Delta Apparel, Inc.
2021 Annual Report
Shareholder Letter
Fiscal year 2021 produced exciting results for our company despite operating in a challenging economy still being impacted by the COVID-19 pandemic,
hurricanes that caused flooding and power outages across our Honduran operations, labor shortages in the United States and supply chain disruptions around
the globe. For the year, we achieved sales of $437 million which is up approximately one percent from the pre-pandemic fiscal 2019 revenue of $432 million. We
also produced record-breaking per share earnings of $2.86 when compared to the loss in the pandemic-ridden fiscal year 2020 and the earnings per share in
fiscal year 2019 of $1.17.
We were ushered in to fiscal 2021 by two separate hurricanes making landfall in Honduras impacting our textile and sewing operations in that country. These
events resulted in a reduction of $1.0 million dollars in our first quarter net income. Additionally the lost production output reduced our sales for the year due to
our restricted inventory position.
Once we moved into the last three quarters of the year, we were able to make steady and important improvements in our business that resulted in record earnings
for the full year. Our Salt Life Group achieved strong growth for the year resulting in record revenue of approximately $50 million. We divested our Coast Brand
out of the segment to allow our management team to focus their resources and capital on the continued growth of Salt Life branded products.
Our Delta Group made significant progress as well for the year. We completed the buildout of our Phoenix, Arizona distribution center, closed a leased distribution
center in Fayetteville, North Carolina and consolidated our Soffe retail distribution and packing in Phoenix, which should result in significant cost savings over
time. We implemented several price increases, due to rising costs for raw materials, labor, energy and transportation, over the course of the year to offset
inflationary pressures across our internal production.
We reorganized our sales and marketing functions to better align ourselves with the channels of distribution that will drive continued growth for our business.
This resulted in our Delta Direct channel, our Retail Direct channel and our Global Brands channel which will allow our organization to be focused on customers
who are seeking our vertical manufacturing and distribution capacities while taking advantage of our technology enabled value adding services.
I believe we will look back upon fiscal 2021 as a pivotal point in time for the development of our DTG2Go business. The pandemic, which caused disruption in
almost every aspect of our personal and business lives, also made us think about what could be. The answer for a number of retailers, international brands and
intellectual license holders pointed to the services and delivery platform uniquely offered by DTG2Go. Our digital print platform was further enhanced during the
year with the development of additional print capacity and technology which attracted significant new customer development and onboarding along the way.
This giant leap forward is validating our long-held belief that our digital print platform will have significant growth outside of the E-retailer channel, which was
the early adopter of our new platform of vertical supply chain and production management allowing for customized embellishment production at the individual
piece level, shipping directly to the end customer in just a few days, and the elimination of finished goods obsolescence.
Our company also completed the acquisition of Autoscale.ai during the year. We believe this new technology will bring innovation with art management and
advertisement spend as a front-end system that can be married to our existing DTG2Go platform of order management, production and distribution to the end
consumer. The innovation built into the Autoscale.ai business allows new and existing businesses to simplify and automate joining new virtual marketplaces,
populating their sites with product offerings and merchandising strategies using automation while providing real time data on the effectiveness of their ad spend.
We are moving into fiscal 2022 with significant momentum and believe we are well positioned to further expand the sales and profitability of Delta Apparel, Inc.
in the upcoming year. Over the last two years we have eliminated unprofitable business operations and channels of distribution which has lowered our fixed cost
structure. We spent nearly $16 million on capital expenditures during fiscal 2021 and expect to further increase investments in our business in the upcoming year
as we build capacities to meet demand and further invest in technology development and information systems to drive innovation.
Our Salt Life business is poised for further growth in fiscal 2022. Our order backlog for wholesale shipments to retailers is at an all-time high. We have a strong
and profitable ecommerce business at Salt Life which should benefit from our innovative social media and marketing initiatives that continue to drive consumer
engagement. Our marketing activities also encourage consumers to visit our owned and operated Salt Life branded retail stores where consumers are greeted
by a wonderful retail experience and emersion into living the Salt Life! We are experiencing significant year-over-year sales growth in our existing stores and
expect to open seven new locations in fiscal 2022.
In our Delta Group we will add new production equipment to our textile and sewing facilities to relieve bottlenecks in production processes and increase overall
capacity in our company. Our strong and reliable supply chain is seeing increased demand across our channels of distribution and we look forward to utilizing
our increased capacity to further serve our customer base.
During the past year, our leadership team and our employees spread across our many facilities worked tirelessly to recover from the devastation of the pandemic.
We rebuilt our employee base to pre-pandemic levels and focused our operations on the safety, health and well-being of our nearly 9,000 employees. We take
great pride in the jobs, benefits and advancement opportunities we provide our employees and are grateful for their loyalty and dedication to Delta Apparel.
Our Board of Directors stayed focused on our long term planning and business strategy development during the year while monitoring ESG developments and
new and evolving risk factors. Our Board also asked senior management to put additional focus on leadership development and succession planning activities
across all areas of our business as we prepare for the continued growth of our Company.
We appreciate your continued support of Delta Apparel. We hope you will join us for our Annual Meeting of Shareholders, which will be held in our corporate
office in Duluth, Georgia on February 10, 2022 at 8:30 a.m. local time. At the meeting we will present a final review of our fiscal year 2021 results, address the
items put to shareholder vote, and provide an update on our outlook for fiscal year 2022.
Robert W. Humphreys
Chairman and Chief Executive Officer
Delta Apparel, Inc.
Annual Report
Fiscal Year 2021
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time
make written or oral statements that are “forward-looking,” including statements contained in this Annual Report and other filings with the Securities and Exchange Commission
(the “SEC”), in our press releases, and in other reports to our shareholders. All statements, other than statements of historical fact, which address activities, events or developments
that we expect or anticipate will or may occur in the future are forward-looking statements. The words “plan”, “estimate”, “project”, “forecast”, “anticipate”, “expect”, “intend”,
“seek”, “believe”, “may”, “should” and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements. Forward-looking
statements are neither historical facts nor assurances of future performance. Instead, they are based on our current expectations and are necessarily dependent upon assumptions,
estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are subject to a number of business risks
and inherent uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Therefore, you should
not rely on any of these forward-looking statements. Important risk factors that could cause our actual results and financial condition to differ materially from those indicated in
forward-looking statements are discussed in Part 1, Item 1A. “Risk Factors” and Part 1, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our other SEC filings. Any forward-
looking statements do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements contained in this Annual
Report are made only as of the date of this Annual Report and we do not undertake to publicly update or revise the forward-looking statements, except as required by the federal
securities laws.
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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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-15583
For The Fiscal Year Ended October 2, 2021
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 Identification No.)
2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (864) 232-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01
Trading Symbol
Name of Each Exchange on Which Registered
DLA
NYSE American
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned filer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☑
Non-accelerated filer ☐
Smaller reporting company ☑ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑.
Based on the closing price of the registrant's common stock of $28.28 as quoted by the NYSE American on April 1, 2021, which is the last business day of the
registrant's most recently completed second quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately
$178.4 million. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of the registrant as of such date have been
excluded because such persons may be deemed to be affiliates.
The number of outstanding shares of the registrant’s common stock was 6,974,660 as of November 17, 2021.
The registrant's Annual Meeting of Shareholders is currently scheduled for February 10, 2022. Portions of the registrant's Proxy Statement for its annual meeting are
incorporated by reference in Part III of this Annual Report on Form 10-K where indicated. Such proxy statement will be filed with the Securities and Exchange
Commission ("SEC") within 120 days of the registrant's fiscal year ended October 2, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
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Part I
Part II
Part III
Part IV
TABLE OF CONTENTS
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Item 5.
Item 6.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Directors, Executive Offices and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
EX-21
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
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Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf
of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements
contained in this report and other filings with the SEC, in our press releases, and in other reports to our shareholders. All
statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate
will or may occur in the future are forward-looking statements. The words “plan”, “estimate”, “project”, “forecast”, "outlook",
“anticipate”, “expect”, “intend”, "remain", “seek", “believe”, “may”, “should” and similar expressions, and discussions of
strategy or intentions, are intended to identify forward-looking statements.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our
current expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and
accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are subject to a number of business risks
and inherent uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the
forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that
could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements
include, among others, the following:
● the general U.S. and international economic conditions;
● the impact of the COVID-19 pandemic and government/social actions taken to contain its spread on our operations,
financial condition, liquidity, and capital investments, including recent labor shortages, inventory constraints, and
supply chain disruptions;
● significant interruptions or disruptions within our manufacturing, distribution or other operations;
● deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of
our customers and suppliers;
● the volatility and uncertainty of cotton and other raw material prices and availability;
● the competitive conditions in the apparel industry;
● our ability to predict or react to changing consumer preferences or trends;
● our ability to successfully open and operate new retail stores in a timely and cost-effective manner;
● the ability to grow, achieve synergies and realize the expected profitability of acquisitions;
● changes in economic, political or social stability at our offshore locations in areas in which we, or our suppliers or
vendors, operate;
● our ability to attract and retain key management;
● the volatility and uncertainty of energy, fuel and related costs;
● material disruptions in our information systems related to our business operations;
● compromises of our data security;
● significant changes in our effective tax rate;
● significant litigation in either domestic or international jurisdictions;
● recalls, claims and negative publicity associated with product liability issues;
● the ability to protect our trademarks and other intellectual property;
● changes in international trade regulations;
● our ability to comply with trade regulations;
● changes in employment laws or regulations or our relationship with employees;
● negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices
by our suppliers and independent contractors;
● the inability of suppliers or other third-parties, including those related to transportation, to fulfill the terms of their
contracts with us;
● restrictions on our ability to borrow capital or service our indebtedness;
● interest rate fluctuations increasing our obligations under our variable rate indebtedness;
● the ability to raise additional capital;
● the impairment of acquired intangible assets;
● foreign currency exchange rate fluctuations;
● the illiquidity of our shares; and
● price volatility in our shares and the general volatility of the stock market.
A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations
is set forth in Part 1 under the subheading "Risk Factors." Any forward-looking statements in this Annual Report on Form 10-K do
not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are
made only as of the date of this Annual Report on Form 10-K, and we do not undertake to publicly update or revise the forward-
looking statements, except as required by the federal securities laws.
1
Item 1. Business
Overview
Part I
Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel,"
"we," "us," "our," or the "Company") is a vertically-integrated, international apparel company. With approximately 8,500 employees
worldwide, we design, manufacture, source, and market a diverse portfolio of core activewear and lifestyle apparel products under
our primary brands of Salt Life®, Soffe®, and Delta. We are a market leader in the on-demand, digital print and fulfillment industry,
bringing DTG2Go's proprietary technology and innovation to the supply chain of our customers. We specialize in selling casual and
athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and
specialty stores, better department stores and mid-tier retailers, mass merchants, eRetailers, the U.S. military, and through our
business-to-business digital platform. Our products are also made available direct-to-consumer on our ecommerce sites and in our
branded retail stores. Our diversified distribution model allows us to capitalize on our strengths to provide our activewear and
lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.
We design and internally manufacture the majority of our products. More than 90% of the apparel units that we sell are sewn in our
owned or leased facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react
quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador,
Honduras, and Mexico, and we use domestic and foreign contractors as additional sources of production. Our distribution facilities
are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products
and weekly replenishments to retailers.
We were incorporated in Georgia in 1999, and our headquarters is located in Duluth, Georgia. Our common stock trades on the
NYSE American under the symbol “DLA." We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30.
All references to "2021" refer to the 52-week fiscal year ended October 2, 2021. All references to "2020" relate to the 53-week fiscal
year ended on October 3, 2020. We are filing as a smaller reporting company for 2021 as our public float was less than the $250
million threshold on the last day of our second quarter.
We make available copies of materials we file with, or furnish to, the SEC free of charge at https://ir.deltaapparelinc.com. The
information found on our website is not part of this, or any other, report that we file with or furnish to the SEC. In addition, we will
provide upon request, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests should be
directed to: Investor Relations Department, Delta Apparel, Inc., 2750 Premiere Parkway, Suite 100, Duluth, Georgia 30097. Requests
can also be made by telephone to 864-232-5200, or via email at investor.relations@deltaapparel.com.
Segments, Products, Brands, and Customers
Our operations are managed and reported in two segments, Delta Group and Salt Life Group, which reflect the manner in which the
business is managed and results are reviewed by the Chief Executive Officer, who is our chief operating decision maker.
Delta Group
The Delta Group is comprised of the following business units primarily focused on core activewear styles: DTG2Go and Delta
Activewear.
DTG2Go
We are a market leader in the on-demand, direct-to-garment digital print and fulfillment industry, bringing technology and innovation
to the supply chain of our many customers. We use highly-automated factory processes and our proprietary software to deliver on-
demand, digitally printed apparel direct to consumers on behalf of our customers. Utilizing its nine fulfillment facilities throughout
the United States, DTG2Go offers a robust digital supply chain to ship custom graphic products within 24 to 48 hours to consumers
in the United States and to over 100 countries worldwide. Our ‘On-Demand DC’ digital solution provides retailers and brands with
immediate access to utilize DTG2Go’s broad network of print and fulfillment facilities, while offering the scalability to integrate
digital fulfillment within the customer's own distribution facility. DTG2Go has made significant investments in its “digital-first”
retail model, ensuring digital graphic prints meet the high-quality standards required for brands, retailers and intellectual
property holders. DTG2Go is most excited to bring this initiative to market in fiscal year 2022, having invested during fiscal 2021
in proprietary software, in new digital print equipment, and in R&D related to the setups, formulas, and processes needed to meet
the unique aspects of servicing this sales channel. DTG2Go also services the e-retailer, ad-specialty, and promotional market
and screen print marketplaces, among others.
2
Delta Activewear
Our Activewear business is organized around key customer channels and how they source their various apparel needs. Delta
Activewear is a preferred supplier of activewear apparel to regional and global brands, direct to retail and through wholesale markets.
We offer a broad portfolio of apparel and accessories through our Delta Direct business under the Delta, Delta Platinum, Soffe, and
sourced-branded products that we distribute utilizing our network of fulfillment centers. Our fashion basics line includes our
Platinum Collection, which offers fresh, fashionable silhouettes with a luxurious look and feel, as well as versatile fleece offerings.
We offer innovative apparel products, including the Delta Dri line with performance shirts built with moisture-wicking material to
keep athletes dry and comfortable; ringspun garments with superior comfort, style and durability; and Delta Soft, a collection with
an incredible feel and price. We also offer our heritage, mid- and heavier-weight Delta Pro Weight® and Magnum Weight® tee
shirts. Soffe is our iconic brand that offers activewear for spirit makers and record breakers. Widely known for the original "cheer
short" with the signature roll-down waistband, Soffe carries a wide range of activewear for the entire family. Soffe's heritage is
anchored in the military, and we continue to be a proud supplier to both active duty and veteran United States military personnel
worldwide. The Soffe men's assortment features the tagline "anchored in the military, grounded in training" and offers everything
from physical training gear certified by the respective branches of the military, classic base layers that include the favored 3-pack
tees, and the iconic "ranger panty." Complementing the Delta and Soffe brand apparel, we provide our customers with a broad range
of product categories with nationally recognized branded products including polos, outerwear, headwear, bags and other accessories.
Delta Direct services key channels, such as the screen print, promotional, and eRetailer channels as well as the retail licensing
channel, whose customers sell through to many mid-tier and mass market retailers. In our Global Brands & Retail Direct business
we serve our customers as their supply chain partner, from product development to shipment of their branded products, with the
majority of products being sold with value-added services including embellishment, hangtags, and ticketing. We also serve retailers
by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to their retail stores and through their ecommerce
channels. We sell our products to a diversified audience, including sporting goods and outdoor retailers, specialty and resort shops,
farm and fleet stores, department stores, and mid-tier retailers. We service custom apparel to major branded sportswear companies,
trendy regional brands, and all branches of the United States armed forces. We also offer our Soffe products direct to consumers
at www.soffe.com. As an integrated Delta Group segment, we offer a seamless solution for small-run decoration needs with our on-
demand digital print services, powered by DTG2Go. Service is a key component of Delta Activewear. We provide superior service
to our customers by shipping the same day of order receipt down to a piece level, allowing customers to purchase exactly what they
need when they need it.
Salt Life Group
Salt Life
Salt Life is an authentic, aspirational lifestyle brand that represents a passion for the ocean, the salt air, and, more importantly, a way
of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. The Salt Life brand combines
function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal,
Salt Life continues to expand its product assortment outside of the cotton graphic tees and logo decals it is known for into
performance apparel, swimwear, board shorts, sunglasses, bags, and accessories including its own craft beer, Salt Life Lager. From
its first merchandise offerings in 2006, Salt Life has grown distribution to include surf shops, specialty stores, department stores,
and outdoor retailers to complement our own growing network of branded retail stores. Our direct-to-consumer Salt Life ecommerce
site at www.saltlife.com provides our customers with a seamless, omni-channel experience with the Salt Life brand.
See Note 13 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" for additional information regarding reportable segments.
Manufacturing, Sourcing, and Distribution
The vast majority of our products are manufactured or sewn in facilities that we own or lease and operate to support both the Delta
Group and Salt Life Group. To a lesser extent, we also use third-party contractors and suppliers to supplement our requirements. Our
vertically-integrated manufacturing operations include a textile facility and multiple sew and decoration facilities.
Our manufacturing operations begin with the purchase of yarn and other raw materials from third-party suppliers. We have operated
with a supply agreement with Parkdale Mills, Inc. and Parkdale America, LLC (collectively "Parkdale") to supply our yarn
requirements since 2005, with our existing agreement running through December 31, 2021. Under the supply agreement, we purchase
all of our yarn requirements for use in our manufacturing operations from Parkdale, excluding yarns that Parkdale does not
manufacture or cannot manufacture due to temporary capacity constraints. The purchase price of yarn is based upon the cost of
cotton, as reported by the New York Cotton Exchange, plus a fixed conversion cost. We set future cotton prices with purchase
commitments as a component of the purchase price in advance of the shipment of finished yarn from Parkdale. While we expect to
negotiate an extension to the supply agreement with Parkdale, the terms of the new agreement may not be as favorable as the current
agreement.
3
We manufacture fabrics in our leased textile facility located near San Pedro Sula, Honduras. We also purchase fabric sourced in
Mexico for use in our Campeche, Mexico sew facility, purchase specialized fabrics that we currently do not have the capacity or
capability to produce, and may purchase other fabrics when it is cost-effective to do so. In 2021 and 2020, we
manufactured approximately 80% of fabrics used in our internally-produced garments. The manufacturing process continues at one
of our six apparel manufacturing facilities where fabric is cut and sewn into finished garments. These owned or leased facilities are
located domestically (two in North Carolina) and internationally (two in Honduras, one in El Salvador and one in Mexico). In 2021
and 2020, approximately 95% or more of our manufactured products were sewn in our owned or leased manufacturing facilities.
The remaining products were sewn by third-party contractors located primarily in the Caribbean Basin. To supplement our internal
manufacturing platform, we purchase products from third-party global suppliers. In 2021 and 2020, we sourced less than 10% of our
total products from third parties.
Many of the garments will be decorated using screen printing or digital printing technology, and will be retail-packaged, including
ticketing, hang tags, and hangers. These services can be performed domestically for quick-turn service or internationally in our
facilities in El Salvador and Mexico. We offer digital fulfillment services, powered by DTG2Go, at nine domestic facilities, including
five such facilities that are integrated with Delta Group distribution centers. These facilities support our strategy of establishing
integrated fulfillment locations that combine our DTG2Go state-of-the-art digital platform with our Delta Activewear supply
of fashion and core basic garments. Furthermore, these facilities create a seamless nationwide footprint allowing us to reach
approximately 65% of all U.S. consumers with one-day shipping.
We operate eight distribution facilities strategically located throughout the United States that carry in-stock inventory for shipment
to customers, with most shipments made via third-party carriers. To better serve customers, we allow products to be ordered by the
piece, dozen, or full case quantity, and we aggressively leverage our strengths and efficiencies to meet the quick-turn needs of our
customers. Because a significant portion of our business consists of at-once replenishment, we believe that backlog order levels do
not provide a general indication of future sales.
See Item 2. Properties for more information about each of our primary manufacturing and distribution facilities.
Sales & Marketing
Our sales and marketing functions consist of both employed and independent sales representatives and agencies located throughout
the country. Our sales teams service specialty and resort shops, department, mid-tier and mass retailers, sporting goods stores, e-
retailers and the U.S. military. Our brands leverage both in-house and outsourced marketing communication professionals to amplify
their lifestyle statements.
The majority of our apparel products are produced based on forecasts to permit quick shipments to our customers; however, our
custom programs are generally made only to order. During 2021, we shipped our products to approximately 8,800 customers, many
of whom have numerous retail doors. No single customer accounted for more than 10% of our sales in 2021 or 2020, and our strategy
is to not become dependent on any single customer. Revenues attributable to sales of our products in foreign countries represented
less than 1% of consolidated net sales in both 2021 and 2020.
Trademarks and License Agreements
We own several well-recognized trademarks that are important to our business. Salt Life® is an authentic, aspirational lifestyle brand
that embraces those who love the ocean and everything associated with living the "Salt Life". Soffe® has stood for quality and value
in the athletic and activewear market for more than sixty years. Our other registered trademarks include Intensity Athletics®,
Kudzu®, Pro Weight®, Magnum Weight®, and the Delta Design. Our trademarks are valuable assets that differentiate the marketing
of our products. We vigorously protect our trademarks and other intellectual property rights against infringement. While our strategy
is to own the intellectual property we use within our business, we are an official licensee for branches of the United States military
which is used within the Soffe brand. We believe these license agreements are important given the military heritage of Soffe.
Environmental, Sustainability, and Governance
We aim to disclose and communicate transparently any material risks that could affect our stakeholders, and we strive to implement
policies and practices that continuously improve the transparency and sustainability of our supply chain. The Environmental,
Sustainability, and Governance (“ESG”) disclosures within this Annual Report and our definitive Proxy Statement align with the
standards issued by the Sustainability Accounting Standards Board (“SASB”) for the Apparel, Accessories, and Footwear industry
and with regulations and guidance issued by the Securities and Exchange Commission. The indicators in the Annual Report and
definitive Proxy Statement have been carefully selected to show the most relevant aspects of our performance in the areas of
environmental impact, health and safety, responsible raw material sourcing, safe chemical management, and responsible corporate
governance.
4
Conserving the Environment
We believe that efficiently and sustainably managing natural resources is a smart business move and a responsible decision for the
planet. By effectively and safely managing the materials used to manufacture our apparel products, we also protect the health and
safety of our customers and employees. Our commitment to environmental sustainability includes compliance with safe chemistry
practices and implementing technology and processes that reduce energy and water consumption, reuse and effectively treat
wastewater, and reduce and recycle waste. In addition, we are committed to full compliance with local, regional, and national
environmental laws and regulations.
Reducing our Environmental Impact
Environmental problems such as climate change and resource depletion are escalating worldwide and understanding and managing
greenhouse gas emissions is important to effectively mitigate our impact to the environment. We are committed to monitoring our
greenhouse gas emissions and adopting innovative technologies to improve the energy efficiency of our facilities and reduce our
overall energy intensity.
The focus on reducing our overall energy intensity is driven by our goal to establish an energy efficient operation and reduce
greenhouse gas emissions, which will contribute to lowering our operating costs as well as our carbon footprint. In 2020 we installed
a heat exchanger at our Ceiba Textiles facility in Honduras that plays an essential role in reducing the environmental impact of
manufacturing processes by recovering and reusing energy. Modifications have also been made to the cooling systems in our textile
plant which further reduce energy consumption. We also implemented several energy efficiency projects in recent years such as
replacing compact florescent light bulbs with LED lighting, which emits less heat and uses less energy than conventional bulbs,
decreases the temperature on factory floors, and thus raises productivity, particularly on hot days. We also improved the performance
of our sewing machines by installing new motors that use much less energy due to advanced technology.
In 2021 alone, these specific energy saving initiatives reduced our electricity usage by 875,800 kilowatt hours across all our
manufacturing locations and avoided approximately 621 metric tons of carbon dioxide (CO2) emissions, which is comparable to the
carbon sequestered by 760 acres of forest in one full year. In addition, compared to our 2018 baseline year, we produced 7.1% more
finished fabric in 2021 while using 14% less fuel and 7% less electricity. Overall, this has improved our fuel intensity by
approximately 20% and electricity intensity by approximately 13% compared to the 2018 baseline year.
The operations at our Ceiba Textiles facility account for a significant portion of the fuel and electricity used in our manufacturing
network and, as such, are our largest contributors of carbon dioxide (CO2) emissions. Compared to the 2018 baseline year we have
reduced our total greenhouse gas emissions by 7.5% and reduced our emissions intensity by approximately 14% in 2021. These
reductions avoid the equivalent of 3,600 metric tons of CO2 emissions, which is comparable to the energy used by approximately
434 homes for one year or the carbon sequestered by 4,411 acres of U.S. forests in one year.
We recently redesigned our shipping carton dimensions to maximize the storage space available inside shipping containers. This
initiative increased our container utilization from 84% in 2019 to 93% in 2021 and resulted in using 153 fewer shipping containers
this year. This reduction in shipping container usage avoids 223 metric tons of CO2 emissions, which is comparable to the carbon
sequestered by 273 acres of forest in one full year.
Energy saving initiatives at Ceiba Textiles in 2022 include the purchase of a new steam textile dryer that will replace two existing
thermal oil dryers. The steam dryer is capable of drying 66% more pounds of fabric per week than the thermal dryers and the
installation is expected to reduce fuel consumption by approximately 19% per year.
Managing Water
Water is one of the world’s most precious and vital resources. Access to water is essential to Delta Apparel’s manufacturing
operations, and we are committed to managing our water use in an efficient and responsible manner.
Treating textile wastewater is necessary not only to protect the local ecosystems but also to make the recycled water available to
reuse in manufacturing processes or irrigation. To properly treat problematic substances before the water is discharged, our vertically-
integrated manufacturing facilities, as well as our third-party fabric suppliers, comply with wastewater discharge requirements
through currently active licenses and permits issued by local governments. In each of the last four years, none of these wastewater
treatment facilities have received a compliance citation or violation.
During manufacturing, the most significant amount of water consumption occurs during the fabric washing, dyeing, and rinsing
processes. To reduce our water consumption at Ceiba Textiles, in 2018 we implemented a system that reuses the leftover dye water
for use in future batches of similar-colored fabric. This system saves approximately 4 million gallons or 15,000 cubic meters of
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water per year while maintaining the quality of our dyed fabrics. We also improved our dye formulas to further reduce water
consumption and reduce the amount of contaminates remaining in the wastewater. During 2021, our water intensity was reduced by
approximately 9% as compared to our 2018 baseline.
Wastewater from Ceiba Textiles is transferred to the Green Valley water treatment facility, which operates on an environmental
license issued by the Honduras Ministry of Energy, Natural Resources, Environment, and Mines. Over 86% of our water
consumption at Ceiba Textiles in 2021 was safely and effectively treated and recycled. The Green Valley wastewater treatment
facility uses the industry standard primary, secondary, and tertiary water treatment methods based on the types of effluents being
discharged as well as regulatory and environmental standards. Treatment procedures are also in place to neutralize and remove
additional substances that may potentially be harmful, but are not necessarily regulated. The following information describes the
primary, secondary, and tertiary water treatment methods.
● Primary – Primary treatment methods include screening, sedimentation, homogenization, pH neutralization, and
mechanical and chemical flocculation, which is a chemical added to the water that binds suspended solids into heavier
particles that are easier to remove. Nano and cross-flow nano filtration techniques are also used to reduce the vast
majority of sodium chloride and dyes.
● Secondary – Secondary treatment is designed to substantially degrade the biological content of the wastewater by using
a combination of physical and aerobic biological processes. Secondary treatment methods include various types of
filtration along with an activated sludge process, which stabilizes and converts potentially toxic contaminates into less
harmful forms such as carbon dioxide and water, which are safe for the environment.
● Tertiary – Tertiary treatment is the final cleaning process that purifies wastewater before it is reused, recycled, or
discharged into the environment. Treatment methods include a combination of physical and chemical techniques to
decontaminate and purify the water.
Managing Waste
Our waste management strategy is to reduce, reuse, and recycle, which increases the likelihood that the waste materials we generate
during the manufacturing process never reach landfills, lakes, rivers, streams, or municipal water systems. We are committed to full
compliance with local, regional, and national environmental laws and regulations in the countries in which we operate as it relates
to responsible recycling and disposal of hazardous and non-hazardous waste.
Pre-consumer textile waste is created during the cutting and sewing processes and includes small pieces of fabric trimmed away and
other fabric scraps. We have modified sewing patterns to significantly reduce fabric waste during cutting. We also invested in sewing
machines capable of folding excess fabric inside the bottom and sleeve hems to eliminate trimming. This initiative not only reduces
textile waste but also lowers fabric production needs, which saves water, electricity, and fuel usage. We are committed to full
compliance with local, regional, and national environmental laws and regulations in the countries in which we operate as it relates
to responsible recycling and disposal of hazardous and non-hazardous waste.
We have multiple reuse and recycle programs that help limit the waste that would otherwise be disposed in landfills:
● We partner with several companies that collect our fabric waste and sell it to manufacturers in the automotive industry,
among others, that can mix the fabric with other materials to create alternate applications for the fabric, such as for
automotive seats and windshield wipers.
● Our screen-printing facilities recycle colors of inks that remain at the end of a production project for use in future
production. In one year, this recycling program can recover as much as 75% of the plastisol ink and 50% of the water-
based ink that otherwise would have been discarded.
● All of our manufacturing, sewing, and distribution facilities participate in cardboard recycling programs. Each facility
flattens and places all cardboard in an outside container for recycling companies to then collect the cardboard on a
regular schedule.
Using Safe Chemistry
Textile operations use various chemicals, cleaners, dyes, and inks throughout the manufacturing, finishing, and decorating processes.
We strive to use non-hazardous, bio-eliminable ingredients in our apparel products and throughout our manufacturing processes to
protect the safety of our customers and employees as well as reduce negative impacts on the environment. For example, our DTG2Go
digital printing facilities use water-based biodegradable inks that are 100 percent non-hazardous and adhere to the strictest human
health and environmental standards.
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We have a robust, hazard-based chemicals management system throughout our manufacturing processes. Our commitment to safe
chemistry begins in the design and development stage of our products, which are conceived from the latest fashion trends and are
fully compliant with statutory, industry, and customer-specific safety requirements. We are proud that the chemicals we use comply
with the restricted substance list (“RSL”) published by the American Apparel & Footwear Association (“AAFA”). AAFA is the
industry’s leading resource for maintaining and publishing banned and restricted substances lists for finished apparel products around
the world. We continuously monitor our RSL, which includes additional substances that may be harmful, but are not necessarily
regulated. We also control against the procurement of restricted substances through our purchase approval processes and
arrangements with dye and chemical vendors.
The dyes and chemicals used in our manufacturing facilities are tested annually by a third-party laboratory that uses a scoring system
to determine the level of compliance. Since 2017, we have maintained a “Green” status, which is the highest level of compliance.
Annual tests are also conducted by a third-party laboratory to ensure our compliance with The Consumer Product Safety
Improvement Act (“CPSIA”) of 2008, The Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65 of California
State Law”), and we adhere to any customer-supplied RSL. Our manufacturing employees are provided training on compliance with
our RSL as well as training on how to safely handle potentially hazardous substances throughout the manufacturing process.
It is also important to us that all our significant third-party yarn and fabric suppliers share our high compliance standards and operate
in a legal and responsible manner. We require these suppliers to provide, at least annually, certification or self-declaration documents
that demonstrate compliance with industry standard parameters for safe chemistry. We take immediate corrective actions in instances
where non-compliance may be identified.
Responsible Sourcing
As a vertically integrated apparel company, we believe it is important to have a high degree of oversight into all aspects of sourcing,
manufacturing, and distribution. To that end, the lifecycle of a Delta Apparel garment begins with high quality, sustainable cotton,
which is the primary ingredient for the majority of apparel products across our brand portfolio. Over 90% of our garments are created
with U.S. cotton, which is known for both the quality of its fibers as well as the sustainability practices of the cotton farmers who
harvest it. Cotton is not considered a water-intensive crop and more than 60% of the cotton grown in the U.S. is produced without
irrigation. Cotton is also highly tolerant of soil and water salinity levels, so it can be grown with water and soil resources unsuitable
for most other crops. We do not source cotton from regions with water stress, and we do not source conflict minerals in the production
of our products.
Delta Apparel is a member of the Cotton LEADS program, which is committed to sustainable and traceable cotton production. This
partnership enables us to broaden our support of the cotton farmers who supply our Company with high-quality cotton, allowing us
to continue transforming sustainably-sourced cotton into high quality, responsible apparel products for our customers. We serve as
a supply chain partner for many customers who expect high quality raw materials and require the ability to trace those raw materials
back to the source. With cotton traceability, we are now able to trace the fiber used in our garments all the way back to harvest.
The vast majority of the yarn we use in our textile operations is sourced from Parkdale, whose products are independently certified
to Standard 100 by OEKO-TEX. In addition, our significant suppliers of external fabric are certified to Standard 100 by OEKO-
TEX.
Monitoring Progress
We use the Sustainable Apparel Coalition’s Higg Index to measure the environmental impact of all our offshore manufacturing
facilities and the facilities of our key external fabric suppliers. The Higg Index tool provides transparency of our efforts to reduce
our environmental impact, and it identifies areas for continued improvement. Our Ceiba Textile facility has been using this tool for
several years, and our 2020 self-assessment resulted in a total score in the upper quartile as compared to our industry competitors.
Our most recent self-assessment was completed in July of 2021 and the results will be available in March 2022. We retain the
services of an external consultant to verify our assessments for a sample of facilities and to provide guidance for any areas of
improvement.
Social Responsibility and Human Capital Management
Our employees are our most important and valuable asset. Our diverse and talented workforce helps drive our culture of high
performance, close teamwork, and deep caring for each other across geographies and functions. We have an impact on the lives of
the approximately 8,500 employees across the globe as well as their families and communities. We support the livelihoods of our
people through competitive wages and benefits, providing them with a safe and healthy workspace, supporting the communities in
which they live, and, most importantly, treating all employees with dignity and respect.
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Our People
The table below provides an overview of the approximate number of employees by geographic location as well as the tenure of that
employee base as of September 2021:
Country
El Salvador
Honduras
Mexico
United States
Total
Number of Employees
2,901
3,508
1,002
1,058
8,469
5 Years or Less
62%
61%
62%
71%
63%
Tenure
6 - 10 Years
17%
20%
13%
9%
16%
10 Years or More
21%
19%
25%
20%
21%
Our employee base fluctuates based on seasonal labor requirements within our distribution and fulfillment centers, as well as based
on production levels within our manufacturing facilities. These personnel changes generally trend with the overall demand for our
products and services.
Approximately 80% of the employees at two of our facilities in San Pedro Sula, Honduras, are party to multi-year collective
bargaining agreements. We have historically conducted our operations without significant labor disruptions and believe that our
relations with our employees are positive.
The table below provides an overview of the approximate percentage of employees by gender and region as of September 2021:
Region
Offshore
United States
Total
Diversity and Inclusion
Male
48%
36%
46%
Female
52%
64%
54%
We are committed to fostering an inclusive culture where every employee is treated with dignity and respect, regardless of their
gender, age, race, abilities, or sexual orientation. We believe that our employees’ contributions are richer because of their diverse
backgrounds and experiences, which strengthens the collaboration of our cross-functional, global teams and leads to improved
performance.
Wages and Benefits
Investing in our people is critical for their personal and professional success, and we believe this investment enhances engagement
and performance levels. Our compensation philosophy is to provide a fair living wage that is also scalable to the performance of the
business. We provide our employees with at least the legal minimum wage or the prevailing industry wage in the countries where
we operate, whichever is higher, complying with all legal wage requirements. We also provide fringe benefits, some of which are
required by law, contract, or as per established collective bargaining agreements, while others are more favorable than required.
In recognition of the importance of raising the standard of living in certain communities in which we operate, we provide additional
benefits, such as free onsite medical care from fully licensed physicians and nurses that encompass clinics and wellness programs.
In these locations, we also provide subsidized meal assistance as well as free transportation to and from our facilities.
We invest in the professional development of our employees through various training programs. In 2021, we provided more than
217,000 hours of professional development and safety training for our employees, which is a 76% increase from the previous year.
Health and Safety
Our responsibility is to provide our employees with a safe and healthy work environment that meets or exceeds the applicable
environmental and health and safety laws and regulations. All our manufacturing facilities in El Salvador, Honduras, and Mexico
are Worldwide Responsible Accredited Production (“WRAP”) certified. We are a Category C affiliate with the Fair Labor
Association (“FLA”), an organization that supports human rights compliance monitoring for our plants and our third-party
contractors.
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Because textile manufacturing can contain various hazards and risks to workers, we have proactive programs in place to promote
workplace safety, personal health, and employee wellness. Our culture promotes and rewards safety-first in all aspects of
manufacturing, materials handling, and distribution of our apparel products. Safety training and awareness is embedded in employee
orientation and onboarding, job performance and evaluation, and ongoing training based on a set safety training calendar by topic.
We standardize, document, and improve our manufacturing and distribution safety procedures that require activities to be performed
in the safest manner possible.
We are proud that our safety records are consistently better than OSHA’s benchmarks for the apparel manufacturing sector. For
example, Delta Apparel’s 2021 incident rate for total recordable cases dropped to 0.3% compared to OSHA’s average incident rate
of 3.4%. In addition, Delta Apparel had no cases involving lost time from work in 2021.
Our production and distribution processes incorporate ergonomic material handling equipment to reduce physical risks, protect
employee health, and optimize productivity. In our cut and sew facilities, we use ergonomically-friendly chairs and floor mats in
addition to facilitating frequent group stretching and movement exercises. In several of our manufacturing and distribution facilities
we provide lightweight slip sheet material handling equipment, which has the dual benefit of reducing manual labor and potential
back strain on employees.
At the onset of the 2020 COVID-19 pandemic, we quickly implemented a comprehensive series of protocols and safety measures
across all our facilities to protect the health and safety of our employees and contractors. We also created our own COVID-19 safety
videos to promote healthy behaviors at home and in the workplace. Today, these safety measures are still in place such as checking
each person’s temperature prior to entering a facility, maintaining plexiglass partitions to separate hand-washing stations, work areas,
and cafeteria seating areas, sanitizing the interior of vehicles that are used to transport employees to and from work, and requiring
all employees to observe safe distancing. We also continue to provide all employees with personal protective equipment, sanitizing
products, and COVID-19 informational materials. Our COVID-19 safety protocols have been recognized by local governments and
our customers as best-in-class and serve as a model for other manufacturing operations in the regions in which we operate.
Monitoring
We conduct annual audits of all our internal manufacturing facilities as well as our significant third-party fabric suppliers to evaluate
compliance with the FLA Workplace Code of Conduct. These audits cover labor topics, such as forced or child labor, compensation
policies, and nondiscrimination, as well as environmental health and safety topics, such as fire safety, processes for safe chemistry,
and environmental permits. These audits are important in identifying and preventing human rights and environmental health and
safety violations.
The annual audits are conducted by Delta Apparel employees in our human resources or compliance departments, and they follow
predefined audit programs and checklists that involve a mix of in-person site visits and walkthroughs of the facility, observations of
processes, interviews with employees, and inspection of records and applicable permits. The audit results are documented with
supporting photographs for any non-conformance findings. The internal auditors then report the findings to management, including
the recommended corrective actions, and the date by which the corrective actions must be complete. The audits performed in 2021
resulted in no priority non-conformance findings, defined as severe violations of code of conduct in the areas of labor or
environmental health and safety. For minor violations identified, we put corrective action plans in place to remediate the findings.
Community Outreach
Delta Apparel is committed to giving back to the communities where our employees live and work through volunteer service and
community outreach. During 2021, employees were involved in programs to promote environmental responsibility and improve the
way of life for nearby communities.
●
Between November 3 and November 17, 2020, two category five hurricanes, Eta and Iota, made landfall within a 15-mile area
of northern Honduras bringing persistent rains and heavy winds that resulted in flooding and dozens of catastrophic landslides
and mudflows. Delta Apparel worked quickly to purchase and deliver construction materials that helped rebuild the homes of
its affected employees. Employees at other locations activated an internal emergency relief fund that raised $20,000, which
Delta Apparel matched 100% resulting in a total of $40,000 in aid for those employees most affected. This effort provided
desperately needed items such as groceries, personal hygiene items, and 1,800 Coleman inflatable mattresses and airbeds.
●
Employees in our Textiles La Paz facility reforested a recreational area at Holy Spirit School located in San Jose Obrajuelo,
El Salvador.
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●
In Mexico, Delta Campeche and Campeche Sportswear employees were active in the following community outreach activities:
- Employees participated in the Campeche Turtle Project to help save the critically endangered Hawksbill sea turtle by
cleaning the plastic waste from beaches in Sebaplaya where the turtles come to lay their eggs for six months per year. On
average, a sea turtle lays around 100 eggs; however, only 1% of the hatchlings actually makes its way out into the ocean
and survives, making it critical to remove any obstacles that would prevent the hatchling from reaching the water. The
beach cleanup resulted in one full trash bag for approximately every five yards of beach.
- Employees joined with the “Together We Will Win” civil association to collect and donate thousands of plastic bottle caps
that were recycled to provide financial assistance to families of children with cancer.
- In celebration of Mexico’s 2021 National Children’s Day, employees collected and donated toys for approximately 450
children living in an orphanage and in surrounding communities.
- To help surrounding communities in the fight against Covid-19, employees in Mexico provided face masks and sanitizing
gel to surrounding communities.
●
Employees from the Honduras sewing facilities participated in several important community projects:
- Employees cleaned up plastic waste and other floating debris across a four-kilometer beach in Omoa, Cortes, Honduras,
which is a coastal municipality just west of Puerto Cortes and adjacent to the Guatemala border. Removing the large
volume of debris along the beaches surrounding Omoa is important to the survival of nesting sea turtles and other ocean
wildlife.
- Employees restored El Plan Park, a family-oriented park in Brisas del Plan, which is a community in Villanueva, Cortes
where approximately 6% of our employees live.
- Employees helped to reforest approximately 400 square meters of land in La Mina, which is an environmentally protected
area in Villanueva, Cortes.
- To help surrounding communities in the fight against Covid-19, employees donated face masks and sanitizing gel to the
Red Cross of Trinidad.
- Employees at Ceiba Textiles participated once again in the annual “United for a Greener Honduras” campaign in conjunctio
with representatives from the Quimistán Municipal Environmental Unit to help restore the forest and environment
conditions in an important rain water collection area of western Honduras. Reforestation is a critical factor in increasing th
region’s water retention capacity as it reduces the impact to nearby communities when rivers overflow during the region
rain and hurricane season.
Competition
As a vertically-integrated apparel company, we have numerous competitors in both domestic and international markets, many of
which are larger and have more brand recognition and greater marketing budgets. Some of these competitors may benefit from lower
production costs that can result from greater operational scale, a differing supply chain footprint, or trade-related agreements and
other macroeconomic factors that may enable them to compete more effectively.
Competition in our Delta Group segment is generally based upon price, service, delivery time, and quality with the relative
importance of each factor dependent upon the needs of the particular customer and the specific product offering. Our Delta
Direct products generally are highly price competitive, and competitor actions can greatly influence pricing and demand for our
products. While price is still important in the custom market, quality and service are generally more important factors for customer
choice. Our ability to consistently service the needs of our Global Brand customers greatly impacts future business with these
customers. We believe our Western Hemisphere-centered manufacturing platform enables us to compete with our competitors by
providing an outlet for customers to diversify their sourcing footprints and reduce time to market. Furthermore, as an integrated
entity with design, manufacturing, sourcing, and marketing capabilities, we believe the interdependencies within our portfolio
provide cost, quality, and speed to market advantages that enable us to be more competitive.
We believe that competition within our Salt Life Group segment is based primarily upon brand recognition, design, and consumer
preference. We focus on sustaining the strong reputation of our lifestyle brands by adapting our product offerings to changes in
fashion trends and consumer preferences. We aim to keep our merchandise offerings fresh with unique artwork and new designs
and support the integrated lifestyle statement of our products through effective consumer marketing. We believe that our favorable
competitive position stems from strong consumer recognition and brand loyalty, the high quality of our products, and our flexibility
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and process control, which drive product consistency. We believe that our ability to remain competitive in the areas of quality, price,
design, marketing, product development, manufacturing, technology and distribution will, in large part, determine our future success.
Seasonality
Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some
seasonality. By diversifying our product lines over the years, we have reduced the overall seasonality of our business. Sales in our
third fiscal quarter (quarter ended in June) are typically the highest and represented 27% of 2021 net sales. Our first fiscal quarter
(quarter ended in December) typically is the lowest and represented 22% of 2021 net sales. Consumer demand for apparel is cyclical
and dependent upon the overall level of demand for soft goods, which may or may not coincide with the overall level of discretionary
consumer spending. These levels of demand change as regional, domestic and international economic conditions change. Therefore,
the distribution of sales by quarter in 2021 may not be indicative of the distribution in future years.
Environmental and Other Regulatory Matters
We are subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater
discharges, storm water flows, air emissions and solid waste disposal. The labeling, distribution, importation, marketing, and sale of
our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer
Product Safety Commission and state attorneys general in the United States. Our international operations are also subject to
compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other anti-bribery laws applicable to our operations.
The environmental and other regulations applicable to our business are becoming increasingly stringent, and we incur capital and
other expenditures annually to achieve compliance with these environmental standards and regulations. We currently do not expect
that the amount of expenditures required to comply with these environmental standards or other regulatory matters will have a
material adverse effect on our operations, financial condition or liquidity. There can be no assurance, however, that future changes
in federal, state, or local regulations, interpretations of existing regulations or the discovery of currently unknown problems or
conditions will not require substantial additional expenditures. Similarly, while we believe that we are currently in compliance with
all applicable environmental and other regulatory requirements, the extent of our liability, if any, for past failures to comply with
laws, regulations and permits applicable to our operations cannot be determined and could have a material adverse effect on our
operations, financial condition and liquidity.
Item 1A. Risk Factors
We operate in a rapidly changing, highly competitive business environment that involves substantial risks and uncertainties,
including, but not limited to, the risks identified below. The following risks, as well as risks described elsewhere in this report or in
our other filings with the SEC, could materially affect our business, financial condition or operating results and the value of Company
securities held by investors and should be carefully considered in evaluating our Company and the forward-looking statements
contained in this report or future reports. The risks described below are not the only risks facing Delta Apparel. Additional risks not
presently known to us or that we currently do not view as material may become material and may impair our business operations.
Any of these risks could cause, or contribute to causing, our actual results to differ materially from expectations.
Risks Related to our Strategy
The price and availability of purchased yarn and other raw materials is prone to significant fluctuations and volatility. Cotton
is the primary raw material used in the manufacture of our apparel products. As is the case with other commodities, the price of
cotton fluctuates and is affected by weather, consumer demand, speculation on the commodities market, inflation, the cost of labor
and transportation, and other factors that are generally unpredictable and beyond our control. As described under the heading
“Manufacturing, Sourcing, and Distribution”, the price of yarn purchased from Parkdale, our key supplier, is based upon the cost of
cotton plus a fixed conversion cost. We set future cotton prices with purchase commitments as a component of the purchase price of
yarn in advance of the shipment of finished yarn from Parkdale. Prices are set according to prevailing prices, as reported by the New
York Cotton Exchange, at the time we enter into the commitments. Thus, we are subject to the commodity risk of cotton prices and
cotton price movements, which could result in unfavorable yarn pricing for us. In the past, the Company, and the apparel industry
as a whole, has experienced periods of increased cotton costs and price volatility that we were unable to pass through to customers,
with the higher costs negatively impacting the gross margins in our Activewear and other businesses by significant amounts. In
addition, sudden decreases in the price of cotton and other raw materials may result in the cost of inventory exceeding the cost of
new production, which may result in downward selling price pressures, negatively impacting the gross margins in our Activewear
and other businesses by significant amounts.
In addition, if Parkdale’s operations are disrupted and Parkdale is not able to provide us with our yarn requirements, we may need
to obtain yarn from alternative sources. We may not be able to enter into short-term arrangements with substitute suppliers on terms
as favorable as our current terms with Parkdale, which could negatively affect our business. In addition, we may not be able to
11
obtain sufficient quantities of yarn from alternative sources, which could require us to adjust manufacturing levels, negatively
impacting our business and results of operations.
We also source fabric in Mexico for use in our Campeche, Mexico sew facility, purchase specialized fabrics that we currently do not
have the capacity or capability to produce and may purchase other fabrics when it is cost-effective to do so. While these fabrics
typically are available from various suppliers, there are times when certain yarns become limited in quantity, causing some fabrics
to be difficult to source. This can result in higher prices or the inability to provide products to customers, which could negatively
impact our results of operations.
Dyes and chemicals are also purchased from several third-party suppliers. While historically we have not had difficulty obtaining
sufficient quantities of dyes and chemicals for manufacturing, the availability of products can change, which could require us to
adjust dye and chemical formulations. In certain instances, these adjustments can increase manufacturing costs, negatively impacting
our business and results of operations.
Economic conditions may adversely impact demand for our products. The apparel industry is cyclical and dependent upon the
overall level of demand for soft goods, which may or may not coincide with the overall level of discretionary consumer
spending. These levels of demand change as regional, domestic and international economic conditions change. These economic
conditions include, but are not limited to, employment levels, energy costs, interest rates, tax rates, inflation, personal debt levels,
and uncertainty about the future, with many of these factors outside of our control. Historically, during recessionary periods, the
demand for casual and activewear apparel has been strong and our business has performed well. However, there can be no assurances
that this correlation will continue in future recessions. Sometimes, the timing of increases or decreases in consumer purchases of
soft goods can differ from the timing of increases or decreases in the overall level of economic activity. Weakening sales may require
us to reduce manufacturing operations to match our output to demand or expected demand. Reductions in our manufacturing
operations may increase unit costs and lower our gross margins, causing a material adverse effect on our results of operations.
The apparel industry is highly competitive, and we face significant competitive threats to our business. The market for athletic
and activewear apparel and the related accessory and other items we provide is highly competitive and includes many new
competitors as well as increased competition from established companies, some of which are larger or more diversified and may
have greater financial resources. Many of our competitors have larger sales forces, stronger brand recognition among consumers,
bigger advertising budgets, and greater economies of scale. We compete with these companies primarily on the basis of price, quality,
service and brand recognition, all of which are important competitive factors in the apparel industry. Our ability to maintain our
competitive edge depends upon these factors, as well as our ability to deliver new products at the best value for the customer,
maintain positive brand recognition, and obtain sufficient retail floor space and effective product presentation at retail. If we are
unable to compete successfully with our competitors, our business and results of operations will be adversely affected.
Our success depends, in part, on our ability to predict or effectively react to changing consumer preferences and trends. The
success of our businesses depends on our ability to anticipate and respond quickly to changing consumer demand and preferences in
apparel and other items we provide. We believe that our brands are recognized by consumers across many demographics and
geographies. The popularity for particular products can change significantly from year-to-year based on prevailing fashion trends
(particularly in our lifestyle businesses) and on other factors and, accordingly, our ability to adapt to fashion trends in designing
products is important to the success of our brands. If we are unable to quickly adapt to changes in consumer preferences in the design
of products, our results of operations could be adversely affected. Moreover, because we and our customers project demand for our
products based on estimated sales and fashion trends, the actual demand for our products sometimes falls short of what was
projected. This can lead to higher inventory levels than desired. Excess inventory levels increase our working capital needs, and
sometimes excess inventory must be sold at discounted prices, all of which could have an adverse impact on our business, financial
condition and results of operations.
Our strategy to grow our direct-to-consumer retail business depends upon our ability to successfully open and operate new
stores in a timely and cost-effective manner. Our strategy to grow our “brick and mortar” retail footprint depends on many factors
including, among others, our ability to: identify desirable store locations; negotiate acceptable lease terms; hire, train and retain a
growing workforce of store managers, sales associates and other personnel; successfully integrate new stores into our existing control
structure and operations, including our information technology systems; and coordinate well with our digital platforms and
wholesale customers to minimize the competition within our sales channels.
If we expand into new geographic areas, we will need to successfully identify and satisfy the consumer preferences in these areas.
In addition, we will need to address competitive, merchandising, marketing, distribution and other challenges encountered in
connection with any expansion. Finally, we cannot ensure that any newly-opened stores will be received as well as, or achieve net
sales or profitability levels comparable to those of, our existing stores in our estimated time periods, or at all. If our stores fail to
achieve, or are unable to sustain, acceptable net sales and profitability levels, our business overall may be materially harmed and we
may incur significant costs associated with closing or relocating stores.
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Risks Related to our Operations
The COVID-19 pandemic has had, and could continue to have, a material adverse effect our ability to operate, results of
operations, financial condition, liquidity, and capital investments. The COVID-19 pandemic has had an adverse effect and could
continue to adversely affect our performance, results of operations, our financial condition, liquidity, and capital investments. Several
public health organizations have recommended, and numerous local and foreign governments have implemented, certain measures
to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Such preventive measures,
or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such
as the potential shutdown of certain locations, decreased employee availability, potential border closures, reduced customer traffic,
modified hours and operations, and others. In mid-March 2020, all of our branded retail locations were temporarily closed in
compliance with guidelines for retail store operations and were re-opened by the end of May 2020. Our manufacturing facilities in
El Salvador and Honduras were also temporarily closed in mid-March 2020 through late June 2020 due to the government-mandated
country shutdowns and we experienced intermittent closures during the June 2020 quarter at our manufacturing facilities in Mexico
and North Carolina. If our retail stores and manufacturing plants are closed in the future, it could adversely affect our results of
operations and financial condition.
Many of our customers and suppliers also face these and other challenges, which could lead to reduced demand for our products and
services, could impair our customers' ability to pay all or portion of the amounts owed to us, and could cause disruptions in our
supply chain. We rely on suppliers and third-parties to deliver raw materials and transport our finished goods. The 2020 temporary
closures of our manufacturing facilities, as well as recent disruptions and delays in the global and national supply chain, have resulted
in our finished goods inventory being lower than optimal for our business. This resulted in lost business during fiscal year 2021, and
we were unable to fulfill orders for our customers. Prolonged inventory shortages may result in significant lost business or delay in
shipments which could have a material adverse effect on our results of operations and financial condition.
The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the duration of the pandemic, a resurgence of the pandemic, new information that may emerge
concerning the severity of COVID-19, and public and private actions to contain COVID-19 or treat its impact. The COVID-19
pandemic has and will likely continue to result in social, economic, and labor instability in the countries in which we, or the third
parties with whom we engage, operate. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic,
including but not limited to, possible impairment, restructuring, and other charges, as well as overall impact on our business, results
of operations, financial condition, liquidity, or capital resources and investments, cannot be reliably quantified or estimated at this
time due to the uncertainty of future developments.
The OSHA vaccine mandate for employers with more than 100 employees could have a material adverse impact on our
business, financial condition, and results of operations. On September 9, 2021, President Biden announced plans for the federal
Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) mandating that all
employers with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or produce, on a weekly
basis, a negative COVID test (the “vaccine mandate”). On November 4, 2021, OSHA issued the ETS, which will require covered
employers to comply with the vaccine mandate beginning January 4, 2022 or face substantial penalties for non-compliance.
Currently, the implementation of the vaccine mandate has been blocked by a federal appeals court, subject to the resolution of
ongoing litigation challenging the constitutionality of the rules. In addition to the vaccine mandate, it is possible that additional
mandates may be announced by foreign or local jurisdictions that could impact our workforce and operations. Such mandates could
result in increased labor attrition and disruption, as well as difficulty securing future labor needs, and could adversely impact our
results of operations.
Although we cannot predict with certainty the impact that the potential vaccine mandate and any other related measures may have
on our workforce and operations, these requirements and any future requirements may require significant managerial time and
attention to implement, increase our operating costs, reduce manufacturing productivity levels, result in attrition, including attrition
of key employees, and impede our ability to recruit and retain our workforce. These measures also may further disrupt the national
supply chain, all of which could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Our operations are subject to political, social, and economic risks in Honduras, El Salvador and Mexico. The majority of our
products are manufactured in Honduras, El Salvador and Mexico, with concentrations in Honduras and El Salvador. These countries
from time-to-time experience political, social and economic instability, and we cannot be certain of their future stability. Instability
in a country can lead to protests, riots and labor unrest. Governments have changed, and may continue to change, and employment,
wage and other laws and regulations may change, thereby increasing our costs to operate in those countries. Any of these political,
social, or economic events or conditions could disrupt our supply chain or increase our costs, adversely affecting our financial
position and results of operations. For example, in fiscal year 2018, our operations in and around San Pedro Sula, Honduras, were
partially disrupted by the protests, unrest and government action associated with the November 2017 presidential elections in
Honduras. These disruptions temporarily restricted the ability of our employees and suppliers to access our manufacturing facilities
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as well as our ability to ship products from our facilities, and negatively impacted our operations from a cost standpoint. In fiscal
year 2019, our Honduran operations experienced disruptions of a similar nature that were smaller in scope than those occurring in
fiscal year 2018.
If we experience disruptions or interruptions within any of our facilities, operations, or distribution networks, we may be
unable to deliver our products to the market and may lose sales and customers. We own or lease manufacturing facilities in the
United States, Honduras, Mexico and El Salvador. We also own or lease distribution facilities located throughout the United States
and maintain inventory at certain third-party locations. Any casualty or other circumstance that damages or destroys any of these
material facilities or significantly limits their ability to function could have a material adverse effect on our business. Similarly, any
significant interruption in the operation of any of these facilities or our related sourcing and transportation logistics functions, whether
within or outside of our control, may delay shipment of merchandise to our customers, potentially damaging our reputation and
customer relationships and causing a loss of revenue. Moreover, in the event of a regional disruption where we manufacture our
products, we may not be able to shift our operations to a different geographic region, and we may have to cease or curtail our
operations in a selected area. This may cause us to lose sales and customers. The types of disruptions that may occur include foreign
trade disruptions, import restrictions, labor disruptions, embargoes, government intervention, natural disasters, regional or global
pandemics and political disruptions such as those referenced in the immediately-preceding risk section. In addition, if we are unable
to successfully coordinate the planning of inventory across these facilities and the related distribution activities, it could have a
material adverse effect on our business, financial condition and results of operations.
The talents and continued contributions of our key management are important to our success. We believe our future success
depends on our ability to retain and motivate our key management, our ability to attract and integrate new members of management
into our operations, and the ability of all personnel to work together effectively as a team and to execute our business strategy. Our
inability to accomplish any of these goals could have a material adverse effect on our results of operations.
Energy, fuel and related costs are prone to significant fluctuations and volatility, which could adversely affect our results of
operations. Our manufacturing operations require high inputs of energy, and therefore changes in energy prices directly impact our
gross profits. In addition, we incur significant freight costs to transport goods between our offshore facilities and the United States,
along with transportation expenses to ship products to our customers. The cost of energy and fuel fluctuates due to a number of
factors outside of our control, including government policy and regulation, supply disruptions, inflation, and weather conditions. We
continue to focus on methods that will reduce the amount of energy used in the manufacture of products to mitigate risks of
fluctuations in the cost of energy. However, significant increases in energy and fuel prices, which may have a material adverse effect
on our financial position and results of operations, especially if such increases make us less competitive compared to others in the
industry.
Our business operations rely on our information systems and any material disruption or slowdown of our systems could
cause operational delays, reputational harm, or loss of revenue. We depend on information systems to, among other things,
manage our inventory, process transactions, operate our websites, respond to customer inquiries, purchase, sell and ship goods on a
timely basis, and maintain cost-effective operations. Management uses information systems to support decision-making and to
monitor business performance. If we experience any disruptions or slowdowns with our information systems, we may fail to generate
accurate and complete financial and operational reports essential for making decisions at various levels of management, which could
lead to decisions being made that have adverse results. We have invested significant capital and expect future capital expenditures
associated with the implementation and integration of our information technology systems across our businesses. This process
involves the replacement and consolidation of technology platforms so that our businesses are served by fewer platforms, resulting
in operational efficiencies and reduced costs. Our inability to effectively implement or convert our operations to the new systems
could cause delays in product fulfillment and reduced efficiency in our operations. Further, if changes in technology cause our
information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose customers.
We are also subject to risks and uncertainties associated with the internet, including changes in required technology interfaces,
website downtime and other technical failures. Our failure to successfully respond to these risks and uncertainties could reduce sales,
increase costs and damage the reputation of our brands. In addition, we interact with many of our customers through our websites.
Customers increasingly utilize our online platforms to purchase our merchandise. If we are unable to continue to provide consumers
a user-friendly experience and evolve our platforms to satisfy consumer preferences, the growth of our ecommerce and other
businesses and our sales may be negatively impacted. If our websites contain errors or other vulnerabilities which impede or halt
service, it could result in damage to our brands’ images and a loss of revenue. In addition, we may experience operational problems
with our information systems as a result of system failures, "cyber-attacks," computer viruses, security breaches, disasters or other
causes. Any material disruption or slowdown of our information systems could cause operational delays and increased costs that
could have a material adverse effect on our business and results of operations.
Compromises of our data security could lead to liability and reputational damage. In the ordinary course of our business, we
often collect, retain, transmit, and use sensitive and confidential information regarding customers and employees and we process
customer payment card and check information. There can be no assurance that we will not suffer a data compromise, that
unauthorized parties will not gain access to personal information, or that any such data compromise or access will be discovered in
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a timely manner. Further, the systems currently used for transmission and approval of payment card transactions, and the technology
utilized in payment cards themselves, all of which can put payment card data at risk, are determined and controlled by the payment
card industry, not by us. Our computer systems, software and networks may be vulnerable to breaches (including via computer
hackings), unauthorized access, misuse, computer viruses, phishing or other failures or disruptions that could result in disruption to
our business or the loss or theft of confidential information, including customer information. Any failure, interruption, or breach in
security of these systems, could result in the misappropriation of personal information, payment card or check information or
confidential business information of our Company. In addition, there may be non-technical issues, such as our employees, contractors
or third parties with whom we do business or to whom we outsource business operations may attempt to circumvent our security
measures in order to misappropriate such information, and may purposefully or inadvertently cause a breach involving such
information.
The methods used by third parties to obtain unauthorized access change frequently and may not be anticipated or immediately
detected. Thus, despite the security measures we may have in place, an actual or perceived information security breach, whether due
to "cyber-attack," computer viruses or other malicious software code, or human error or malfeasance, could occur. Actual or
anticipated attacks may cause us to incur significant costs to rectify the consequences of the security breach or cyber-attack, including
costs to deploy additional personnel and protection technologies, repair damage to our systems, train employees and engage third-
party experts and consultants. The collection, retention, transmission, and use of personal information is subject to contractual
requirements and is highly regulated by a multitude of state, federal, and foreign laws. Privacy and information security laws are
complex and constantly changing. Compliance with these laws and regulations may result in additional costs due to new systems
and processes, and our non-compliance could lead to legal liability. Any compromise of our customer, employee or company data,
failure to prevent or mitigate the loss of personal or business information, or delay in detecting or providing prompt notice of any
such compromise could attract media attention, damage our customer or other business relationships and reputation, result in lost
sales, fines, liability for stolen assets or information, costs of incentives we may be required to offer to our customers or business
partners to retain their business, significant litigation or other costs and involve the loss of confidential company information, any
or all of which could have a material adverse effect on our business, financial condition and results of operations.
As previously disclosed in our 2019 unauthorized malware intrusions of our system may have exposed customer payment
information as it was being entered to make a purchase at one of our consumer ecommerce websites. We removed the malware
associated with the intrusions from our system and took actions to secure our website by working with recognized data security
experts to conduct a thorough investigation of the incident and implement additional measures designed to build stronger protections
against future incidents of this nature. This, or any compromise of security or cyber-attack, could deter consumers from entering into
transactions that require them to provide confidential information to us in the future. In addition, if confidential customer information
was misappropriated from our computer systems, we could be sued by those who assert that we did not take adequate precautions to
safeguard our systems and confidential data belonging to our customers or business partners, which could subject us to liability and
result in significant legal fees and expenses in defending these claims. While we do not currently believe that we experienced any
material losses related to this incident, there can be no assurance that this or any other incident will not have a material adverse effect
on our business, prospects, financial condition and results of operations.
Extreme weather conditions, natural disasters, and other catastrophic events, including those caused by climate change,
could negatively impact our results of operations and financial condition. Extreme weather conditions in the areas in which our
manufacturing facilities, retail stores, suppliers, customers, distribution centers, and offices are located could adversely affect our
results of operations and financial condition. Moreover, natural disasters such as earthquakes, hurricanes, floods, or wildfires, public
health crises, such as pandemics and epidemics (including, for example, the COVID-19 pandemic), political crises, such as terrorist
attacks, war and other political instability, or other catastrophic events, whether occurring in the United States or abroad, and their
related consequences and effects, including energy shortages, could disrupt our operations, the operations of our suppliers or result
in economic instability that could negatively impact customer spending, any or all of which would negatively impact our results of
operations and financial condition. In addition, fire and other natural disasters such as hurricanes, earthquakes, or floods have
occurred and can recur in the countries in which we operate. These types of events could impact our global supply chain, including
the ability of suppliers to provide raw materials where and when needed, the ability of third parties to ship merchandise, and our
ability to ship products from or to the impacted region(s).
In addition, climate change and the increased focus by governments, organizations, customers, and investors on sustainability issues,
including those related to climate change and socially responsible activities, may adversely affect our reputation, business, and
financial results. Investor advocacy groups, certain institutional investors, investment funds, other market participants, shareholders,
and stakeholders have focused increasingly on the environmental, social, and governance, or ESG, and related sustainability practices
of companies. These parties have placed increased importance on the implications of the social cost of their investments. If our ESG
practices do not meet investor or other stakeholder expectations and standards (which are continually evolving and may emphasize
different priorities than the ones we choose to focus on), then our brand, reputation, and potential employee retention may be
negatively impacted. We could also incur additional costs and require additional resources to monitor, report, and comply with
various ESG practices and regulations. Also, our failure, or perceived failure, to manage reputational threats and meet expectations
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with respect to socially responsible activities and sustainability commitments could negatively impact our brand credibility,
employee retention, and the willingness of our customers and suppliers to do business with us.
Risks Related to Legal and Regulatory Matters
Changes in U.S. or other tax laws or regulations may cause us to incur additional tax liability. We are subject to income tax in
the United States and in certain foreign jurisdictions where we generate net operating profits. We generally benefit from a lower
overall effective income tax rate due to the majority of our manufacturing operations being located in foreign tax-free jurisdictions
or foreign jurisdictions with tax rates that are lower than those in the United States. Our U.S. legal entity contracts with our foreign
subsidiaries to manufacture products on its behalf, with the intercompany prices paid for the manufacturing services and
manufactured products based on an arms-length standard and supported by an economic study.
The December 22, 2017 Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) significantly revised the U.S. corporate income
tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and
imposing a repatriation tax ("transition tax") on deemed repatriated cumulative earnings of foreign subsidiaries. In addition, new
taxes were imposed related to foreign income, including a tax on global intangible low-taxed income ("GILTI") as well as a limitation
on the deduction for business interest expense ("Section 163(j)"). GILTI is the excess of the shareholder's net controlled foreign
corporations (“CFCs”) net tested income over the deemed tangible income. The Section 163(j) limitation does not allow the amount
of deductible interest to exceed the sum of the taxpayer's business interest income, of 30% of the taxpayer's adjusted taxable income.
The Coronavirus Aid, Relief, and Economic Security (“CARES Act”), which was enacted on March 27, 2020, provided temporary
changes to income and non-income-based tax laws, including some provisions which were previously enacted under the New Tax
Legislation. The CARES Act revised the U.S. corporate income tax code on a temporary basis by, among other things, eliminating
the 80% of taxable income limitation on net operating loss (“NOL”) carryforwards, allowing NOL carrybacks, and increasing the
Section 163(j) interest limitation deduction from 30% to 50% of adjusted taxable income.
Our effective tax rate could be adversely affected by changes in the mix of earnings between the U.S. and tax-free or lower-tax
foreign jurisdictions. We may be limited in our ability to deduct 50% of applicable foreign earnings under the GILTI income
inclusion or to deduct U.S. interest expense based on the amount of U.S. taxable income earned in a particular fiscal year. In addition,
the future impact of the CARES Act and New Tax Legislation may differ from historical amounts, possibly materially, due to, among
other things, changes in interpretations and assumptions made regarding the CARES Act and New Tax Legislation, guidance that
may be issued, and actions we may take as a result of the CARES Act and New Tax Legislation.
Further changes to U.S. tax laws impacting how U.S. multinational corporations are taxed on U.S. and foreign earnings, including
any potential increase in U.S. corporate income tax rate, the doubling of the rate of tax on certain earnings of foreign subsidiaries,
and a 15% minimum tax on worldwide book income, among other things, could have a material adverse effect on our tax expense
and cash flow
We are subject to periodic litigation in both domestic and international jurisdictions that may adversely affect our financial
position and results of operations. From time to time we may be involved in legal or regulatory actions regarding product liability,
employment practices, intellectual property infringement, bankruptcies and other litigation or enforcement matters. Due to the
inherent uncertainties of litigation in both domestic and foreign jurisdictions, we cannot accurately predict the ultimate outcome of
any such proceedings. These proceedings could cause us to incur costs and may require us to devote resources to defend against
these claims and could ultimately result in a loss or other remedies such as product recalls, which could adversely affect our financial
position and results of operations. For a description of current material legal proceedings, see Part I, Item 3, Legal Proceedings.
Product liability issues could lead to recalls, claims and negative publicity, and adversely affect our results of operations. Our
operations are subject to certain product liability risks common to most brands and manufacturers and our ability to maintain
consumer confidence in the safety and quality of our products is vital to our success. We have implemented product safety and
quality programs and standards that we follow and we expect our supplier partners to strictly adhere to applicable requirements and
best practices. In addition to selling apparel and accessory products, we participate in a joint venture involving the sale of a branded
alcoholic beverage, and we also license one of our brands for use in connection with restaurant, food and beverage services. Selling
products intended for human consumption carries inherent risks and uncertainties. If we or our supplier or license partners fail to
comply with applicable product safety and quality standards and our products or those otherwise associated with our brands are, or
become, unsafe, non-compliant, contaminated or adulterated, we may be required to recall our products and encounter product
liability claims and negative publicity. Any of these events could adversely affect our reputation, business or results of operations.
We rely on the strength of our trademarks and could incur significant costs to protect these trademarks and our other
intellectual property. Our trademarks, including Salt Life®, Soffe®, Intensity Athletics®, Kudzu®, Pro Weight®, Magnum
Weight®, and the Delta Design, among others, are important to our marketing efforts and have substantial value. We aggressively
protect these trademarks and have incurred legal costs in the past to establish and protect these trademarks. We may in the future be
required to expend significant additional resources to protect these trademarks and our other intellectual property. Intellectual
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property litigation may be costly and may divert management's attention from the operation of our business. Adverse determinations
in any litigation may result in the loss of our proprietary rights, subject us to significant liabilities or require us to seek licenses from
third parties, which may not be available on commercially reasonable terms, if at all. Any of these outcomes may have a material
adverse effect on our financial condition, results of operations or cash flows.
Significant changes to international trade regulations could adversely affect our results of operations. The majority of our
products are manufactured in Honduras, El Salvador and Mexico. We therefore benefit from current free trade agreements and other
duty preference programs, including the U.S.-Mexico-Canada Agreement (“USMCA”), and the Central America Free Trade
Agreement (“CAFTA”). Our claims for duty free or reduced duty treatment under CAFTA, USMCA and other available programs
are largely conditioned on our ability to produce or obtain accurate records (some of which are provided to us by third parties) about
production processes and sources of raw materials. Trade partnerships and treaties can be subjected to negotiations and modifications
by domestic and foreign governments, which could result in new or increased tariffs on goods we import into the United States.
Subsequent repeal or further modification of USMCA or CAFTA, further increases to tariffs on goods imported into the United
States, or the inadequacy or unavailability of supporting records, could have a material adverse effect on our results of operations.
In addition, our products are subject to foreign competition, which in the past has been faced with significant U.S. government import
restrictions. The extent of import protection afforded to domestic apparel producers has been, and is likely to remain, subject to
political considerations. The elimination of import protections for domestic apparel producers could significantly increase global
competition, which could adversely affect our business and results of operations.
Our failure to comply with trade and other regulations could lead to investigations or actions by government regulators and
negative publicity. The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation
by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys'
general in the United States. Any failure to comply with such regulations could cause us to become subject to investigation and
enforcement actions resulting in significant penalties or claims or in our inability to conduct business, adversely affecting our results
of operations.
Our international operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other anti-
bribery laws applicable to our operations. In many foreign countries, particularly in those with developing economies, it may be a
local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other U.S.
and foreign laws and regulations applicable to us. Although we have implemented procedures designed to ensure compliance with
the FCPA and similar laws, some of our agents or other channel partners, as well as those companies to which we outsource certain
of our business operations, could take actions in violation of our policies. Any such violation could have a material and adverse
effect on our business.
Changes in domestic or foreign employment regulations or changes in our relationship with our employees could adversely
affect our results of operations. As of October 2, 2021, we employed approximately 8,500 employees worldwide, with
approximately 7,400 of these employees located in Honduras, El Salvador and Mexico. Changes in domestic and foreign laws and
regulations governing our relationships with our employees, including wage and human resources laws and regulations, labor
standards, overtime pay, unemployment
the potential
vaccine mandate would likely have a direct impact on our operating costs. Increases in wage rates in the countries in which we
operate have occurred, and any further significant increases in wage rates in those countries could have a material adverse impact
on our operating results. A total of approximately 2,900 employees at two of our facilities in San Pedro Sula, Honduras, are party to
multi-year collective bargaining agreements. We have historically conducted our operations without significant labor disruptions
and believe that our relations with our employees are generally good. However, a change in labor relations could adversely affect
the productivity and ultimate cost of our manufacturing operations.
tax rates, workers' compensation rates, payroll
taxes, and
Our business is dependent on attracting and retaining a large number of quality associates with staffing needs especially high during
the holiday season. Competition for personnel during this time of year is highly competitive, and there is no assurance we will be
able to attract and retain a sufficient number of qualified personnel in future periods. Our ability to meet our labor needs is subject
to many factors, such as prevailing wage rates, minimum wage legislation, unemployment levels, and actions by our competitors in
compensation levels. In addition, changes in federal, state, or local laws and regulations relating to employee benefits, including, but
not limited to, sick time, paid time off, leave of absence, wage-and-hour, overtime, and meal-and-break time could cause us to incur
additional costs. Competitive and regulatory pressures have already significantly increased our labor costs and we may be unable to
fully pass these costs to our customers through increased selling prices, which could deteriorate our profitability. In addition further
changes that hurt our ability to attract and retain personnel could adversely affect our results of operations in the future.
The value of our brands, sales of our products and our licensing relationships could be impacted by negative publicity
resulting from violations of manufacturing or employee safety standards or labor laws, or unethical business practices, by
our suppliers and independent contractors. We are committed to ensuring that all of our manufacturing facilities comply with our
strict internal code of conduct, applicable laws and regulations, and the codes and principles to which we subscribe. In addition, we
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require our suppliers and independent contractors to operate their businesses in compliance with the laws and regulations that apply
to them. However, we do not control these suppliers and independent contractors. A violation of our policies, applicable
manufacturing or employee safety standards and codes of conduct, labor laws or other laws or regulations by our suppliers or
independent contractors could interrupt or otherwise disrupt our operations. Negative publicity regarding the production or operating
methods of any of our suppliers or independent contractors or their failure to comply with our policies, applicable manufacturing or
employee safety standards and codes of conduct, labor laws or other laws or regulations could adversely affect our reputation, brands,
sales and licensing relationships, which could adversely affect our business and results of operations.
Risks Related to Financial Matters
We may be restricted in our ability to borrow under our revolving credit facility or service our indebtedness. Significant
operating losses or significant uses of cash in our operations could cause us to default on our asset-based revolving credit facility.
We rely on our credit facility, as well as on cash generated by our operations, to fund our working capital and capital expenditure
needs, to make acquisitions, to fund repurchases under our share repurchase program and to pay dividends should we choose to do
so in the future. Our working capital needs are generally greater in advance of the spring and summer selling seasons. Availability
under our credit facility is primarily a function of the levels of our accounts receivable and inventory, as well as the uses of cash in
our operations. A significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional
funds or service our indebtedness. Cash on hand and availability under our U.S. revolving credit facility totaled $45.3 million at
October 2, 2021, well above the minimum thresholds specified in our credit agreement. In addition, we were above the 1.1 to 1.0
FCCR for the preceding 12-month period. A significant deterioration in our business could cause our availability to fall below
minimum thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit agreement, which we may not be
able to maintain. The covenants include, among other things, limitations on asset sales, consolidations, mergers, liens, indebtedness,
loans, investments, guaranties, acquisitions, dividends, stock repurchases, and transactions with affiliates. If an event of default under
our credit facility occurred or became imminent, we may request our credit agreement lenders to provide a waiver. If we were
unsuccessful in that endeavor, we could explore alternative sources of capital, whether debt or equity, which would likely be more
expensive than the costs we incur under our credit facility. If we were unable to cure an un-waived event of default under our credit
facility, we would be unable to borrow additional amounts under the facility, we could be unable to make acquisitions as well as
fund share repurchases and pay dividends, and our lenders thereunder could accelerate our obligations under the agreement and
foreclose on our assets subject to the liens in their favor. This circumstance would have a material adverse effect on our financial
position and results of operations.
Deterioration in the financial condition of our customers or suppliers and changes in the operations and strategies of our
customers or suppliers could adversely affect our financial position and results of operations. We extend credit to our
customers, generally without requiring collateral. The extension of credit involves considerable judgment and is based on an
evaluation of each customer’s financial condition and payment history. We monitor credit risk exposure by periodically obtaining
credit reports and updated financial statements on our customers. Deterioration in the economy, declines in consumer purchases of
apparel, disruption in the apparel retail environment, or the inability of our customers to access liquidity could have an adverse effect
on the financial condition of our customers. During the past several years, various retailers and other customers have experienced
significant difficulties, including consolidations, restructurings, bankruptcies and liquidations as well as retail shutdowns as a result
of the COVID-19 pandemic. The inability of retailers and other customers to overcome these difficulties may continue or even
increase due to the current economic and retail market conditions. We maintain an allowance for doubtful accounts for potential
credit losses based upon current conditions, historical trends, estimates and other available information, which involves judgments
and uncertainties. During fiscal year 2020, we estimated and recorded additional reserves based on the heightened risks in the market
as the U.S. and our customers continue to recover from the early stages of the COVID-19 pandemic. During fiscal year 2021,
customers paid on the credit extended to them, and we ended fiscal year 2021 with days sales outstanding at 47.4 days, down from
51.2 days at September 2020 and 47.5 days at September 2019. As such, we reversed the additional credit risk reserves recorded
during fiscal year 2020, but maintain our normal allowance for doubtful accounts for potential credit losses. Although our historical
allowances have been materially accurate, if market conditions change, additional reserves may be required. The inability to collect
on sales to significant customers or a group of customers could have a material adverse effect on our financial condition and results
of operations. Significant changes in the financial condition of any of our suppliers or other parties with which we do business could
result in disruption to our business and have a material adverse effect on our financial condition and results of operations.
In addition, significant changes in the retail, merchandising and/or operational strategies employed by our customers may result in
decreased sales of our products to such customers and could have a material adverse effect on our financial condition and results of
operations. Likewise, significant changes in the operations of any of our suppliers or other parties with which we do business could
result in disruption to our business and have a material adverse effect on our financial condition and results of operations.
Our variable rate debt subjects us to interest rate risk that could cause our debt service obligations to increase significantly.
The debt we incur under our asset-based revolving credit facility is at variable rates of interest, which exposes us to interest rate risk.
If interest rates increase, our obligations on this variable rate indebtedness would increase even though the amount borrowed
remained the same, and there would be a corresponding decrease in our net income and cash flows, including cash available for
18
servicing our debt. In addition, certain of the variable rate indebtedness extended to us uses the London Interbank Offered Rate
(LIBOR) as a benchmark for establishing the interest rate. While we believe we will continue to use LIBOR through fiscal 2022 and
into fiscal 2023, recent regulatory reform efforts may cause LIBOR to cease to exist, new methods of calculating LIBOR to be
established, or the use of an alternative reference rate(s). These consequences are not entirely predictable and could have an adverse
impact on our financing costs, returns on investments, valuation of derivative contracts and our financial results.
We may need to raise additional capital to grow our business. The rate of our growth, especially through acquisitions, depends,
in part, on the availability of debt and equity capital. We may not be able to raise capital on terms acceptable to us or at all. If new
sources of financing are required, but are insufficient or unavailable, we may be required to modify our growth and operating plans
based on available funding, which could adversely affect our ability to grow the business.
We may be subject to the impairment of acquired intangible assets. When we acquire a business, a portion of the purchase price
of the acquisition may be allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is
allocated to goodwill is determined by the excess of the purchase price over the net identifiable assets acquired. At September
2021 and 2020, our goodwill and other intangible assets were approximately $64.2 million and $57.8 million, respectively. We
conduct an annual review, and more frequent reviews if events or circumstances dictate, to determine whether goodwill is impaired.
We also determine whether impairment indicators are present related to our identifiable intangible assets. If we determine that
goodwill or intangible assets are impaired, we would be required to write down the value of these assets. We complete our annual
impairment test of goodwill on the first day of our third fiscal quarter. For fiscal year 2021, we concluded based on the valuation
estimates that there was no indication of impairment on the goodwill recorded on our financial statements. We also concluded that
there are no additional indicators of impairment related to our intangible assets. There can, however, be no assurance that we will
not be required to take an impairment charge in the future, which could have a material adverse effect on our results of operations.
We are subject to foreign currency exchange rate fluctuations. We manufacture the majority of our products outside of the
United States, exposing us to currency exchange rate fluctuations. In addition, movements in foreign exchange rates can affect
transaction costs because we source products from various countries. We may seek to mitigate our exposure to currency exchange
rate fluctuations but our efforts may not be successful. Accordingly, changes in the relative strength of the United States dollar
against other currencies could adversely affect our business.
The market price of our shares is affected by the illiquidity of our shares, which could lead to our shares trading at prices
that are significantly lower than expected. Various investment banking firms have informed us that public companies with
relatively small market capitalizations have difficulty generating institutional interest, research coverage or trading volume. This
illiquidity can translate into price discounts as compared to industry peers or to the shares’ inherent value. We believe that the market
perceives us to have a relatively small market capitalization. This has led and could continue to lead to our shares trading at prices
that are significantly lower than our estimate of their inherent value.
As of November 17, 2021, we had 6,974,660 shares of common stock outstanding. We believe that approximately 36% of our stock
is beneficially owned by entities and individuals who each own more than 5% of the outstanding shares of our common stock.
Institutional investors that beneficially own more than 5% of the outstanding shares own approximately 24% of the outstanding
shares of our common stock. Sales of substantial amounts of our common stock in the public market by any of these large holders
could adversely affect the market price of our common stock, especially in light of the limited trading volumes.
The market price of our shares may be highly volatile, and the stock market in general can be highly volatile. Fluctuations in
our stock price may be influenced by, among other things, general economic and market conditions, conditions or trends in our
industry, changes in the market valuations of other apparel companies, announcements by us or our competitors of significant
acquisitions, strategic partnerships or other strategic initiatives, and trading volumes. Many of these factors are beyond our control,
but may cause the market price of our common stock to decline, regardless of our operating performance.
19
Item 1B. Unresolved Staff Comment
None.
Item 2. Properties
Our principal executive office is located in a leased facility in Duluth, Georgia. We own and lease properties supporting our
manufacturing, distribution, direct retail, and administrative activities. The majority of our products are manufactured through a
combination of facilities that we either own or lease and operate. The following listing summarizes the significant categories as of
September 2021:
Manufacturing
Distribution
Decoration/distribution
Retail stores/showroom
Offices
Total
Owned
2
2
1
1
—
6
Leased
6
1
7
17
5
36
Other
—
1
1
—
—
2
Total
8
4
9
18
5
44
Our primary manufacturing as of September 2021, are as follows:
Name
Ceiba Textiles
Location
Naco, Quimistan, Santa Barbara
Utilization
Knit/dye/finish/cut
Segment
Delta Group
Honduras Plant
Cortes Plant
Campeche Plant
Campeche Sportswear
Textiles LaPaz
Fayetteville Plant
Rowland Plant
Honduras
San Pedro Sula, Honduras
San Pedro Sula, Honduras
Seybaplaya, Campeche Mexico
Campeche, Mexico
La Paz, El Salvador
Fayetteville, North Carolina
Rowland, North Carolina
Sew
Sew
Cut/sew
Decoration
Cut/sew/decoration
Cut/sew/decoration
Sew
Delta Group
Delta Group
Delta Group/Salt Life Group
Delta Group/Salt Life Group
Delta Group
Delta Group/Salt Life Group
Delta Group
As of September 2021 and 2020, our long-lived assets in Honduras, El Salvador and Mexico collectively encompassed approximately
25% and 28%, respectively, of our consolidated net property, plant and equipment, of which 18% and 21%, respectively, were in
Honduras. See Item 1A. Risk Factors for a description of risks associated with our operations located outside of the United States.
Our primary distribution centers, including those integrated with decoration operations, as of September 2021, are as follows:
Location
Clinton, TN
Fayetteville, NC
Hebron, OH
Opelika, AL
Clearwater, FL
Cranbury, NJ
Fayetteville, NC
Lewisville, TX
Miami, FL
Nashville, TN
Phoenix, AZ
Sparks, NV
Storm Lake, IA
Utilization
Distribution
Distribution
Distribution
Distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Decoration/distribution
Segment
Delta Group
Salt Life Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
Delta Group
We believe that all of our facilities are suitable for the purposes for which they are designed and are generally adequate to allow us
to remain competitive. We continue to maintain a sharp focus on improving our supply chain, lowering our product costs and
reducing the operating capital required in our business. We will continue to take the necessary actions to balance capacities with
demand as needed. Substantially all of our assets are subject to liens in favor of our lenders under our U.S. asset-based secured credit
facility and our Honduran credit facility.
20
ITEM 3. Legal Proceedings
At times, we are party to various legal claims, actions and complaints. There are currently no material pending legal proceedings to
which we are a party or of which any of our property is subject, and we are not aware of any such proceedings that are contemplated
by any governmental authority.
Item 4. Mine Safety Disclosures
Not applicable.
21
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock: The common stock of Delta Apparel, Inc. is listed and traded on the NYSE American
under the symbol “DLA.” As of November 17, 2021, there were approximately 785 record holders of our common stock.
Dividends: Our Board of Directors did not declare, nor were any dividends paid, during 2021 or 2020. Subject to the provisions of
any outstanding blank check preferred stock (none of which is currently outstanding), the holders of our common stock are entitled
to receive whatever dividends, if any, that may be declared from time to time by our Board of Directors in its discretion from funds
legally available for that purpose. Pursuant to the terms of our credit facility, we are allowed to make cash dividends and stock
repurchases if (i) as of the date of the payment or repurchase and after giving effect to the payment or repurchase, we have availability
on that date of not less than 15% of the lesser of the borrowing base or the commitment, and average availability for the 30-day
period immediately preceding that date of not less than 15% of the lesser of the borrowing base or the commitment; and (ii) the
aggregate amount of dividends and stock repurchases after May 10, 2016, does not exceed $10 million plus 50% of our cumulative
net income (as defined in the Amended Credit Agreement) from the first day of the third quarter of fiscal year 2016 to the date of
determination. At September 2021, and September 2020, there was $19.0 million and $8.8 million, respectively, of retained earnings
free of restrictions to make cash dividends or stock repurchases.
Any future cash dividend payments will depend upon our earnings, financial condition, capital requirements, compliance with loan
covenants and other relevant factors.
Purchases of our Own Shares of Common Stock: See Note 14— Repurchase of Common Stock - Debt, in Item 15, which is
incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans: The information required by Item 201(d) of
Regulation S-K is set forth under “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” of this Annual Report, which information is incorporated herein by reference.
Item 6. Reserved
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Financial measures included herein have been presented on a generally accepted accounting principles ("GAAP") basis and, in
certain limited instances, we have presented our financial results on a GAAP and non-GAAP (“adjusted”) basis, which is further
described and reconciled in the sections entitled “Non-GAAP Financial Measures.”
Business Outlook
Our fourth quarter and full year results for fiscal 2021 outpaced our expectations. We believe this shows the strength of our unique
business model to service diversified sales channels and demonstrated the successful streamlining of our organization. We delivered
record full year results, with a 7.5% operating margin on $437 million in net sales, resulting in $2.86 earnings per diluted share.
In our Activewear business, the streamlining of our organization has allowed us to remain nimble as we fluidly adapt to the needs
of our diversified customer base. Our executive leadership, planning, sales force and customer service teams are all aligned to service
the distinctive Delta Direct, Retail Direct and Global Brands sales channels, which is a win-win for Delta Apparel and our
customers. Customers seeking our portfolio of Delta, Delta Platinum, Soffe, and sourced-branded products can purchase them
directly from our Delta Direct business, formerly referred to as Delta Catalog. Delta Direct services key channels, such as the screen
print, promotional, and eRetailer channels as well as the retail licensing channel, whose customers sell through to many mid-tier and
mass market retailers. In our Global Brands & Retail Direct business, we are a supply chain partner to global brands, from product
development of custom garments to shipment of their branded products, with the majority of products being sold with value-added
services. We also serve retailers by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to their retail stores
and through their ecommerce channels. In fiscal 2021 we achieved record sales of $127 million in our Global Brands & Retail Direct
business.
On-shore and near-shore strategies have become an integral component of brands’ and retailers’ sourcing plans driven by many
factors, including changes in trade policies, speed to market, social, environmental and sustainability efforts, inflationary pressures
and supply chain disruptions. We have seen an increased desire from existing and new customers who want to use Delta Activewear
as their supply chain partner. Our western hemisphere manufacturing platform, with its broad product capabilities, coupled with our
unparalleled service levels, provides customers the diversification and confidence they desire within their supply chain. This past
year has been a challenging manufacturing environment with limited availability of raw materials. Our teams have tackled these
22
industry challenges proactively and despite the headwinds, have successfully grown our manufacturing output to record levels. The
higher production in the first half of fiscal 2022 should allow us to be in a stronger inventory position to service the spring 2022
business. We also expect to bring further capacity on line in the second half of fiscal 2022, providing additional flexibility of product
capabilities for our customers.
DTG2Go, our digital print business, remains committed to serving retailers, intellectual property holders, and brands with on-demand
products, and remains focused on achieving the highest quality and service in the business. DTG2Go made significant investments
this year on research and development to achieve a “digital-first” model utilizing the full decoration platform of digital, hybrid and
screen print, making digital indistinguishable from traditional products. We believe the unlocking of this market channel to digital
print will result in significant growth opportunities for DTG2Go in fiscal 2022 and beyond. We continue to see customers realizing
the benefits of our integrated model with Activewear, and in fiscal 2021 Delta blanks were used for over 51% of the garments
digitally printed. This is up significantly from the 32% utilization in fiscal year 2020. This trend is promising as it creates a more
efficient operation, reduces garment cost for our customers, and lowers working capital needs in the business.
Within our Salt Life Group, we have divested the Coast brand and ceased operations of the two Coast retail stores in the 2021 fiscal
fourth quarter as the leases expired. The brand has been purchased by a regional retailer who is excited to be offering the brand in
their stores. During the year we also completed a license agreement for the Salt Life beer. This puts Salt Life Lager in the hands of
beer professionals, and we are already receiving royalty payments on the revenue they have generated. These actions will allow our
Salt Life team to focus on the many initiatives which should continue to drive growth for the brand.
Our Salt Life lifestyle brand awareness and consumer engagement is at an all-time high. Salt Life has the strongest order bookings
in its history for spring 2022 and summer 2022. While Salt Life has always been known for its cotton graphic tees, Salt Life’s
performance wear and ladies’ categories are gaining great momentum with consumers. During fiscal 2021, Salt Life reached a
milestone with 32% of its sales direct to consumers. Of this, over $10 million was from consumers visiting our thirteen branded
retail doors, with sales for those stores open a year ago growing 19% during the fourth quarter. We plan to open seven new stores in
fiscal 2022 across Florida, South Carolina, Alabama and Texas, with continuing plans to open six to eight new Salt Life stores
annually for the next several years.
We believe the opportunities Delta Apparel, Inc. has to grow its top line and further expand profitability are the most robust we have
seen in our history. We remain optimistic about the broad-based growth opportunities and are poised for further manufacturing
expansion to support the demand we anticipate in fiscal 2022 and beyond. Overall, we expect top-line growth and operating profit
expansion in fiscal 2022, resulting in all-time record revenue and earnings per share in fiscal 2022.
Results of Operations
Net sales for 2021 were $436.8 million, up 14.6% from $381.0 million in the prior year. Our growth was broad-based reaching all
time record sales in our Global Brands & Retail Direct sales channel in our Delta Group Segment and in our branded retail stores in
our Salt Life segment. Net sales in 2020 were impacted by the COVID-19 pandemic, which halted retail in the U.S. beginning in
mid-March through the first half of the June quarter, and disrupted our non-U.S. manufacturing operations for most of the June
quarter in 2020. Our direct-to-consumer and business-to-business ecommerce and branded retail sales represented a larger portion
of consolidated revenue in the current year, constituting 10.4% of total net sales for 2021 compared to 9.9% of net sales in the prior
year.
Delta Group segment net sales increased 13% to $387.0 million in 2021 compared to prior year net sales of
$343.9 million. While the COVID-19 pandemic negatively impacted sales performance in the prior year, fiscal year 2021
was a record year for our Global Brands & Retail Direct business reaching $127 million in sales, as brands and retailers
used Delta Activewear as their supply chain partner.
Salt Life Group segment net sales were $49.7 million in 2021, a 34% increase from $37.1 million in the prior year.
Wholesale sales grew 30% in fiscal 2021 and our branded retail stores accelerated throughout the year reaching $10
million in sales for the year. In the prior year, this segment was impacted by the COVID-19 pandemic with the temporary
closure of retail, including our Salt Life branded retail stores, in the prior year June quarter.
Overall gross profit increased 49% to $101.8 million from $68.4 million in the prior period. Gross margins improved 540 basis
points to 23.3% of sales from prior year margin of 17.9% of sales. Adjusting for the $14.7 million impact of COVID-19 related
expenses in 2020, gross margins would have been 21.8%. The improvement over prior year is attributable to favorable product mix
and process improvements within the Delta Group segment’s integrated vertical manufacturing platform.
23
Delta Group segment gross margins improved 500 basis points to 20.2% compared to 15.2% in the prior year. The prior
year was unfavorably impacted by $14.7 million of COVID-19 related expenses. Adjusting for these discrete impacts,
gross margins would have been 19.4% in 2020.
Salt Life Group segment gross margins were 47.9% compared to 43.6% in 2020, a 430 basis point improvement. Margins
were favorably impacted by a stronger mix of direct-to-consumer sales and favorable mix of higher profitability products.
Selling, general and administrative (“SG&A”) expenses in 2021 were $70.7 million, or 16.2% of sales, compared to $68.4 million,
or 17.9% of sales, in 2020. Adjusting for $2.4 million of COVID-19 related expenses, adjusted SG&A for 2020 was $66.0 million,
or 17.3% of sales. Expenses increased in 2021 due to increased labor costs and higher variable selling costs as well as incentive-
based compensation, but expenses were lower as a percentage of sales due to leveraging fixed costs against higher sales volume.
Other income of $1.6 million in 2021 included $0.5 million of profits related to our Honduran equity method investment as well as
$2.4 million income from the net reduction in contingent consideration liabilities, partially offset by $1.3 million of expenses related
to the impact of the two hurricanes that disrupted our Honduran manufacturing facilities in the December quarter. In 2020, we
recognized $8.1 million in expenses caused from the COVID-19 pandemic related to incremental costs to right size production to
new forecasted demand and increased inventory reserves related to the heightened risks in the market as the U.S. continued its
recovery. In addition, in 2020 we recognized income from our Honduran equity method investment as well as $0.2 million in income
from net reductions in contingent consideration liabilities.
Operating profit for 2021 was $32.8 million, an all time record operating profit for the Company. This compares to an operating
loss of $7.1 million in the prior year. Operating income, adjusted for discrete items, was $18.1 million in fiscal year 2020.
Delta Group segment operating income for 2021 was $40.0 million, or 10.3% of sales, compared to $6.6 million, or 1.9%
of sales, in 2020. Adjusting for the $23.7 million in COVID-related expenses in the prior year, operating income would
have been $30.3 million, or 8.8% of sales. The improvement in operating income is attributable to increased sales
volumes and gross margin expansion. Operating income also improved due to strategic cost reductions associated with
integration efficiencies between the Soffe and Activewear businesses.
Salt Life Group segment operating income was $5.8 million for 2021 compared to prior year operating income of $0.5
million. Adjusting for the $0.8 million in COVID-related expenses in the prior year, operating income would have been
$1.3 million, or 3.4% of net sales. Operating income improved due to higher sales volume coupled with favorable product
mix.
Interest expense for 2021 was $6.8 million compared to $7.0 million in 2020. The decrease is primarily due to lower average debt
levels.
Our 2021 effective income tax rate is 21.9% compared to 23.6% in the prior year. See Note 9—Income Taxes for more information.
Net income attributable to shareholders in 2021 was $20.3 million, or $2.86 per diluted share. The prior year net loss was
$10.6 million, or a loss of $1.53 per diluted share, and adjusted net income in 2020 was $8.6 million, or $1.22 income per diluted
share.
24
Non-GAAP Financial Measures
We provide all information required in accordance with GAAP, but we believe that evaluating our ongoing operating results may be
difficult if limited to reviewing only GAAP financial measures. In an effort to provide investors with additional information regarding
the Company's results, we also provide non-GAAP information that management believes is useful to investors. We discuss gross
margin, SG&A expenses, operating income, net income and earnings per diluted share as performance measures because
management uses these measures in evaluating the Company's underlying performance on a consistent basis across periods. We
also believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the
Company's ongoing performance. These non-GAAP measures have limitations as analytical tools, and securities analysts, investors
and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis of the
Company's results as reported under GAAP. These non-GAAP measures may not be comparable to similarly titled measures used
by other companies. The tables below reconcile operating income, net income and earnings per diluted share to adjusted operating
income, adjusted net income and adjusted earnings per diluted share (in thousands except per share data):
Operating income (loss)
Adjustments for COVID-19 expenses (1)
Adjusted operating income
Net earnings (loss) attributable to shareholders
Adjustments for COVID-19 expenses, net of tax (1)
Adjusted net earnings attributable to shareholders
Reported weighted average number of shares assuming dilution
Adjustments impact on dilutive effect of stock awards
Adjusted weighted average number of shares assuming dilution
Reported diluted earnings per share
Adjustments for COVID-19 expenses, net of tax (1)
Adjusted diluted earnings per share (2)
Year Ended
September 2021 September 2020
$
$
$
$
$
32,711
—
32,711
20,296
—
20,296
7,093
—
7,093
2.86
—
2.86
$
$
(7,075)
25,200
18,125
(10,577)
19,152
8,575
6,921
87
7,008
(1.53)
2.73
1.22
$
$
$
$
$
(1) Our 2020 results included approximately $25.2 million of pre-tax expenses associated with the impacts from the COVID-19 pandemic and primarily related to
the curtailment of manufacturing operations ($11.9 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased
accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses
($4.1 million). These costs are included within net sales ($0.5 million), cost of goods sold ($14.2 million), SG&A expenses ($2.4 million), and other loss
(income), net ($8.1 million).
(2) Totals may not add due to rounding.
Liquidity and Capital Resources
Operating Cash Flows
Cash provided by operating activities in 2021 was $25.5 million compared to $31.8 million for 2020. The lower operating cash
flows in 2021 primarily relate to an increase in inventory levels to support demand from customers.
Investing Cash Flows
Cash used in investing activities in 2021 and 2020 was $13.1 million and $12.1 million, respectively. Capital expenditures
during 2021 and 2020 were $15.8 and $13.6 million, respectively. Capital expenditures in both periods primarily related to
investments in our distribution expansion, digital print equipment, information technology, and retail stores. There were
$12.3 million in expenditures financed under capital lease arrangements and $2.9 million in unpaid expenditures as of September
2021.
We expect to spend approximately $20 million in capital expenditures in 2022, primarily on our manufacturing expansion, digital
print equipment, information technology, and direct-to-consumer investments, including seven new Salt Life retail store openings.
25
Financing Activities
Cash used by financing activities was $19.5 million in 2021 compared $3.9 million in 2020. In 2021, we lowered the outstanding on
our U.S credit facility and made the required payments on our capital lease financing, while in 2020 we utilized the cash proceeds
from our U.S. credit facility to pay the required payments on our capital financing and to fund our operating activities and certain
capital investments. In 2021, we paid $2.1 million in contingent consideration related to the DTG2Go acquisition compared to
$2.5 million paid in the prior year. We did not purchase any shares of our common stock during 2021 compared to $2.0 million in
repurchases in the prior year.
Future Liquidity and Capital Resources
See Note 8 – Long-Term Debt to the Consolidated Financial Statements for discussion of our various financing arrangements,
including the terms of our revolving U.S. credit facility.
Our credit facility, as amended on August 28, 2020, as well as cash flows from operations, are intended to fund our day-to-day
working capital needs, along with capital lease financing arrangements, to fund our planned capital expenditures. However, any
material deterioration in our results of operations, may result in the loss of our ability to borrow under our U.S. revolving credit
facility and to issue letters of credit to suppliers, or may cause the borrowing availability under that facility to be insufficient for our
needs. Availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A
significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service
our indebtedness.
Our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in
our credit agreement, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in our credit agreement) for the preceding 12-month
period must not be less than 1.1 to 1.0. Our availability at September 2021, was above the minimum thresholds specified in our
credit agreement, and we were above the 1.1 to 1.0 FCCR for the preceding 12-month period. A significant deterioration in our
business could cause our availability to fall below minimum thresholds, thereby requiring us to maintain the minimum FCCR
specified in our credit agreement, which we may not be able to maintain.
Derivative Instruments
From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost
of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized gains and
losses associated with them were recorded within cost of goods sold on the Consolidated Statement of Operations. There were no
material option agreements that were outstanding at September 2021.
From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact
of future interest rate changes. These financial instruments are not used for trading or speculative purposes. We have designated our
interest rate swap contracts as cash flow hedges of our future interest payments. As a result, the gains and losses on the swap contracts
are reported as a component of other comprehensive income and are reclassified into interest expense as the related interest payments
are made. As of September 2021, all of other comprehensive income was attributable to shareholders; none related to the non-
controlling interest. The changes in fair value of the interest rate swap agreements resulted in other comprehensive gain, net of taxes,
of $0.5 million for the year ended September 2021, and other comprehensive loss, net of taxes, of $0.4 million for the year ended
September 2020.
Off-Balance Sheet Arrangements
As of September 2021, we did not have any off-balance sheet arrangements that were material to our financial condition, results of
operations or cash flows as defined by Item 303(a)(4) of Regulation S-K promulgated by the SEC other than letters of credit, and
purchase obligations. We have disclosed letters of credit and purchase obligations in Note 15—Commitments and Contingencies.
Dividends and Purchases of our Own Shares
Pursuant to the terms of our credit facility, we are allowed to make cash dividends and stock repurchases if (i) as of the date of the
payment or repurchase and after giving effect to the payment or repurchase, we have availability on that date of not less than 15%
of the lesser of the borrowing base or the commitment, and average availability for the 30-day period immediately preceding that
date of not less than 15% of the lesser of the borrowing base or the commitment; and (ii) the aggregate amount of dividends and
stock repurchases after May 10, 2016, does not exceed $10 million plus 50% of our cumulative net income (as defined in the
Amended Credit Agreement) from the first day of the third quarter of 2016 to the date of determination. At September 2021, and
September 2020, there was $19.0 million and $8.8 million, respectively, of retained earnings free of restrictions to make cash
dividends or stock repurchases.
26
Our Board of Directors did not declare, nor were any dividends paid, during 2021 and 2020. Any future cash dividend payments
will depend upon our earnings, financial condition, capital requirements, compliance with loan covenants and other relevant factors.
As of September 2021, our Board of Directors had authorized management to use up to $60.0 million to repurchase stock in open
market transactions under our Stock Repurchase Program. There were no repurchases of our common stock in 2021. During 2020,
we purchased 99,971 shares of our common stock for a total cost of $2.0 million. As of September 2021, we had purchased 3,598,933
shares of common stock for an aggregate of $52.5 million since the inception of the Stock Repurchase Program. All purchases were
made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of September 2021,
$7.5 million remained authorized by our Board of Directors for future purchases under our Stock Repurchase Program, which does
not have an expiration date.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial
Statements, which were prepared in accordance with U.S. GAAP. The preparation of our Consolidated Financial Statements requires
us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our
estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have no
reason to believe that our past estimates have not been appropriate. Our most critical accounting estimates, discussed below, pertain
to revenue recognition, accounts receivable and related reserves, inventories and related reserves, the carrying value of goodwill,
and the accounting for income taxes.
Note 2 to our Consolidated Financial Statements includes a summary of the significant accounting policies or methods used in the
preparation of our Consolidated Financial Statements.
Revenue Recognition
Revenue is recognized when performance obligations under the terms of the contracts are satisfied. Our performance obligations
primarily consist of delivering products to our customers. Control is transferred upon providing the products to customers in our
retail stores, upon shipment of our products to the consumers from our ecommerce sites, and upon shipment from our distribution
centers to our customers in our wholesale operations. Once control is transferred to the customer, we have completed our performance
obligation.
In certain areas of our wholesale business, we offer discounts and allowances to support our customers. Some of these arrangements
are written agreements, while others may be implied by customary practices in the industry. Wholesale sales are recorded net of
discounts, allowances, and operational chargebacks. As certain allowances and other deductions are not finalized until the end of a
season, program or other event which may not have occurred, we estimate such discounts, allowances, and returns that we expect to
provide.
We record reductions to revenue for estimated customer returns, allowances, markdowns and discounts. We estimate these
reductions based on historical rates of customer returns and allowances as well as the specific identification of outstanding returns,
markdowns and allowances that have not yet been received by us. The actual amount of customer returns and allowances, which is
inherently uncertain, may differ from our estimates. If we determine that actual or expected returns or allowances are significantly
higher or lower than the reserves we established, we would record a reduction or increase, as appropriate, to net sales in the period
in which we make such a determination. Reserves for returns, allowances, markdowns and discounts are included within accrued
expenses as refund liabilities, and the value of inventory associated with reserves for sales returns are included within prepaid
expenses and other current assets on the Consolidated Balance Sheets. As of September 2021, and September 2020, there was
$1.0 million and $1.3 million, respectively, in refund liabilities for customer returns, allowances, markdowns and discounts included
within accrued expenses.
Accounts Receivable and Related Reserves
Accounts receivable consists primarily of receivables from our customers arising from the sale of our products, and we generally do
not require collateral from our customers. We actively monitor our exposure to credit risk through the use of credit approvals and
credit limits. Accounts receivable is presented net of reserves for doubtful accounts.
We estimate the net collectability of our accounts receivable and establish an allowance for doubtful accounts based upon this
assessment. In situations where we are aware of a specific customer’s inability to meet its financial obligation, such as in the case
of a bankruptcy filing, we assess the need for a specific reserve for bad debts. Reserves are determined through analysis of the aging
27
of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends
and changes in customer payment terms. Although our historical allowances have been materially accurate, if market conditions
change, additional reserves may be required. Bad debt expense was less than 1% of net sales in each of 2021 and 2020.
Inventories and Related Reserves
We state inventories at the lower of cost and net realizable value using the first-in, first-out method. Inventory cost includes
materials, labor and manufacturing overhead on manufactured inventory and all direct and associated costs, including inbound
freight, to acquire sourced products. We regularly review inventory quantities on hand and record reserves for obsolescence, excess
quantities, irregulars and slow-moving inventory based on historical selling prices, current market conditions, and forecasted product
demand to reduce inventory to its net realizable value. During fiscal year 2020, we estimated and recorded additional reserves of
approximately $5.5 million based on heightened risks in the market as the U.S. and our customers continue their recovery from the
early stages of the COVID-19 pandemic. Although our historical reserves have been materially accurate, if actual selling prices are
less favorable than those projected or if sell-through of the inventory is more difficult than anticipated, additional inventory reserves
may be required.
Goodwill
Goodwill and definite-lived intangibles were recorded in conjunction with our acquisitions of Salt Life, DTG2Go, and SSI. We did
not record any separately identifiable indefinite-lived intangibles associated with any of these acquisitions. Goodwill represents the
excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets acquired and
liabilities assumed. Goodwill must be tested for impairment at least annually or more frequently if events or changes in circumstances
indicate that the carrying amount may be impaired, and goodwill is required to be written down when impaired. As of April 4, 2021,
we performed our annual goodwill impairment evaluation and concluded that the goodwill for the Salt Life and DTG2Go reporting
units were not impaired. The goodwill impairment testing process involved the use of significant assumptions, estimates and
judgments with respect to a variety of factors, including projected sales, gross margins, selling, general and administrative expenses,
capital expenditures and cash flows and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties
and subjectivity. Our assumptions were based on annual business plans and other forecasted results as well as the selection of a
discount rate, all of which we believe represent those of a market participant. We also believe these assumptions are reflective of the
current macro-economic environment, including the impacts of the COVID-19 pandemic. We believe that the most significant
elements of uncertainty are the intensity and duration of the impact on retailers as well as the ability of our customers, supply chain,
and distribution to operate with minimal disruption, all of which could negatively impact the reporting units' financial position,
results of operations, cash flows, and outlook. Given the current macro-economic environment and the uncertainties regarding its
potential impact on our business, there can be no assurance that our estimates and assumptions used in our impairment tests will
prove to be accurate predictions of the future. If our assumptions regarding fair value are not achieved, it is possible that an
impairment review may be triggered and goodwill or other intangible assets may be impaired in a future period.
Income Taxes
We account for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, as well as operating loss, interest deductions, and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is required to reduce the carrying value of deferred tax assets to the
amount that is more-likely-than-not to be realized. In making this final determination, we follow the Accounting Standards
Codification 740, Income Taxes ("ASC 740"), and look to taxable income in prior carryback years, reversals of existing temporary
book/tax differences, tax planning strategies and future taxable income exclusive of reversals of existing temporary differences. By
its very nature, future taxable income requires estimates and judgments about future events that may be predictable, but are far less
certain than past events that can be objectively measured.
We established a valuation allowance related to certain of our state operating loss carryforward amounts in accordance with the
provisions of ASC 740. We continually review the adequacy of the valuation allowance and recognize the benefits of deferred tax
assets if reassessment indicates that it is more likely than not that the deferred tax assets will be realized based on earnings forecasts
in the respective state tax jurisdictions. As of September 2021, we had state NOLs of approximately $46.3 million, with deferred
tax assets of $2.2 million related to these state NOLs, and related valuation allowances against them of approximately $0.6 million.
These state net loss carryforwards expire at various intervals from 2026 through 2040.
28
Recent Accounting Standards
For information regarding recently issued accounting standards, refer to Note 2(ad) and Note 2(ae) to our Consolidated Financial
Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements for each of our periods ended September 2021, and September 2020, together with the
Reports of Independent Registered Public Accounting Firms thereon, are included in this report commencing on page F-1 and are
listed under Part IV, Item 15 in this report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures as of September 2021, and, based on their evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that these controls and procedures were effective at the evaluation date.
Disclosure controls and procedures are controls and other procedures that are designed to reasonably assure that information required
to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information that we are required to disclose in the reports that
we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management of Delta Apparel, Inc. is responsible for establishing and maintaining effective internal control over financial reporting
as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed
to provide reasonable assurance regarding the preparation and fair presentation of published financial statements. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 2021. In
this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) ("COSO") in Internal Control – Integrated Framework. The scope of our efforts to comply with the internal
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 with respect to fiscal year 2021 included all of our operations. Based
on our evaluation, our management has concluded that, as of September 2021, our internal control over financial reporting is
effective.
The effectiveness of our internal control over financial reporting as of September 2021, has been audited by Ernst & Young, LLP
("EY"), our independent registered public accounting firm, who also audited our Consolidated Financial Statements. EY’s attestation
report on our internal controls over financial reporting is included herein.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fourth quarter of 2021 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
29
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Delta Apparel, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Delta Apparel, Inc. and Subsidiaries’ internal control over financial reporting as of October 2, 2021, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Delta Apparel, Inc. and Subsidiaries (the Company)
maintained, in all material respects, effective internal control over financial reporting as of October 2, 2021, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of October 2, 2021, and October 3, 2020, and the related consolidated
statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the two years in the period
ended October 2, 2021, and the related notes and our report dated November 22, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
November 22, 2021
30
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days following the end of our 2021 fiscal year under the headings
"Proposal No. 1: Election of Directors", “Corporate Governance”, “Executive Officers” and “Delinquent Section 16(a) Reports.”
All of our employees, including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, are required to
abide by our business conduct policies so that our business is conducted in a consistently legal and ethical manner. We have adopted
a code of business conduct and ethics known as our Ethics Policy Statement. The Ethics Policy Statement is available without charge
on our website. In the event that we amend or waive any of the provisions of the Ethics Policy Statement applicable to our Chief
Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we intend to disclose the same on our website at
www.deltaapparelinc.com.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from the portions of the definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days following the end of our 2021 fiscal year under the headings
“Executive Compensation,” “Compensation Tables,” and "Director Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information relating to security ownership by certain beneficial owners and management is incorporated herein by reference
from the portion of the definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days
following the end of 2021 “Equity Compensation Plan Information" and “Stock Ownership of Management and Principal
Shareholder.”
On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("2020 Stock Plan") to replace the 2010
Stock Plan, which was previously re-approved by our shareholders on February 4, 2015 and was scheduled to expire by its terms on
September 14, 2020. The 2020 Stock Plan is substantially similar in both form and substance to the 2010 Stock Plan. The purpose
of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to offer a variety
of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its
executives, key employees and directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has
the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and
manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. If a participant dies
or becomes disabled (as defined in the 2020 Stock Plan) while employed by the Company or serving as a director, all unvested
awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted
under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make
any other determinations that it deems necessary. The aggregate number of shares of common stock that may be delivered under the
2020 Stock Plan is 449,714 plus any shares of common stock subject to outstanding awards under the 2010 Stock Plan that are
subsequently forfeited or terminated for any reason before being exercised. Similar to the 2010 Stock Plan, the 2020 Stock Plan
limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate
awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. The 2010 Stock Plan
terminated and the 2020 Stock Plan became effective on February 6, 2020, the date of shareholders’ approval.
31
Set forth in the table below is certain information about securities issuable under our equity compensation plans as of September
2021.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (1)
215,000
—
215,000
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (2)
—
—
—
$
$
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
those currently
outstanding)
415,922
—
415,922
(1) Includes all outstanding restricted stock units that have a performance-based vesting condition that would vest in equity shares, and assumes 100% vesting
performance-based targets.
(2) Not applicable, as no outstanding stock options at period end.
For additional information on our stock-based compensation plans, see Note 12 - Stock-Based Compensation to the Consolidated
Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days following the end of 2021under the heading "Corporate
Governance".
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated herein by reference from the portion of the definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days following the end of 2021 under the heading “Proposal No. 3:
Ratification of Appointment of Independent Registered Public Accounting Firm”.
Part IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements:
Report of Independent Registered Public Accounting Firms.
Consolidated Balance Sheets as of September 2021, and September 2020.
Consolidated Statements of Operations for the years ended September 2021, and September 2020.
Consolidated Statements of Comprehensive (Loss) Income for the years ended September 2021, and September 2020.
Consolidated Statements of Shareholders’ Equity for the years ended September 2021, and September 2020.
Consolidated Statements of Cash Flows for the years ended September 2021, and September 2020.
Notes to Consolidated Financial Statements.
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable, and therefore have been omitted. Columns omitted from schedules
filed have been omitted because the information is not applicable.
(a)(3) The exhibits filed herewith we listed on the Exhibit Index filed as part of this report on Form 10-K.
21
23.1
31.1
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
31.2
32.1
32.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Exhibits
See Item 15(a)(3) above.
Item 16. Form 10-K Summary
None
33
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
November 22, 2021
Date
DELTA APPAREL, INC.
(Registrant)
By: Deborah H. Merrill
Deborah H. Merrill
Chief Financial Officer and President, Delta Gro
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and as of the dates indicated.
/s/Anita D. Britt
Anita D. Britt
Director
11/22/2021
/s/Robert W. Humphreys
Date Robert W. Humphreys
(principal executive officer)
/s/J. Bradley Campbell
J. Bradley Campbell
Director
11/22/2021
/s/Deborah H. Merrill
Date Deborah H. Merrill
(principal financial and accounting officer)
/s/G. Jay Gogue
G. Jay Gogue
Director
/s/Glenda E. Hood
Glenda E. Hood
Director
11/22/2021
/s/A. Alexander Taylor, II
Date A. Alexander Taylor, II
Director
11/22/2021
/s/David G. Whalen
Date David G. Whalen
Director
11/22/2021
Date
11/22/2021
Date
11/22/2021
Date
11/22/2021
Date
34
Delta Apparel, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 2021, and September 2020
Consolidated Statements of Operations for the years ended September 2021, and September 2020
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 2021, and September 2020
Consolidated Statements of Shareholders’ Equity for the years ended September 2021, and September 2020
Consolidated Statements of Cash Flows for the years ended September 2021, and September 2020
Notes to Consolidated Financial Statements
Note 1—The Company
Note 2—Significant Accounting Policies
Note 3—Revenue Recognition
Note 4—Inventories
Note 5—Property, Plant and Equipment
Note 6—Goodwill and Intangible Assets
Note 7—Accrued Expenses
Note 8—Long-Term Debt
Note 9—Income Taxes
Note 10—Leases
Note 11—Employee Benefit Plans
Note 12—Stock-Based Compensation
Note 13—Business Segments
Note 14—Repurchase of Common Stock
Note 15—Commitments and Contingencies
Note 16—Subsequent Events
F- 1
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-9
F-9
F-14
F-14
F-15
F-15
F-16
F-16
F-18
F-20
F-22
F-22
F-23
F-26
F-26
F-27
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Delta Apparel, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Delta Apparel, Inc. and Subsidiaries (the Company) as of
October 2, 2021 and October 3, 2020, the related consolidated statements of operations, comprehensive income (loss),
shareholders’ equity, and cash flows for each of the two years in the period ended October 2, 2021, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at October 2, 2021 and October 3, 2020, and the results of its
operations and its cash flows for each of the two years in the period ended October 2, 2021, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of October 2, 2021, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated November 22, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter
or on the account or disclosures to which it relates.
Description of the Matter
Inventory Reserve Valuation
As described in Note 4 to the Company’s consolidated financial statements, the Company’s
inventories totaled approximately $161.7 million as of October 2, 2021, net of approximately
$15.9 million of inventory reserves. As discussed in Note 2 to the consolidated financial
statements, the Company states inventories at the lower of cost or net realizable value. In
connection with this policy, the Company periodically reviews inventory quantities on hand
and records reserves for obsolescence, excess quantities, irregulars and slow-moving inventory
based on historical selling prices, current market conditions, and forecasted product demand to
reduce inventory to its net realizable value. The Company’s evaluation of inventory valuation
includes consideration of the life cycle of the individual products and historical sales and margin
information based on such life cycles.
Auditing management’s estimate of certain inventory reserves was complex and required
significant judgment due to estimation uncertainty in the assumptions about the life cycle of the
individual products. Changes in these assumptions can lead to a material effect of the amount
of recorded inventory reserves.
F- 2
How We Addressed the Matter
in Our Audit
We obtained an understanding, evaluated design, and tested the operating effectiveness of
controls over the Company’s process to determine the valuation of the Company’s inventory
reserves. This included internal controls over the Company’s review of significant assumptions
underlying the inventory reserve estimate.
To test the adequacy of the Company’s inventory reserve, our substantive audit procedures
included, among others, assessing methodologies and assumptions used, testing the accuracy
and completeness of the underlying data used in management’s estimation calculations,
including aging of inventory and historical margins, and performing sensitivity analysis on the
significant assumptions used.
/s/ Ernst & Young, LLP
We have served as the Company’s auditor since 2016.
Atlanta, Georgia
November 22, 2021
F- 3
Delta Apparel, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
September 2021 September 2020
Assets
Cash and cash equivalents
Accounts receivable, less allowances of $251 and $684, respectively
Other receivables
Income tax receivable
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Operating lease assets
Equity method investment
Other assets
Total assets
Liabilities and Equity
Liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Current portion of finance leases
Current portion of operating leases
Current portion of long-term debt
Current portion of contingent consideration
Total current liabilities
Long-term income taxes payable
Long-term finance leases, less current maturities
Long-term operating leases, less current maturities
Long-term debt, less current maturities
Long-term contingent consideration
Deferred income taxes
Other liabilities
Total liabilities
Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and
outstanding
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares
issued, and 6,974,660 and 6,890,118 shares outstanding as of September 2021, and
September 2020, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock —2,672,312 and 2,756,854 shares as of September 2021, and
September 2020, respectively
Equity attributable to Delta Apparel, Inc.
Equity attributable to non–controlling interest
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
F- 4
$
$
$
$
$
9,376
66,973
761
356
161,703
3,794
242,963
67,564
37,897
26,291
1,854
45,279
10,433
2,007
434,288
52,936
29,949
379
6,621
8,509
7,067
—
105,461
3,220
15,669
38,546
101,680
1,897
1,520
2,101
270,094
$
$
$
$
16,458
60,146
854
—
145,515
3,795
226,768
63,950
37,897
19,948
4,052
54,645
10,573
2,398
420,231
49,800
20,174
379
6,956
9,039
7,559
2,120
96,027
3,599
11,328
46,570
112,782
4,300
—
2,939
277,545
—
—
96
60,831
146,860
(786)
(42,149)
164,852
(658)
164,194
434,288
$
96
61,005
126,564
(1,322)
(43,133)
143,210
(524)
142,686
420,231
Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Other (income) loss, net
Operating income (loss)
Interest expense
Earnings (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Consolidated earnings (loss), net
Net loss attributable to non-controlling interest
Net earnings (loss) attributable to shareholders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Weighted average number of shares outstanding
Dilutive effect of stock options and awards
Weighted average number of shares assuming dilution
See accompanying Notes to Consolidated Financial Statements.
Year Ended
$
September
2021
436,750
334,870
101,880
$
September
2020
381,035
312,660
68,375
70,743
(1,574)
32,711
6,844
25,867
5,705
20,162
134
20,296
$
2.92
2.86
$
$
6,961
132
7,093
68,383
7,067
(7,075)
7,005
(14,080)
(3,260)
(10,820)
243
(10,577)
(1.53)
(1.53)
6,921
—
6,921
$
$
$
F- 5
Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
Net earnings (loss) attributable to shareholders
Other comprehensive income (loss) related to unrealized gain (loss) on derivatives, net of
income tax
Consolidated comprehensive income (loss)
$
$
See accompanying Notes to Consolidated Financial Statements
Year Ended
September
2021
20,296
September
2020
(10,577)
$
536
20,832
(353)
(10,930)
$
F- 6
Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(Amounts in thousands, except share amounts)
Additional
Paid-In Retained Comprehensive Treasury Stock
Accumulated
Other
Non-
Controlling
Common Stock
Shares
Amount Capital Earnings Income (Loss) Shares
Amount Interest
Total
Balance at September
2019
Net loss
Other comprehensive
loss
Net loss attributable
to non-controlling
interest
Vested stock awards
Purchase of common
stock
Stock based
compensation
ASU 2016-02
adoption
Balance at September
2020
Net earnings
Other comprehensive
income
Net loss attributable
to non-controlling
interest
Vested stock awards
Stock based
compensation
Balance at September
2021
9,646,972 $
96 $
59,855 $ 136,937 $
(969 ) 2,725,555 $ (41,750 ) $
(281 ) $ 153,888
—
—
— (10,577 )
—
—
—
— (10,577 )
—
—
—
—
(353 )
—
—
—
(353 )
—
—
—
—
—
(1,611 )
—
—
—
—
—
(68,672 )
—
646
(243 )
—
(243 )
(965 )
—
—
—
—
—
99,971 (2,029 )
—
(2,029 )
—
—
2,761
—
—
—
—
—
2,761
—
—
—
204
—
—
—
—
204
9,646,972
96
61,005 126,564
(1,322 ) 2,756,854 (43,133 )
(524 ) 142,686
—
—
— 20,296
—
—
—
— 20,296
—
—
—
—
536
—
—
—
536
—
—
—
—
—
(2,117 )
—
—
—
—
—
(84,542 )
—
984
(134 )
—
(134 )
(1,133 )
—
—
1,943
—
—
—
—
—
1,943
9,646,972 $
96 $
60,831 $ 146,860 $
(786 ) 2,672,312 $ (42,149 ) $
(658 ) $ 164,194
See accompanying Notes to Consolidated Financial Statements.
F- 7
Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended
September 2021
September 2020
$
20,162
$
(10,820)
Operating activities:
Consolidated net earnings (loss)
Adjustments to consolidated net earnings attributable to net cash provided by
operating activities:
Depreciation
Amortization of intangibles
Amortization of deferred financing fees
Provision for (benefit from) deferred income taxes
Provision for market reserves
Non-cash stock compensation
Gain on disposal of equipment
Contingent consideration earn out adjustment
Other, net
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Other non-current assets
Accounts payable
Accrued expenses
Change in net operating lease liabilities
Income taxes
Other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from equipment under financed leases
Cash paid for intangible asset
Cash paid for business
Net cash used in investing activities
Financing activities:
Proceeds from long-term debt
Repayment of long-term debt
Payment of capital financing
Payment of contingent consideration
Repurchase of common stock
Payment of deferred financing costs
Payment of withholding taxes on stock awards
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes, net of refunds received
See accompanying Notes to Consolidated Financial Statements.
F- 8
$
$
$
11,913
1,841
325
3,542
898
1,943
(54)
(2,413)
(615)
(6,734)
(17,086)
(1,307)
1,368
3,030
8,039
493
248
(126)
25,467
(5,586)
453
2,312
(6,567)
(3,665)
(13,053)
453,830
(463,092)
(6,991)
(2,110)
—
—
(1,133)
(19,496)
(7,082)
16,458
9,376
11,097
1,659
315
(3,730)
4,906
2,761
(29)
(361)
(414)
(113)
28,686
319
(198)
(3,345)
(238)
964
(632)
968
31,795
(8,990)
—
—
—
(3,077)
(12,067)
438,770
(431,932)
(4,041)
(2,500)
(2,029)
(1,176)
(967)
(3,875)
15,853
605
16,458
$
6,554
1,759
$
$
6,510
960
Delta Apparel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 2021
Note 1—The Company
Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel,"
"we," "us," "our," or the "Company") is a vertically-integrated, international apparel company. With approximately 8,500 employees
worldwide, we design, manufacture, source, and market a diverse portfolio of core activewear and lifestyle apparel products under
our primary brands of Salt Life®, Soffe®, and Delta. We are a market leader in the on-demand, digital print and fulfillment industry,
bringing DTG2Go's proprietary technology and innovation to the supply chain of our customers. We specialize in selling casual and
athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and
specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through our
business-to-business digital platform. Our products are also made available direct-to-consumer on our ecommerce sites and in our
branded retail stores. Our diversified distribution model allows us to capitalize on our strengths to provide our activewear and
lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.
We design and internally manufacture the majority of our products. More than 90% of the apparel units that we sell are sewn in our
owned or leased facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react
quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador,
Honduras, and Mexico, and we use domestic and foreign contractors as additional sources of production. Our distribution facilities
are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products
and weekly replenishments to retailers.
Note 2—Significant Accounting Policies
(a) Basis of Presentation: Our consolidated financial statements are prepared in conformity with accounting principles generally
accepted in the United States of America ("GAAP") and include the accounts of Delta Apparel and its wholly-owned domestic and
foreign subsidiaries, as well as its majority-owned subsidiary, Salt Life Beverage, LLC ("Salt Life Beverage"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
We operate our business in two distinct segments: Delta Group and Salt Life Group. Although the two segments are similar in their
production processes and regulatory environments, they are distinct in their economic characteristics, products, marketing, and
distribution methods.
(b) Fiscal Year: We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. All references to "2021"
and "2020" relate to the 52-week fiscal year ended on September 2021, and the 53-week fiscal year ended on September 2020.
(c) Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make certain
estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates are adjusted to reflect actual
experience when necessary. Significant estimates and assumptions affect many items in our financial statements, such as allowance
for doubtful accounts receivable, refund liabilities, inventory obsolescence, the carrying value of goodwill, and income tax assets
and related valuation allowance. Our actual results may differ from our estimates.
(d) Cash and Cash Equivalents: Cash and cash equivalents consist of cash and temporary investments with original maturities of
three months or less.
(e) Accounts Receivable: Accounts receivable consists primarily of receivables from our customers arising from the sale of our
products, and we generally do not require collateral from our customers. We actively monitor our exposure to credit risk through the
use of credit approvals and credit limits. Accounts receivable is presented net of reserves for doubtful accounts.
We estimate the net collectability of our accounts receivable and establish an allowance for doubtful accounts based upon this
assessment. In situations where we are aware of a specific customer’s inability to meet its financial obligation, such as in the case of
a bankruptcy filing, we assess the need for a specific reserve for bad debts. Reserves are determined through analysis of the aging of
accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends
and changes in customer payment terms. Bad debt expense was less than 1% of net sales in each of the twelve months ended
September 2021 and 2020.
F- 9
(f) Inventories: We state inventories at the lower of cost or net realizable value using the first-in, first-out method. Inventory cost
includes materials, labor and manufacturing overhead on manufactured inventory, and all direct and associated costs, including
inbound freight, to acquire sourced products. See Note 2 for further information regarding yarn procurements. We regularly review
inventory quantities on hand and record reserves for obsolescence, excess quantities, irregulars and slow-moving inventory based
on historical selling prices, current market conditions, and forecasted product demand to reduce inventory to its net realizable
value. Our evaluation includes consideration of the life cycle of individual products and historical sales and margin information
based on such life cycle.
(g) Property, Plant and Equipment: Property, plant and equipment are stated at cost. We depreciate and amortize our assets on a
straight-line method over the estimated useful lives of the assets, which range from three to twenty-five years. Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Right of use assets
that we acquire under non-cancelable leases that meet the criteria of finance leases are capitalized in property, plant and equipment
and amortized over the useful lives of the related assets. When we retire or dispose of assets, the costs and accumulated depreciation
or amortization are removed from the respective accounts, and we recognize any related gain or loss. Repairs and maintenance costs
are charged to expense when incurred. Major replacements that substantially extend the useful life of an asset are capitalized and
depreciated.
(h) Internally Developed Software Costs: We account for internally developed software in accordance with ASC 350-40,
Intangibles-Goodwill and Other, Internal-Use Software. After technical feasibility has been established, we capitalize the cost of
our software development process, including payroll and payroll benefits, by tracking the software development hours invested in
the software projects. We amortize our software development costs in accordance with the estimated economic life of the software,
which is generally three to ten years.
(i) Impairment of Long-Lived Assets (Including Amortizable Intangible Assets): In accordance with ASC 360, Property, Plant,
and Equipment, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. When evaluating assets for potential impairment, we compare the carrying
amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. If impairment is indicated, the
asset is permanently written down to its estimated fair value and an impairment loss is recognized.
(j) Goodwill and Intangible Assets: We recorded goodwill and intangible assets with definite lives, including trade names and
trademarks, customer relationships, technology, and non-compete agreements, as a result of several acquisitions. Intangible assets
are amortized based on their estimated economic lives, ranging from four to twenty years. Goodwill represents the excess of the
purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and is not
amortized. The total amount of goodwill is deductible for tax purposes. See Note 6 — Goodwill and Intangible Assets for further
details.
(k) Impairment of Goodwill: We evaluate the carrying value of goodwill annually or more frequently if events or circumstances
indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse
change in business climate, increased competition or other economic conditions.
We complete our annual impairment test of goodwill on the first day of our third fiscal quarter. We estimate fair value of the
applicable reporting unit or units using a discounted cash flow methodology. This methodology represents a level 3 fair value
measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since the inputs are not readily observable in
the marketplace. The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments,
including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures, and the selection of
an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When we perform goodwill
impairment testing, our assumptions are based on annual business plans and other forecasted results, which we believe represent
those of a market participant. We select a discount rate, which is used to reflect market-based estimates of the risks associated with
the projected cash flows based on the best information available as of the date of the impairment assessment. Based on the annual
impairment analysis, there is not an impairment on the goodwill recorded in our financial statements.
Given the current macro-economic environment and the uncertainties regarding its potential impact on our business, there can be no
assurance that our estimates and assumptions used in our impairment tests will prove to be accurate predictions of the future. If our
assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be triggered and goodwill
may be impaired.
(l) Contingent Consideration: At the end of each reporting period, we are required to remeasure the fair value of the contingent
consideration related to the DTG2Go acquisition in March 2018. We remeasure contingent consideration in accordance with ASC
805, Business Combinations based on historical operating results and projections for the future. The DTG2Go contingent
consideration was valued at $1.9 million and $6.4 million at September 2021 and September 2020, respectively.
F- 10
(m) Revenue Recognition: Revenue is recognized when performance obligations under the terms of the contracts are satisfied. Our
performance obligation primarily consists of delivering products to our customers. Control is transferred upon providing the products
to customers in our retail stores, upon shipment of our products to the consumers from our ecommerce sites, and upon shipment
from our distribution centers to our customers in our wholesale operations. Once control is transferred to the customer, we have
completed our performance obligation.
Our receivables resulting from wholesale customers are generally collected within three months, in accordance with our established
credit terms. Our direct-to-consumer ecommerce and retail store receivables are collected within a few days. Our revenue, including
freight income, is recognized net of applicable taxes in our Consolidated Statements of Operations.
In certain areas of our wholesale business, we offer discounts and allowances to support our customers. Some of these arrangements
are written agreements, while others may be implied by customary practices in the industry. Wholesale sales are recorded net of
discounts, allowances, and operational chargebacks. As certain allowances and other deductions are not finalized until the end of a
season, program or other event which may not have occurred, we estimate such discounts, allowances, and returns that we expect to
provide.
We only recognize revenue to the extent that it is probable that we will not recognize a significant reversal of revenue when the
uncertainties related to the variability are ultimately resolved. In determining our estimates for discounts, allowances, chargebacks,
and returns, we consider historical and current trends, agreements with our customers and retailer performance. We record these
discounts, returns and allowances as a reduction to net sales in our Consolidated Statements of Operations and as a refund liability
in our accrued expenses in our Consolidated Balance Sheets, with the estimated value of inventory expected to be returned in prepaid
and other current assets in our Consolidated Balance Sheets. As of September 2021, and September 2020, there was $1.0 million
and $1.3 million, respectively, in refund liabilities for customer returns, allowances, markdowns and discounts included within
accrued expenses.
We record shipping and handling charges incurred by us before and after the customer obtains control as a fulfillment cost rather
than an additional promised service. Our customers' terms are less than one year from the transfer of goods, and we do not adjust
receivable amounts for the impact of the time value of money. We do not capitalize costs of obtaining a contract which we expect
to recover, such as commissions, as the amortization period of the asset recognized would be one year or less.
(n) Sales Tax: Sales tax collected from customers and remitted to various government agencies are presented on a net basis (excluded
from revenues) in the Consolidated Statements of Operations.
(o) Cost of Goods Sold: We include all manufacturing and sourcing costs incurred prior to the receipt of finished goods at our
distribution facilities in cost of goods sold. The cost of goods sold principally includes product costs, purchasing costs, inbound
freight charges, insurance, inventory write-downs, and depreciation and amortization expense associated with our manufacturing
and sourcing operations. Our gross margins may not be comparable to other companies, since some entities may include costs related
to their distribution network in cost of goods sold, and we include them in selling, general and administrative expenses.
(p) Selling, General and Administrative Expense: We include in selling, general and administrative expenses costs incurred
subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking and
packing, and shipping goods for delivery to our customers. Distribution costs included in selling, general and administrative expenses
totaled $20.5 million and $17.8 million in 2021 and 2020, respectively. In addition, selling, general and administrative expenses
include costs related to sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed
products, and other general and administrative expenses.
(q) Advertising Costs: All costs associated with advertising and promoting our products are expensed during the period in which
they are incurred and are included in selling, general and administrative expenses in the Consolidated Statements of Operations. We
participate in cooperative advertising programs with some of our customers. Depending on the customer, our defined cooperative
programs allow the customer to use from 2% to 5% of its net purchases from us towards advertisements of our products. Because
our products are being specifically advertised, we are receiving an identifiable benefit resulting from the consideration for
cooperative advertising. We record cooperative advertising costs as a selling expense and the related cooperative advertising reserve
as an accrued liability. Advertising costs totaled $3.7 million and $4.4 million in 2021 and 2020, respectively. In 2021 and 2020,
cooperative advertising costs of $0.6 million and $0.8 million, respectively, were included in these advertising costs.
(r) Stock-Based Compensation: Stock-based compensation is accounted for under the provisions of ASC 718, Compensation –
Stock Compensation, which requires all stock-based payments to employees, including grants of employee stock options, to be
recognized as expense over the vesting period using a fair value method. The fair value of our restricted stock awards is the quoted
market value of our stock on the grant date. For performance-based stock awards, in the event we determine it is no longer probable
that we will achieve the minimum performance criteria specified in the award, we reverse all of the previously recognized
F- 11
compensation expense in the period such a determination is made. We recognize the fair value, net of estimated forfeitures, as a
component of selling, general and administrative expense in the Consolidated Statements of Operations over the vesting period.
(s) Income Taxes: We account for income taxes pursuant to ASC 740, Income Taxes, under the liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases as well as operating loss, interest deduction limitations, and
tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(t) Earnings per Share: We compute basic earnings per share ("EPS") by dividing net income by the weighted average number of
common shares outstanding during the year pursuant to ASC 260, Earnings Per Share (“ASC 260”). Basic EPS includes no
dilution. Diluted EPS is calculated, as set forth in ASC 260, by dividing net income by the weighted average number of common
shares outstanding adjusted for the issuance of potentially dilutive shares. Potentially dilutive shares consist of common stock
issuable under the assumed exercise of outstanding stock options and awards using the treasury stock method. This method assumes
that the potential common shares are issued and the proceeds from the exercise, along with the amount of compensation expense
attributable to future services, are used to purchase common stock at the exercise date. The difference between the number of
potential shares issued and the number of shares purchased is added as incremental shares to the actual number of shares outstanding
to compute diluted EPS. Outstanding stock options and awards that result in lower potential shares issued than shares purchased
under the treasury stock method are not included in the computation of diluted EPS since their inclusion would have an anti-dilutive
effect on EPS.
(u) Foreign Currency Translation: Our functional currency for our foreign operated manufacturing facilities is the United States
dollar. We remeasure those assets and liabilities denominated in foreign currencies using exchange rates in effect at each balance
sheet date. Property, plant and equipment and the related accumulated depreciation or amortization are recorded at the exchange
rates in effect on the date we acquired the assets. Revenues and expenses denominated in foreign currencies are remeasured using
average exchange rates during the period transacted. We recognize the resulting foreign exchange gains and losses as a component
of other income, net in the Consolidated Statements of Operations. These gains and losses are immaterial for all periods presented.
(v) Fair Value of Financial Instruments: We use financial instruments in the normal course of our business. The carrying values
approximate fair values for financial instruments that are short-term in nature, such as cash, accounts receivable and accounts
payable. We estimate that the carrying value of our long-term fixed rate debt approximates fair value based on the current rates
offered to us for debt of the same remaining maturities.
(w) Other Comprehensive Income: Other Comprehensive Income consists of net earnings and unrealized gains from cash flow
hedges, net of tax. Accumulated other comprehensive (loss) income ("AOCI") contained in the shareholders’ equity section of the
Consolidated Balance Sheets related to interest rate swap agreements and was a loss in both years of $0.8 million and $1.3 million as
of September 2021, and as of September 2020, respectively.
(x) Yarn and Cotton Procurements: We have a supply agreement with Parkdale Mills, Inc. and Parkdale America, LLC,
(collectively "Parkdale"), to supply our yarn requirements that has been in place since 2005, with our existing agreement running
through December 31, 2021. Under the supply agreement, we purchase from Parkdale all of our yarn requirements for use in our
manufacturing operations, excluding yarns that Parkdale does not manufacture or cannot manufacture due to temporary capacity
constraints. The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost. Thus, we are subject to the
commodity risk of cotton prices and cotton price movements, which could result in unfavorable yarn pricing for us. We fix the cotton
prices as a component of the purchase price of yarn, pursuant to the supply agreement, in advance of the shipment of finished yarn
from Parkdale. Prices are set according to prevailing prices, as reported by the New York Cotton Exchange, at the time we elect to
fix specific cotton prices.
(y) Derivatives: From time to time we enter into forward contracts, option agreements or other instruments to limit our exposure to
fluctuations in interest rates and raw material prices with respect to long-term debt and cotton purchases, respectively. We determine
at inception whether the derivative instruments will be accounted for as hedges.
We account for derivatives and hedging activities in accordance with ASC 815, Derivatives and Hedging, as amended. ASC 815
establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other
contracts and hedging activities. It requires the recognition of all derivative instruments as either assets or liabilities in the
Consolidated Balance Sheets and measurement of those instruments at fair value. The accounting treatment of changes in fair value
depends upon whether or not a derivative instrument is designated as a hedge and, if so, the type of hedge. We include all derivative
instruments at fair value in our Consolidated Balance Sheets. For derivative financial instruments related to the production of our
products that are not designated as a hedge, we recognize the changes in fair value in cost of sales. For derivatives designated as
cash flow hedges, to the extent effective, we recognize the changes in fair value in accumulated other comprehensive income
F- 12
(loss) until the hedged item is recognized in income. We formally document all relationships between hedging instruments and
hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions, at the inception of
the transactions.
We are exposed to counterparty credit risks on all derivatives. Because these amounts are recorded at fair value, the full amount of
our exposure is the carrying value of these instruments. We only enter into derivative transactions with well-established institutions,
and, therefore, we believe the counterparty credit risk is minimal.
From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost
of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized gains and
losses associated with them were recorded within cost of goods sold on the Consolidated Statement of Operations. There were no
raw material option agreements outstanding at September 2021 or September 2020.
(z) Equity Method Accounting: As of September 2021, we owned 31% of the outstanding capital stock in our Honduran equity
method investment. We apply the equity method of accounting for our investment, as we have less than a 50% ownership interest
and can exert significant influence. We do not exercise control over this company and do not have substantive participating rights.
As such, this entity is not considered a variable interest entity.
(aa) Net Income Attributable to Non-Controlling Interest: The net income attributable to non-controlling interest represents the
share of net income allocated to members of our consolidated affiliates. In January 2018, Delta Apparel, Inc. established Salt Life
Beverage, of which Delta Apparel, through its subsidiary, holds a 60% ownership interest. Salt Life Beverage was formed to
manufacture, market and sell Salt Life-branded alcoholic beverage products. We have concluded we have a controlling financial
interest in Salt Life Beverage and have consolidated its results in accordance with Accounting Standards Codification ("ASC") ASC-
810, Consolidations, and Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810); Amendments to
Consolidations. The non–controlling interest represents the 40% proportionate share of the results of Salt Life Beverage. All
significant intercompany accounts and transactions have been eliminated in consolidation.
(ab) Business Combinations: Business combinations completed by Delta Apparel have been accounted for under the acquisition
method of accounting. The acquisition method requires the assets acquired and liabilities assumed, including contingencies, to be
recorded at the fair value determined at the acquisition date and changes thereafter recorded in income. We generally obtain
independent third-party valuation studies for certain assets acquired and liabilities assumed to assist us in determining the fair value.
Goodwill represents the purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed. The
results of acquired businesses are included in our results of operations from the date of acquisition.
(ac) Recently Adopted Accounting Pronouncements: In August 2018, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires customers to apply internal-use software
guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be
amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. We
adopted ASU 2018-15 prospectively as of the beginning of fiscal 2021, and the provisions did not have a material effect on our
financial condition, results of operations, cash flows, or disclosures.
(ad) Recently Issued Accounting Pronouncements Not Yet Adopted: In December 2019, the FASB issued ASU No. 2019-12,
Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain
exceptions within Accounting Standards Codification ("ASC") 740, Income Taxes, and clarifies certain aspects of the current
guidance to promote consistency among reporting entities. ASU 2019-12 is effective as of the beginning of our fiscal year 2022.
Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied
on a retrospective or modified retrospective basis. We believe the impacts of adopting the provisions of ASU 2019-12 will not be
material to our financial condition, results of operations, cash flows, and disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the
entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve
and clarify the implementation guidance. These standards have been collectively codified within ASC Topic 326, Credit Losses
(“ASC 326”). As a smaller reporting company as defined by the SEC, the provisions of ASC 326 are effective as of the beginning
of our fiscal year 2024. We are currently evaluating the impacts of the provisions of ASC 326 on our financial condition, results of
operations, cash flows, and disclosures.
F- 13
Note 3—Revenue Recognition
Our revenue streams consist of wholesale, direct-to-consumer ecommerce and retail stores which are included in our Consolidated
Statements of Operations. The table below identifies the amount and percentage of net sales by distribution channel (in thousands):
Retail
Direct-to-consumer ecommerce
Wholesale
Net Sales
Year Ended
$
September 2021
%
$
3%
11,222
2%
6,662
95%
418,866
$ 436,750 100%
$
September 2020
%
$
2%
5,626
2%
7,994
96%
367,415
$ 381,035 100%
The table below provides net sales by reportable segment (in thousands) and the percentage of net sales by distribution channel for
each reportable segment:
Delta Group
Salt Life Group
Total
Delta Group
Salt Life Group
Total
Note 4—Inventories
Year Ended September 2021
Net Sales Retail
$ 387,015
0.2%
20.8%
49,735
$ 436,750
Direct-to-
Consumer
ecommerce Wholesale
0.3%
11.0%
99.5%
68.2%
Year Ended September 2020
Net Sales Retail
$ 343,981
0.2%
37,144
12.9%
$ 381,035
Direct-to-
Consumer
ecommerce Wholesale
0.5%
16.9%
99.3%
70.2%
Inventories, net of reserves of $15.9 million and $15.0 million as of September 2021, and September 2020, respectively, consist of
the following (in thousands):
Raw materials
Work in process
Finished goods
September 2021
17,204
20,954
123,545
161,703
$
$
September 2020
13,571
13,984
117,960
145,515
$
$
Raw materials include finished yarn and direct materials for the Delta Group, undecorated garments for the DTG2Go business, and
direct embellishment materials for the Salt Life Group.
F- 14
Note 5—Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands, except economic life data):
Land and land improvements
Buildings
Machinery and equipment
Computers and software
Furniture and fixtures
Leasehold improvements
Vehicles and related equipment
Construction in progress
Less accumulated depreciation and amortization
Total property, plant and equipment, net
Note 6—Goodwill and Intangible Assets
Estimated
Useful Life
(in years)
25
20
10
3-10
7-25
3-10
5
N/A
September
2021
September
2020
$
$
605
3,741
113,193
24,373
11,493
7,366
587
5,477
166,835
(99,271)
67,564
$
$
569
3,715
106,102
24,362
7,135
6,635
587
6,968
156,073
(92,123)
63,950
Goodwill and components of intangible assets consist of the following (in thousands):
Goodwill
Intangibles:
Tradename/trademarks
Customer relationships
Technology
License agreements
Non-compete agreements
Total intangibles, net
September 2021
Accumulated
Amortization
Cost
Net
Value Cost
September 2020
Accumulated
Amortization
Net
Value
Economic
Life
$ 37,897 $
—
$ 37,897 $ 37,897 $
—
$ 37,897 N/A
(4,317)
$ 16,000 $
(2,473)
7,400
(1,715)
9,952
(837)
2,100
(1,476)
1,657
$ 37,109 $ (10,818)
$ 11,683 $ 16,090 $
4,927 7,400
8,237 1,720
1,263 2,100
181 1,657
$ 26,291 $ 28,967 $
(3,820)
(1,733)
(1,380)
(733)
(1,353)
(9,019)
$ 12,270 20 - 30 yrs
5,667 20 yrs
340 10 yrs
1,367 15 - 30 yrs
304 4 – 8.5 yrs
$ 19,948
Goodwill represents the acquired goodwill net of the cumulative impairment losses recorded in fiscal year 2011 of $0.6 million. As
of September 2021, the Delta Group segment assets include $18.0 million of goodwill, and the Salt Life Group segment assets
include $19.9 million.
Depending on the type of intangible assets, amortization is recorded under cost of goods sold or selling, general and administrative
expenses. Amortization expense for intangible assets was $1.8 million for the year ended September 2021, and $1.7 million for the
year ended September 2020. Amortization expense is estimated to be approximately $1.6 million for the year ended September 2022,
approximately $1.5 million for the year ended September 2023, and approximately $1.4 million for the years ended September 2024,
2025 and 2026.
F- 15
Note 7—Accrued Expenses
Accrued expenses consist of the following (in thousands):
Accrued employee compensation and benefits
Taxes accrued and withheld
Refund liabilities
Accrued freight
Income taxes payable
Accrued capital expenditures
Deferred purchase price (1)
Accrued interest
Other
September
2021
17,374
2,960
991
1,662
379
2,299
1,500
506
2,657
30,328
$
$
September
2020
13,958
1,565
1,347
720
379
—
—
541
2,043
20,553
$
$
(1) Unsecured liability associated with purchase of intangible technology, payable in three quarterly installments of $500,000 each beginning March 31, 2022.
Note 8—Long-Term Debt
Long-term debt consists of the following (in thousands):
Revolving U.S. credit facility, interest at base rate or adjusted LIBOR rate plus an applicable margin
(interest at 3.1% on September 2021) due November 2024
Revolving credit facility with Banco Ficohsa, a Honduran bank, interest at 7.25% as of September
2021 and 7.7% as of September 2020, due August 2025
Term loan with Banco Ficohsa, a Honduran bank, interest at 7.5%, quarterly installments beginning
September 2021 through December 2025
Term loan with Banco Ficohsa, a Honduran bank, interest at 6.0%, monthly installments beginning
November 2014 through December 2020
Term loan with Banco Ficohsa, a Honduran bank, interest at 6.0%, monthly installments beginning
June 2016 through December 2020 (1)
Term loan with Banco Ficohsa, a Honduran bank, interest at 6.0%, monthly installments beginning
October 2017 through December 2020 (1)
DTG2Go, LLC acquisition promissory note, interest at 6.0%, quarterly payments beginning January
2019 through October 2021
Salt Life Beverage, LLC promissory note, interest at 4.0%
Less current portion of long-term debt
Long-term debt, excluding current maturities
(1) The previous year remaining balance settled under new term loan agreement in December 2020.
Credit Facility
September
2021
$ 98,575
September
2020
$ 106,213
667
9,529
8,621
—
—
—
—
200
485
888
583
2,917
301
109
108,747 120,341
(7,559)
$ 101,680 $ 112,782
(7,067)
On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (as further amended, the “Amended Credit
Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and
the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, National
Association and Regions Bank. Our subsidiaries M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing
Company), Salt Life, LLC, and DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the "Borrowers"), are co-borrowers under the
Amended Credit Agreement. The Borrowers entered into amendments to the Amended Credit Agreement with Wells Fargo and the
other lenders on November 27, 2017, March 9, 2018, and October 8, 2018.
On November 19, 2019, the Borrowers entered into a Consent and Fourth Amendment to the Fifth Amended and Restated Credit
Agreement with Wells Fargo and the other lenders set forth therein (the "Fourth Amendment"). The Fourth Amendment, among
other things, (i) increased the borrowing capacity under the Amended Credit Agreement from $145 million to $170 million (subject
F- 16
to borrowing base limitations), (ii) extended the maturity date from May 21, 2021 to November 19, 2024, (iii) reduced pricing on
the revolver and first-in last-out "FILO" borrowing components by 25 basis points, and (iv) added 25% of the fair value of eligible
intellectual property to the borrowing base calculation. In addition, the Fourth Amendment amended the definition of Fixed Charge
Coverage Ratio to exclude up to $10 million of capital expenditures incurred by the Borrowers in connection with the expansion of
their distribution facility located within the Town of Clinton, Anderson County, Tennessee.
On April 27, 2020, the Borrowers entered into a Fifth Amendment to the Fifth Amended and Restated Credit Agreement with Wells
Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Fifth Amendment”). The Fifth Amendment amends the
financial covenant provisions from the amendment date through September 2020, including effectively lowering the minimum
availability thresholds and removing the requirement that our Fixed Charge Coverage Ratio (“FCCR”) for the preceding 12-month
period must not be less than 1.1 to 1.0. The Fifth Amendment also, among other things, (i) allowed for an additional 30 days of aged
receivables from customers in the borrowing base through August 1, 2020, (ii) ceased amortization of real estate and machinery and
equipment assets in the borrowing base through August 1, 2020, (iii) postponed amortization of trademark assets in the borrowing
base until October 4, 2020; (iv) amends the definition of Fixed Charge Coverage Ratio to reference the monthly amortization of the
borrowing bases that were amended as part of the Fourth Amendment to the Fifth Amended and Restated Credit Agreement on
November 19, 2019, (v) amends the LIBOR rate definition to include a floor rate of 1.0%, and (vi) required weekly reporting of
accounts receivable to the Agent through October 3, 2020.
On August 28, 2020, the Borrowers entered into a Sixth Amendment to the Fifth Amended and Restated Credit Agreement with
Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Sixth Amendment”). The Sixth Amendment, (i)
maintained lower minimum availability thresholds from the amendment date through July 3, 2021, (ii) allowed for an additional 30
days of aged receivables from customers in the borrowing base through April 3, 2021, (iii) increased the advance rate to 70% of real
estate assets in the borrowing base and commences amortization on October 4, 2020, (iv) ceased amortization of machinery and
equipment assets in the borrowing base through April 3, 2021, (v) postponed amortization of trademark assets in the borrowing base
until April 4, 2021, (vi) required the Applicable Margin to be set at Level III through July 3, 2021 and increased the Applicable
Margin by 50 basis points across all Levels within the Applicable Margin table for the remaining term of the Amended Credit
Agreement, and (vii) required continued weekly reporting of accounts receivable to the Agent through July 3, 2021.
The Amended Credit Agreement allows us to borrow up to $170 million (subject to borrowing base limitations), including a
maximum of $25 million in letters of credit. Provided that no event of default exists, we have the option to increase the maximum
credit to $200 million (subject to borrowing base limitations), conditioned upon the Administrative Agent's ability to secure
additional commitments and customary closing conditions. The Amended Credit Agreement contains a subjective acceleration clause
and a “springing” lockbox arrangement (as defined in ASC 470, Debt ("ASC 470")), whereby remittances from customers will be
forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of
default occurs. Pursuant to ASC 470, we classify borrowings under the facility as long-term debt.
Our U.S. revolving credit facility is secured by a first-priority lien on substantially all of the real and personal property of Delta
Apparel, Junkfood, Soffe, Salt Life, and DTG2Go. All loans bear interest at rates, at the Company's option, based on either (a) an
adjusted LIBOR rate, subject to a floor of 1.0%, plus an applicable margin or (b) a base rate plus an applicable margin, with the base
rate equal to the greater of (i) the federal funds rate plus 1.0%, (ii) the LIBOR rate plus 1.0%, or (iii) the prime rate announced by
Wells Fargo, National Association. The facility requires monthly installment payments of approximately $0.2 to $0.3 million
beginning October 4, 2020, in connection with fixed asset and intellectual property amortizations, and these amounts reduce the
amount of availability under the facility. Annual facility fees are 0.25% or 0.375% (subject to average excess availability) of the
amount by which $170 million exceeds the average daily principal balance of the outstanding loans and letters of credit
accommodations. The annual facility fees are charged monthly based on the principal balances during the immediately preceding
month.
At September 2021, we had $98.6 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.1%.
Our cash on hand combined with the availability under the U.S. credit facility totaled $45.3 million.
Our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in
our credit agreement, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in our credit agreement) for the preceding 12-month
period must not be less than 1.1 to 1.0. Our availability at September 2021, was above the minimum thresholds specified in our
credit agreement, and we were above the 1.1 to 1.0 FCCR for the preceding 12-month period.
Proceeds of the loans made pursuant to the Amended Credit Agreement may be used for permitted acquisitions (as defined in the
Amended Credit Agreement), general operating expenses, working capital, other corporate purposes, and to finance credit facility
fees and expenses. Pursuant to the terms of our credit facility, we are allowed to make cash dividends and stock repurchases if (i)
as of the date of the payment or repurchase and after giving effect to the payment or repurchase, we have availability on that date of
not less than 15% of the lesser of the borrowing base or the commitment, and average availability for the 30-day period immediately
preceding that date of not less than 15% of the lesser of the borrowing base or the commitment; and (ii) the aggregate amount of
F- 17
dividends and stock repurchases after May 10, 2016, does not exceed $10 million plus 50% of our cumulative net income (as defined
in the Amended Credit Agreement) from the first day of the third quarter of fiscal year 2016 to the date of determination. At
September 2021, and September 2020, there was $19.0 million and $8.8 million, respectively, of retained earnings free of restrictions
to make cash dividends or stock repurchases.
Promissory Notes
On October 8, 2018, we acquired substantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In
conjunction with this acquisition, we issued a promissory note in the principal amount of $7.0 million. The promissory note bears
interest of 6% with quarterly payments that began January 2, 2019, with the final installment paid October 4, 2021. As of September
2021, there was $0.6 million outstanding for this note.
Honduran Debt
Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance
both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and
revolving credit facility with Banco Ficohsa, both with five-year terms, and simultaneously settled the prior term loans and revolving
credit facility with outstanding balances at the time of settlement of $1.1 million and $9.5 million, respectively. Each of these new
loans is secured by a first-priority lien on the assets of our Honduran operations and is not guaranteed by our U.S. entities. These
loans are denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. As the revolving credit facility
permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants, and we intend to re-borrow funds,
subject to those covenants, the amounts have been classified as long-term debt. Information about these loans and the outstanding
balance as of September 2021, is listed as part of the long-term debt schedule above.
Total Debt
The aggregate maturities of debt at September 2021, are as follows (in thousands):
September
2022
2023
2024
2025
2026
Thereafter
Note 9—Income Taxes
Amount
7,067
6,183
6,183
88,805
509
—
108,747
$
$
The Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was enacted on December 22, 2017, which significantly revised
the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified
territorial tax system and imposing a repatriation tax, ("transition tax"), on deemed repatriated cumulative earnings of foreign
subsidiaries which will be paid over eight years. In addition, new taxes were imposed related to foreign income, including a tax on
global intangible low-taxed income (“GILTI”) as well as a limitation on the deduction for business interest expense (“Section
163(j)"). GILTI is the excess of the shareholder’s net controlled foreign corporations, ("CFC") net tested income over the net deemed
tangible income. The Section 163(j) limitation does not allow the amount of deductible interest to exceed the sum of the taxpayer's
business interest income or 30% of the taxpayer’s adjusted taxable income. We have included in our calculation of our effective tax
rate the estimated impact of GILTI and Section 163(j) which were effective for us beginning fiscal year 2019. We have elected to
account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.
The Coronavirus Aid, Relief, and Economic Security (“CARES Act”), which was enacted on March 27, 2020, provided temporary
changes to income and non-income-based tax laws, including some provisions which were previously enacted under the New Tax
Legislation. The CARES Act revised the U.S. corporate income tax code on a temporary basis by, among other things, eliminating
the 80% of taxable income limitation on net operating loss (“NOL”) carryforwards, allowing NOL carrybacks, and increasing the
Section 163(j) interest limitation deduction from 30% to 50% of adjusted taxable income. We have included the estimated impact of
these provisions in our effective tax rate calculation.
F- 18
The provision for (benefit from) income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Total deferred
Provision for (benefit from) income taxes
Year Ended
September
2021
September
2020
$
$
$
$
1,579
449
135
2,163
3,327
215
3,542
5,705
$
$
$
$
300
50
120
470
(3,200)
(530)
(3,730)
(3,260)
For financial reporting purposes our income (loss) before provision for income taxes includes the following components (in
thousands):
United States, net of loss attributable to non-controlling interest
Foreign
Year Ended
September
2021
15,505
10,496
26,001
September
2020
(22,056)
8,219
(13,837)
$
$
$
$
Our effective income tax rate on operations for 2021 was 21.9% compared to a rate of 23.6% in the prior year. We generally benefit
from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in
the United States. As such, changes in the mix of U.S. taxable income compared to profits in tax-free or lower-tax jurisdictions can
have a significant impact on our overall effective tax rate. In addition, the future impact of the CARES Act and New Tax Legislation
may differ from historical amounts, possibly materially, due to, among other things, changes in interpretations and assumptions
made regarding the CARES Act and New Tax Legislation, guidance that may be issued, and actions we may take as a result of the
CARES Act and New Tax Legislation.
A reconciliation between the actual provision for income taxes and the provision for income taxes computed using the federal
statutory income tax rate of 21.0% for fiscal years 2021 and 2020 is as follows (in thousands):
Income tax expense at the statutory rate of 21.0%
State income tax benefits, net of federal income tax benefit
Impact of foreign earnings in tax-free zone
GILTI inclusion
Other permanent differences
Impact of state rate changes
Permanent reinvestment of foreign earnings
Other
Provision for (benefit from) income taxes
Year Ended
September
2021
5,460
653
(2,070)
1,063
(69)
(70)
728
10
5,705
$
$
September
2020
(2,906)
(430)
(1,604)
1,596
109
(144)
—
119
(3,260)
$
$
F- 19
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
State net operating loss carryforwards
Section 163(j) deduction carryforwards
Receivable allowances and reserves
Inventories and reserves
Accrued compensation and benefits
Operating lease liabilities
Other
Gross deferred tax assets
Less valuation allowance — state net operating loss carryforwards
Net deferred tax assets
Deferred tax liabilities:
Depreciation
Goodwill and intangibles
Operating lease assets
Other
Gross deferred tax liabilities
Net deferred tax assets
September 2021 September 2020
$
$
$
$
$
2,239
—
314
883
3,002
8,801
4,258
19,497
(586)
18,911
$
$
$
2,490
1,913
509
4,176
2,213
13,939
517
25,757
(600)
25,157
(4,647)
(4,943)
(8,367)
(620)
(18,577)
334
(3,540)
(3,768)
(13,705)
(92)
$ (21,105)
4,052
$
As of September 2021, we had state net operating losses ("NOLs") of approximately $46.3 million, with deferred tax assets of
$2.2 million related to these state NOLs, and related valuation allowances against them of approximately $0.6 million. These state
net loss carryforwards expire at various intervals from 2026 through 2040. Our deferred tax asset related to state net operating loss
carryforwards is reduced by a valuation allowance to result in net deferred tax assets we consider more likely than not to be realized.
For both federal and state purposes, the ultimate realization of deferred tax assets depends upon the generation of future taxable
income or tax planning strategies during the periods in which those temporary differences become deductible or when the
carryforwards are available.
ASC 740, Income Taxes (“ASC 740”) requires that a position taken or expected to be taken in a tax return be recognized in the
financial statements when it is more-likely-than-not (i.e., a likelihood of more than fifty percent) that the position would be sustained
upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than
50% likely of being realized upon ultimate settlement. Accrued interest and penalties related to unrecognized tax benefits would also
be recorded. We did not have any material unrecognized tax benefits as of September 2021 or September 2020.
As of September 2021, we are indefinitely reinvested in the cumulative undistributed earnings of and original investments in our
foreign subsidiaries, with the exception of our equity method investment, which has been properly accounted for. Future remittances
could be subject to additional foreign withholding taxes, U.S. state taxes, and certain tax impacts relating to foreign currency
exchange effects. It is not practicable to estimate the amount of any unrecognized tax effects on these reinvested earnings and original
investments in foreign subsidiaries.
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax years 2017, 2018,
2019, and 2020, according to statute and with few exceptions, remain open to examination by various federal, state, local, and foreign
jurisdictions.
Note 10—Leases
We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing
facilities in the U.S., Honduras, El Salvador, and Mexico. We also lease machinery and equipment in the U.S. under finance lease
arrangements. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the
determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities and the related assets as
the present value of the lease payments over the related term. We apply the short-term lease exception to leases with a term of 12
months or less and exclude such leases from our Condensed Consolidated Balance Sheet. Payments related to these short-term leases
are expensed on a straight-line basis over the lease term and are reflected as a component of lease cost within our Condensed
Consolidated Statements of Operations. Our operating lease agreements for buildings generally include provisions for the payment
F- 20
of our proportional share of operating costs, property taxes, and other variable payments. These incremental payments are excluded
from our calculation of operating lease liabilities and right of use assets. We have elected to use the practical expedient present in
ASC 842 to not separate lease and non-lease components for all significant underlying asset classes and instead account for them
together as a single lease component in the measurement of our lease liabilities.
Generally, the rate implicit in our operating leases is not readily determinable. Therefore, we discount future lease payments using
our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate,
which approximates a secured rate over the lease term. The weighted average discount rate for operating leases was 4.3% and 4.1%
as of September 2021 and September 2020, respectively. We discount our finance lease payments based on the rate implicit and
stated in the lease. The weighted average discount rate for finance leases was 5.8% and 5.1% as of September 2021 and September
2020, respectively.
The following table presents the future undiscounted payments due on our operating and finance lease liabilities as well as a
reconciliation of those payments to our operating and finance lease liabilities, recorded as of September 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Undiscounted fixed lease payments
Discount due to interest
Total lease liabilities
Less current maturities
Lease liabilities, excluding current maturities
Operating
Leases
10,264
8,149
7,113
7,181
6,766
14,914
54,387
(7,332)
47,055
(8,509)
38,546
$
$
$
$
Finance
Leases
7,640
6,936
5,457
3,563
1,026
-
24,622
(2,332)
22,290
(6,621)
15,669
$
$
$
$
As of September 2021, we have entered into certain operating leases that have not yet commenced, but the annual fixed lease
payments are not significant.
Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with a Honduran company, of which we
own 31% of the outstanding capital stock of the lessor at September 2021. During 2021 and 2020 we paid approximately $1.8 million
and $1.3 million, respectively, in lease payments under this arrangement.
As of September 2021 and September 2020, we had $45.3 million and $54.6 million, respectively, of operating lease ROU
assets which were reflected within Operating lease assets in our Consolidated Balance Sheet, and $26.7 million and $23.6 million,
respectively, of finance lease ROU assets, which were reflected within Property, plant, and equipment, net in our Consolidated
Balance Sheet.
The weighted average remaining lease terms for our operating leases and finance leases were approximately 7 years and 3 years,
respectively, as of September 2021 and September 2020.
The components of total lease expense were as follows for the period ended September 2021 (in thousands):
Operating lease fixed expense
Operating lease variable cost expense
Finance lease amortization of ROU assets expense
Finance lease interest expense
Total lease expense
$
$
11,454
1,692
4,074
1,228
18,448
Cash outflows for operating lease payments were $11.0 million during both 2021 and 2020. Cash outflows for interest payments on
finance leases were $1.2 million and $0.7 million during 2021 and 2020, respectively. These outflows are classified within net
cash provided by operating activities on the Consolidated Statement of Cash Flows. Cash outflows for finance lease payments during
2021 and 2020 were $7.0 million and $4.0 million, respectively, and are classified within net cash used in financing activities on the
Consolidated Statement of Cash Flows.
F- 21
During the quarter ended June 2020, in response to the COVID-19 pandemic, the Company entered into certain lease arrangements
deferring approximately $1.7 million of operating lease payments and approximately $1.7 million of finance lease payments. The
operating lease deferrals were paid over the next 12 months while finance lease deferrals will be repaid at the end of each lease.
ROU assets obtained in exchange for operating lease liabilities during 2021 and 2020 were $1.2 million and $22.7 million,
respectively. ROU assets obtained in exchange for finance lease liabilities during 2021 and 2020 were $12.3 and $5.0 million,
respectively.
We do not have significant leasing transactions in which we are the lessor.
Note 11—Employee Benefit Plans
We sponsor and maintain a 401(k) retirement savings plan (the “401(k) Plan”) for our employees who meet certain requirements.
The 401(k) Plan permits participants to make pre-tax contributions by salary reduction pursuant to Section 401(k) of the Internal
Revenue Code, as well as a Roth Plan that allows for after tax contributions. The 401(k) Plan requires for us to make a guaranteed
match of a defined portion of the employee’s contributions. We contributed $0.9 million and $1.0 million, respectively to the 401(k)
Plan during 2021 and 2020, respectively.
We provide post-retirement life insurance benefits for certain retired employees. The plan is noncontributory and is unfunded, and
therefore, benefits and expenses are paid from our general assets as they are incurred. All of the employees in the plan are fully
vested, and the plan was closed to new employees in 1990. The discount rate used in determining the liability was 6.0% for 2021
and 2020. The following table presents the benefit obligation, which is included in accrued expenses in the accompanying balance
sheets (in thousands).
Balance at beginning of year
Interest expense
Benefits paid
Balance at end of year
Note 12—Stock-Based Compensation
September 2021 September 2020
$
$
289
—
(18)
271
$
$
307
2
(20)
289
On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("2020 Stock Plan") to replace the 2010
Stock Plan, which was previously re-approved by our shareholders on February 4, 2015 and was scheduled to expire by its terms on
September 14, 2020. The 2020 Stock Plan is substantially similar in both form and substance to the 2010 Stock Plan. The purpose
of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to offer a variety
of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its
executives, key employees and directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has
the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and
manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. If a participant dies
or becomes disabled (as defined in the 2020 Stock Plan) while employed by the Company or serving as a director, all unvested
awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted
under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make
any other determinations that it deems necessary. The aggregate number of shares of common stock that may be delivered under the
2020 Stock Plan is 449,714 plus any shares of common stock subject to outstanding awards under the 2010 Stock Plan that are
subsequently forfeited or terminated for any reason before being exercised. Similar to the 2010 Stock Plan, the 2020 Stock Plan
limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate
awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. The 2010 Stock Plan
terminated and the 2020 Stock Plan became effective on February 6, 2020, the date of shareholders’ approval.
Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards
under the 2020 Stock Plan.
Compensation expense is recorded on the selling, general and administrative expense line item in our Consolidated Statements of
Operations over the vesting periods. Total employee stock-based compensation expense for 2021 and 2020 was $2.5 million and
$3.0 million, respectively. Associated with the compensation cost are income tax benefits recognized of $0.6 million for 2021 and
$0.9 million for 2020.
F- 22
The following table summarizes the restricted stock unit and performance unit award activity during the periods ended September
2021 and September 2020:
September 2021
September 2020
Year Ended
Units outstanding, beginning of fiscal period
Units granted
Units issued
Units forfeited
Units outstanding, end of fiscal period
Number of
Units
406,000
12,000
(116,000)
(42,000)
260,000
Weighted
average grant
date fair value
20.16
30.80
18.96
25.17
20.38
Number of
Units
283,500
294,000
(132,858)
(38,642)
406,000
$
$
$
$
$
Weighted
average grant
date fair value
19.78
20.72
22.13
19.37
20.16
$
$
$
$
$
During 2021, restricted stock units and performance units representing 74,000 and 42,000 shares of our common stock, respectively,
vested upon the filing of our Annual Report on Form 10-K for the year ended September 2020, and were issued in accordance with
their respective agreements. All vested awards were paid in common stock.
During 2020, restricted stock units and performance units representing 54,750 and 78,108 shares of our common stock, respectively,
vested upon the filing of our Annual Report on Form 10-K for the year ended September 2019 and were issued in accordance with
their respective agreements. Of these vested units, 86,589 were paid in common stock and 46,269 were paid in cash.
During 2021, restricted stock units representing 12,000 shares of our common stock were granted and are eligible to vest upon the
filing of our Annual Report on Form 10-K for the year ended September 2022. These restricted stock units are payable in common
stock.
During 2020, restricted stock units representing 50,000 shares of our common stock were granted and are eligible to vest upon the
filing of our Annual Report on Form 10-K for the year ended September, 2021. These restricted stock units are payable in common
stock.
During 2020, restricted stock units representing 124,000 shares of our common stock were granted and 108,000, net of forfeitures,
are eligible to vest upon the filing of our Annual Report on Form 10-K for the year ended September 2022. These restricted stock
units are payable in common stock.
As of September 2021, there was $1.4 million of total unrecognized compensation cost related to unvested restricted stock units and
performance units under the 2020 Stock Plan. This cost is expected to be recognized over a period of 1.1 years.
The following table summarizes information about the unvested restricted stock units and performance units as of September 2021.
Restricted Stock Units/Performance Units
Fiscal Year 2020 Performance Units
Fiscal Year 2020 Restricted Units
Fiscal Year 2020 Restricted Units
Fiscal Year 2021 Restricted Units
Average
Market Price
on Date of
Grant
23.06
17.42
20.70
30.80
$
$
$
$
Number of
Units
45,000
95,000
108,000
12,000
260,000
Vesting Date*
November 2021
November 2021
November 2022
November 2022
* These awards are eligible to vest upon the filing of our Annual Report on Form 10-K for the applicable fiscal year, which is
anticipated to be during the month and year indicated in this column.
Note 13—Business Segments
Our operations are managed and reported in two segments, Delta Group and Salt Life Group, which reflect the manner in which the
business is managed and results are reviewed by the Chief Executive Officer, who is our chief operating decision maker.
F- 23
The Delta Group is comprised of our business units primarily focused on core activewear styles, and includes our DTG2Go and
Delta Activewear business units. We are a market leader in the on-demand, direct-to-garment digital print and fulfillment industry,
bringing technology and innovation to the supply chain of our many customers. We use highly-automated factory processes and our
proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Our Activewear
business is organized around key customer channels and how they source their various apparel needs. Delta Activewear is a preferred
supplier of activewear apparel to regional and global brands, direct to retail and through wholesale markets. We offer a broad
portfolio of apparel and accessories under the Delta, Delta Platinum, Soffe, and sourced-branded products that we distribute utilizing
our network of fulfillment centers. Delta Direct services key channels, such as the screen print, promotional, and eRetailer channels
as well as the retail licensing channel, whose customers sell through to many mid-tier and mass market retailers. In our Global
Brands & Retail Direct business we serve our customers as their supply chain partner, from product development to shipment of
their branded products, with the majority of products being sold with value-added services including embellishment, hangtags, and
ticketing. We also serve retailers by providing our portfolio of products directly to their retail stores and through their ecommerce
channels. We sell our products to a diversified audience, including sporting goods and outdoor retailers, specialty and resort shops,
farm and fleet stores, department stores, and mid-tier retailers. We also service custom apparel to major branded sportswear
companies, trendy regional brands, and all branches of the United States armed forces. We also offer our Soffe products direct to
consumers at www.soffe.com.
The Salt Life Group is comprised of our lifestyle brands focused on a broad range of apparel garments, headwear and related
accessories to meet consumer preferences and fashion trends, and includes our Salt Life business unit. These products are sold
through specialty and boutique shops, traditional department stores, and outdoor retailers, as well as direct-to-consumer through
branded ecommerce sites and branded retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life®
as well as other labels.
Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from
operations before interest, income taxes and special charges ("segment operating earnings"). Our segment operating earnings may
not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the
same as those described in Note 2. Intercompany transfers between operating segments are transacted at cost and have been
eliminated within the segment amounts shown in the following table (in thousands).
Segment net sales:
Delta Group
Salt Life Group
Total net sales
Segment operating income:
Delta Group (1)
Salt Life Group (2)
Total segment operating income
Purchases of property, plant and equipment:
Delta Group
Salt Life Group
Corporate
Total purchases of property, plant and equipment
Depreciation and amortization:
Delta Group
Salt Life Group
Corporate
Total depreciation and amortization
Year Ended
September 2021 September 2020
$
$
$
$
$
$
$
$
387,015
49,735
436,750
$
$
343,891
37,144
381,035
39,956
5,793
45,749
$
$
5,115
471
—
5,586
12,133
1,621
—
13,754
$
$
$
$
6,609
460
7,069
7,496
1,494
—
8,990
11,788
960
8
12,756
(1) In 2020, the Delta Group operating income included $23.7 million of expenses related to the COVID-19 pandemic. These costs primarily related to the curtailment
of manufacturing operations ($11.9 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable
and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.3 million), and other expenses ($2.9 million). These
costs are included within net sales ($0.4 million), cost of goods sold ($14.2 million), SG&A expenses ($1.1 million), and other loss (income), net ($8.0 million).
F- 24
(2) In 2020, the Salt Life Group operating income included approximately $0.3 million of increased accounts receivable and inventory reserves related to the
heightened risks in the market as the U.S. continues its recovery from the COVID-19 pandemic, as well as $0.5 million of other expenses. These costs are included
within net sales ($0.1 million), SG&A expenses ($0.6 million), and other loss (income), net ($0.1 million).
The following reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):
Segment operating income
Unallocated corporate expenses
Unallocated interest expense
Consolidated income (loss) before provision for income taxes
Year Ended
September 2021 September 2020
$
$
45,749
13,038
6,844
25,867
$
$
7,069
14,144
7,005
(14,080)
Our revenues include sales to domestic and foreign customers. Foreign customers are composed of companies whose headquarters
are located outside of the United States. Sales to foreign customers represented less than 1% of our consolidated net sales for both
fiscal years 2021 and 2020.
Our total assets and equity investment by segment are as follows (in thousands):
Total assets by segment:
Delta Group
Salt Life Group
Corporate
Total assets
Equity investment in joint venture:
Delta Group
Salt Life Group
Total equity investment in joint venture
As of
September 2021 September 2020
$ 366,518
63,184
4,586
$ 434,288
$
$
10,433
—
10,433
$
$
$
$
346,135
65,676
8,420
420,231
10,573
—
10,573
We attribute our property, plant and equipment to a particular country based on the location of these assets. Summarized financial
information by geographic area is as follows (in thousands):
United States
Honduras
El Salvador
Mexico
All foreign countries
As of
September 2021 September 2020
$
50,945
$
46,251
12,247
3,253
1,119
16,619
13,445
3,066
1,188
17,699
Total property, plant and equipment, net
$
67,564
$
63,950
F- 25
Note 14—Repurchase of Common Stock
Our Board of Directors has authorized management to use up to $60.0 million to repurchase stock in open market transactions under
our Stock Repurchase Program. There were no purchases of our common stock during 2021. During 2020, we purchased 99,971
shares of our common stock for a total cost of $2.0 million. As of September 2021, we have purchased 3,598,933 shares of common
stock for an aggregate of $52.5 million since the inception of the Stock Repurchase Program. All purchases were made at the
discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of September 2021, $7.5 million
remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.
Note 15—Commitments and Contingencies
(a) Litigation
At times, we are party to various legal claims, actions and complaints. We believe that, as a result of legal defense, insurance
arrangements, and indemnification provisions with parties believed to be financially capable, such actions should not have a material
adverse effect on our operations, financial condition, or liquidity.
(b) Purchase Contracts
We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear
products. At September 2021, minimum payments under these contracts were as follows (in thousands):
Yarn
Finished fabric
Finished products
(c) Letters of Credit
$
$
16,649
5,453
20,650
42,752
As of September 2021, we had outstanding standby letters of credit totaling $0.4 million.
(d) Fair Value Measurements
From time to time we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact
of future interest rate changes. These financial instruments are not used for trading or speculative purposes. The following financial
instruments were outstanding as of September 2021:
Interest Rate Swap
Effective Date
July 25, 2018
Notional Amount
$20 million
LIBOR Rate
3.18%
Maturity Date
July 25, 2023
From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost
of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized and
unrealized gains and losses associated with them are recorded within cost of goods sold on the Consolidated Statement of Operations.
No such cotton contracts were outstanding as of September 2021, and September 2020.
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are grouped in three
levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:
○ Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
○ Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly.
These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical
or similar assets or liabilities in market that are less active.
○ Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes
certain pricing models, discounted cash flow methodologies and similar techniques.
F- 26
The following financial liabilities are measured at fair value on a recurring basis (in thousands):
Period Ended
Interest Rate Swap
September 2021
September 2020
Contingent Consideration
September 2021
September 2020
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Total
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
(1,052)
(1,764)
$
$
(1,897)
(6,420)
$
$
—
—
—
—
$
$
(1,052)
(1,764)
$
$
—
—
$
$
—
—
$
$
(1,897)
(6,420)
The fair value of the interest rate swap agreements was derived from a discounted cash flow analysis based on the terms of the
contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. At September
2021 and September 2020, book value for fixed rate debt approximates fair value based on quoted market prices for the same or
similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).
The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivatives as of September
2021, and September 2020.
Deferred tax asset
Accrued expenses
Other liabilities
Accumulated other comprehensive loss
September
2021
September
2020
$
$
266
—
(1,052)
(786)
$
$
442
(108)
(1,656)
(1,322)
The DTG2Go acquisition purchase price consisted of additional payments contingent on the combined businesses' achievement of
certain performance targets related to sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the
period from April 1, 2018, through September 29, 2018, as well as for years 2019, 2020, 2021 and 2022. The valuation of the fair
value of the contingent consideration is based upon inputs into the Monte Carlo model, including projected results, which then are
discounted to a present value to derive the fair value. The fair value of the contingent consideration is sensitive to changes in our
projected results. During 2021, $2.1 million was paid related to the 2020 period. As of September 2021, we estimated the fair value
of contingent consideration to be $1.9 million which was a $4.5 million decrease from September 2020 due to the $2.1 million
payment and a $2.4 million reduction in estimated future earnout payments.
In August 2013, we acquired Salt Life, which included contingent consideration as part of the purchase price and which is payable
in cash after the end of calendar year 2019 if financial performance targets involving the sale of Salt Life-branded products were
met during the 2019 calendar year. During 2020, it was determined that calendar year 2019 performance targets were not achieved
and, as a result, the $0.2 million accrual as of September 28, 2019, was reversed. At September 2020, no amount was accrued for
contingent consideration in related to the acquisition of Salt Life.
Note 16—Subsequent Events
None
F- 27
EXHIBIT 21
SUBSIDIARIES OF DELTA APPAREL, INC.
Listed below are the subsidiaries of Delta Apparel, Inc.:
(1) M. J. Soffe, LLC, a North Carolina limited liability company.
(2) Culver City Clothing Company, a Georgia corporation.
(3)
Salt Life, LLC, a Georgia limited liability company.
(4)
Salt Life Beverage Management, LLC, a Delaware limited liability company.
(5)
Salt Life Beverage, LLC, a Delaware limited liability company.
(6) DTG2Go, LLC, a Georgia limited liability company.
(7) Delta Apparel Honduras, S.A., a Honduran sociedad anónima.
(6) Delta Campeche, S.A. de C.V., a Mexican sociedad anónima de capital variable.
(7) Delta Cortes, S.A., a Honduran sociedad anónima.
(8) Campeche Sportswear, S. de R.L. de C.V., a Mexican sociedad de responsabilidad limitada de capital variable.
(9) Textiles La Paz, LLC, a North Carolina limited liability company.
(10)
Ceiba Textiles, S. de R.L., a Honduran sociedad de responsabilidad limitada.
(11) Atled Holding Company Honduras, S. de R.L., a Honduran sociedad de responsabilidad limitada.
(12) La Paz Honduras, S. de R.L., a Honduran sociedad de responsabilidad limitada.
EXHIBIT
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-237938) pertaining to the Delta Apparel, Inc. 2020 Stock Plan, and
(2) Registration Statement (Form S-3 No. 333-235578) of Delta Apparel, Inc.;
of our reports dated November 22, 2021, with respect to the consolidated financial statements of Delta Apparel, Inc. and
Subsidiaries and the effectiveness of internal control over financial reporting of Delta Apparel, Inc. and Subsidiaries, included in
this Annual Report (Form 10-K) of Delta Apparel, Inc. and Subsidiaries for the year ended October 2, 2021.
Atlanta, Georgia
November 22, 2021
EXHIBIT
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Robert W. Humphreys, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Delta Apparel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 22, 2021
/s/Robert W. Humphreys
Chairman and Chief Executive Officer
EXHIBIT
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Deborah H. Merrill, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Delta Apparel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 22, 2021
/s/Deborah H. Merrill
Chief Financial Officer and President, Delta Group
EXHIBIT
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Robert W.
Humphreys, the Chief Executive Officer of Delta Apparel, Inc. (the “Company”), hereby certifies that to the best of his
knowledge:
1. The Annual Report on Form 10-K for the fiscal year ended October 2, 2021, of the Company, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: November 22, 2021
/s/Robert W. Humphreys
Robert W. Humphreys
Chairman and Chief Executive Officer
This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not
being filed as part of the accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate
disclosure document. A signed original of this written certification required by Section 906, or other document authenticating,
acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written
certification required by Section 906, has been provided to the Company and will be rendered by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
EXHIBIT
EXHIBIT 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Deborah H.
Merrill, the Chief Financial Officer of Delta Apparel, Inc. (the “Company”), hereby certifies that to the best of his knowledge:
1. The Annual Report on Form 10-K for the fiscal year ended October 2, 2021, of the Company, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: November 22, 2021
/s/Deborah H. Merrill
Deborah H. Merrill
Chief Financial Officer and President, Delta Group
This certification is being furnished solely to comply with the provisions of § 906 of the Sarbanes-Oxley Act of 2002 and is not
being filed as part of the accompanying Report, including for purposes of Section 18 of the Exchange Act, or as a separate
disclosure document. A signed original of this written certification required by Section 906, or other document authenticating,
acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written
certification required by Section 906, has been provided to the Company and will be rendered by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
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Company Information
Delta Group
Salt Life Group
Delta Apparel
2750 Premiere Parkway - Suite 100
Duluth, GA 30097
Salt Life
1147 Sixth Avenue
Columbus, GA 31901
The Delta Group segment, powered by our industry leading, on-demand
digital print business, DTG2Go, is focused on core activewear styles,
such as the iconic Soffe brand, in our Delta Activewear business.
The Salt Life Group segment is focused on a broad range of apparel
garments, headwear and related accessories to meet consumer
preferences and fashion trends with its authentic lifestyle brand, Salt
Life.
Executive Officers
Robert W. Humphreys
Chairman and Chief Executive Officer
Deborah H. Merrill *
President, Delta Group
Simone Walsh
Vice President, Chief Financial Officer and Treasurer
Jeffrey N. Stillwell
President, Salt Life Group
Carlos E. Encalada Arjona
Vice President of Manufacturing
* Ms. Merrill is voluntarily resigning effective January 22, 2022
Corporate and Shareholder Information
Corporate and shareholder information may be obtained free of charge by
contacting Investor Relations at investor.relations@deltaapparel.com.
Corporate Office:
Delta Apparel, Inc.
2750 Premiere Parkway - Suite 100
Duluth, GA 30097
T: (864) 232-5200
F: (864) 232-5199
investor.relations@deltaapparel.com
Stock Transfer Agent:
American Stock Transfer & Trust Company, LLC (AST)
Attention: Operations Center
6201 5th Avenue
Brooklyn, NY 11219
T: (800) 937-5440
investors@amstock.com
www.amstock.com
Board of Directors
Each of our directors brings extensive management and leadership
experience gained through his or her service to diverse businesses and
institutions. We believe our board of directors brings together broadly
diverse backgrounds and experiences in terms of gender, difference of
viewpoints, geographic locations, skills, education, and professional and
industry knowledge among other factors. Our directors are committed to
effectively overseeing management’s performance, to act in the long-term
best interests of shareholders, and to maintain a high standard of corporate
governance. We believe that good corporate governance practices not
only reflect our values as a Company but also support strong strategic
growth and financial performance. Refer to the definitive Proxy Statement
for discussion of the professional experience, qualifications, and board
committee memberships of each of the directors listed below:
Anita D. Britt, Retired
J. Bradley Campbell, President, J.B. Consulting, Inc.
Dr. G. Jay Gogue, President, Auburn University
Glenda E. Hood, Retired
Robert W. Humphreys, Chairman and CEO, Delta Apparel, Inc.
A. Alexander Taylor, II, Retired
David G. Whalen, Retired
Annual Meeting of Shareholders
Our Annual Meeting of Shareholders will be held at Delta Apparel, 2750
Premiere Parkway, Suite 100, Duluth, GA 30097 on Thursday, February 10,
2022, at 8:30 a.m. Eastern Time.
Delta Apparel, Inc.
2750 Premiere Parkway - Suite 100
Duluth, GA 30097
NYSE American: DLA
www.deltaapparelinc.com