Delta Apparel(US:DLA)2021-11-21 16:00Part I Business Delta Apparel, Inc. is a vertically-integrated international apparel company operating through two segments, Delta Group and Salt Life Group, with internal manufacturing and a focus on ESG principles - The company operates under two primary segments: Delta Group (core activewear and DTG2Go digital printing) and Salt Life Group (aspirational lifestyle brand)232429 - A key operational strength is its vertical integration, with over 90% of apparel units sewn in company-owned or leased facilities across the U.S., El Salvador, Honduras, and Mexico2031 - The company emphasizes its Environmental, Sustainability, and Governance (ESG) initiatives, aligning disclosures with SASB standards and focusing on reducing environmental impact and responsible sourcing416368 Employee Distribution and Tenure (as of September 2021) | Country | Number of Employees | Tenure ≤ 5 Years | Tenure 6-10 Years | Tenure > 10 Years | | :--- | :--- | :--- | :--- | :--- | | El Salvador | 2,901 | 62% | 17% | 21% | | Honduras | 3,508 | 61% | 20% | 19% | | Mexico | 1,002 | 62% | 13% | 25% | | United States | 1,058 | 71% | 9% | 20% | | Total | 8,469 | 63% | 16% | 21% | - Competition in the Delta Group is primarily based on price, service, and quality, while the Salt Life Group competes on brand recognition, design, and consumer preference100101 Risk Factors The company faces strategic, operational, legal, regulatory, and financial risks, including raw material price volatility, COVID-19 disruptions, political instability, cybersecurity threats, and debt covenant adherence - The price and availability of cotton, the primary raw material, are prone to significant fluctuations and volatility, potentially impacting gross margins108 - The COVID-19 pandemic has had and could continue to have a material adverse effect on operations, financial condition, and liquidity due to potential shutdowns and supply chain disruptions119120 - A majority of products are manufactured in Honduras, El Salvador, and Mexico, exposing the company to political, social, and economic risks124 - The business relies on information systems for operations, and data security compromises, such as the 2019 malware intrusion, could lead to liability and reputational damage130132134 - The company's ability to borrow under its credit facility is dependent on maintaining certain financial conditions and covenants, with business deterioration potentially restricting capital access154 Unresolved Staff Comments The company reports no unresolved staff comments - No unresolved staff comments166 Properties As of September 2021, Delta Apparel operates 44 facilities, including key manufacturing sites in Central America and North Carolina, with foreign assets representing 25% of net property, plant, and equipment Facility Summary (as of September 2021) | Category | Owned | Leased | Other | Total | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | 2 | 6 | — | 8 | | Distribution | 2 | 1 | 1 | 4 | | Decoration/distribution | 1 | 7 | 1 | 9 | | Retail stores/showroom | 1 | 17 | — | 18 | | Offices | — | 5 | — | 5 | | Total | 6 | 36 | 2 | 44 | - Primary manufacturing facilities are located internationally in Honduras, Mexico, and El Salvador, and domestically in North Carolina167 - As of September 2021, long-lived assets in Honduras, El Salvador, and Mexico collectively represented approximately 25% of consolidated net property, plant, and equipment167 Legal Proceedings The company reports no material pending legal proceedings - No material pending legal proceedings are currently active170 Mine Safety Disclosures This item is not applicable to the company - Not applicable171 Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Delta Apparel's common stock trades on NYSE American (DLA), with no dividends paid in FY2021/2020, and $19.0 million of retained earnings available for distributions - The company's common stock is listed on the NYSE American under the trading symbol 'DLA'174 - No dividends were declared or paid during fiscal 2021 or 2020175 - As of September 2021, $19.0 million of retained earnings were available for potential cash dividends or stock repurchases, an increase from $8.8 million in the prior year175213 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 was a record year for Delta Apparel, with net sales growing 14.6% to $436.8 million and operating margin reaching 7.5%, driven by segment growth and improved gross margins - The company anticipates continued top-line growth and operating profit expansion in fiscal 2022, projecting all-time record revenue and earnings per share186 Fiscal Year 2021 vs. 2020 Performance | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $436.8M | $381.0M | +14.6% | | Gross Profit | $101.8M | $68.4M | +49.0% | | Gross Margin | 23.3% | 17.9% | +540 bps | | Operating Profit (Loss) | $32.8M | ($7.1M) | - | | Net Income (Loss) | $20.3M | ($10.6M) | - | | Diluted EPS | $2.86 | ($1.53) | - | - Delta Group segment net sales increased 13% to $387.0 million, while Salt Life Group segment net sales grew 34% to $49.7 million188189 - Cash provided by operating activities was $25.5 million in 2021, compared to $31.8 million in 2020, primarily due to increased inventory levels202 - The company plans to spend approximately $20 million in capital expenditures in fiscal 2022, focusing on manufacturing expansion, digital print equipment, and opening seven new Salt Life retail stores204 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Delta Apparel is not required to provide this information - The company is a smaller reporting company and is not required to provide this information232 Financial Statements and Supplementary Data This section includes the company's Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms starting on page F-1 - The Consolidated Financial Statements for fiscal years ended September 2021 and September 2020 are included in the report starting on page F-1233 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure234 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of September 2021, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of the evaluation date in September 2021235 - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of September 2021238 - Ernst & Young, LLP, the independent registered public accounting firm, audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting239243 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement254 Executive Compensation Information regarding executive and director compensation is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement255 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan information, including the 2020 Stock Plan approval, is incorporated by reference from the definitive Proxy Statement - Information regarding security ownership is incorporated by reference from the definitive Proxy Statement255 - Shareholders approved the Delta Apparel, Inc. 2020 Stock Plan on February 6, 2020, to replace the expiring 2010 Stock Plan255 Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement260 Principal Accountant Fees and Services Details regarding principal accountant fees and services are incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement261 Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K, including auditor reports and various corporate agreements - Lists all financial statements, including the Report of Independent Registered Public Accounting Firms and Consolidated Balance Sheets, Statements of Operations, and Cash Flows263 - Provides a detailed listing of exhibits, including articles of incorporation, credit agreements, employment agreements, and stock plans266268 Form 10-K Summary The company indicates there is no Form 10-K summary - No Form 10-K summary is provided272 Financial Statements and Notes Consolidated Financial Statements The consolidated financial statements present the company's financial position and results for FY2021 and FY2020, with FY2021 net sales of $436.8 million and net income of $20.3 million Consolidated Balance Sheet Summary (in thousands) | Account | Sept 2021 | Sept 2020 | | :--- | :--- | :--- | | Total Current Assets | $242,963 | $226,768 | | Total Assets | $434,288 | $420,231 | | Total Current Liabilities | $105,461 | $96,027 | | Total Liabilities | $270,094 | $277,545 | | Total Equity | $164,194 | $142,686 | Consolidated Statement of Operations Summary (in thousands) | Account | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net Sales | $436,750 | $381,035 | | Gross Profit | $101,880 | $68,375 | | Operating Income (Loss) | $32,711 | ($7,075) | | Net Earnings (Loss) Attributable to Shareholders | $20,296 | ($10,577) | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial data, covering revenue recognition, inventory, goodwill, debt, income tax, leases, and segment performance - Note 4: Finished goods constituted the largest portion of inventory at $123.5 million as of September 2021, up from $118.0 million in the prior year359 - Note 6: As of September 2021, goodwill was $37.9 million, with $18.0 million allocated to the Delta Group and $19.9 million to the Salt Life Group, and net intangible assets were $26.3 million362 - Note 8: Total long-term debt was $108.7 million as of September 2021, primarily consisting of $98.6 million outstanding on the revolving U.S. credit facility maturing in 2024366369 Note 13: Segment Operating Income (in thousands) | Segment | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Delta Group | $39,956 | $6,609 | | Salt Life Group | $5,793 | $460 | | Total Segment Operating Income | $45,749 | $7,069 |