Delta Apparel(DLA) - 2020 Q3 - Quarterly Report

PART I. Financial Information This section presents the company's financial statements and management's discussion and analysis of financial condition and results Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and key accounting notes Condensed Consolidated Balance Sheets 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] - 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][40][85] - 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][40] - Total equity decreased by $17.378 million, from $153.888 million to $136.510 million[9] Condensed Consolidated Statements of Operations 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][121] - 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][130] - 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][135] Condensed Consolidated Statements of Comprehensive (Loss) Income 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] - 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] Condensed Consolidated Statements of Shareholders' Equity 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][22] - Treasury stock increased by $1.383 million, reflecting additional common stock repurchases during the period[19][21][22] - Total equity decreased by $17.378 million, from $153.888 million to $136.510 million, over the nine-month period[19][22] Condensed Consolidated Statements of Cash Flows 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][143] - 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][147] - 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] Note A—Basis of Presentation and Description of Business 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] - 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] - 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] - 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] - 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] Note B—Accounting Policies 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] Note C—New Accounting Standards 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] - 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][39] - 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] - 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] Note D—Revenue Recognition 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] - 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] Note E—Inventories 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][137] - Inventory reserves increased from $10.1 million in September 2019 to $15.0 million in June 2020[46] Note F—Debt 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] - 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] - 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] - 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][55] Note G—Leases 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] - As of June 27, 2020, operating lease ROU assets were $42.9 million and finance lease ROU assets were $24.5 million[62] - The weighted average discount rate for operating leases was 4.2% and for finance leases was 5.2% as of June 27, 2020[58] - 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] - 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] Note H—Selling, General and Administrative Expense 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] - 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] Note I—Stock-Based Compensation 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][70] - 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] - 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] Note J—Purchase Contracts 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] Note K—Business Segments 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][80][81] 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] - 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] Note L—Income Taxes 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][87] - 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] Note M—Derivatives and Fair Value Measurements 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] 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][94][95] - 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] - 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] Note N—Legal Proceedings 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] Note O—Repurchase of Common Stock 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] - 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] - Share repurchases were temporarily suspended in March 2020 to preserve liquidity during the COVID-19 pandemic[100] Note P—Goodwill and Intangible Assets 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] - 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] - 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] Note Q—Subsequent Events This note reports on any significant events that occurred subsequent to the reporting period - There were no subsequent events to report[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][107] - 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] - The Company does not undertake to publicly update or revise forward-looking statements, except as required by federal securities laws[108] Business Outlook 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] - 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] - 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] - 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] - All manufacturing plants resumed production by the end of June, operating at reduced capacity with strict safety protocols[117] - 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] - 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] Results of Operations 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] - 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] - 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] - 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] - Net inventory decreased by $21.2 million to $158.0 million, driven by sales and reduced production due to COVID-19 manufacturing curtailments[137] Non-GAAP Financial Measures 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] Liquidity and Capital Resources 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] - 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] - 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] - 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][150] - 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] Critical Accounting Policies 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] - 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] Environmental and Regulatory Matters 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] - 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] PART II. OTHER INFORMATION This section provides additional information beyond the financial statements, including controls, legal matters, risk factors, and exhibits Item 4. Controls and Procedures 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] - 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] Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] - 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] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 5. Other Information This section states that there is no other information to report - No other information is reported in this section[167] Item 6. Exhibits 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] - The filing includes Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, and Presentation Linkbase[168][169] 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][171]