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 For the quarterly period ended July 3, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) Georgia (State or Other Jurisdiction of Inco ...

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 For the quarterly period ended April 3, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) Georgia (State or Other Jurisdiction of Inc ...

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 For the quarterly period ended January 2, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) Georgia (State or Other Jurisdiction of I ...

Table of Contents SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended October 3, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) Georgia (State or other jurisdiction of incorporation or organization) 58-2508794 (I.R.S. Employer Ide ...

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) This section presents the company's financial statements and management's discussion and analysis of financial condition and results [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and key accounting notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing changes in assets, liabilities, and equity over the reporting period Condensed Consolidated Balance Sheets (in thousands) | Assets/Liabilities (in thousands) | June 27, 2020 | September 28, 2019 | |:----------------------------------|:--------------|:-------------------| | **Assets** | | | | Cash and cash equivalents | $14,520 | $605 | | Total current assets | $228,187 | $243,598 | | Total assets | $410,432 | $377,988 | | **Liabilities** | | | | Total current liabilities | $100,481 | $88,875 | | Total liabilities | $273,922 | $224,100 | | **Equity** | | | | Total equity | $136,510 | $153,888 | - Cash and cash equivalents significantly increased from **$0.605 million** in September 2019 to **$14.520 million** in June 2020[8](index=8&type=chunk) - Total assets increased by **$32.4 million**, from **$377.988 million** to **$410.432 million**, primarily due to the adoption of ASU 2016-02 (Leases) which introduced operating lease assets[8](index=8&type=chunk)[40](index=40&type=chunk)[85](index=85&type=chunk) - Total liabilities increased by **$49.8 million**, from **$224.100 million** to **$273.922 million**, also largely influenced by the adoption of ASU 2016-02, which recognized operating lease liabilities[8](index=8&type=chunk)[40](index=40&type=chunk) - Total equity decreased by **$17.378 million**, from **$153.888 million** to **$136.510 million**[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, presenting net sales, gross profit, operating income, and net earnings Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 27, 2020 | Three Months Ended June 29, 2019 | Nine Months Ended June 27, 2020 | Nine Months Ended June 29, 2019 | |:----------------------|:---------------------------------|:---------------------------------|:--------------------------------|:--------------------------------| | Net sales | $71,801 | $119,260 | $264,351 | $323,773 | | Gross profit | $2,982 | $24,790 | $43,458 | $62,268 | | Operating (loss) income | $(21,588) | $8,336 | $(15,396) | $11,071 | | Consolidated net (loss) earnings | $(17,844) | $4,837 | $(15,832) | $4,436 | | Net (loss) earnings attributable to shareholders | $(17,781) | $4,926 | $(15,546) | $4,719 | | Basic (loss) earnings per share | $(2.58) | $0.71 | $(2.24) | $0.68 | | Diluted (loss) earnings per share | $(2.58) | $0.70 | $(2.24) | $0.67 | - Net sales for the three months ended June 27, 2020, decreased by **39.8% YoY** to **$71.8 million**, and for the nine months, decreased by **18.3% YoY** to **$264.4 million**, primarily due to the COVID-19 pandemic[11](index=11&type=chunk)[121](index=121&type=chunk) - The company reported a significant operating loss of **$21.6 million** for the three months and **$15.4 million** for the nine months ended June 27, 2020, compared to operating income in the prior year periods, largely due to COVID-19 related expenses[11](index=11&type=chunk)[130](index=130&type=chunk) - Diluted EPS shifted from a profit of **$0.70** in the prior year quarter to a loss of **$2.58** for the three months ended June 27, 2020, and from a profit of **$0.67** to a loss of **$2.24** for the nine months[11](index=11&type=chunk)[135](index=135&type=chunk) [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) This section presents the company's total comprehensive income or loss, combining net earnings with other comprehensive income items Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric (in thousands) | Three Months Ended June 27, 2020 | Three Months Ended June 29, 2019 | Nine Months Ended June 27, 2020 | Nine Months Ended June 29, 2019 | |:----------------------|:---------------------------------|:---------------------------------|:--------------------------------|:--------------------------------| | Net (loss) earnings attributable to shareholders | $(17,781) | $4,926 | $(15,546) | $4,719 | | Other comprehensive income (loss) related to unrealized gain (loss) on derivatives, net of income tax | $3 | $(394) | $(461) | $(1,023) | | Consolidated comprehensive (loss) income | $(17,778) | $4,532 | $(16,007) | $3,696 | - Consolidated comprehensive (loss) income for the three months ended June 27, 2020, was a loss of **$17.778 million**, a significant decline from the **$4.532 million** income in the prior year, primarily driven by the net loss attributable to shareholders[13](index=13&type=chunk) - For the nine months ended June 27, 2020, consolidated comprehensive (loss) income was a loss of **$16.007 million**, compared to an income of **$3.696 million** in the prior year[13](index=13&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines the changes in the company's shareholders' equity, including common stock, retained earnings, and treasury stock Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Equity Component (in thousands) | Balance as of September 28, 2019 | Balance as of June 27, 2020 | |:--------------------------------|:---------------------------------|:----------------------------| | Common Stock | $96 | $96 | | Additional Paid-In Capital | $59,855 | $60,154 | | Retained Earnings | $136,937 | $121,390 | | Accumulated Other Comprehensive Loss | $(969) | $(1,430) | | Treasury Stock | $(41,750) | $(43,133) | | Equity attributable to non-controlling interest | $(281) | $(567) | | Total Equity | $153,888 | $136,510 | - Retained earnings decreased by **$15.547 million** from September 28, 2019, to June 27, 2020, primarily due to the net loss incurred[19](index=19&type=chunk)[22](index=22&type=chunk) - Treasury stock increased by **$1.383 million**, reflecting additional common stock repurchases during the period[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Total equity decreased by **$17.378 million**, from **$153.888 million** to **$136.510 million**, over the nine-month period[19](index=19&type=chunk)[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities, reflecting liquidity changes Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Nine Months Ended June 27, 2020 | Nine Months Ended June 29, 2019 | |:----------------------------------|:--------------------------------|:--------------------------------| | Net cash provided by (used in) operating activities | $21,991 | $(8,547) | | Net cash used in investing activities | $(6,686) | $(8,810) | | Net cash (used in) provided by financing activities | $(1,390) | $17,268 | | Net increase (decrease) in cash and cash equivalents | $13,915 | $(89) | | Cash and cash equivalents at end of period | $14,520 | $371 | - Operating activities provided **$22.0 million** in cash for the nine months ended June 27, 2020, a significant improvement from **$8.5 million** cash used in the prior year, driven by increased direct-to-consumer and DTG2Go sales, quicker cash collections, and reduced inventory levels due to manufacturing disruptions[28](index=28&type=chunk)[143](index=143&type=chunk) - Net cash used in financing activities was **$1.4 million** for the nine months ended June 27, 2020, a decrease from **$17.3 million** provided in the prior year, reflecting reduced debt proceeds and continued share repurchases[28](index=28&type=chunk)[147](index=147&type=chunk) - Cash and cash equivalents at the end of the period increased substantially to **$14.520 million** from **$0.371 million** in the prior year, indicating improved liquidity[28](index=28&type=chunk) [Note A—Basis of Presentation and Description of Business](index=8&type=section&id=Note%20A%E2%80%94Basis%20of%20Presentation%20and%20Description%20of%20Business) This note explains the basis of financial statement preparation and provides an overview of the company's vertically-integrated apparel business - The interim Condensed Consolidated Financial Statements are prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, omitting some GAAP information[30](index=30&type=chunk) - Operating results for the three and nine months ended June 27, 2020, are not indicative of the full fiscal year, with June quarter typically being the strongest, but impacted by the COVID-19 pandemic[31](index=31&type=chunk) - The Company incurred approximately **$23.1 million** of non-recurring expenses in the June quarter of fiscal year 2020 due to the COVID-19 pandemic[31](index=31&type=chunk) - Delta Apparel, Inc. is a vertically-integrated, international apparel company designing, manufacturing, sourcing, and marketing activewear and lifestyle apparel under brands like Salt Life®, COAST®, Soffe®, and Delta, with a strong presence in direct-to-garment digital print and fulfillment (DTG2Go)[32](index=32&type=chunk) - Over **90%** of apparel units sold are sewn in owned or leased facilities in the U.S., El Salvador, Honduras, and Mexico, allowing for consistency, efficiency, and quick market reaction[33](index=33&type=chunk) [Note B—Accounting Policies](index=9&type=section&id=Note%20B%E2%80%94Accounting%20Policies) This note confirms the consistency of the company's accounting policies with its annual report, considering new standards - The Company's accounting policies are consistent with those described in its Annual Report on Form 10-K for the fiscal year ended September 28, 2019, with consideration for recently issued accounting standards[36](index=36&type=chunk) [Note C—New Accounting Standards](index=9&type=section&id=Note%20C%E2%80%94New%20Accounting%20Standards) This note details the adoption and impact of new accounting standards, including ASU 2017-12, ASU 2017-04, and ASC 842 on the company's financials - The Company adopted ASU 2017-12 (Derivatives and Hedging) as of September 29, 2019, which did not have a material effect on its financial condition, results of operations, cash flows, or disclosures[37](index=37&type=chunk) - ASU 2017-04 (Goodwill Impairment) was early adopted as of September 29, 2019, simplifying the goodwill impairment test, also without a material effect on financial statements[38](index=38&type=chunk)[39](index=39&type=chunk) - ASC 842 (Leases) was adopted using the modified retrospective method as of September 29, 2019, resulting in the recognition of **$44.6 million** in total operating lease liabilities and **$43.8 million** in operating lease ROU assets, with no significant impact on credit facility covenants[40](index=40&type=chunk) - ASU 2018-15 (Cloud Computing Arrangement Costs) will be effective for the Company as of October 4, 2020, and its potential effect on financial statements is currently being evaluated[41](index=41&type=chunk) [Note D—Revenue Recognition](index=11&type=section&id=Note%20D%E2%80%94Revenue%20Recognition) This note outlines the company's revenue recognition policies and provides a breakdown of net sales by revenue stream and segment Revenue Stream (in thousands) | Revenue Stream (in thousands) | Three Months Ended June 27, 2020 | % of Total | Three Months Ended June 29, 2019 | % of Total | |:------------------------------|:---------------------------------|:-----------|:---------------------------------|:-----------| | Retail | $1,179 | 2% | $1,296 | 1% | | Direct-to-consumer ecommerce | $3,153 | 4% | $1,419 | 1% | | Wholesale | $67,469 | 94% | $116,545 | 98% | | Net sales | $71,801 | 100% | $119,260 | 100% | Segment Net Sales (in thousands) | Segment (in thousands) | Third Quarter Fiscal Year 2020 Net Sales | Retail % | Direct-to-consumer ecommerce % | Wholesale % | |:-----------------------|:-----------------------------------------|:---------|:-------------------------------|:------------| | Delta Group | $65,543 | 0.2% | 1.0% | 98.8% | | Salt Life Group | $6,258 | 17.0% | 40.4% | 42.6% | | Total | $71,801 | | | | - Wholesale remains the dominant revenue stream, accounting for **94%** of net sales in the three months ended June 27, 2020, though direct-to-consumer ecommerce significantly increased its percentage from **1%** to **4% YoY**[43](index=43&type=chunk) - For the Salt Life Group, direct-to-consumer ecommerce represented **40.4%** of its net sales in Q3 FY2020, a substantial increase from **9.1%** in Q3 FY2019, indicating a shift in consumer purchasing behavior[44](index=44&type=chunk) [Note E—Inventories](index=12&type=section&id=Note%20E%E2%80%94Inventories) This note details the composition of the company's inventories and explains the changes in raw materials, work in process, and finished goods Inventory Components (in thousands) | Inventory Component (in thousands) | June 27, 2020 | September 28, 2019 | |:-----------------------------------|:--------------|:-------------------| | Raw materials | $12,060 | $12,022 | | Work in process | $13,018 | $17,765 | | Finished goods | $132,937 | $149,320 | | Total Inventories, net | $158,015 | $179,107 | - Total inventories, net, decreased by **$21.092 million** from **$179.107 million** as of September 28, 2019, to **$158.015 million** as of June 27, 2020, primarily due to sales during the quarter and reduced production from COVID-19 related manufacturing plant curtailments[46](index=46&type=chunk)[137](index=137&type=chunk) - Inventory reserves increased from **$10.1 million** in September 2019 to **$15.0 million** in June 2020[46](index=46&type=chunk) [Note F—Debt](index=13&type=section&id=Note%20F%E2%80%94Debt) This note describes the company's debt structure, including credit facilities, amendments, and outstanding balances, along with related interest rates - The Amended Credit Agreement's borrowing capacity was increased from **$145 million** to **$170 million**, and the maturity date was extended from May 21, 2021, to November 19, 2024, with reduced pricing on borrowing components[49](index=49&type=chunk) - A Fifth Amendment to the Credit Agreement on April 27, 2020, temporarily lowered minimum availability thresholds and removed the Fixed Charge Coverage Ratio requirement through October 3, 2020, in response to COVID-19[50](index=50&type=chunk) - As of June 27, 2020, **$106.5 million** was outstanding under the U.S. revolving credit facility at an average interest rate of **2.9%**, with **$45.7 million** in cash on hand and credit facility availability[52](index=52&type=chunk) - Honduran debt includes a revolving credit facility and term loans, with monthly term loan payments paused during the June fiscal quarter due to COVID-19 and resumed in the September quarter[54](index=54&type=chunk)[55](index=55&type=chunk) [Note G—Leases](index=14&type=section&id=Note%20G%E2%80%94Leases) This note details the company's operating and finance lease arrangements, including right-of-use assets, liabilities, and lease expenses - The Company leases property and equipment under operating and finance lease arrangements, primarily for distribution centers and manufacturing facilities in the U.S., Honduras, El Salvador, and Mexico[57](index=57&type=chunk) - As of June 27, 2020, operating lease ROU assets were **$42.9 million** and finance lease ROU assets were **$24.5 million**[62](index=62&type=chunk) - The weighted average discount rate for operating leases was **4.2%** and for finance leases was **5.2%** as of June 27, 2020[58](index=58&type=chunk) - Total lease expense for the nine months ended June 27, 2020, was **$12.656 million**, including operating lease fixed expense (**$8.355 million**) and finance lease amortization (**$2.519 million**)[63](index=63&type=chunk) - During Q3 FY2020, the Company deferred approximately **$1.7 million** each of operating and finance lease payments in response to the COVID-19 pandemic[65](index=65&type=chunk) [Note H—Selling, General and Administrative Expense](index=15&type=section&id=Note%20H%E2%80%94Selling,%20General%20and%20Administrative%20Expense) This note provides a breakdown of selling, general, and administrative expenses, including distribution, personnel, and marketing costs - SG&A expenses include distribution costs, sales and administrative personnel costs, and advertising/marketing expenses[68](index=68&type=chunk) - Distribution costs within SG&A decreased to **$3.5 million** for the three months ended June 27, 2020, from **$4.5 million** in the prior year, but increased to **$13.2 million** for the nine months from **$12.9 million** in the prior year[68](index=68&type=chunk) [Note I—Stock-Based Compensation](index=15&type=section&id=Note%20I%E2%80%94Stock-Based%20Compensation) This note outlines the company's stock-based compensation plans, including the 2020 Stock Plan and the recognized compensation expense - Shareholders approved the Delta Apparel, Inc. 2020 Stock Plan on February 6, 2020, replacing the 2010 Stock Plan, to encourage stock ownership among executives, key employees, and directors[69](index=69&type=chunk)[70](index=70&type=chunk) - Stock-based compensation expense recognized was **$0.7 million** for the three months and **$2.1 million** for the nine months ended June 27, 2020, an increase from **$0.5 million** and **$1.8 million** respectively in the prior year periods[72](index=72&type=chunk) - As of June 27, 2020, **$4.5 million** of total unrecognized compensation cost related to unvested awards is expected to be recognized over **2.4 years**[76](index=76&type=chunk) [Note J—Purchase Contracts](index=16&type=section&id=Note%20J%E2%80%94Purchase%20Contracts) This note details the company's fixed-price purchase commitments for yarn, fabric, and finished products Purchase Contracts Minimum Payments (in thousands) | Contract Type (in thousands) | Minimum Payments as of June 27, 2020 | |:-----------------------------|:-------------------------------------| | Yarn | $31,824 | | Finished fabric | $2,772 | | Finished products | $6,362 | | Total | $40,958 | - The Company has fixed-price agreements to purchase yarn, finished fabric, and finished apparel/headwear products, with total minimum payments of **$40.958 million** as of June 27, 2020[77](index=77&type=chunk) [Note K—Business Segments](index=17&type=section&id=Note%20K%E2%80%94Business%20Segments) This note provides financial information for the company's two operating segments: Delta Group and Salt Life Group - The Company operates in two segments: Delta Group (core activewear, including Delta Activewear, Soffe, and DTG2Go) and Salt Life Group (lifestyle brands like Salt Life and Coast)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) Segment Net Sales (in thousands) | Segment (in thousands) | Three Months Ended June 27, 2020 Net Sales | Three Months Ended June 29, 2019 Net Sales | Nine Months Ended June 27, 2020 Net Sales | Nine Months Ended June 29, 2019 Net Sales | |:-----------------------|:-------------------------------------------|:-------------------------------------------|:------------------------------------------|:------------------------------------------| | Delta Group | $65,543 | $107,409 | $238,685 | $291,325 | | Salt Life Group | $6,258 | $11,851 | $25,666 | $32,448 | | Total net sales | $71,801 | $119,260 | $264,351 | $323,773 | Segment Operating (Loss) Income (in thousands) | Segment (in thousands) | Three Months Ended June 27, 2020 Operating (Loss) Income | Three Months Ended June 29, 2019 Operating Income | Nine Months Ended June 27, 2020 Operating (Loss) Income | Nine Months Ended June 29, 2019 Operating Income | |:-----------------------|:---------------------------------------------------------|:--------------------------------------------------|:--------------------------------------------------------|:-------------------------------------------------| | Delta Group | $(17,468) | $9,247 | $(5,133) | $15,392 | | Salt Life Group | $(628) | $2,597 | $175 | $5,609 |\ | Total segment operating (loss) income | $(18,096) | $11,844 | $(4,958) | $21,001 | - Delta Group's operating loss for the three months ended June 27, 2020, included **$23.1 million** of COVID-19 related expenses, primarily from manufacturing curtailment, production right-sizing, and increased reserves[83](index=83&type=chunk) - Salt Life Group's operating income for the three months ended June 29, 2019, included a **$1.3 million** gain from a litigation settlement[84](index=84&type=chunk) [Note L—Income Taxes](index=18&type=section&id=Note%20L%E2%80%94Income%20Taxes) This note discusses the impact of recent tax legislation and explains the company's effective income tax rate - The Tax Cuts and Jobs Act of 2017 (New Tax Legislation) and the CARES Act (enacted March 27, 2020) significantly revised U.S. corporate income tax laws, impacting GILTI, Section 163(j) interest limitation, and NOL carryforwards[86](index=86&type=chunk)[87](index=87&type=chunk) - The effective income tax rate for the nine-month period ended June 27, 2020, was **23.6%**, compared to **16.8%** in the prior year, influenced by changes in the mix of U.S. taxable income versus lower-tax foreign jurisdictions and limitations on deductions due to COVID-19[88](index=88&type=chunk) [Note M—Derivatives and Fair Value Measurements](index=19&type=section&id=Note%20M%E2%80%94Derivatives%20and%20Fair%20Value%20Measurements) This note details the company's use of interest rate swaps and fair value measurements for derivatives and contingent consideration - The Company uses interest rate swaps as cash flow hedges to manage interest rate exposure, with gains and losses reported in other comprehensive income and reclassified to interest expense[90](index=90&type=chunk) Derivative Fair Values (in thousands) | Derivative (in thousands) | Fair Value as of June 27, 2020 | Fair Value as of September 28, 2019 | |:--------------------------|:-------------------------------|:------------------------------------| | Interest Rate Swaps | $(1,911) | $(1,293) | | Contingent Consideration | $(6,781) | $(9,094) | - Interest rate swaps are measured at fair value using Level 2 inputs (discounted cash flow analysis), while contingent consideration is measured using Level 3 unobservable inputs (Monte Carlo model with projected results and discount rates)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - The fair value of contingent consideration for the DTG2Go acquisition was estimated at **$6.8 million** as of June 27, 2020, an increase of **$0.4 million** (excluding a **$2.5 million** payment) from September 28, 2019, due to changes in projections and discount rates[95](index=95&type=chunk) - No amount was accrued for contingent consideration related to the Salt Life acquisition as of June 27, 2020, as 2019 performance targets were not met[96](index=96&type=chunk) [Note N—Legal Proceedings](index=20&type=section&id=Note%20N%E2%80%94Legal%20Proceedings) This note describes the company's involvement in various legal claims and assesses their potential financial impact - The Company is party to various legal claims, actions, and complaints, but believes these should not have a material adverse effect on operations, financial condition, or liquidity due to legal defenses, insurance, and indemnification[97](index=97&type=chunk) [Note O—Repurchase of Common Stock](index=21&type=section&id=Note%20O%E2%80%94Repurchase%20of%20Common%20Stock) This note outlines the company's stock repurchase program, including shares repurchased and remaining authorization - The Board of Directors authorized a Stock Repurchase Program of up to **$60.0 million**[99](index=99&type=chunk) - Through June 27, 2020, the Company repurchased **3,598,933 shares** for an aggregate of **$52.5 million**, with **$7.5 million** remaining available under the program[100](index=100&type=chunk) - Share repurchases were temporarily suspended in March 2020 to preserve liquidity during the COVID-19 pandemic[100](index=100&type=chunk) [Note P—Goodwill and Intangible Assets](index=21&type=section&id=Note%20P%E2%80%94Goodwill%20and%20Intangible%20Assets) This note details the company's goodwill and other intangible assets, including their allocation, impairment evaluation, and amortization Intangible Assets Net Value (in thousands) | Intangible Asset (in thousands) | Net Value June 27, 2020 | Net Value September 28, 2019 | Economic Life | |:--------------------------------|:------------------------|:-----------------------------|:--------------| | Goodwill | $37,897 | $37,897 | N/A | | Tradename/trademarks | $12,405 | $12,812 | 20 – 30 yrs | | Customer relationships | $5,852 | $6,407 | 8 – 10 yrs | | Technology | $355 | $431 | 10 yrs | | License agreements | $1,393 | $1,470 | 15 – 30 yrs | | Non-compete agreements | $336 | $487 | 4 – 8.5 yrs | | Total intangibles | $20,341 | $21,607 | | - Goodwill of **$37.897 million** is allocated to the Salt Life (**$19.9 million**) and DTG2Go (**$18.0 million**) reporting units[101](index=101&type=chunk) - The annual goodwill impairment evaluation as of March 29, 2020, concluded no impairment, but future impairment is possible due to uncertainties regarding the COVID-19 pandemic's impact on sales, cash flows, and market conditions[102](index=102&type=chunk) - Amortization expense for intangible assets was **$0.4 million** for the three months and **$1.3 million** for the nine months ended June 27, 2020[103](index=103&type=chunk) [Note Q—Subsequent Events](index=21&type=section&id=Note%20Q%E2%80%94Subsequent%20Events) This note reports on any significant events that occurred subsequent to the reporting period - There were no subsequent events to report[105](index=105&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, condition, and strategic responses, highlighting COVID-19 impacts, liquidity, and capital resources [Cautionary Note Regarding Forward-Looking Statements](index=23&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially - The report contains forward-looking statements subject to business risks and inherent uncertainties, which could cause actual results to differ materially from expectations[106](index=106&type=chunk)[107](index=107&type=chunk) - Key risk factors include volatility of raw material prices, economic conditions, COVID-19 impact, competitive conditions, borrowing restrictions, customer/supplier financial health, consumer preferences, and operational disruptions[107](index=107&type=chunk) - The Company does not undertake to publicly update or revise forward-looking statements, except as required by federal securities laws[108](index=108&type=chunk) [Business Outlook](index=23&type=section&id=Business%20Outlook) This section discusses the company's performance outlook, highlighting COVID-19 impacts, sales trends, and strategic initiatives like DTG2Go expansion - Fiscal 2020 third-quarter results were significantly impacted by the COVID-19 pandemic, with net sales at approximately **60%** of the prior year, but showing sequential acceleration from April (**33%** of prior year) to June (nearly **90%** of prior year)[110](index=110&type=chunk) - Direct-to-consumer sales more than doubled compared to the prior year, with Salt Life ecommerce sales growing approximately **140%** and Soffe consumer site sales growing **80%**[111](index=111&type=chunk) - The DTG2Go business achieved record non-holiday performance with **32%** net sales growth for the quarter, including **38% YoY** growth in June, driven by its vertically-integrated digital print and fulfillment model[112](index=112&type=chunk) - The Company plans to open a new integrated digital print and distribution facility in Phoenix, Arizona, to expand DTG2Go's capacity and shipping reach, increasing its digital printer fleet by **10%**[113](index=113&type=chunk) - All manufacturing plants resumed production by the end of June, operating at reduced capacity with strict safety protocols[117](index=117&type=chunk) - Approximately **$23.1 million** of expenses were incurred in Q3 FY2020 due to COVID-19 impacts, with an anticipated **$3 million** in higher production expenses for the September quarter related to manufacturing start-up[118](index=118&type=chunk) - Liquidity improved during the quarter, with a nearly **50%** increase in cash on hand and credit facility availability by June compared to March levels[119](index=119&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section analyzes the company's financial results, including net sales, gross margins, operating income, and net earnings, with adjustments for COVID-19 impacts Results of Operations (in thousands, except percentages and per share) | Metric (in thousands) | Three Months Ended June 27, 2020 | Three Months Ended June 29, 2019 | Nine Months Ended June 27, 2020 | Nine Months Ended June 29, 2019 | |:----------------------|:---------------------------------|:---------------------------------|:--------------------------------|:--------------------------------| | Net sales | $71,801 | $119,260 | $264,351 | $323,773 | | Gross margins | 4.2% | 20.8% | 16.4% | 19.2% | | Adjusted gross margins (excl. COVID-19) | 21.6% | N/A | 21.9% | N/A | | SG&A expenses | $15,206 | $17,931 | $51,130 | $51,771 | | Operating (loss) income | $(21,588) | $8,336 | $(15,396) | $11,071 | | Net (loss) earnings attributable to shareholders | $(17,781) | $4,926 | $(15,546) | $4,719 | | Diluted (loss) earnings per share | $(2.58) | $0.70 | $(2.24) | $0.67 | - Gross margins for Q3 FY2020 were **4.2%**, significantly down from **20.8%** in the prior year, but would have been **21.6%** (an **80 basis point improvement**) when adjusted for **$12.6 million** of COVID-19 related expenses[125](index=125&type=chunk) - SG&A expenses decreased in absolute terms but increased as a percentage of sales (**21.2%** vs. **15.0% YoY**) due to fixed costs on a lower sales base; adjusted SG&A for Q3 FY2020 was **$12.8 million** or **17.7%** of net sales[128](index=128&type=chunk) - Operating loss for Q3 FY2020 was **$21.6 million**, compared to **$8.3 million** income in prior year; adjusted operating income was **$1.5 million** for the current quarter[130](index=130&type=chunk) - Net loss for Q3 FY2020 was **$17.8 million** (**$2.58** diluted EPS), with an adjusted net loss of **$0.1 million** (**$0.01** diluted EPS)[135](index=135&type=chunk) - Net inventory decreased by **$21.2 million** to **$158.0 million**, driven by sales and reduced production due to COVID-19 manufacturing curtailments[137](index=137&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures to provide additional insight into underlying performance, excluding discrete events like COVID-19 expenses Non-GAAP Financial Measures (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended June 27, 2020 | Three Months Ended June 29, 2019 | Nine Months Ended June 27, 2020 | Nine Months Ended June 29, 2019 | |:----------------------------------------|:---------------------------------|:---------------------------------|:--------------------------------|:--------------------------------| | Operating (loss)/income | $(21,588) | $8,336 | $(15,396) | $11,071 | | Adjustments for COVID-19 expenses | $23,100 | - | $25,000 | - | | Adjustments for litigation settlements | - | $(1,306) | - | $1,158 | | Adjusted operating (loss) income | $1,512 | $7,030 | $9,604 | $12,229 | | Net (loss) earnings attributable to shareholders | $(17,781) | $4,837 | $(15,546) | $4,719 | | Adjusted net (loss) earnings attributable to shareholders | $(59) | $4,184 | $3,634 | $5,583 | | Reported diluted (loss) earnings per share | $(2.58) | $0.70 | $(2.24) | $0.67 | | Adjusted diluted (loss) earnings per share | $(0.01) | $0.60 | $0.52 | $0.79 | - COVID-19 related expenses for Q3 FY2020 totaled **$23.1 million** pre-tax, impacting net sales, cost of goods sold, SG&A, and other loss (income), net[141](index=141&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity and capital resources, including cash flows from operations, investing, and financing activities, and debt management - Operating activities provided **$22.0 million** in cash for the first nine months of fiscal year 2020, a significant improvement from **$8.5 million** cash used in the prior year, due to increased direct-to-consumer/DTG2Go sales, quicker cash collections, and reduced inventory[143](index=143&type=chunk) - Capital expenditures were **$4.4 million** for the first nine months of fiscal year 2020, primarily for distribution expansion, retail stores, and printing equipment[144](index=144&type=chunk) - Cash used by financing activities was **$1.4 million** for the nine months ended June 27, 2020, compared to **$17.3 million** provided in the prior year, reflecting funding for operations, capital investments, and share repurchases[147](index=147&type=chunk) - The Company's credit facility, amended in April 2020, provides flexibility by lowering minimum availability thresholds and removing the FCCR requirement through October 3, 2020, but future deterioration could impact borrowing ability[149](index=149&type=chunk)[150](index=150&type=chunk) - Total debt net of cash, excluding capital leases, decreased to **$108.0 million** at June 27, 2020, from **$115.2 million** at fiscal year-end 2019[139](index=139&type=chunk) [Critical Accounting Policies](index=28&type=section&id=Critical%20Accounting%20Policies) This section identifies critical accounting policies involving significant estimates and judgments, such as revenue recognition and inventory reserves - Critical accounting policies involve significant estimates and judgments, including revenue recognition, accounts receivable and inventory reserves, goodwill carrying value, and income taxes[152](index=152&type=chunk) - No changes in critical accounting policies have occurred since the prior Annual Report on Form 10-K, except for the adoption of the new lease accounting standard (Note C)[153](index=153&type=chunk) [Environmental and Regulatory Matters](index=28&type=section&id=Environmental%20and%20Regulatory%20Matters) This section outlines the company's compliance with environmental laws and regulations, assessing potential impacts on operations and financial condition - The Company is subject to various federal, state, and local environmental laws and regulations concerning wastewater, storm water, air emissions, and solid waste disposal[155](index=155&type=chunk) - While environmental regulations are becoming more stringent, the Company does not currently expect compliance expenditures to have a material adverse effect on operations, financial condition, or liquidity[156](index=156&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information beyond the financial statements, including controls, legal matters, risk factors, and exhibits [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of June 27, 2020, and concluded they were effective[158](index=158&type=chunk) - There were no changes during the third quarter of fiscal year 2020 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[159](index=159&type=chunk) [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note N in Part I, Item 1 for details on legal proceedings, with no new significant changes reported - Legal proceedings information is incorporated by reference from Note N—Legal Proceedings in Part I, Item 1[160](index=160&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing the material adverse effects and uncertainties of the COVID-19 pandemic on operations, financial condition, and liquidity - The COVID-19 pandemic has had, and could continue to have, a material adverse effect on the Company's ability to operate, results of operations, financial condition, liquidity, and capital investments[163](index=163&type=chunk) - Preventive measures like shelter-in-place orders led to temporary closures of branded retail locations and manufacturing facilities in El Salvador, Honduras, and Mexico, though all manufacturing facilities were open as of June 27, 2020[163](index=163&type=chunk) - Challenges faced by customers and suppliers due to COVID-19 could lead to reduced demand, supply chain disruptions, and impaired ability of customers to pay, affecting cash flows and potentially incurring bad debt charges[164](index=164&type=chunk) - The extent of COVID-19's impact remains highly uncertain, depending on its duration, potential resurgence, and public/private actions, making long-term economic and near-term financial impacts difficult to quantify or estimate[165](index=165&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section refers to Note O in Part I, Item 1 for details on common stock repurchases, with no new unregistered sales - Information regarding repurchases of common stock is incorporated by reference from Note O—Repurchase of Common Stock in Part I, Item 1[166](index=166&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[167](index=167&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[167](index=167&type=chunk) - The filing includes Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, and Presentation Linkbase[168](index=168&type=chunk)[169](index=169&type=chunk) [Signatures](index=30&type=section&id=Signatures) This section contains the duly authorized signature of the registrant, Delta Apparel, Inc., by its Chief Financial Officer and President, Delta Group - The report is signed on behalf of Delta Apparel, Inc. by Deborah H. Merrill, Chief Financial Officer and President, Delta Group, on July 30, 2020[170](index=170&type=chunk)[171](index=171&type=chunk)

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 For the quarterly period ended March 28, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) GEORGIA (State or Other Jurisdiction of In ...

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 For the quarterly period ended December 28, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) 58-2508794 (I.R.S.Employer Identificati ...

Part I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Delta Apparel is a vertically-integrated international apparel company, manufacturing and marketing activewear and lifestyle brands across two segments [Overview](index=5&type=section&id=Overview) Delta Apparel is a vertically-integrated international apparel company with 8,500 employees, operating on a 52-53 week fiscal year - Delta Apparel, Inc. is a vertically-integrated, international apparel company with approximately **8,500 employees** worldwide, specializing in designing, manufacturing, sourcing, and marketing diverse activewear and lifestyle apparel products[19](index=19&type=chunk) - The company manufactures over **90% of its apparel units** in owned or leased facilities across the United States, El Salvador, Honduras, and Mexico, allowing for consistency, quality, and quick reaction to market trends[20](index=20&type=chunk) - Delta Apparel operates on a **52-53 week fiscal year** ending on the Saturday closest to September 30, and its common stock trades on the NYSE American under the symbol 'DLA'[22](index=22&type=chunk) [Segments, Products, Brands, and Customers](index=5&type=section&id=Segments%2C%20Products%2C%20Brands%2C%20and%20Customers) The company operates in Delta Group (activewear, digital print) and Salt Life Group (lifestyle brands) segments - The company manages its operations in **two segments**: Delta Group and Salt Life Group, reflecting how the business is managed and reviewed by the CEO[24](index=24&type=chunk) - The **Delta Group** focuses on core activewear styles, including Delta Activewear (catalog and FunTees private label), DTG2Go (direct-to-garment digital print and fulfillment), and Soffe (heritage activewear and military supplier)[25](index=25&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The **Salt Life Group** comprises lifestyle brands like Salt Life® and Coast, offering apparel, headwear, and accessories for ocean enthusiasts, expanding into swimwear, sunglasses, bags, and craft beer[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) [Manufacturing, Sourcing, and Distribution](index=8&type=section&id=Manufacturing%2C%20Sourcing%2C%20and%20Distribution) The company primarily manufactures internally, sources yarn from Parkdale Mills, and uses nine U.S. distribution facilities - The majority of products are manufactured or sewn in company-owned or leased facilities, with over **80% of fabrics and 90% of garments** produced internally in fiscal years 2019 and 2018[34](index=34&type=chunk)[36](index=36&type=chunk) - The company has a supply agreement with Parkdale Mills for yarn requirements through December 31, 2021, with yarn prices based on cotton costs plus a fixed conversion cost[35](index=35&type=chunk) - Distribution is supported by **nine strategically located facilities** across the U.S., offering same-day shipping for catalog products and weekly replenishments, with DTG2Go digital fulfillment services integrated into three Delta Group distribution centers[37](index=37&type=chunk)[38](index=38&type=chunk) [Sales & Marketing](index=8&type=section&id=Sales%20%26%20Marketing) Sales and marketing utilize diverse channels, serving approximately 9,000 customers with no single customer exceeding 10% of sales - Sales and marketing functions utilize both employed and independent representatives, servicing diverse channels including specialty shops, department stores, sporting goods, e-retailers, and the U.S. military[40](index=40&type=chunk) - In fiscal year 2019, the company shipped products to approximately **9,000 customers**, with **no single customer accounting for more than 10% of sales**, and foreign sales represented about **1% of consolidated net sales**[41](index=41&type=chunk) [Trademarks and License Agreements](index=8&type=section&id=Trademarks%20and%20License%20Agreements) The company owns key trademarks like Salt Life® and Soffe®, and Soffe is an official licensee for the U.S. military - The company owns several key trademarks, including **Salt Life®**, **Soffe®**, **COAST®**, Intensity Athletics®, Kudzu®, Pro Weight®, Magnum Weight®, and the Delta Design, which are vital for marketing and are vigorously protected[42](index=42&type=chunk) - The **Soffe business unit is an official licensee for branches of the United States military**, leveraging its military heritage[42](index=42&type=chunk) [Competition](index=10&type=section&id=Competition) The company faces intense competition from larger rivals, primarily on price, service, and brand recognition - The company faces numerous competitors, many larger with greater brand recognition and marketing budgets, in both domestic and international apparel markets[44](index=44&type=chunk) - Competition in the Delta Group segment is primarily based on price, service, delivery time, and quality, while the Salt Life Group competes on brand recognition, design, and consumer preference[45](index=45&type=chunk)[46](index=46&type=chunk) [Seasonality](index=10&type=section&id=Seasonality) Demand for products shows seasonality, with Q3 typically having the highest sales and Q1 the lowest - While product lines are sold year-round, demand for specific products shows seasonality, with the **third fiscal quarter (ending June) typically having the highest sales (27% of FY2019 net sales)** and the **first fiscal quarter (ending December) the lowest (24% of FY2019 net sales)**[47](index=47&type=chunk) [Employees and Social Responsibility](index=10&type=section&id=Employees%20and%20Social%20Responsibility) The company employs approximately 8,500 worldwide, with manufacturing facilities WRAP certified and FLA affiliated - As of September 28, 2019, the company employed approximately **8,500 full-time employees worldwide**, with **1,150 in the U.S.** and **3,150 in Honduras** covered by collective bargaining agreements[48](index=48&type=chunk) - All manufacturing facilities in Honduras, El Salvador, and Mexico are **Worldwide Responsible Accredited Production (WRAP) certified**, and the company is a Category C affiliate with the Fair Labor Association (FLA)[48](index=48&type=chunk) [Environmental and Regulatory Matters](index=10&type=section&id=Environmental%20and%20Regulatory%20Matters) The company is subject to stringent environmental regulations, incurring compliance costs without material adverse effects expected - The company is subject to increasingly stringent federal, state, and local environmental laws and regulations, incurring annual expenditures for compliance, but does not currently expect a material adverse effect on operations[49](index=49&type=chunk)[50](index=50&type=chunk) [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from raw material volatility, economic conditions, intense competition, operational disruptions, tax law changes, data security, and stock market illiquidity - The price and availability of cotton and other raw materials are subject to significant fluctuations and volatility, which can negatively impact gross margins if higher costs cannot be passed to customers[52](index=52&type=chunk)[54](index=54&type=chunk) - Economic conditions, including employment levels, energy costs, and consumer spending, can adversely impact demand for apparel, leading to reduced sales and potentially increased unit costs if manufacturing operations are scaled back[55](index=55&type=chunk) - The apparel industry is highly competitive, with many larger or more diversified competitors, requiring the company to compete on price, quality, service, and brand recognition, and adapt to changing consumer preferences and trends[56](index=56&type=chunk)[57](index=57&type=chunk)[61](index=61&type=chunk) - The company's ability to borrow under its revolving credit facility or service its indebtedness could be restricted by significant operating losses or cash uses, or deterioration in accounts receivable/inventory levels, potentially leading to default or acceleration of obligations[58](index=58&type=chunk) - Operations in Honduras, El Salvador, and Mexico are subject to political, social, economic, and climate risks, which could disrupt the supply chain, increase costs, and adversely affect financial results[64](index=64&type=chunk) - Changes in U.S. or other tax laws, such as the Tax Cuts and Jobs Act of 2017, could cause additional tax liability and impact the effective tax rate and cash flow, particularly due to foreign earnings and new taxes like GILTI[67](index=67&type=chunk)[68](index=68&type=chunk) - Compromises of data security, including unauthorized malware intrusions on e-commerce websites, could lead to liability, reputational damage, lost sales, and significant costs[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - The market price of the company's shares is affected by illiquidity and general stock market volatility, with substantial sales by large holders potentially adversely impacting the price[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Item 1B. Unresolved Staff Comment](index=19&type=section&id=Item%201B.%20Unresolved%20Staff%20Comment) There are no unresolved staff comments to report - No unresolved staff comments[92](index=92&type=chunk) [Item 2. Properties](index=20&type=section&id=Item%202.%20Properties) The company operates 37 properties, including 5 owned and 30 leased, supporting manufacturing, distribution, retail, and administration, with expansion plans Summary of Properties (as of September 28, 2019) | Category | Owned | Leased | Other | Total | | :---------------------- | :---- | :----- | :---- | :---- | | Manufacturing | 2 | 6 | — | 8 | | Distribution | 2 | 3 | 2 | 7 | | Decoration/distribution | 1 | 4 | — | 5 | | Retail stores/showroom | — | 12 | — | 12 | | Administrative | — | 5 | — | 5 | | **Total** | **5** | **30** | **2** | **37**| - In October 2019, operations moved to a company-leased facility in Dallas, TX, and new operations began in Columbus, OH. In Q1 FY2020, two additional digital decoration and distribution facilities opened in Cranberry, NJ, and Lewisville, TX, integrating DTG2Go with Delta Activewear distribution centers[94](index=94&type=chunk)[95](index=95&type=chunk) - Long-lived assets in Honduras, El Salvador, and Mexico collectively comprised approximately **32% of consolidated net property, plant, and equipment** at fiscal year-end 2019, down from 41% in 2018[97](index=97&type=chunk) [Item 3. Legal Proceedings](index=21&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently party to any material pending legal proceedings, nor is it aware of any such proceedings contemplated by governmental authorities - There are no material pending legal proceedings to which the company is a party or of which any property is subject, and no such proceedings are contemplated by any governmental authority[99](index=99&type=chunk) [Item 4. Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable[100](index=100&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) DLA common stock trades on NYSE American; no dividends paid in FY2019/2018; **$2.7 million** stock repurchased in FY2019 - The common stock of Delta Apparel, Inc. is listed and traded on the NYSE American under the symbol '**DLA**', with approximately **807 record holders** as of November 14, 2019[102](index=102&type=chunk) Common Stock High and Low Sales Prices (Fiscal Years 2019 & 2018) | Period | High Sale Price | Low Sale Price | | :---------------- | :-------------- | :------------- | | **Fiscal Year 2019:** ||| | September Quarter | $24.30 | $18.48 | | June Quarter | $24.47 | $21.00 | | March Quarter | $24.99 | $17.06 | | December Quarter | $19.98 | $16.11 | | **Fiscal Year 2018:** ||| | September Quarter | $19.49 | $16.30 | | June Quarter | $20.30 | $16.90 | | March Quarter | $22.10 | $17.04 | | December Quarter | $22.00 | $19.60 | - No dividends were declared or paid in fiscal years 2019 and 2018. Future cash dividends depend on earnings, financial condition, capital requirements, and compliance with loan covenants[104](index=104&type=chunk)[105](index=105&type=chunk) Common Stock Repurchases | Fiscal Year | Shares Repurchased | Total Cost (Millions) | | :---------- | :----------------- | :-------------------- | | 2019 | 141,501 | $2.7 | | 2018 | 463,974 | $9.0 | - As of September 28, 2019, **$9.5 million remained available** for future purchases under the Stock Repurchase Program, which has no expiration date[145](index=145&type=chunk) [Item 6. Selected Financial Data](index=22&type=section&id=Item%206.%20Selected%20Financial%20Data) As a smaller reporting company, the registrant is not required to provide selected financial data - As a smaller reporting company, the registrant is not required to provide selected financial data[107](index=107&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company achieved strong FY2019 sales growth and profitability, driven by segment expansion and strategic initiatives, despite gross margin pressures [Business Outlook](index=22&type=section&id=Business%20Outlook) The company projects continued growth for DTG2Go, Activewear, Soffe, and Salt Life brands, with strategic expansions - The company delivered **strong sales growth in fiscal year 2019** across both Delta Group and Salt Life Group segments, with expanding gross margins and solid profitability[108](index=108&type=chunk) - DTG2Go is positioned as an industry leader in digital print, with expanded capacity and new facilities integrating with Delta Apparel's distribution network, aiming for **20% compounded sales growth** and **double-digit operating margins in FY2020**[109](index=109&type=chunk) - The Activewear business plans to launch a full-service, vertical distributor model in January 2020, offering nationally recognized branded products, and expects continued growth in fashion basics and private label (FunTees) businesses[110](index=110&type=chunk) - Soffe brand showed two consecutive quarters of year-over-year improvement, with **strong double-digit net sales growth** in B2B and B2C e-commerce[111](index=111&type=chunk) - Salt Life experienced strong growth in FY2019, with a new e-commerce platform driving site traffic and conversion, and plans for continued product category expansion (e.g., women's shoes, accessories, swim line, Salt Life Lager)[112](index=112&type=chunk)[113](index=113&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) FY2019 net sales increased by **9.2%** to **$431.7 million**, with improved net earnings despite a gross margin decline Key Financial Highlights (Fiscal Years 2019 vs. 2018) | Metric | FY2019 (Millions) | FY2018 (Millions) | Change (%) | | :-------------------------------------- | :---------------- | :---------------- | :--------- | | Net Sales | $431.7 | $395.5 | +9.2% | | Delta Group Net Sales | $389.1 | $356.0 | +9.3% | | Salt Life Group Net Sales | $42.7 | $39.4 | +8.1% | | Overall Gross Margin | 19.7% | 20.7% | -1.0 pp | | Delta Group Gross Margin | 16.8% | 17.9% | -1.1 pp | | Salt Life Group Gross Margin | 46.7% | 46.7% | 0.0 pp | | SG&A Expenses (% of Sales) | 16.3% | 16.9% | -0.6 pp | | Operating Income | $15.9 | $17.4 | -8.6% | | Delta Group Operating Income | $23.8 | $26.1 | -8.8% | | Salt Life Group Operating Income | $6.2 | $4.7 | +31.9% | | Interest Expense | $7.6 | $5.7 | +33.3% | | Effective Income Tax Rate | 5.5% | 89.5% | -84.0 pp | | Net Earnings Attributable to Shareholders | $8.2 | $1.3 | +530.8% | | Diluted EPS | $1.17 | $0.18 | +550.0% | - Direct-to-consumer and business-to-business e-commerce and retail sales increased their share of consolidated revenue to **8.1% in FY2019** from 7.6% in FY2018[115](index=115&type=chunk) - Gross margin decline in FY2019 was primarily due to higher raw material prices, inflationary cost increases, product changes in FunTees, and acquisition/integration costs in the first half, partially offset by improved selling prices and favorable product mix[118](index=118&type=chunk) - Other income in FY2019 included a **$1.3 million gain** from a commercial litigation settlement (BP Deepwater Horizon) and a **$2.5 million expense** from The Sports Authority bankruptcy litigation, along with a net **$0.8 million reduction** in contingent consideration estimates[122](index=122&type=chunk) [Non-GAAP Financial Measures](index=25&type=section&id=Non-GAAP%20Financial%20Measures) The company provides adjusted net earnings and EPS as non-GAAP measures, excluding tax legislation and litigation impacts - The company provides non-GAAP measures, specifically **adjusted net earnings and EPS**, to offer additional insight into underlying performance, excluding the impact of tax legislation and litigation settlements[130](index=130&type=chunk) Adjusted Net Earnings and Diluted EPS (Thousands, except per share data) | Metric | FY2019 | FY2018 | | :------------------------------------------------------------------ | :---------- | :---------- | | Net earnings attributable to shareholders | $8,242 | $1,337 | | Adjustment for tax legislation impact | — | $10,664 | | Adjustment for commercial litigation settlement, net of tax | $(698) | — | | Adjustment for The Sports Authority litigation settlement, net of tax | $2,168 | — | | **Adjusted earnings attributable to shareholders** | **$9,712** | **$12,001** | | Reported diluted earnings per share | $1.17 | $0.18 | | Adjustment for tax legislation impact | — | $1.44 | | Adjustment for commercial litigation settlement, net of tax | $(0.10) | — | | Adjustment for The Sports Authority litigation settlement, net of tax | $0.31 | — | | **Adjusted diluted earnings per share** | **$1.38** | **$1.62** | [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flows decreased in FY2019, with planned capital expenditures for expansion, supported by a credit facility Cash Flow Summary (Thousands) | Activity | FY2019 | FY2018 | | :------------------------ | :---------- | :---------- | | Operating Cash Flows | $9,428 | $21,238 | | Investing Cash Flows | $(11,457) | $(14,946) | | Financing Activities | $2,174 | $(6,404) |\n| Net Change in Cash | $145 | $(112) | | Cash at End of Period | $605 | $460 | - The decrease in operating cash flows in FY2019 was due to an increase in accounts receivable from sales growth and increased inventory positions to better service customers[132](index=132&type=chunk) - Capital expenditures were **$6.1 million in FY2019** and **$5.8 million in FY2018**, primarily for machinery, equipment, and digital print business investments. Approximately **$25 million to $28 million is expected for capital expenditures in FY2020**, including **$12 million for the Clinton, TN distribution center expansion**[133](index=133&type=chunk)[135](index=135&type=chunk) - The company's credit facility is expected to be sufficient for working capital, debt payments, and planned capital expenditures, with **$16.1 million of retained earnings** free of restrictions for cash dividends or stock repurchases as of September 28, 2019[138](index=138&type=chunk)[143](index=143&type=chunk) - The company uses cotton option contracts to economically hedge raw material price fluctuations, with realized gains/losses recorded in cost of goods sold. Interest rate swap agreements are used to manage interest rate exposure, with changes in fair value recognized in accumulated other comprehensive income (AOCI)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) Key accounting estimates include revenue recognition, accounts receivable, inventory, goodwill, and income taxes, with new lease accounting upcoming - Critical accounting estimates include revenue recognition (discounts, allowances, returns), accounts receivable and related reserves, inventory and related reserves, the carrying value of goodwill, and accounting for income taxes[146](index=146&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically upon delivery of products to customers in retail stores, shipment from e-commerce sites, or shipment from distribution centers for wholesale operations[148](index=148&type=chunk) - Goodwill is tested for impairment annually or more frequently if circumstances indicate impairment, using a discounted cash flow methodology with significant assumptions and estimates[154](index=154&type=chunk) - Income taxes are accounted for under the liability method, recognizing deferred tax assets and liabilities for temporary differences and operating loss carryforwards, with a valuation allowance established for state NOLs[156](index=156&type=chunk)[157](index=157&type=chunk) - The company adopted ASC 606 (Revenue from Contracts with Customers) effective October 1, 2018, with no material effect on net sales, but impacting the balance sheet by recording customer refunds as a liability[280](index=280&type=chunk)[281](index=281&type=chunk) - Upcoming accounting pronouncements include **ASC 842 (Leases)**, effective FY2020, which is expected to materially impact consolidated balance sheets by recognizing operating lease assets and liabilities, and **ASU 2017-04 (Goodwill Impairment)**, effective FY2021, which simplifies the impairment test[283](index=283&type=chunk)[284](index=284&type=chunk)[286](index=286&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Delta Apparel, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[159](index=159&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=29&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section lists financial statements and supplementary data, including Consolidated Balance Sheets, Statements of Operations, and various exhibits - Consolidated Financial Statements for fiscal years ended September 28, 2019, and September 29, 2018, and the Reports of Independent Registered Public Accounting Firms are included in the report[160](index=160&type=chunk) [Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=29&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There are no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[161](index=161&type=chunk) [Item 9A. Controls and Procedures](index=29&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of September 28, 2019 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were **effective as of September 28, 2019**[162](index=162&type=chunk) - Management assessed and concluded that the company's internal control over financial reporting was **effective as of September 28, 2019**, based on the COSO (2013 Framework) criteria[165](index=165&type=chunk) - Ernst & Young LLP, the independent registered public accounting firm, audited and issued an **unqualified opinion** on the effectiveness of the company's internal controls over financial reporting as of September 28, 2019[166](index=166&type=chunk)[170](index=170&type=chunk) - There were no material changes in internal control over financial reporting during the fourth quarter of fiscal year 2019[167](index=167&type=chunk) [Item 9B. Other Information](index=32&type=section&id=Item%209B.%20Other%20Information) The company amended its credit agreement, increasing borrowing capacity to **$170.0 million** and extending maturity to November 2024 - On November 19, 2019, the company entered into a Fourth Amendment to its Fifth Amended and Restated Credit Agreement[178](index=178&type=chunk) - The Fourth Amendment increased borrowing capacity from **$145.0 million to $170.0 million**, extended the maturity date from May 10, 2021, to **November 19, 2024**, and reduced pricing on revolver and FILO borrowing components by **25 basis points**[180](index=180&type=chunk) - The amendment also added **25% of the fair market value of eligible intellectual property** to the borrowing base and modified the Fixed Charge Coverage Ratio to exclude up to **$10 million in capital expenditures** for the Clinton, TN distribution facility expansion[180](index=180&type=chunk) Part III [Item 10. Directors, Executive Offices and Corporate Governance](index=32&type=section&id=Item%2010.%20Directors%2C%20Executive%20Offices%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the definitive Proxy Statement[184](index=184&type=chunk) - The company has an Ethics Policy Statement, available on its website, which applies to all employees, including the CEO and CFO, ensuring legal and ethical business conduct[184](index=184&type=chunk) [Item 11. Executive Compensation](index=32&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the definitive Proxy Statement - Information on Executive Compensation is incorporated by reference from the definitive Proxy Statement[185](index=185&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=32&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and equity compensation plan details are incorporated by reference, with **283,500** securities issuable under the 2010 Stock Plan - Information on security ownership and equity compensation plans is incorporated by reference from the definitive Proxy Statement[185](index=185&type=chunk) - The Delta Apparel, Inc. **2010 Stock Plan**, re-approved in 2015, allows for various equity incentive compensation awards and limits the aggregate number of shares that may be delivered to **500,000** plus forfeited shares from prior plans[185](index=185&type=chunk)[186](index=186&type=chunk) Securities Issuable Under Equity Compensation Plans (as of September 28, 2019) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance (c) | | :----------------------------------------------- | :-------------------------------------------------------------------------------- | :-------------------------------------------------------------- | :--------------------------------------------------------------- | | Equity compensation plans approved by security holders | 283,500 | $19.78 | 538,464 | | Equity compensation plans not approved by security holders | — | $— | — | | **Total** | **283,500** | **$19.78** | **538,464** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=34&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the definitive Proxy Statement[192](index=192&type=chunk) [Item 14. Principal Accountant Fees and Services](index=34&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the definitive Proxy Statement - Information on Principal Accountant Fees and Services is incorporated by reference from the definitive Proxy Statement[193](index=193&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=34&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and supplementary data, including Consolidated Balance Sheets, Statements of Operations, and various exhibits - The section includes the Report of Independent Registered Public Accounting Firms, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows, along with Notes to Consolidated Financial Statements[195](index=195&type=chunk) - A detailed listing of exhibits, including various agreements (e.g., Asset Purchase, Credit, Employment, Yarn Supply) and corporate documents (e.g., Articles of Incorporation, Bylaws), is provided, with many incorporated by reference from previous SEC filings[197](index=197&type=chunk)[198](index=198&type=chunk) [Item 16. Form 10-K Summary](index=38&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K Summary is provided in this report - No Form 10-K Summary is provided[202](index=202&type=chunk) [Signatures](index=39&type=section&id=Signatures) This section contains the required signatures of the registrant's authorized officers and directors, certifying the filing of the report as of November 21, 2019 - The report is duly signed on behalf of Delta Apparel, Inc. by Deborah H. Merrill, Chief Financial Officer and President, Delta Group, as of November 21, 2019[204](index=204&type=chunk) - Signatures of the Chairman and Chief Executive Officer, Robert W. Humphreys, and various directors are also included, all dated November 21, 2019[206](index=206&type=chunk) [Index to Consolidated Financial Statements](index=40&type=section&id=Index%20to%20Consolidated%20Financial%20Statements) This index lists Consolidated Financial Statements and Notes, covering balance sheets, operations, equity, cash flows, and key accounting policies - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Shareholders' Equity, and Cash Flows[208](index=208&type=chunk) - Detailed Notes to Consolidated Financial Statements are provided, covering significant accounting policies, acquisitions, inventories, property, plant and equipment, goodwill and intangible assets, accrued expenses, long-term debt, income taxes, leases, employee benefit plans, stock-based compensation, business segments, repurchase of common stock, commitments and contingencies, and subsequent events[208](index=208&type=chunk) [Report of Independent Registered Public Accounting Firm](index=41&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and internal controls for Delta Apparel - Ernst & Young LLP issued an **unqualified opinion** on the consolidated financial statements of Delta Apparel, Inc. and Subsidiaries for the periods ended September 28, 2019, and September 29, 2018[210](index=210&type=chunk) - The audit was conducted in accordance with PCAOB standards, confirming that the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with U.S. GAAP[210](index=210&type=chunk)[213](index=213&type=chunk) - Ernst & Young LLP also audited the company's internal control over financial reporting and expressed an **unqualified opinion** thereon[211](index=211&type=chunk) Consolidated Financial Statements [Consolidated Balance Sheets](index=42&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$377.988 million** in 2019, with liabilities rising to **$224.100 million**, and equity reaching **$153.888 million** Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | September 28, 2019 | September 29, 2018 | | :-------------------------------------- | :----------------- | :----------------- | | Cash and cash equivalents | $605 | $460 | | Accounts receivable, net | $59,337 | $45,605 | | Inventories, net | $179,107 | $174,983 | | Total current assets | $243,598 | $225,422 | | Property, plant and equipment, net | $61,404 | $52,114 | | Goodwill | $37,897 | $33,217 | | Intangible assets, net | $21,607 | $20,498 | | Total assets | $377,988 | $343,609 | | Accounts payable | $52,320 | $48,008 | | Accrued expenses | $20,791 | $16,742 | | Total current liabilities | $88,875 | $75,811 | | Long-term debt, less current maturities | $109,296 | $92,083 | | Total liabilities | $224,100 | $193,491 | | Total equity | $153,888 | $150,118 | - Total assets increased by **$34.379 million (10.0%)** from **$343.609 million in 2018 to $377.988 million in 2019**[218](index=218&type=chunk) - Total liabilities increased by **$30.609 million (15.8%)** from **$193.491 million in 2018 to $224.100 million in 2019**[218](index=218&type=chunk) [Consolidated Statements of Operations](index=43&type=section&id=Consolidated%20Statements%20of%20Operations) Net sales increased by **9.2%** to **$431.730 million** in FY2019, with net earnings significantly improving to **$8.242 million** due to lower taxes Consolidated Statements of Operations Highlights (Amounts in thousands, except per share data) | Metric | FY2019 | FY2018 | | :-------------------------------------- | :---------- | :---------- | | Net sales | $431,730 | $395,450 | | Cost of goods sold | $346,578 | $313,429 | | Gross profit | $85,152 | $82,021 | | Selling, general and administrative expenses | $70,220 | $66,969 | | Other income, net | $(963) | $(2,351) | | Operating income | $15,895 | $17,403 | | Interest expense | $7,550 | $5,713 | | Earnings before provision for income taxes | $8,345 | $11,690 | | Provision for income taxes | $477 | $10,460 | | Consolidated net earnings | $7,868 | $1,230 | | Net earnings attributable to shareholders | $8,242 | $1,337 | | Basic earnings per share | $1.19 | $0.19 | | Diluted earnings per share | $1.17 | $0.18 | - Net sales increased by **$36.280 million (9.2%)** from **$395.450 million in 2018 to $431.730 million in 2019**[223](index=223&type=chunk) - Net earnings attributable to shareholders increased by **$6.905 million (516.4%)** from **$1.337 million in 2018 to $8.242 million in 2019**, primarily due to a significantly lower income tax provision in 2019[223](index=223&type=chunk) [Consolidated Statements of Comprehensive Income](index=44&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Net earnings were **$8.242 million** in FY2019, but a **$1.105 million** loss on derivatives resulted in **$7.137 million** consolidated comprehensive income Consolidated Statements of Comprehensive Income Highlights (Amounts in thousands) | Metric | FY2019 | FY2018 | | :------------------------------------------------------------------ | :---------- | :---------- | | Net earnings attributable to shareholders | $8,242 | $1,337 | | Other comprehensive (loss) income related to unrealized (loss) gain on derivatives, net of income tax | $(1,105) | $171 | | **Consolidated comprehensive income** | **$7,137** | **$1,508** | - Other comprehensive income shifted from a gain of **$171 thousand in 2018 to a loss of $1.105 million in 2019**, primarily due to unrealized losses on derivatives[225](index=225&type=chunk) [Consolidated Statements of Shareholders' Equity](index=45&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Total equity increased to **$153.888 million** in 2019, driven by net earnings and stock-based compensation, despite repurchases Consolidated Statements of Shareholders' Equity Highlights (Amounts in thousands) | Metric | September 28, 2019 | September 29, 2018 | | :-------------------------------------- | :----------------- | :----------------- | | Common Stock | $96 | $96 | | Additional Paid-In Capital | $59,855 | $61,979 | | Retained Earnings | $136,937 | $128,695 | | Accumulated Other Comprehensive (Loss) Income | $(969) | $136 | | Treasury Stock | $(41,750) | $(40,881) | | Equity attributable to non–controlling interest | $(281) | $93 | | **Total Equity** | **$153,888** | **$150,118** | - Net earnings contributed **$8.242 million** to retained earnings in 2019, while treasury stock repurchases amounted to **$2.736 million**[228](index=228&type=chunk) - Accumulated other comprehensive income shifted to a **loss of $969 thousand in 2019** from a gain of $136 thousand in 2018[228](index=228&type=chunk) [Consolidated Statements of Cash Flows](index=46&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by **$145 thousand** in FY2019, with operating cash flow decreasing to **$9.428 million** due to receivables and inventory Consolidated Statements of Cash Flows Highlights (Amounts in thousands) | Activity | FY2019 | FY2018 | | :-------------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $9,428 | $21,238 | | Net cash used in investing activities | $(11,457) | $(14,946) | | Net cash provided by (used in) financing activities | $2,174 | $(6,404) | | Net increase (decrease) in cash and cash equivalents | $145 | $(112) | | Cash and cash equivalents at end of period | $605 | $460 | | Cash paid for interest | $7,064 | $5,052 | | Cash paid for income taxes, net | $890 | $260 | - Operating cash flow decreased significantly in 2019 due to increases in accounts receivable and inventories[230](index=230&type=chunk) - Investing activities included **$6.063 million in purchases of property and equipment** in 2019, and **$5.424 million cash paid for business acquisitions**[230](index=230&type=chunk) - Financing activities in 2019 included **$452.055 million in proceeds from long-term debt** and **$440.130 million in repayments**, along with **$2.736 million for common stock repurchases**[230](index=230&type=chunk) Notes to Consolidated Financial Statements [Note 1—The Company](index=47&type=section&id=Note%201%E2%80%94The%20Company) Delta Apparel is a vertically-integrated international apparel company, a leader in digital print, with manufacturing in the U.S. and Central America - Delta Apparel, Inc. is a vertically-integrated, international apparel company with approximately **8,500 employees**, designing, manufacturing, sourcing, and marketing a diverse portfolio of activewear and lifestyle apparel[232](index=232&type=chunk) - The company is a market leader in direct-to-garment digital print and fulfillment (DTG2Go) and sells products through various channels, including outdoor/sporting goods retailers, specialty stores, department stores, mass merchants, e-retailers, the U.S. military, and direct-to-consumer websites and stores[232](index=232&type=chunk) - The majority of products are internally manufactured in facilities located in the United States, El Salvador, Honduras, and Mexico, with distribution facilities strategically located throughout the U.S. for efficient customer service[233](index=233&type=chunk) [Note 2—Significant Accounting Policies](index=47&type=section&id=Note%202%E2%80%94Significant%20Accounting%20Policies) This note details significant accounting policies, including revenue recognition, goodwill, income taxes, and the upcoming adoption of ASC 842 (Leases) - Consolidated financial statements are prepared in conformity with GAAP and include Delta Apparel and its wholly-owned subsidiaries, as well as majority-owned Salt Life Beverage, LLC, with intercompany accounts eliminated[234](index=234&type=chunk) - The company operates in **two distinct segments**: Delta Group and Salt Life Group, which are similar in production but distinct in economic characteristics, products, marketing, and distribution[235](index=235&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically upon delivery or shipment of products, and is recorded net of discounts, allowances, and operational chargebacks[250](index=250&type=chunk)[252](index=252&type=chunk) Net Sales by Distribution Channel (Thousands) | Distribution Channel | FY2019 ($) | FY2019 (%) | FY2018 ($) | FY2018 (%) | | :------------------------ | :--------- | :--------- | :--------- | :--------- | | Retail | $4,396 | 1% | $3,560 | 1% | | Direct-to-consumer ecommerce | $5,526 | 1% | $5,339 | 1% | | Wholesale | $421,808 | 98% | $386,551 | 98% | | **Net Sales** | **$431,730** | **100%** | **$395,450** | **100%** | - The company adopted **ASC 606 (Revenue from Contracts with Customers)** effective October 1, 2018, using the modified retrospective method, which did not materially affect net sales but changed the recording of customer refunds as a liability[280](index=280&type=chunk)[281](index=281&type=chunk) - **ASC 842 (Leases)** will be adopted in FY2020 and is expected to materially impact consolidated balance sheets by recognizing operating lease assets and liabilities, while **ASU 2017-04 (Goodwill Impairment)** will be effective in FY2021[283](index=283&type=chunk)[284](index=284&type=chunk)[286](index=286&type=chunk) [Note 3—Acquisitions](index=55&type=section&id=Note%203%E2%80%94Acquisitions) DTG2Go, LLC acquired Silk Screen Ink, Ltd. (SSI) for **$12.729 million** in October 2018, recognizing goodwill and intangible assets - On October 8, 2018, DTG2Go, LLC acquired substantially all assets of Silk Screen Ink, Ltd. (SSI), a direct-to-garment digital print provider[288](index=288&type=chunk) SSI Acquisition Purchase Price (Thousands) | Component | Amount ($) | | :------------------------- | :--------- | | Cash | $2,000 | | Promissory note | $7,000 | | Capital lease financing | $3,000 | | Net working capital adjustment | $729 | | **Total consideration** | **$12,729**| SSI Acquisition Allocation of Consideration (Thousands) | Asset/Liability | Allocation as of October 8, 2018 | Measurement Period Adjustments | Allocation as of September 28, 2019 | | :----------------------- | :------------------------------- | :----------------------------- | :-------------------------------- | | Accounts receivable | $1,184 | — | $1,184 | | Inventory | $1,127 | — | $1,127 | | Other current assets | $86 | — | $86 | | Fixed assets | $3,400 | — | $3,400 | | Goodwill | $3,380 | $1,300 | $4,680 | | Intangible assets | $4,020 | $(1,100) | $2,920 | | Accounts payable | $(668) | — | $(668) | | **Consideration paid** | **$12,529** | **$200** | **$12,729** | [Note 4—Inventories](index=56&type=section&id=Note%204%E2%80%94Inventories) Total inventories, net of reserves, increased to **$179.107 million** in 2019, primarily driven by finished goods Inventories, Net (Thousands) | Category | September 28, 2019 | September 29, 2018 | | :---------------- | :----------------- | :----------------- | | Raw materials | $12,022 | $9,641 | | Work in process | $17,765 | $18,327 | | Finished goods | $149,320 | $147,015 | | **Total** | **$179,107** | **$174,983** | - Inventories are net of reserves of **$10.0 million in 2019** and **$10.5 million in 2018**[292](index=292&type=chunk) [Note 5—Property, Plant and Equipment](index=56&type=section&id=Note%205%E2%80%94Property%2C%20Plant%20and%20Equipment) Net property, plant and equipment increased to **$61.404 million** in FY2019, driven by machinery and construction in progress Property, Plant and Equipment (Thousands) | Category | Estimated Useful Life (in years) | September 28, 2019 | September 29, 2018 | | :--------------------------- | :------------------------------- | :----------------- | :----------------- | | Land and land improvements | 25 | $569 | $569 | | Buildings | 20 | $3,715 | $3,096 | | Machinery and equipment | 10 | $99,962 | $90,565 | | Computers and software | 3-10 | $21,065 | $20,724 | | Furniture and fixtures | 7 | $3,650 | $3,073 | | Leasehold improvements | 3-10 | $5,790 | $5,702 | | Vehicles and related equipment | 5 | $587 | $754 | | Construction in progress | N/A | $7,873 | $1,649 | | Less accumulated depreciation and amortization | | $(81,807) | $(74,018) | | **Total, net** | | **$61,404** | **$52,114** | - The acquisition cost of machinery and equipment acquired under capital leases increased to **$28.0 million in 2019** from $16.6 million in 2018[293](index=293&type=chunk) [Note 6—Goodwill and Intangible Assets](index=56&type=section&id=Note%206%E2%80%94Goodwill%20and%20Intangible%20Assets) Goodwill totaled **$37.897 million** and intangible assets **$21.607 million** in 2019, with **$1.8 million** amortization expense Goodwill and Intangible Assets (Thousands) | Category | Cost (2019) | Accumulated Amortization (2019) | Net Value (2019) | Cost (2018) | Accumulated Amortization (2018) | Net Value (2018) | Economic Life (yrs) | | :----------------------- | :---------- | :------------------------------ | :--------------- | :---------- | :------------------------------ | :--------------- | :------------------ | | Goodwill | $37,897 | $— | $37,897 | $33,217 | $— | $33,217 | N/A | | **Intangibles:** | | | | | | | | | Tradename/trademarks | $16,090 | $(3,278) | $12,812 | $16,090 | $(2,736) | $13,354 | 20 - 30 | | Customer relationships | $7,400 | $(993) | $6,407 | $4,500 | $(253) | $4,247 | 20 | | Technology | $1,720 | $(1,289) | $431 | $1,720 | $(1,105) | $615 | 10 | | License Agreements | $2,100 | $(630) | $1,470 | $2,100 | $(527) | $1,573 | 15 - 30 | | Non-compete agreements | $1,657 | $(1,170) | $487 | $1,637 | $(928) | $709 | 4 – 8.5 | | **Total intangibles** | **$28,967** | **$(7,360)** | **$21,607** | **$26,047** | **$(5,549)** | **$20,498** | | - Goodwill increased to **$37.897 million in 2019** from $33.217 million in 2018, with the Delta Group segment including **$18.0 million** and the Salt Life Group segment including **$19.9 million**[296](index=296&type=chunk) - Amortization expense for intangible assets was **$1.8 million in 2019** and $1.3 million in 2018. Estimated amortization expense is approximately **$1.7 million for FY2020**[297](index=297&type=chunk) [Note 7—Accrued Expenses](index=58&type=section&id=Note%207%E2%80%94Accrued%20Expenses) Accrued expenses increased to **$20.791 million** in FY2019, driven by employee compensation and refund liabilities Accrued Expenses (Thousands) | Category | September 28, 2019 | September 29, 2018 | | :------------------------------------- | :----------------- | :----------------- | | Accrued employee compensation and benefits | $13,388 | $11,138 | | Taxes accrued and withheld | $1,160 | $882 | | Refund liabilities | $1,047 | $— | | Accrued freight | $969 | $1,023 | | Income taxes payable | $379 | $— | | Other | $3,848 | $3,699 | | **Total** | **$20,791** | **$16,742** | - Refund liabilities of **$1.047 million** were recognized in 2019, reflecting the adoption of ASC 606[298](index=298&type=chunk) [Note 8—Long-Term Debt](index=58&type=section&id=Note%208%E2%80%94Long-Term%20Debt) Long-term debt increased to **$109.296 million** in FY2019, with the credit facility amended post-year-end to **$170.0 million** capacity Long-Term Debt (Thousands) | Debt Type | September 28, 2019 | September 29, 2018 | | :---------------------------------------------------------------------- | :----------------- | :----------------- | | Revolving U.S. credit facility | $101,957 | $85,746 | | Revolving credit facility with Banco Ficohsa (Honduras) | $5,000 | $4,958 | | Term loan with Banco Ficohsa (Honduras) - Nov 2014-Dec 2020 | $800 | $1,400 | | Term loan with Banco Ficohsa (Honduras) - June 2016-Apr 2022 | $776 | $1,067 | | Term loan with Banco Ficohsa (Honduras) - Oct 2017-Sep 2021 | $1,953 | $3,018 | | Salt Life acquisition promissory note | $— | $2,471 | | DTG2Go, LLC acquisition promissory note | $5,250 | $— | | Salt Life Beverage, LLC promissory note | $100 | $— | | **Total Debt** | **$115,836** | **$98,660** | | Less current portion of long-term debt | $(6,540) | $(6,577) | | **Long-term debt, excluding current maturities** | **$109,296** | **$92,083** | - The U.S. revolving credit facility allows borrowing up to **$145 million** (subject to borrowing base), maturing on May 10, 2021. As of September 28, 2019, **$102.0 million was outstanding** at an average interest rate of **4.2%**, with **$27.2 million additional borrowing capacity**[304](index=304&type=chunk)[306](index=306&type=chunk) - Honduran debt, including a revolving credit facility and term loans with Banco Ficohsa, is denominated in U.S. dollars and secured by assets of Honduran operations[312](index=312&type=chunk) Aggregate Maturities of Debt (Thousands) | Fiscal Year | Amount ($) | | :---------- | :--------- | | 2020 | $6,540 | | 2021 | $103,518 | | 2022 | $778 | | 2023 | $— | | 2024 | $— | | Thereafter | $5,000 | | **Total** | **$115,836** | - Subsequent to year-end, on November 19, 2019, the credit facility was amended to increase borrowing capacity to **$170.0 million** and extend the maturity date to **November 19, 2024**[309](index=309&type=chunk)[371](index=371&type=chunk) [Note 9—Income Taxes](index=61&type=section&id=Note%209%E2%80%94Income%20Taxes) Income tax provision decreased to **$477 thousand** in FY2019, with an effective rate of **5.5%**, due to New Tax Legislation finalization Provision for Income Taxes (Thousands) | Category | FY2019 ($) | FY2018 ($) | | :------------ | :--------- | :--------- | | Current: | | | | Federal | $732 | $4,629 | | State | $(3) | $16 | | Foreign | $132 | $121 | | Total current | $861 | $4,766 | | Deferred: | | | | Federal | $(304) | $5,927 | | State | $(80) | $(233) | | Total deferred | $(384) | $5,694 | | **Total Provision for Income Taxes** | **$477** | **$10,460**| - The effective income tax rate was **5.5% in fiscal year 2019**, a significant decrease from 89.5% in 2018. Excluding the **$10.7 million expense** related to the New Tax Legislation, the adjusted effective tax rate in 2018 was a benefit of 1.7%[317](index=317&type=chunk) - The New Tax Legislation (Tax Cuts and Jobs Act of 2017) significantly revised the U.S. corporate income tax code, impacting the company's tax rate through a lower federal corporate income tax rate, a transition tax on foreign earnings, and a tax on global intangible low-taxed income (GILTI)[315](index=315&type=chunk)[316](index=316&type=chunk) Deferred Tax Assets and Liabilities (Thousands) | Category | September 28, 2019 | September 29, 2018 | | :---------------------------------------- | :----------------- | :----------------- | | Deferred tax assets: | | | | State net operating loss carryforwards | $2,190 | $1,870 | | Inventories and reserves | $2,960 | $3,277 | | Accrued compensation and benefits | $1,789 | $1,881 | | Gross deferred tax assets | $8,377 | $7,863 | | Less valuation allowance | $(516) | $(493) | | **Net deferred tax assets** | **$7,861** | **$7,370** | | Deferred tax liabilities: | | | | Depreciation | $(4,611) | $(5,459) | | Goodwill and intangibles | $(3,183) | $(2,529) | | **Gross deferred tax liabilities** | **$(7,866)** | **$(8,128)** | | **Net deferred tax liabilities** | **$(5)** | **$(758)** | [Note 10—Leases](index=63&type=section&id=Note%2010%E2%80%94Leases) Future minimum lease payments totaled **$63.893 million** as of September 28, 2019, with **$11.197 million** due in FY2020 Future Minimum Lease Payments (Thousands) | Fiscal Year | Amount ($) | | :---------- | :--------- | | 2020 | $11,197 | | 2021 | $9,903 | | 2022 | $8,565 | | 2023 | $7,732 | | 2024 | $7,054 | | Thereafter | $19,442 | | **Total** | **$63,893**| - Rent expense for all operating leases was **$10.6 million in fiscal year 2019**, up from $9.9 million in 2018[325](index=325&type=chunk) [Note 11—Employee Benefit Plans](index=63&type=section&id=Note%2011%E2%80%94Employee%20Benefit%20Plans) The company contributed **$1.0 million** to its 401(k) plan in 2019 and provides post-retirement life insurance benefits - The company contributed **$1.0 million** to its 401(k) retirement savings plan in fiscal year 2019, compared to $0.9 million in 2018[326](index=326&type=chunk) Post-Retirement Life Insurance Benefit Obligation (Thousands) | Metric | September 28, 2019 | September 29, 2018 | | :------------------------- | :----------------- | :----------------- | | Balance at beginning of year | $313 | $343 | | Interest expense | $2 | $3 | | Benefits paid | $(9) | $(34) | | Adjustment | $1 | $1 | | **Balance at end of year** | **$307** | **$313** | [Note 12—Stock-Based Compensation](index=63&type=section&id=Note%2012%E2%80%94Stock-Based%20Compensation) Stock-based compensation expense was **$2.1 million** in FY2019, with **283,500** units outstanding under the 2010 Stock Plan - Total employee stock-based compensation expense was **$2.1 million in fiscal year 2019** and $2.6 million in 2018, recognized in selling, general and administrative expenses[333](index=333&type=chunk) - The **2010 Stock Plan**, re-approved in 2015, allows for various stock awards and is the sole plan for new grants since November 2010[330](index=330&type=chunk)[334](index=334&type=chunk) Restricted Stock Unit and Performance Unit Award Activity | Metric | FY2019 Number of Units | FY2019 Weighted-average grant fair value ($) | FY2018 Number of Units | FY2018 Weighted-average grant fair value ($) | | :-------------------------------------- | :--------------------- | :------------------------------------------- | :--------------------- | :------------------------------------------- | | Units outstanding, beginning of fiscal period | 532,500 | 16.12 | 512,856 | 13.09 | | Units granted | — | — | 205,500 | 20.57 | | Units issued | (247,000) | 11.88 | (146,781) | 12.89 | | Units forfeited | (2,000) | 21.51 | (39,075) | 11.88 | | **Units outstanding, end of fiscal period** | **283,500** | **19.78** | **532,500** | **16.12** | - As of September 28, 2019, **$1.1 million of total unrecognized compensation cost** related to unvested restricted stock units and performance units is expected to be recognized over 1.2 years[341](index=341&type=chunk) [Note 13—Business Segments](index=65&type=section&id=Note%2013%E2%80%94Business%20Segments) The company operates in Delta Group and Salt Life Group segments, with FY2019 net sales of **$389.075 million** and **$42.655 million**, respectively - The **Delta Group** includes Delta Activewear, Soffe, and DTG2Go, focusing on unembellished knit apparel and custom decorated apparel for diverse audiences[347](index=347&type=chunk) - The **Salt Life Group** comprises lifestyle brands Salt Life® and COAST®, offering apparel, headwear, and accessories sold through specialty shops, department stores, outdoor retailers, and direct-to-consumer channels[347](index=347&type=chunk) Segment Performance Highlights (Thousands) | Metric | FY2019 ($) | FY2018 ($) | | :----------------------------------- | :-------

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 For the quarterly period ended June 29, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-15583 DELTA APPAREL, INC. (Exact name of registrant as specified in its charter) 58-2508794 (I.R.S.Employer IdentificationNo ...

Table of Contents Title of each class Trading Symbol Name of each exchange on which registered Common DLA NYSE American UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2019 OR o 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, ...