dla20231229_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-15583

DELTA APPAREL, INC.

(Exact name of registrant as specified in its charter)

Georgia		58-2508794
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

2750 Premier Parkway, Suite 100
Duluth, Georgia		30097
(Address of principal executive offices)		(Zip Code)

(678) 775-6900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $0.01		DLA		NYSE American

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.

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐

Smaller reporting company ☑

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of February 9, 2024, there were outstanding 7,051,150 shares of the registrant’s common stock, par value of $0.01 per share, which is the only class of outstanding common or voting stock of the registrant.

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TABLE OF CONTENTS

		Page
PART I.	Financial Information

Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets — December 2023 and September 2023	3

	Condensed Consolidated Statements of Operations — Three Months ended December 2023 and December 2022	4

	Condensed Consolidated Statements of Comprehensive Loss — Three Months ended December 2023 and December 2022	5

	Condensed Consolidated Statements of Shareholders ’ Equity — Three Months ended December 2023 and December 2022	6

	Condensed Consolidated Statements of Cash Flows — Three Months ended December 2023 and December 2022	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8
	Note A—Basis of Presentation and Description of Business	8
	Note B—Accounting Policies	9
	Note C—New Accounting Standards	9
	Note D—Revenue Recognition	9
	Note E—Inventories	10
	Note F—Debt	10
	Note G—Selling, General and Administrative Expense	12
	Note H—Stock-Based Compensation	12
	Note I—Purchase Contracts	13
	Note J—Business Segments	13
	Note K—Income Taxes	14
	Note L—Fair Value Measurements	14
	Note M—Legal Proceedings	15
	Note N—Repurchase of Common Stock	15
	Note O—Goodwill and Intangible Assets	15
	Note P —Sale-Leaseback Transaction	15
	Note Q—Subsequent Events	15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4.	Controls and Procedures	21

PART II.	Other Information

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 5.	Other Information	24

Item 6.	Exhibits	24

Signatures		25

Exhibits
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART 1.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts and per share data)

(Unaudited)

	December 2023			September 2023
Assets
Cash and cash equivalents	$	377		$	187
Accounts receivable, less allowances of $136 and $119, respectively		32,273			45,130
Other receivables		837			1,350
Income tax receivable		1,378			1,388
Inventories, net		196,348			212,365
Prepaid expenses and other current assets		3,526			2,542
Total current assets		234,739			262,962

Property, plant and equipment, net		62,598			65,611
Goodwill		28,697			28,697
Intangibles, net		21,125			21,694
Deferred income taxes		7,822			7,822
Operating lease assets		56,909			55,464
Equity method investment		9,751			10,082
Other assets		3,263			2,906
Total assets	$	424,904		$	455,238

Liabilities and Equity
Liabilities:
Accounts payable	$	58,382		$	62,085
Accrued expenses		18,926			18,236
Income taxes payable		700			710
Current portion of finance leases		8,246			8,442
Current portion of operating leases		9,741			9,124
Current portion of long-term debt		117,275			16,567
Total current liabilities		213,270			115,164

Long-term income taxes payable		2,131			2,131
Long-term finance leases		12,007			14,029
Long-term operating leases		48,259			47,254
Long-term debt		7,260			126,465
Total liabilities	$	282,927		$	305,043

Shareholder's equity:
Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding		-			-
Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 7,051,150 and 7,001,020 shares outstanding as of December 2023 and September 2023, respectively		96			96
Additional paid-in capital		60,643			61,315
Retained earnings		124,860			133,387
Accumulated other comprehensive income		-			-
Treasury stock - 2,595,822 and 2,645,952 shares as of December 2023 and September 2023, respectively		(42,909	)		(43,896	)
Equity attributable to Delta Apparel, Inc.		142,690			150,902
Equity attributable to non-controlling interest		(713	)		(707	)
Total equity		141,977			150,195
Total liabilities and equity	$	424,904		$	455,238

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

	*Three Months Ended*
	December 2023			December 2022

Net sales	$	79,934		$	107,295
Cost of goods sold		71,187			93,672
Gross profit		8,747			13,623

Selling, general and administrative expenses		18,614			18,870
Other income, net		(4,921	)		(2,621	)
Operating loss		(4,946	)		(2,626	)

Interest expense, net		3,577			2,890
Loss before provision for (benefit from) income taxes		(8,523	)		(5,516	)
Provision for (benefit from) income taxes		10			(1,917	)
Consolidated net loss	$	(8,533	)	$	(3,599	)
Net loss attributable to non-controlling interest		(6	)		(34	)
Net loss attributable to shareholders	$	(8,527	)	$	(3,565	)

Basic loss per share	$	(1.22	)	$	(0.51	)
Diluted loss per share	$	(1.22	)	$	(0.51	)

Weighted average number of shares outstanding		7,003			6,954
Dilutive effect of stock awards		-			-
Weighted average number of shares assuming dilution		7,003			6,954

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands)

(Unaudited)

	Three Months Ended
	December 2023			December 2022

Net loss attributable to shareholders	$	(8,527	)	$	(3,565	)
Other comprehensive income related to unrealized gain on derivatives, net of income tax		-			69
Consolidated comprehensive loss	$	(8,527	)	$	(3,496	)

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(Amounts in thousands, except share amounts)

(Unaudited)

											*Accumulated*
					*Additional*						*Other*								*Non-*
	*Common Stock*				*Paid-In*			*Retained*			*Comprehensive*		*Treasury Stock*						*Controlling*
	*Shares*		*Amount*		*Capital*			*Earnings*			*Income (Loss)*		*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 2023		9,646,972	$	96	$	61,315		$	133,387		$	-		2,645,952		$	(43,896	)	$	(707	)	$	150,195

Net loss		-		-		-			(8,527	)		-		-			-			-			(8,527	)
Net loss attributable to non-controlling interest		-		-		-			-			-		-			-			(6	)		(6	)
Vested stock awards		-		-		(1,112	)		-			-		(50,130	)		987			-			(125	)
Stock based compensation		-		-		440			-			-		-			-			-			440
Balance as of December 2023		9,646,972	$	96	$	60,643		$	124,860		$	-		2,595,822		$	(42,909	)	$	(713	)	$	141,977

											*Accumulated*
					*Additional*						*Other*								*Non-*
	*Common Stock*				*Paid-In*			*Retained*			*Comprehensive*		*Treasury Stock*						*Controlling*
	*Shares*		*Amount*		*Capital*			*Earnings*			*Income (Loss)*		*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 2022		9,646,972	$	96	$	61,961		$	166,600		$	141		2,731,309		$	(45,420	)	$	(656	)	$	182,722

Net loss		-		-		-			(3,565	)		-		-			-			-			(3,565	)
Other comprehensive income		-		-		-			-			69		-			-			-			69
Net loss attributable to non-controlling interest		-		-		-			-			-		-			-			(34	)		(34	)
Vested stock awards		-		-		(2,067	)		-			-		(85,357	)		1,524			-			(543	)
Stock based compensation		-		-		665			-			-		-			-			-			665
Balance as of December 2022		9,646,972	$	96	$	60,559		$	163,035		$	210		2,645,952		$	(43,896	)	$	(690	)	$	179,314

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Three Months Ended
	December 2023			December 2022
Operating activities:
Consolidated net loss	$	(8,533	)	$	(3,599	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,632			3,844
Amortization of deferred financing fees		120			84
Benefit from deferred income taxes		-			(2,101	)
Change in inventory market reserves		(795	)		163
Non-cash stock compensation		440			665
Gain on sale of property, plant and equipment		(5,425	)		-
Loss on disposal of equipment		-			58
Other, net		(310	)		(89	)
Changes in operating assets and liabilities:
Accounts receivable		13,370			9,466
Inventories, net		16,812			(10,516	)
Prepaid expenses and other current assets		(633	)		(1,443	)
Other non-current assets		263			1,188
Accounts payable		(4,307	)		(3,723	)
Accrued expenses		565			(5,030	)
Net operating lease liabilities		177			(35	)
Income taxes		-			(854	)
Net cash provided by (used in) operating activities		15,376			(11,922	)
Investing activities:
Purchases of property, plant and equipment, net		(285	)		(2,081	)
Proceeds from equipment under finance leases		-			4,417
Proceeds from the sale of property, plant and equipment		6,219			-
Net cash provided by investing activities		5,934			2,336
Financing activities:
Proceeds from long-term debt		85,755			133,918
Repayment of long-term debt		(104,252	)		(121,431	)
Repayment of capital financing		(2,218	)		(2,332	)
Payment of deferred financing costs		(405	)		-
Payment of withholding taxes on stock awards		-			(542	)
Net cash (used in) provided by financing activities		(21,120	)		9,613
Net increase in cash and cash equivalents		190			27
Cash and cash equivalents at beginning of period		187			300
Cash and cash equivalents at end of period	$	377		$	327

Supplemental cash flow information
Cash paid during the period for interest	$	3,570		$	2,972

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A— Description of Business and Basis of Presentation

Delta Apparel, Inc. (collectively with DTG2Go, LLC; Salt Life, LLC; M.J. Soffe, LLC; and other subsidiaries, “Delta Apparel,” “we,” “us,” “our,” or “the Company”) is a vertically integrated, international apparel company with approximately 6,600 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 our customers’ supply chains. We specialize in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants, 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 go-to-market strategy 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, with more than 90% of the apparel units that we sell sewn in our own 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 (our Mexico operations will cease in our 2024 fiscal year in connection with our decision to close our sewing and screenprint operations there), 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 stock exchange under the symbol “DLA.” We operate on a 52- or 53-week fiscal year ending on the Saturday closest to September 30. Our 2024 fiscal year is a 52-week year and will end on September 28, 2024 (“fiscal 2024”). Accordingly, this Quarterly Report on Form 10-Q presents our results for our first quarter of fiscal 2024. Our 2023 fiscal year was a 52-week year and ended on September 30, 2023 (“fiscal 2023”).

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

Period Ended	Fiscal Year	Date Ended
December 2022	Fiscal 2023	December 31, 2022
March 2023	Fiscal 2023	April 1, 2023
June 2023	Fiscal 2023	July 1, 2023
September 2023	Fiscal 2023	September 30, 2023
December 2023	Fiscal 2024	December 30, 2023

We prepared the accompanying interim Condensed Consolidated Financial Statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. We believe these Condensed Consolidated Financial Statements include all normal recurring adjustments considered necessary for a fair presentation. Operating results for the three months ended December 2023 are not necessarily indicative of the results that may be expected for our fiscal 2024. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality. By diversifying our product lines and go-to-market strategies over the years, we have reduced the overall seasonality of our business. Consumer demand for apparel is cyclical and dependent upon the overall level of demand for soft goods, which may or may not coincide with the overall level of discretionary consumer spending. These levels of demand change as regional, domestic and international economic conditions change. Therefore, the distribution of sales by quarter in fiscal 2024 may not be indicative of the distribution in future years. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for our fiscal 2023, filed with the United States Securities and Exchange Commission (“SEC”).

Our Condensed Consolidated Financial Statements include the accounts of Delta Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries. The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

We apply the equity method of accounting for our investment in 31% of the outstanding capital stock of a Honduran company that owns and operates the industrial park where our Ceiba Textiles manufacturing facility is located. During the three months ended December 2023 and December 2022, we received dividends from this investment of $0.6 million and $0.9 million, respectively. Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with this Honduran company. During the three months ended December 2023 and December 2022, we paid approximately $0.4 million in rent under this arrangement.

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.

Going Concern

In January 2024, we were notified by certain of our suppliers that they would no longer allow extended credit in amounts or terms to the extent previously allowed and our ability to obtain raw materials from other suppliers became more limited. As such, we are not able purchase quantities of production inputs necessary to allow our manufacturing facilities to run at the levels required to meet our business plans. One or more of the financial covenants contained in our U.S. revolving credit facility require our financial results to improve at a rate faster than we are experiencing and at a faster rate than we expect to experience over the next 12 months. As a result, management believes it is probable that the Company will not be in compliance with one or more of the financial covenants in our U.S. revolving credit facility within the second quarter, which would constitute a breach of that agreement and an event of default if not cured in accordance with its terms. Any such default would allow the lenders under that credit facility to declare the principal and all other amounts owed to be immediately due and payable. Thus, the debt under our U.S. revolving credit facility is classified as current. In the event that the lenders do call such debt during the next 12 months as the result of a covenant breach, the Company does not forecast to have the readily available funds to repay the debt, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of the first quarter fiscal 2024 Condensed Consolidated Financial Statements. The Company has been and continues to be in communication with its lenders about potential options to address concerns related to meeting the covenant requirements in our U.S. revolving credit facility over the next 12 months. Management cannot, however, predict the results of such communications and related negotiations.

In connection with the above-referenced subsequent event, the Company identified that certain deferred tax assets may no longer be recoverable and impairment indicators may exist for goodwill and other long-lived assets. We are unable to estimate the amount of any potential valuation allowance or impairment to be recorded in the second quarter of fiscal 2024, as the Company is still evaluating the potential impact of the reduced availability of production inputs on forecasts of current year business performance.

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Note B—Accounting Policies

Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form 10-K for our fiscal 2023, filed with the SEC. See Note C for consideration of recently issued accounting standards.

Note C—New Accounting Standards

Adopted Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 2024. The provisions of ASC 326 did not have a material effect on our financial condition, results of operations, cash flows, and disclosures.

Accounting Guidance Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which enhances reportable segment disclosure requirements, including significant segment expenses and interim disclosures. The guidance allows for disclosure of multiple measures of a segment’s profit or loss, and it requires that public entities with a single reportable segment provide all disclosures required by the ASU and all existing disclosures in Topic 280. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, or our fiscal 2025. The amendments are to be applied retrospectively, and early adoption is permitted. The Company is currently assessing the impact of this update.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvement to Income Tax Disclosures, to update income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, or our fiscal 2026. The amendments may be applied prospectively or retrospectively with early adoption permitted. The Company is currently assessing the impact of this update.

Note D—Revenue Recognition

Our Condensed Consolidated Statements of Operations include revenue streams from retail sales at our branded retail stores; direct-to-consumer ecommerce sales on our consumer-facing websites; and sales from wholesale channels, which includes our business-to-business ecommerce and DTG2Go sales. The table below identifies the amount and percentage of net sales by distribution channel (in thousands):

	*Three Months Ended*
	*December 2023*				*December 2022*
Retail	$	4,166	5	%	$	3,455	3	%
Direct-to-consumer ecommerce		1,448	2	%		1,509	2	%
Wholesale		74,320	93	%		102,331	95	%
Net sales	$	79,934	100	%	$	107,295	100	%

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

	Three Months Ended December 2023
	Net Sales		Retail			Direct-to-consumer ecommerce			Wholesale
Delta Group	$	69,604		0.0	%		0.2	%		99.8	%
Salt Life Group		10,330		40.1	%		12.7	%		47.2	%
Total	$	79,934

	*Three Months Ended December 2022*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	97,010		0.1	%		0.2	%		99.7	%
Salt Life Group		10,285		33.0	%		12.7	%		54.3	%
Total	$	107,295

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Note E—Inventories

Inventories, net of reserves of $15.0 million and $15.8 million as of December 2023 and September 2023, respectively, consisted of the following (in thousands):

	*December 2023*		*September 2023*
Raw materials	$	16,402	$	20,262
Work in process		11,934		17,695
Finished goods		168,012		174,408
	$	196,348	$	212,365

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.

Note F—Debt

Credit Facility

On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (as further amended, the “Amended Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, and Regions Bank. Our subsidiaries M.J. Soffe, LLC, Culver City Clothing Company (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, October 8, 2018, November 19, 2019, April 27, 2020, August 28, 2020, June 2, 2022, January 3, 2023, February 3, 2023, March 3, 2023, October 6, 2023, December 5, 2023, and December 27, 2023.

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 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, among other things, 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 the Agent and the other lenders set forth therein (the “Sixth Amendment”). The Sixth Amendment, among other things, (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.

On June 2, 2022, the Borrowers entered into a Seventh Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Seventh Amendment”). The Seventh Amendment, among other things, (i) removes LIBOR based borrowing and utilizes SOFR (Secured Overnight Financing Rate) as the primary pricing structure, (ii) amends the pricing structure based on SOFR plus a CSA (Credit Spread Adjustment) defined as 10 bps for 1 month and 15 bps for 3-month tenors, (iii) sets the SOFR floor to 0 bps, (iv) reloads the fair market value of real estate and intellectual property within the borrowing base calculation and resets their respective amortization schedules, (v) sets the maturity date to 5 years from the closing date, and (vi) updates the requirement for our FCCR for the preceding 12-month period to not be less than 1.0 (previously 1.1).

On January 3, 2023, the Borrowers entered into an Eighth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Eighth Amendment”). The Eighth Amendment essentially clarifies the Amended Credit Agreement’s provisions regarding the inclusion of eligible in transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include 12.5% of the lesser of the borrowing base and the maximum revolver amount as opposed to 12.5% of the line cap.

On February 3, 2023, the Borrowers entered into a Ninth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein (the “Ninth Amendment”). The Ninth Amendment, among other things, adds an Accommodation Period beginning on the amendment date and continuing through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i) the minimum borrowing availability thresholds applicable to the Amended Credit Agreement are (a) through (and including) April 1, 2023, $7,500,000, (b) on and after April 2, 2023 through (and including) June 4, 2023, $9,000,000, (c) on and after June 5, 2023, through the date following September 30, 2023, upon which Borrowers satisfy minimum availability thresholds, $10,000,000; and (d) at all times thereafter, $0; (ii) the covenant requiring that our FCCR (as defined in our credit agreement) for the preceding 12-month period must not be less than 1.0 if the availability under our credit facility falls below the amounts specified in our credit agreement is suspended; (iii) Borrowers must maintain specified minimum EBITDA levels for trailing three-month periods starting March 4, 2023; (iv) the Applicable Margin with respect to loans under the Amended Credit Agreement is increased by 50 basis points; and (v) a Cash Dominion Trigger Event occurs if availability is less than $2,000,000.

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On March 23, 2023, the Borrowers entered into a Tenth Amendment to the Fifth Amended and Restated Credit Agreement with the Agent and the other lenders set forth therein to account for specified costs and expenses in calculating EBITDA for purposes of the Amended Credit Agreement.

On October 6, 2023, the Borrowers entered into an Eleventh Amendment to the Fifth Amended and Restated Credit Agreement (the “Agreement”) with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Eleventh Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Eleventh Amendment. The Eleventh Amendment, among other things, extends the Accommodation Period established in the Ninth Amendment to the Agreement through the later of (x) November 4, 2023, and (y) the date upon which the Borrowers show Availability, as well as Average Availability for the preceding thirty (30) consecutive days, equal to or more than the greater of (i) seventeen and one-half percent (17.5%) of the lesser of (A) the Borrowing Base or (B) the Maximum Revolver Amount and (ii) $25,000,000. The Eleventh Amendment also, among other things, (i) requires the Borrowers to maintain a Fixed Charge Coverage Ratio of 1.00 to 1.00 for the immediately preceding twelve (12) month period as of the fiscal month ending November 4, 2023, and continuing with respect to the end of every fiscal month thereafter and (ii) eliminated the minimum EBITDA requirements established in the Ninth Amendment to the Agreement for the month ending September 2, 2023, and thereafter.

On December 5, 2023, the Borrowers entered into a Twelfth Amendment to the Agreement with the Agent and other lenders set forth therein (the “Twelfth Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Twelfth Amendment. The Twelfth Amendment, among other things: (i) modifies the Applicable Margin during the period commencing on December 5, 2023, and ending on the date after certain real estate transactions have been consummated in accordance with the terms thereof; (ii) modifies the Availability Block upon consummation of certain real estate transactions and receipt of proceeds there from; (iii) reduces the Maximum Revolver Amount to $150,000,000; and (iv) provides that commencing with the fiscal month ending December 30, 2023, and as of the end of each fiscal month thereafter, if at any time (a) Availability (calculated without giving effect to the Availability Block) is less than $17,500,000 or (b) a Default or Event of Default exists or has occurred and is continuing, Borrowers will maintain a Fixed Charge Coverage Ratio, measured on a fiscal month-end basis for the immediately preceding 12 consecutive fiscal months, of not less than 1.00 to 1.00.

On December 27, 2023, the Borrowers entered into a Thirteenth Amendment to the Agreement with the Agent and other lenders set forth therein (the “Thirteenth Amendment”). The definitions of capitalized terms, if not so defined herein, may be found in the Agreement or the Thirteenth Amendment. The Thirteenth Amendment (i) modifies the Availability Block such that (a) on and after the Ninth Amendment Date through and including April 1, 2023, it shall be $7,500,000, (b) on and after April 2, 2023 through and including June 4, 2023, it shall be $9,000,000, (c) on and after June 5, 2023 through and including December 4, 2023, it shall be $10,000,000, (d) on and after December 5, 2023 through and including January 18, 2024, it shall be $7,000,000, (d) on and after January 19, 2024 through and including and February 15, 2024, it shall be $8,500,000, and (e) on and after February 16, 2024 and at all times thereafter, it shall be $10,000,000; (ii) requires that, commencing with the fiscal month ending June 29, 2024, the Company must maintain a Fixed Charge Coverage Ratio for the immediately preceding 12 consecutive fiscal months of not less than 1.00 to 1.00 if (a) Availability is less than $17,500,000 or (b) a Default or Event of Default exists; and (iii) requires that Borrowers maintain specified minimum EBITDA levels measured on a cumulative month-to-date basis through the end of the fiscal month ending March 2, 2024, and for trailing three-month periods starting March 30, 2024. The Thirteenth Amendment also, among other things, removes the requirement that certain real estate transactions be consummated and also removes the occurrence of an Event of Default in the event such transactions are not consummated by certain dates. As of December 2023, we were in compliance with the applicable minimum EBITDA level for the month-to-date requirement.

At December 2023, the Amended Credit Agreement allowed us to borrow up to $150 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 “springing” lockbox arrangement (as defined in ASC 470, Debt) 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. Management believes it is probable that the Company will not be in compliance with one or more of the financial covenants in our U.S. revolving credit facility within the second quarter, which would constitute a breach of that agreement and an event of default if not cured in accordance with its terms. Any such default would allow the lenders under that credit facility to declare the principal and all other amounts owed to be immediately due and payable. Thus, the debt under our U.S. revolving credit facility is classified as current.

At December 2023, we had $110.9 million outstanding under the Amended Credit Agreement at an average interest rate of 8.7%. Our cash on hand combined with the availability under the Amended Credit Agreement totaled $7.4 million (subject to minimum availability thresholds as referred to above).

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 the Amended Credit Agreement, 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. Notwithstanding the foregoing, the Amended Credit Agreement currently restricts us from making cash dividends or stock repurchases until the date upon which (a) our availability (as defined in the Amended Credit Agreement) and (b) our average availability (as defined in the Amended Credit Agreement) for the immediately preceding 30 consecutive days, is equal to or more than the greater of (i) 17.50% of the lesser of (a) our borrowing base (as defined in the Amended Credit Agreement) or (b) the maximum revolver amount (as defined in the Amended Credit Agreement) and (ii) $25,000,000 and upon which we provide certification that (x) our FCCR is equal to or greater than 1.00:1.00 for the trailing 12-month period and (y) as of such date, no default (as defined in the Amended Credit Agreement) or event of default exists. For purposes of this definition, availability and average availability will be calculated (x) after giving effect to the Availability Block (as defined in the Amended Credit Agreement) and (y) without giving effect to the application of the net cash proceeds from certain sale-leaseback transactions. Absent the restrictions referenced in the preceding two sentences, at December 2023, and September 2023, there was $7.9 million and $8.3 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.

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. In May 2022, we entered into a new term loan with a five-year term with a principal amount of $3.7 million. Each of these loans are secured by a first-priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. The revolving credit facility permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants. While we intend to re-borrow funds, subject to those covenants, consistent with ASC 470 we have classified the explicit repayment amounts included within the loan agreement as long-term if due more than a year after December 30, 2023. Therefore, we have classified $6.1 million as short-term and $7.3 million as long-term.

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El Salvador Debt

In September 2022 we entered into a new term loan with a five-year term with a principal amount of $3.0 million with Banco Ficohsa, a Panamanian bank, to finance our El Salvador operations. This loan is secured by a first-priority lien on the assets of our El Salvador operations and is not guaranteed by our U.S. entities. The loan is denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. Information about this loan and the outstanding balance as of December 2023 are listed as part of the long-term debt schedule below.

Additional information about these loans and the outstanding balances and interest rates as of December 2023 is as follows (in thousands):

	*December 2023*
Revolving credit facility with Banco Ficohsa, a Honduran bank, with interest at 8.5%, due August 2025	$	3,978
Term loan with Banco Ficohsa, a Honduran bank, with interest at 9.0% and; quarterly installments which began September 2021 and are due through December 2025.		4,058
Term loan with Banco Ficohsa, a Honduran bank, with interest at 8.75% and; quarterly installments which began March 2023 and are due through May 2027.		2,946
Term loan with Banco Ficohsa, a Panamanian bank, with interest at the prevailing market rate within the Panamanian Banking Market (interest at 9.8% on December 2023) and; monthly installments which began October 2022 and are due through August 2027.		2,379

Note G—Selling, General and Administrative Expense

We include in selling, general and administrative (“SG&A”) expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled $4.9 million and $5.4 million for the December 2023 and December 2022 quarters, respectively. In addition, SG&A expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, retail store build-outs, and other general and administrative expenses.

Note H—Stock-Based Compensation

On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan (“2020 Stock Plan”) to replace the 2010 Stock Plan, which was previously re-approved by our shareholders on February 4, 2015, and was scheduled to expire by its terms on September 14, 2020. The purpose of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to offer a variety of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its executives, key employees and directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted, and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, stock performance units, and other stock and cash awards. While employed by the Company or serving as a director, unvested awards become fully vested under certain circumstances as defined in the 2020 Stock Plan. Such circumstances include, but are not limited to, the participant’s death or disability. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make any other determinations that it deems necessary. Similar to the 2010 Stock Plan, the 2020 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards under the 2020 Stock Plan. On August 2, 2023, our Board of Directors, upon the recommendation of its Compensation Committee, approved a Declaration of Amendment to the 2020 Stock Plan that requires that all equity awards granted under the 2020 Stock Plan after August 2, 2023, contain “double trigger” vesting provisions.

Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the December 2023 and December 2022 quarters, we recognized $0.5 million in both years in stock-based compensation expense. Associated with the compensation cost are income tax benefits recognized of $0.1 million and $0.2 million, respectively, for each of the three months ended December 2023 and December 2022.

During the December 2023 quarter, restricted stock units representing 70,150 shares of our common stock were issued and are scheduled to vest with the filing of our Annual Report on Form 10-K for the fiscal year ended September 2025. Of these restrictive stock units, one-half are payable in common stock and one-half are payable in cash.

During the December 2023 quarter, performance stock units representing 70,150 shares of our common stock were issued and are scheduled to vest with the filing of our Annual Report on Form 10-K for the fiscal year ended September 2025. Of these performance stock units, one-half are payable in common stock and one-half are payable in cash.

During the December 2023 quarter, restricted stock units representing 67,063 shares of our common stock vested with the filing of our Annual Report on Form 10-K for fiscal 2023 and were issued in accordance with their respective agreements. Of these vested awards, all were payable in common stock.

During the December 2023 quarter, performance stock units representing 34,812 shares of our common stock were forfeited due to the Company’s failure to meet certain threshold requirements.

As of December 2023, there was $1.7 million of total unrecognized compensation cost related to unvested awards granted under the 2020 Stock Plan. This cost is expected to be recognized over a period of 1.9 years.

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Note I—Purchase Contracts

We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At December 2023, minimum payments under these contracts were as follows (in thousands):

Yarn	$	17,730
Finished fabric		1,845
Finished products		5,654
Total inventories, net	$	25,229

Note J—Business Segments

Our operations are managed and reported in two segments, Delta Group and Salt Life Group, which reflect the manner in which the business is managed and results are reviewed by the Chief Executive Officer, who is our chief operating decision maker.

The Delta Group is comprised of the following business units, which are primarily focused on core activewear styles: DTG2Go and Delta Activewear.

DTG2Go is a market leader in the on-demand, direct-to-garment digital print and fulfillment industry, bringing technology and innovation to the supply chains of our many customers. Our ‘On-Demand DC’ digital solution provides retailers and brands with immediate access to utilize DTG2Go’s broad network of print and fulfillment facilities, while offering the scalability to integrate digital fulfillment within the customer’s own distribution facilities. We use highly-automated factory processes and our proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Via our fulfillment facilities throughout the United States, DTG2Go offers a robust digital supply chain, shipping custom graphic products within 24 to 48 hours to consumers in the United States and to many countries worldwide. DTG2Go has made significant investments in its “digital-first” retail model providing digital graphic prints that meet the high-quality standards required for brands, retailers and intellectual property holders. In fiscal year 2023, we continued to invest in our proprietary software and research and development initiatives related to the setups, formulas and processes needed to serve our customers. Through integration with Delta Activewear, DTG2Go also services the eRetailer, ad-specialty, promotional and screen print marketplaces, among others.

Delta Activewear is a preferred supplier of activewear apparel to regional and global brands as well as direct to retail and wholesale markets. The Delta Activewear business is organized around three key customer channels – Delta Direct, Global Brands, and Retail Direct – that are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs. Our Delta Direct channel services the screen print, promotional, and eRetailer markets as well as retail licensing customers that sell through to many mid-tier and mass market retailers. Delta Direct products include a broad portfolio of apparel and accessories under the Delta, Delta Platinum, and Soffe brands. 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 of performance shirts built with moisture-wicking material to keep athletes dry and comfortable; ringspun garments with superior comfort, style and durability; and Delta Soft, a collection with an incredible feel and price. We also offer our heritage, mid- and heavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.

The iconic Soffe brand offers activewear for spirit makers and record breakers and is widely known for the original “cheer short” with the signature roll-down waistband. Soffe carries a wide range of activewear for the entire family. Soffe’s heritage is anchored in the military, and we continue to be a proud supplier to both active duty and veteran United States military personnel worldwide. The Soffe men’s assortment features the tagline “anchored in the military, grounded in training” and offers everything from physical training gear certified by the respective branches of the military, classic base layers that include the favored 3-pack tees, and the iconic “ranger panty.” Our Soffe products are also available direct to consumers at www.soffe.com.

Our Global Brands channel serves as a key supply chain partner to large multi-national brands, major branded sportswear companies, trendy regional brands, and all branches of the United States armed forces, providing services ranging from custom product development to shipment of branded products with “retail-ready” value-added services including embellishment, hangtags, and ticketing.

Our Retail Direct channel serves brick and mortar and online retailers by providing our portfolio of Delta, Delta Platinum, and Soffe products directly to the retail locations and ecommerce fulfillment centers of a diversified customer base including sporting goods and outdoor retailers, specialty and resort shops, farm and fleet stores, department stores, and mid-tier retailers.

As a key element of the integrated Delta Group segment, each of Activewear’s primary channels offer a seamless solution for small-run decoration needs with on-demand digital print services, powered by DTG2Go.

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. Our apparel takes you from the boat to the beach and is constantly evolving to fit our customers’ needs. The Salt Life brand combines function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the cotton graphic tees and logo decals that originally drove awareness for the brand and also expanded into performance apparel, swimwear, board shorts, sunglasses, bags, and accessories.

Our Salt Life business is organized around three Salt Life omnichannel markets - wholesale, ecommerce, and branded retail stores – that are distinct in their go-to-market strategies and how their respective customer bases source their various apparel needs. Salt Life’s wholesale channel allows consumers to seamlessly experience the Salt Life brand through one of our retail partners, which include surf shops, specialty stores, department stores, and outdoor merchants. Salt Life’s ecommerce channel allows customers to purchase merchandise by accessing our Salt Life ecommerce site at www.saltlife.com. Salt Life’s branded retail store channel allows customers to purchase merchandise at retail stores owned and operated by Salt Life. Salt Life’s branded retail store footprint now includes 28 locations spanning across the U.S. coastline from Southern California to Key West and up the eastern seaboard to New York.

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Our chief operating decision maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges (“segment operating earnings”). Our segment operating earnings may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form 10-K for fiscal 2023, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands):

	*Three Months Ended*
	*December 2023*			*December 2022*
Segment net sales:
Delta Group	$	69,604		$	97,010
Salt Life Group		10,330			10,285
Total net sales	$	79,934		$	107,295

Segment operating (loss) earnings:
Delta Group	$	492		$	123
Salt Life Group		(2,130	)		218
Total segment operating (loss) earnings	$	(1,638	)	$	341

The following table reconciles the segment operating (loss) earnings to the consolidated earnings before benefit from income taxes (in thousands):

	*Three Months Ended*
	*December 2023*			*December 2022*
Segment operating (loss) earnings	$	(1,638	)	$	341
Unallocated corporate expenses		3,308			2,967
Unallocated interest expense		3,577			2,890
Consolidated loss before provision for (benefit from) income taxes	$	(8,523	)	$	(5,516	)

Note K—Income Taxes

The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Legislation”) was enacted on December 22, 2017, and 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 Act (“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 2017 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.

Our effective income tax rate on operations for the three months ended December 2023 was 0.1% compared to a rate of 35.0% in the same period of the prior year, and an effective rate of 23.8% for fiscal 2023. The change in the effective tax rate between the period ended December 2023 and prior periods is primarily related to the recording of a valuation allowance on the deferred tax benefit generated by the current period loss incurred during the period ended December 2023. We generally benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in the United States. As such, changes in the mix of U.S. taxable income compared to profits in tax-free or lower-tax jurisdictions can have a significant impact on our overall effective tax rate.

Note L—Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

	○	Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

	○	Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.

	○	Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

At December 2023 and September 2023, 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).

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Note M—Legal Proceedings

At times, we are party to various legal claims, actions and complaints. We believe that, as a result of legal defenses, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions should not have a material adverse effect on our operations, financial condition, or liquidity.

Note N—Repurchase of Common Stock

As of September 28, 2019, our Board of Directors authorized management to use up to $60.0 million to repurchase stock in open market transactions under our Stock Repurchase Program. We did not purchase any shares of our common stock during the December 2023 quarter. Through December 2023, we have purchased 3,735,114 shares of our common stock for an aggregate of $56.4 million under our Stock Repurchase Program since its inception. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of December 2023, $3.6 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.

Note O—Goodwill and Intangible Assets

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

December 2023

September 2023

Cost

Accumulated Impairment Losses

Net Value

Cost

Accumulated Impairment Losses

SEC Form 10-Q filed by Delta Apparel Inc.