line of
performance shirts
built with moisture-wicking material
to keep athletes dry
and comfortable; ringspun
garments with superior
comfort, style and durability;
and Delta Soft, a
collection with
an incredible feel and price. We also offer our heritage, mid-
and heavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.
The iconic Soffe brand offers activewear for spirit
makers and record breakers and
is widely known for the original "cheer
short" with the signature roll-down waistband.
Soffe carries a wide range of activewear for the entire family. Soffe's heritage is anchored in the military, and we continue to be a proud supplier to both active duty and
veteran United States
military personnel worldwide.
The Soffe men's assortment
features the tagline
"anchored in the military, grounded
in training" and
offers everything
from physical training
gear certified by
the respective branches of
the military,
classic base layers
that include the
favored 3-pack tees,
and the iconic
"ranger panty."
Complementing the Delta and Soffe
brand apparel, we offer
customers a broad range of
nationally recognized branded products including polos,
outerwear, headwear,
bags and other accessories. Our Soffe products are also available
direct to consumers at
www.soffe.com
.
Our Global
Brands channel whose customers sell through to many mid-tier and mass market retailers.  In our Global Brands & Retail Direct business we serve our customers
serves as theira
key supply chain
partner from product development to shipment of their branded products, with the majority of products being sold with value-added services including embellishment, hangtags, and ticketing. We also serve retailers by providing our portfolio of products directly to their retail stores and through their ecommerce channels.  We sell our products to a diversified audience, including sporting goods and outdoor retailers, specialty and resort shops, farm and fleet stores, department stores, and mid-tier retailers. We also service custom apparel to
large multi-national
brands, major branded
sportswear companies, trendy
regional brands, and
all
branches of the United States armed forces. We also offerforces,
providing services ranging from custom product development
to the shipment of branded products with “retail-ready”
value-
added services including embellishment, hangtags, and
ticketing.
Our Retail Direct
channel serves brick
and mortar and
online retailers by
providing our portfolio
of Delta, Delta
Platinum, and
Soffe products direct directly
to consumers at www.soffe.com.

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 lifestyle brands focused on a broad range of apparel garments, headwear and related accessories to meet consumer preferences and fashion trends, and includes our Salt Life business, unit. These products are soldwhich
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 and boutique shops, traditional stores,
department stores, and outdoor retailers, as well as direct-to-consumer through branded
merchants or by accessing our Salt Life ecommerce sites and branded retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life® as well as other labels.

site

at
www.saltlife.com
.
Our Chief Operating Decision Maker and management evaluate performance
and allocate resources based on profit or loss from operations before
interest, income taxes
and special charges ("segment operating earnings").
Our segment operating earnings may not be
comparable to similarly titled measures used
by other companies. The
accounting policies
of our
reportable segments
are the
same as
those described
in Note
2 in
our Annual
Report on
Form 10-K 10-K
for fiscal2021,
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 2021

  

December 2020

 

Segment net sales:

        

Delta Group

 $101,921  $87,624 

Salt Life Group

  8,825   7,099 

Total net sales

 $110,746  $94,723 
         

Segment operating earnings:

        

Delta Group (1)

 $8,438  $6,276 

Salt Life Group

  156   (136)

Total segment operating earnings

 $8,594  $6,140 

(1) In fiscal

Three Months Ended
December 2022
December 2021 the
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 included $1.3 million of expense, reported within "Other loss (income), net", related to two catastrophic hurricanes that disrupted operations during the December 2020 quarter.

$
341
$
8,594
12
The following table reconciles the segment operating earnings
to the consolidated (loss) income 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 provision for income taxes (in thousands):

  

Three Months Ended

 
  

December 2021

  

December 2020

 

Segment operating earnings

 $8,594  $6,140 

Unallocated corporate expenses

  2,678   3,071 

Unallocated interest expense

  1,598   1,654 

Consolidated earnings before provision for income taxes

 $4,318  $1,415 

$
(5,516)
$
4,318
 

Note K—Income Taxes

The Tax
Cuts and Jobs
Act of 2017 (the “New
(the “2017 Tax
Legislation”) was enacted on December 22,
2017,which 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 Section163(j)
163(j). WeIn 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 three-months
ended December 2021 2022 was 15.1%
35.0
% compared to a rate of 39.3%
15.1
% in the same period of the prior year, and
an effective rate of 21.9%
17.9
% for fiscal 2021.2022. 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.


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 2021,
2022, all of our other
comprehensive income was attributable
to shareholders; none related to
the non-controlling
interest.
Outstanding instruments as of December 2021 2022 are as follows:

Notional

Effective Date

Amount

Fixed LIBOR Rate

Maturity Date

Interest Rate Swap

July 25, 2018

$20.0 million

3.18%

July 25, 2023

Effective Date
Notional 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 June 2021 December 2022 and September 2020 (in2022 (in thousands):

  

December 2021

  

September 2021

 

Deferred tax assets

 

$

195

  

$

266

 

Other non-current liabilities

  

(769

)

  

(1,052

)

Accumulated other comprehensive loss

 

$

(574

)

 

$

(786

)

December 2022
September 2022
Deferred tax assets
$
(70)
$
(48)
Other non-current liabilities
280
189
Accumulated other comprehensive loss
$
210
$
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 2021 
2022 and September 2021.

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.
13
The following financial liabilities are measured at fair
value on a recurring basis (in thousands):

  

Fair Value Measurements Using

 
      

Quoted Prices in

  

Significant Other

  

Significant

 
      

Active Markets for

  

Observable

  

Unobservable

 
      

Identical Assets

  

Inputs

  

Inputs

 

Period Ended

 

Total

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

Interest Rate Swaps

                

December 2021

 $(769)  0  $(769)  0 

September 2021

 $(1,052)  0  $(1,052)  0 
                 

Contingent Consideration

                

December 2021

 $(1,897)  0   0  $(1,897)

September 2021

 $(1,897)  0   0  $(1,897)

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
-
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 2021 2022 and September 2021,2022,
book value for fixed rate
debt approximates approximated
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).

The DTG2Go acquisition purchase price consisted of additional payments contingent on the combined business’s achievement of certain performance targets related to sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the period from April 1, 2018, through September 29, 2018, as well as for our fiscal years 2019,2020,2021 and 2022. The valuation of the fair value of the contingent consideration is based upon inputs into the Monte Carlo model, including projected results, which then are discounted to present value to derive the fair value. The fair value of the contingent consideration is sensitive to changes in our projected results and discount rates.  As of December 2021, we estimate the fair value of contingent consideration to be $1.9 million, consistent with our estimate as of September 2021.

 

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. During We
did
no
t
purchase
any
shares
of
our
common
stock
during
the
December 2021 quarter,
2022
quarter.
Through
December
2022, we
have
purchased 74,232
3,735,114
shares of
our common
stock for
an aggregate
of $2.1 million. Through December 2021, we have purchased 3,673,165 shares of our common stock for an aggregate of $54.6 $
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 2021, 2022, $5.4 
3.6
million remained available for future
purchases under our
Stock Repurchase Program, which does not have an expiration date.

 

date.

Note O—Goodwill and Intangible Assets

Components of intangible assets consist of the following (in
(in thousands):

  

December 2021

  

September 2021

   
  

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  $(4,450) $11,550  $16,000  $(4,317) $11,683 

20 – 30 yrs

 

Customer relationships

  7,400   (2,658)  4,742   7,400   (2,473)  4,927 

20 yrs

 

Technology

  10,024   (1,937)  8087   9,952   (1,715)  8237 

10 yrs

 

License agreements

  2,100   (862)  1,238   2,100   (837)  1,263 

15 – 30 yrs

 

Non-compete agreements

  1,657   (1,508)  149   1,657   (1,476)  181 

4 – 8.5 yrs

 

Total intangibles

 $37,181  $(11,415) $25,766  $37,109  $(10,818) $26,291   

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
Goodwill represents the acquired goodwill net of
the $0.6 $
0.6
million impairment losses recorded in fiscal year
2011. As of December 2021, 2022, the Delta Group segment assets
include $18.0 $
18.0
million of goodwill, and the Salt Life Group segment assets
include $19.9 $
19.9
million.

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
thethree-months ended
December
2022
and
December
2021
quarters
was
$
0.6
million
andDecember 2020 was $0.6 
$
0.6
million, and $0.4 million,
respectively.
Amortization
expense
is
estimated
to
be
approximately $1.6 $
1.4
million for the year ended September 2022, 2023,
approximately $1.5 $
1.4
million for the year ended September 2023, 2024,
and approximately $1.4 $
1.4
million for the
years ended September 2024, 2025, 2026, and 2026.

On June 1, 2021, DTG2Go, LLC acquired specified net assets of Fan Print Inc., which primarily included its Autoscale.ai technology as well as immaterial net working capital. The costs to acquire the net assets were $8.0 million, of which $6.6 million was paid at closing through our existing U.S. credit facility and $1.4 million will be paid in three installments in our second, third, and fourth quarters of fiscal 2022. The acquisition qualified as an asset acquisition in accordance with ASU 2017-01,Clarifying the Definition of a Business, as substantially all of the fair value of the net assets acquired or $8.1 million were assigned to the technology intangible asset with an estimated economic life of 10 years. The acquisition cost also consists of additional payments contingent on the adjusted operating profits resulting from the Autoscale.ai technology for the period from June 1, 2021 through October 2, 2021, as well as for our fiscal years 2022 through 2026. These contingent earnout liabilities are recognized when the contingency is probable and reasonably estimable, which generally results in recognition, if earned, during the fourth quarter of each fiscal year and which would increase the value of the technology intangible asset.

2027.

Note P—Subsequent Events

None.


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
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 a Ninth
Amendment to the Fifth
Amended and Restated Credit
Agreement with the Agent and
the other lenders set forth
therein (the “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
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 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 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.

●
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.
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 2021,2022, 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 laws.

law.

16
Business Outlook

We beganwere pleased to start our 2023 fiscal 2022year
with double-digit sales growth across
four 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 streamlined organization,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 operatingover
time.
As expected, our Delta Group segment’s
results for the quarter were impacted by
the reduced demand in the mass retail
supply chain and the associated manufacturing
shutdowns that we, like many
across the industry,
initiated to recalibrate output as a fully-integrated Activewear business, complemented by DTG2Go digital fulfillment solutions. Our Activewear business is organized around
well as elevated raw material, energy
and labor costs.
Although the price of cotton,
one of our key customer channels raw materials, has moderated from last year’s notable highs, that high-cost cotton continues to flow through our cost of sales due to production cadences
and how they source their diverse apparel needs.  Customers seekingpressures margins accordingly.
We expect to cycle through most of that higher-priced cotton in our portfolio
second quarter and begin to see the benefit of Delta, Delta Platinum, Soffe,lower input costs
in our results as
we progress through the
second half of our
fiscal year. We
will continue to leverage
the flexibility of our
vertical manufacturing strategy until we
see
better equilibrium between inventories and sourced apparel products can purchase them directly fromdemand and also focus on opportunities in higher
margin areas of our Delta Direct business.  Delta Direct services keychannel 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
Salt Life’s direct-to-consumer retail
and eCommerce channels including the screen print, promotional,
should continue as
it expands its brick
and eRetailer channels togethermortar retail
and digital footprints to
keep pace with the key
brand’s consumer base
stretching across the country.
Salt Life is targeting
six to eight new
store openings this fiscal
year,
including debut locations
in New
Jersey and Virginia,
bringing its total
store count to
approximately 30 locations
across nine states
spanning 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
of the brand’s
traditional southeastern
base, and its wholesale business also continues to expand.
There are now approximately 1,800 customer retail licensing channel, whose customers sell through to many mid-tierdoors across 48 states and mass market retailers.    In our Global Brands & Retail Direct business, we are a supply chain partner to global brands, from product development of custom garments to shipment of their branded products, with the majority of products being sold with value-added services.  We also serve global retailers by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to their retail stores and through their ecommerce channels. Our business is now organized including the Soffe business as part of Activewear, resulting in a more customer-centric sales and support team; a more proactive manufacturing, inventory planning, and distribution network; and a streamlined back-office support function. 

Our digital print business, DTG2Go, remains a competitive force in the digital print and fulfillment market.  We believe we are differentiated in this market, considering our vertically-integrated supply chain, broad geographic network for fulfillment and distribution, proprietary technology, and broad and diverse customer relationships. foreign countries offering Salt

Life products.
We continue to see the transition of additional retailers and brands, many of whom are current Delta Group customers, to an on-demand digital fulfillment model.  One of the strategic benefits of being a vertically-integrated apparel supplier is that customers are able chose Delta blankstremendous runway for growth for the garments 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 printing.  This often creates a more efficient operation, reduces garment costs fortechnology platform and Salt Life’s authentic
lifestyle brand
positioning. Moreover,
we are
now seeing
some welcome
cost stabilization
in our customers,
Delta Group
segment and lowers
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 needs in the business.

We invest in digital print equipment to build production capacity, in addition to also making investments

and improvements inexpenses while pursuing
opportunities
generated by our proprietary technology that will both provide our customers with an even better experience and provide us improved inventory planning. We leverage Autoscale technology in our DTG2Go business. Autoscale provides automated solutions for design creation, art & licensing management as well marketing spend enabling seamless connection with various online marketplaces. Using Autoscale innovative technology in our portfolio is part of our strategy to drive enterprise value over the long term by providing an automated, scalable, seamless solution for on-demand, decorated apparel – from design to fulfillment.  

Salt Life enthusiasts continue to actively engage with the authentic, aspirational lifestyle brand. Showing true omni-channel strength, sales grew over 25% compared to the first quarter of fiscal 2021 with double-digit growth for each of our wholesale, retail, and ecommerce channels. Direct-to-consumer sales now make up approximately one-third of total sales in the December 2021 quarter, continuing to progress toward our long-term goal of two-thirds direct-to-consumer contributions.  We plan to open an additional six to eight stores in fiscal 2022.  We continue to invest in this key sales channel and are looking to end the fiscal year with approximately 20 retail stores.  Salt Life enthusiasts also actively engaged with the brand through all our online channels. In particular, viewership of Salt Life content on YouTube continues to increase while we continue to increase the frequency of content publications on “The Daily Salt,” our online publication.

diversified business model.

Results of Operations

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

basis.

Net sales were $110.7$107.3 million in the first quarter of fiscal 2022, an increase
2023, a decrease of 17%3.1% compared to the prior year first quarter net sales
of $94.7$110.7 million.

Net sales in the Delta Group segment grew 16%declined 4.8% to $101.9 million compared to $87.6$97.0 million in the first fiscal quarter of the prior year.  Delta Direct and Global Brands & Retail Direct grew over 16% fromfiscal 2023 compared to $101.9 million in the prior year first quarter.
We saw record first quarter 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 reduced sales in our Delta Direct
channel.
The Salt Life Group segment first
quarter fiscal 2023 revenue grew by 17% over
16.5% to $10.3 million compared to
$8.8 million in the prior year with new customer launches.

Salt Life segment net sales grew 24% from the

first quarter. The segment’s
record first quarter of the prior year to $8.8 million. The sales growth is attributable to increased wholesale sales together withwere driven by growth in theboth direct-to-consumer business with our branded retail stores.

Retail

and total ecommerce sales represented 10% of total revenues for the both the December 2021 and 2020 quarters.

wholesale channels.

Gross margins were 20.8%12.7% for the first quarter of fiscal 2022, lower than the 21.4% in2023, declining
810 basis points from the prior year largely driven by inflationary costs pressure.

first quarter gross margin of 20.8%.

The Delta Group segment gross margins were 18.0% 8.0%
for the Decemberfirst quarter of fiscal
2023, a decline of 100 basis points
from the prior year Decemberfirst quarter
margins of 19.1%
18.0%. Gross margins were negativelyprimarily impacted
by the higher productinventory costs from inflationary
raw material and other input pricing
in fiscal 2022 flowing through cost of
sales offset partially by increased selling prices.

during the quarter, in addition to $3.4 million in plant curtailment costs.

The Salt Life Group segment gross margins improved to 53.3%57.0% in the first quarter of fiscal 2023, an improvement of 370 basis points compared to 50.2%53.3% in the
prior year Decemberfirst quarter resulting from a favorable mix
of sales, driven by theincluding increased Salt Life branded retail store
and ecommerce sales.

Selling, general, and administrative expenses ("SG&A") were $17.5$18.9 million 15.8%in the first
quarter of fiscal 2023, or 17.6% of sales, compared to $16.0$17.5 million, 16.9%
or 15.8% of
sales, in the prior year first quarter.
The increase in SG&A compared to prior year first quarter was driven by higher variable selling costs. We benefited from leveraging fixed costs against higher sales in the first quarter as compared to the first quarter in the prior fiscal year.

Other income for the fiscal year 2022 and fiscal year 2021 December quarters includes profits related to our Honduran equity method investment. The first quarterexpenses of the prior year included $1.3 million of expenses related to the impact of two hurricanes that disrupted our Honduran manufacturing facilities in the first quarter of fiscal 2021. 

Operating profit in the first quarter for the fiscal year 2022 increased to $5.9 million compared to the prior year first quarter profit

was primarily driven by higher selling costs
driven by our expanded Salt Life retail footprint, in addition
to increased distribution and administrative costs.
Other income for the 2023 and 2022 first fiscal quarters includes
profits related to our Green Valley Industrial Park equity method investment. Additionally, in the first
quarter of $3.1fiscal 2023, we recognized a discrete gain of
$2.5 million from the settlement of a commercial litigation matter.
Operating loss in the first quarter of fiscal 2023
was $2.6 million.

This compares to operating income of $5.9 million
in the prior year first fiscal quarter.
17
The Delta Group segment had operating income of $8.4$0.1 million in the first fiscal quarter of 2023, or 8.3%0.1% of net sales, compared to $6.3$8.4 million,
or 7.2%8.3% of net
sales, in the
prior year first
quarter. The increasedecrease in
operating profit was
driven by leveraging fixed declining
gross margins due
to increased inflationary
costs against higher sales as well as continuing cost controls.

and plant

curtailment
costs.
The Salt Life Group segment had operating income of $0.1$0.3 million in the first fiscal
quarter of 2023, or 1.5%2.5% of net sales, compared to a loss of $0.1 million,
or 1.4%1.5% of
sales, in the prior year first quarter.
The improvedincrease in operating profit was driven by a stronger direct-to-consumerhigher sales mix.

volume and increased gross

margins offset by higher selling and
distribution costs.
Net interest expense for the first quarters of each of fiscal years
2023 and 2022 was $2.9 million and $1.6 million, for first fiscal quarter of 2022 compared to $1.7 million in the prior year first fiscal quarter.

respectively.
Our effective tax rate on operations for the three-month period ended December 20212022 was 15.1%35.0%. This compares
to an effective tax rate of 39.3%15.1% for the same period in
the prior year
and 21.9 %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 fullfirst fiscal year 2021. See Note K—Income taxes for more information. 

We achieved net earnings for the December 2021 quarter of 2023

was $3.6 million,
or a loss of $0.51 per diluted share, compared to $0.9net income of
$3.6 million, or $0.13
$0.51 per diluted share, in the prior year first quarter.

year.

Accounts receivable were $65.7$57.8 million
at December 2021,2022, compared
to $67.7$68.2 million as of September 2021.
2022. Days sales outstanding ("DSO")
as of December 2021 2022
were 49
47 days compared to 4752 days at September 2021.

2022.

Net inventory as of December 20212022 was $183.1
$258.9 million,
an increase of $21.4$10.4 million from September 20212022 and $34.6
$75.8 million from December 2020. We have increased production during 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 past year and are now producing at record manufacturing levels. The temporary hurricane disruptions during the December 2020 quarter impacted the planned inventory build during the prior year firstsecond quarter.

Total net debt, including capital lease financing and cash on hand,
was $139.6$185.2 million atas of December 2021,31, 2022, an increase of $18.0$14.6 million from September 2022 and
$39 million from
December 2021. Cash on
hand and availability under our
the Company’s
U.S. revolving credit facility
totaled $33.0$27.2 million at as
of December 31, 2022,
a
decrease of $7.5 million from
September 2022 and $5.8 million from
December 2021, a $12.4 million decreasewith the increase from
September 20212022 principally driven by investments in the
business to support working capital needs.

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 operating income, net income and earnings per diluted share 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 imitations 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.

Liquidity and Capital Resources

Operating Cash Flows

Operating activities usedresulted in a cash usage
of $11.9 million for the three
months ended December 2022 compared to $13.2
million of cash for December 2021 quarter compared to $2.5 millionused in the
prior year December quarter.   Netyear. The
improvement in cash used in operating activities primarily increased as a result of higher inventory productioncash flows in the current year.  This was partially offset byyear are due to the increased operating income.

Investing Cash Flows

Cash usedtiming of payments from customers and to vendors, in investing activities was $2.5 million duringaddition to reduced inventory

in the first quarter of fiscal year 20222023 compared to cash provided by investing activitiesthe prior
year as a result of $1.3reduced customer demand.
Investing Cash Flows
Cash outflows for capital expenditures were $2.1 million forduring the first three months of 2023 compared to $1.8 million in the same period in the prior year. AsDuring the
three-months ended June 2022, there were $0.1 million of December 2021, there was $0.6 million in unpaid expenditures.  In the first quarter of fiscal 2021, we received proceeds of $2.3 million from finance lease arrangements related to prior year capital expenditure cash outflows.

We anticipate our fiscal 2022 capital expenditures including those

financed under a capital leases,lease arrangement. We
currently expect to be approximately $20 million andspend less on capital
expenditures in 2023 as
compared to be focused primarily on 2022, with
our distribution expansion,expenditures expected to focus
on digital print equipment, manufacturing equipment,
information technology, manufacturing
efficiency, and
direct-to-consumer investments,
including additionalnew Salt Life retail store openings.

Financing Activities

During the three months ended December 2021 quarter,2022, cash provided by financing
activities was $12.7$9.6 million whichand primarily related primarily to advances from funding
our long-term debt used to fund operations,operating activities, working
capital needs, and repurchases of our stock.

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 deterioration in our
business results could
cause our
availability to
fall below
minimum thresholds, thereby
requiring us
to maintain
the minimum
FCCR specified in
our credit
agreement, which
we may
not be
able to
maintain. Refer to Item 5. Other Information for
further information regarding our current 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, which we may not be able to maintain. Moreover, our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in our U.S. credit agreement, our fixed charge coverage ratio (FCCR) for the preceding 12-month period must not be less than 1.1 to 1.0. While our availability at December 2021 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.

Share Repurchase Program

During

The Company did not
purchase any shares under
our previously announced share
repurchase program in the December 2021
first quarter we purchased 74,232 shares of our common stock for $2.1 million (see Note N—Repurchasefiscal
2023. The total amount
repurchased
during the life of Common Stock). As
the program is $56.4 million.
At the end of December 2021, there was $5.4
the first quarter of
fiscal 2023, the Company had
$3.6 million of remaining repurchase authorization remainingcapacity under our Stock Repurchase Program.

its
existing authorization.
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 2021,2022, and
there have been no changes in those
policies since the filing of that Annual
Report on Form
10-K with the SEC, except as disclosed in Note C—New Accounting Standards related to the adoption of the cloud computing standard.

SEC.

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 Chief Financial Officer,
principal accounting
officer,
as
appropriate to allow timely decisions regarding required disclosure.

Our management, with the
participation of our Chief
Executive Officer and Chief Financial Officer,principal
accounting officer, has
evaluated the effectiveness of our
disclosure controls and
procedures as
of the
end of
period covered by
this quarterly
report ("the
Evaluation Date") and,
based on
their evaluation,
our Chief
Executive Officer
and Chief Financial Officerprincipal
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 2021
2022 quarter that have materially affected, or
are reasonably likely to materially affect,
our internal control over
financial
reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
See Note M—Legal Proceedings, in Part I, Item 1, which
is incorporated herein by reference.

Item 1A.

Risk Factors

Item 1A.
Risk Factors
None

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(c) Repurchases of Common Stock

See Note N—Repurchase of Common Stock, Part I, in Item
1, which is incorporated herein by reference.

Item 5.

Other Information

None

Item 6.

Exhibits

Exhibits

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

10.6.5Fifth
Item 5.
Other Information
10.6.6Sixth Amendment to Yarn Supply Agreement dated as of December 27, 2021, between Delta Apparel, Inc. and Parkdale Mills, LLC, and Parkdale America, LLC: Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 3, 2022. +
+Portions of this exhibit (indicated therein by asterisk) have been omitted for confidential treatment.

101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

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


SIGNATURES

Pursuant to the requirementsFifth 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), Salt Life,
LLC, and
DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the “Borrowers”) entered into a Ninth Amendment to the Fifth Amended and Restated Credit Agreement with Wells
Fargo Bank (the “Agent”) and the other lenders set forth therein
(“Ninth Amendment”). The Fifth Amended 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 10.1 to Delta Apparel’s Form 8-K filed with the
SEC on August 31, 2020. The Seventh Amendment
to the Amended Credit Agreement was filed as Exhibit
10.1 to Delta Apparel’s Form 8-K filed with the SEC on June 3, 2022.
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
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
19
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.
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.
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 10.2 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
Exhibits
10.1
10.2
10.3
31.1
31.2
32.1
32.2
101.INS
Inline XBRL Instance
Document - the
instance document does not
appear in the
Interactive Data File because
its XBRL tags
are embedded within
the
Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive Data File - (formatted as Inline XBRL
and contained in Exhibit 101)
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

February 8, 2022

By:

/s/Simone Walsh

Simone Walsh
Chief Financial Officer

16
DELTA
APPAREL, INC.
(Registrant)
Date
February 7, 2023
By:
/s/Nancy P. Bubanich
Nancy P. Bubanich
Chief Accounting Officer