UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

☑

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

For the quarterly period ended

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the transition period from________to ________

Commission File Number

______________________________

(Exact name of registrant as specified in its charter)

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

,

,

(Address of principal executive offices)

(Zip Code)

(

)

______________________________

(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

Indicate bycheck markwhether theregistrant (1) hasfiled allreports requiredto befiled bySection 13 or15(d) ofthe SecuritiesExchange Actof 1934during the

preceding 12 months (orfor such shorterperiod that theregistrant was requiredto file suchreports), and (2) hasbeen subject tosuch filing requirementsfor the past

90 days. Yes

☑

No

☐

Indicate by check mark whether theregistrant has submitted electronically every Interactive Data File required tobe submitted pursuant to Rule 405 ofRegulation S-T

during the preceding 12 months (or for such shorter period thatthe registrant was required to submit such files).

Yes

☑

No

☐

Indicate by check mark whetherthe registrant is a largeaccelerated filer, an accelerated filer, a non-acceleratedfiler, a smaller reporting company, or an emerginggrowth

company. See the definitionsof “large accelerated filer,”“accelerated filer”,“smaller reporting company”and "emerging growthcompany" inRule 12b-2 of theExchange

Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☑

Emerging growth company

☐

If an emerginggrowth company,indicate by checkmark if theregistrant has electednot to usethe extended transitionperiod for complyingwith any newor 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 January 27, 2023,there were outstanding

shares of the registrant’scommon stock, par value of $0.01per share, which is theonly class of outstanding

common or voting stock of the registrant.

 

TABLE OF CONTENTS

Page

PARTI.

Item 1.

3

4

5

6

7

8

8

8

8

9

9

9

10

10

10

11

12

12

13

13

13

13

Item 2.

15

Item 4.

18

PARTII.

18

Item 1.

18

Item 1A.

18

Item 2.

18

Item 5.

18

Item 6.

18

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

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 2022

September 2022

Assets

Cash and cash equivalents

$

$

Accounts receivable, less allowances of $

and $

, respectively

Other receivables

Income tax receivable

Inventories, net

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net of accumulated depreciation of $

and $

, respectively

Goodwill

37,897

37,897

Intangibles, 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

Total current liabilities

Long-term income taxes payable

Long-term finance leases

Long-term operating leases

Long-term debt

Deferred income taxes

Total liabilities

$

$

Shareholder's equity:

Preferred stock - $

par value,

shares authorized, none issued and outstanding

-

-

Common stock $

par value,

authorized,

shares issued, and

and

shares outstanding as of December 2022 and September2022, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Treasury stock -

and

shares as of December 2022 and September 2022,

respectively

(43,896)

(45,420)

Equity attributable to Delta Apparel, Inc.

Equity attributable to non-controlling interest

(690)

(656)

Total equity

Total liabilities and equity

$

$

See accompanying Notes to Condensed Consolidated FinancialStatements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended

December 2022

December 2021

Net sales

$

$

Cost of goods sold

Gross profit

Selling, general and administrative expenses

Other (income), net

(2,621)

(395)

Operating (loss) income

(2,626)

Interest expense, net

(Loss) earnings before provision for income taxes

(5,516)

(Benefit from) provision for income taxes

(1,917)

Consolidated net (loss) earnings

(3,599)

Net (loss) income attributable to non-controlling interest

(34)

Net (loss) earnings attributable to shareholders

$

(3,565)

$

Basic (loss) income per share

$

(0.51)

$

Diluted (loss) income per share

$

(0.51)

$

Weighted average number of shares outstanding

Dilutive effect of stock awards

-

Weighted average number of shares assuming dilution

See accompanying Notes to Condensed Consolidated FinancialStatements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Amounts in thousands)

(Unaudited)

Three Months Ended

December 2022

December 2021

Net (loss) income attributable to shareholders

$

(3,565)

$

Other comprehensive income related to unrealized gain

on derivatives, net of income tax

Consolidated comprehensive (loss) income

$

(3,496)

$

See accompanying Notes to Condensed Consolidated FinancialStatements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

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

Shares

Amount

Interest

Total

Balance as of

September 2022

$

$

$

$

$

(45,420)

$

(656)

$

Net loss

-

-

-

(3,565)

-

-

-

-

(3,565)

Other comprehensive

income

-

-

-

-

-

-

-

Net loss attributable to

non-controlling

interest

-

-

-

-

-

-

-

(34)

(34)

Purchase of common

stock

-

-

-

-

-

-

-

-

-

Vested stock awards

-

-

(2,067)

-

-

(85,357)

-

(543)

Stock based

compensation

-

-

-

-

-

-

-

Balance as of

December 2022

9,646,972

$

$

$

$

$

(43,896)

$

(690)

$

Accumulated

Additional

Other

Non-

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Controlling

Shares

Amount

Capital

Earnings

(Loss)

Shares

Amount

Interest

Total

Balance as of

September 2021

$

$

$

$

(786)

$

(42,149)

$

(658)

$

Net income

-

-

-

-

-

-

-

Other comprehensive

income

-

-

-

-

-

-

-

Net income attributable

to non-controlling

interest

-

-

-

-

-

-

-

Purchase of common

stock

-

-

-

-

-

(2,143)

-

(2,143)

Vested stock awards

-

-

(1,766)

-

-

(76,460)

-

(1,092)

Stock based

compensation

-

-

-

-

-

-

-

Balance as of December

2021

$

$

$

$

(574)

$

(43,618)

$

(633)

$

See accompanying Notes to Condensed Consolidated FinancialStatements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

Three Months Ended

December 2022

December 2021

Operating activities:

Consolidated net (loss) earnings

$

(3,599)

$

Adjustments to reconcile net (loss) earnings to net cashused in operating activities:

Depreciation and amortization

Amortization of deferred financing fees

(Benefit from) provision for deferred income taxes

(2,101)

Change in inventory market reserves

Non-cash stock compensation

Gain on disposal of equipment

Other, net

(89)

(390)

Changes in operating assets and liabilities:

-

-

Accounts receivable

Inventories, net

(10,516)

(22,206)

Prepaid expenses and other current assets

(1,443)

(1,449)

Other non-current assets

Accounts payable

(3,723)

Accrued expenses

(5,030)

(7,572)

Net operating lease liabilities

(35)

Income taxes

(854)

(140)

Other liabilities

-

(1,050)

Net cash used in operating activities

(11,922)

(13,198)

Investing activities:

Purchases of property and equipment, net

(2,081)

(1,822)

Proceeds from equipment under finance leases

-

Cash paid for intangible asset

-

(51)

Cash paid for business

-

(583)

Net cash provided by (used in) investing activities

(2,456)

Financing activities:

Proceeds from long-term debt

Repayment of long-term debt

(121,431)

(121,293)

Repayment of capital financing

(2,332)

(1,783)

Repurchase of common stock

-

(1,718)

Payment of withholding taxes on stock awards

(542)

(1,092)

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

(2,997)

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

Supplemental cash flow information

Finance lease assets exchanged for finance lease liabilities

$

$

Operating lease assets exchanged for operating lease liabilities

$

$

See accompanying Notes to Condensed Consolidated FinancialStatements.

 

 

 

 

 

 

 

 

8

Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

14

 

15

Item 2. Management's Discussion and Analysis of FinancialCondition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of1995 provides a safe harbor for forward-lookingstatements made by or on behalfof the Company. We may from time to

time make written or oral statements thatare “forward-looking,” including statementscontained in this report and other filingswith the SEC, in our press releases,and in

other reports to our shareholders.All statements, other thanstatements of historical fact,which address activities, eventsor developments that weexpect or anticipate will

or mayoccur in thefuture are forward-lookingstatements. The words“plan”, “estimate”, “project”,“forecast”, “outlook”, “anticipate”, “expect”,“intend”, “remain”,

“seek", “believe”, “may”, “should” and similar expressions, and discussionsof strategy or intentions, are intended to identify forward-lookingstatements.

Forward-looking statementsare neitherhistorical factsnor assurancesof futureperformance. Instead,they arebased onour currentexpectations andare necessarily

dependent upon assumptions, estimates and data that we believe are reasonable and accurate but maybe 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 setforth in or implied by the

forward-looking statements. Therefore,you should not rely onany of these forward-lookingstatements. Important factors thatcould cause our actual resultsand financial

condition to differ materially from those indicated in forward-lookingstatements include, among others, the following:

●

the general U.S. and international economic conditions;

●

theimpact oftheCOVID-19 pandemiconouroperations,financial condition,liquidity,andcapital investments,including recentlaborshortages,

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 suppliersand changes in the operations and strategies of our customersand suppliers;

●

the volatility and uncertainty of cotton and other raw materialprices and availability;

●

the competitive conditions in the apparel industry;

●

our ability to predict or react to changing consumer preferencesor trends;

●

our ability to successfully open and operate new retail stores ina 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 atour offshore locations or in areas in which we, or our suppliersor 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 ourbusiness 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 productliability issues;

●

the ability to protect our trademarks and other intellectualproperty;

●

changes in international trade regulations;

●

our ability to comply with trade regulations;

●

changes in employment laws or regulations or our relationshipwith employees; or our ability to attract and retainemployees;

●

negative publicityresulting from violationsof manufacturing standardsor laborlaws orunethical business practicesby oursuppliers or independent

contractors;

●

the inability of suppliers or other third-parties, including those providing key equipment, transportation, and other services, to perform their obligations

or fulfill the terms of their contracts with us;

●

restrictions on our ability to borrow capital or service ourindebtedness;

●

interest rate fluctuations increasing our obligations under ourvariable 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 stockmarket.

A detailed discussionof significant riskfactors that havethe potential tocause actual resultsto differ materiallyfrom our expectations isset forth inPart 1 underthe

subheading "Risk Factors" in ourAnnual Report on Form 10-Kfor fiscal 2022, filed withthe SEC. Any forward-looking statementsin this Quarterly Report onForm 10-

Q do not purport to be predictionsof future events or circumstances andmay not be realized. Further, any forward-lookingstatements are made only asof the date of this

Quarterly Report on Form 10-Q, and we do not undertake topublicly update or revise the forward-looking statements,except as required by the federal securities law.

 

 

16

Business Outlook

We were pleased to start our 2023 fiscal yearwith double-digit sales growth acrossfour of our five go-to-marketchannels, including record salesand almost 20% growth

in our DTG2Godigital print channelas well asrecord salesand 17% growthin our SaltLife lifestylebrand channel.Our topline performancethis quarterfurther illustrates

the resiliency of our multi-pronged businessmodel, which allowed us to overcomethe soft demand for basictees impacting the mass retail supplychain and our Delta

Direct channel for the last several quarters.

ThemilestonesalesinourDeltaGroupsegment’sDTG2Gochannelhighlight themarket’sgrowinginterest inourdigitalprintandfulfillmentstrategies andits

appreciation for the reduced working capitalinvestment; lower inventory risk; faster order-to-porchcycle; replenishment and quick activationcapability; unlimited color

and design choice; and otherbenefits they provide. DTG2Go continuesto effectively leverage two veryunique advantages that differentiateit in the market– a multi-

facility footprint facilitating one-to-two day shipping speed to 99% of United States consumers and priority access to our Delta Direct channel’slow-cost vertical blank

tee andfleece supply.DTG2Go’s “DigitalFirst” strategy continuesto generate substantialnew customer demandand we areencouraged with theproductivity gains

achieved on the new technology. Further improvements inmachine efficiency, quality and production rates arenecessary for us to realize our long-termobjectives in this

business.

Our Delta Group segment’s Global Brands channel delivered double-digit sales growth for the quarter and continues to add value to the supply chains of multi-national,

regional and major sportswear brands and the United States armed forces as a preferred supplier of custom decorated products. We also achieved double-digit growth in

our DeltaGroup segment’sRetail Directchannel wherewe providedecorated and“retail ready”products directlyto thebrick andmortar locationsand eCommerce

fulfillment centers of sporting goods and outdoor retailers,farm and fleet stores, department stores, and mid-tierand mass retailers.

The growth in ourGlobal Brands andRetail Direct channels wasaccelerated by newbusiness resulting fromthe Activewear industry’s burgeoning emphasison nearshore

sourcing strategies like those offeredby our vertical platform inCentral America coupled with ourability to meet the serviceand compliance requirements of theworld’s

leading brands andretailers.We expectthe focus onU.S. proximity sourcing strategiesto continue and believethat both ofthese channels are positionedto generate

growth opportunities across our Delta Group segment overtime.

As expected, our Delta Group segment’sresults for the quarter were impacted bythe reduced demand in the mass retailsupply chain and the associated manufacturing

shutdowns that we, like manyacross the industry,initiated to recalibrate output aswell as elevated raw material, energyand labor costs.Although the price of cotton,

one of our key raw materials, has moderated from last year’s notable highs, that high-cost cotton continues to flow through our cost of sales due to production cadences

and pressures margins accordingly.We expect to cycle through most of that higher-priced cotton in oursecond quarter and begin to see the benefit of lower input costs

in our results aswe progress through thesecond half of ourfiscal year. Wewill continue to leveragethe flexibility of ourvertical manufacturing strategy until wesee

better equilibrium between inventories and demand and also focus on opportunities in highermargin areas of our Delta Direct channel outsideof the mass retail supply

ecosystem.

The momentum in our Salt Life Group segment continues with this quarter’s record salesand excellent bottom line performance as it moves into its traditionally strong

Spring selling season. Theescalating growth acrossSalt Life’s direct-to-consumer retailand eCommerce channelsshould continue asit expands its brickand mortar retail

and digital footprints tokeep pace with thebrand’s consumer basestretching across the country.Salt Life is targetingsix to eight newstore openings this fiscalyear,

including debut locationsin NewJersey and Virginia,bringing its totalstore count toapproximately 30 locationsacross nine statesspanning the U.S.coastline from

California to Florida to New Jersey.

Salt Life’s consumereCommerce site,www.saltlife.com, now shipsto all50 states,including significantorder flowsto states outsideof the brand’straditional southeastern

base, and its wholesale business also continues to expand.There are now approximately 1,800 customer retail doors across 48 states and foreign countries offering Salt

Life products.We continue to see a tremendous runway for growth for the Salt Life brand across the UnitedStates and internationally.

Looking ahead, wewill further rely onthe versatility ofour multiple go-to-marketstrategies and focus onorganic growth throughboth new customeracquisition and

expansion of existing relationships. We see outstanding opportunities deriving from our investments in DTG2Go’sdigital technology platform and Salt Life’s authentic

lifestyle brandpositioning. Moreover,we arenow seeingsome welcomecost stabilizationin ourDelta Groupsegment andexpect thesetrends topositively impact

profitability as we progressthroughout the year.Along the way,we will continue toprudently manage our working capitaland expenses while pursuingopportunities

generated by our diversified business model.

Results of Operations

Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis.

Net sales were $107.3 million in the first quarter of fiscal2023, a decrease of 3.1% compared to the prior year first quarter net salesof $110.7 million.

Net sales in the Delta Group segment declined 4.8% to $97.0 million in the first quarter of fiscal 2023 compared to $101.9 million in the prior year first quarter.

We saw record first quarter sales in our DTG2Go business andgrowth in our Global Brands and Retail Directchannels, offset by diminished demand in the mass

retail supply chain driving reduced sales in our Delta Directchannel.

The Salt Life Group segment firstquarter fiscal 2023 revenue grew16.5% to $10.3 million compared to$8.8 million in the prior yearfirst quarter. The segment’s

record first quarter sales were driven by growth in both direct-to-consumerand wholesale channels.

Gross margins were 12.7% for the first quarter of fiscal 2023, declining810 basis points from the prior year first quarter gross margin of 20.8%.

The Delta Group segment gross margins were 8.0%for the first quarter of fiscal2023, a decline of 100 basis pointsfrom the prior year first quartermargins of

18.0%. Gross margins were primarily impactedby higher inventory costs from inflationaryraw material and other input pricingin fiscal 2022 flowing through

sales during the quarter, in addition to $3.4 million in plant curtailment costs.

The Salt Life Group segment gross margins improved to 57.0% in the first quarter of fiscal 2023, an improvement of 370 basis points compared to 53.3% in the

prior year first quarter resulting from a favorable mixof sales, including increased Salt Life branded retail storeand ecommerce sales.

Selling, general, and administrative expenses ("SG&A") were $18.9 million in the firstquarter of fiscal 2023, or 17.6% of sales, compared to $17.5 million,or 15.8% of

sales, in the prior year first quarter.The increase in SG&A expenses of $1.3 million compared to the prior year first quarterwas primarily driven by higher selling costs

driven by our expanded Salt Life retail footprint, in additionto increased distribution and administrative costs.

Other income for the 2023 and 2022 first fiscal quarters includesprofits related to our Green Valley Industrial Park equity method investment. Additionally, in the first

quarter of fiscal 2023, we recognized a discrete gain of$2.5 million from the settlement of a commercial litigation matter.

Operating loss in the first quarter of fiscal 2023was $2.6 million.This compares to operating income of $5.9 millionin the prior year first fiscal quarter.

 

 

 

17

The Delta Group segment had operating income of $0.1 million in the first fiscal quarter of 2023, or 0.1% of net sales, compared to $8.4 million,or 8.3% of net

sales, in theprior year firstquarter. The decrease inoperating profit wasdriven by declininggross margins dueto increased inflationarycosts and plantcurtailment

costs.

The Salt Life Group segment had operating income of $0.3 million in the first fiscalquarter of 2023, or 2.5% of net sales, compared to $0.1 million,or 1.5% of

sales, in the prior year first quarter.The increase in operating profit was driven by higher sales volume and increased grossmargins offset by higher selling and

distribution costs.

Net interest expense for the first quarters of each of fiscal years2023 and 2022 was $2.9 million and $1.6 million,respectively.

Our effective tax rate on operations for the three-month period ended December 2022 was 35.0%. This comparesto an effective tax rate of 15.1% for the same period in

the prior yearand 17.9% forthe full fiscalyear 2022. Changesin the mixof U.S. taxableincome compared toprofits in tax-freeor lower-tax jurisdictionsdrove this

change in our effective tax rate.

Net loss attributable to shareholders for the first fiscal quarter of 2023was $3.6 million,or a loss of $0.51 per diluted share, compared to net income of$3.6 million, or

$0.51 per diluted share, in the prior year.

Accounts receivable were $57.8 millionat December 2022, comparedto $68.2 million as of September2022. Days sales outstanding ("DSO")as of December 2022were

47 days compared to 52 days at September 2022.

Net inventory as of December 2022 was$258.9 million,an increase of $10.4 million from September 2022 and$75.8 million from December 2021. The increase from

September 2022 stemmed primarily from timely Salt Life firstquarter inventory deliveries compared to last year’s supplychain delays pushing scheduled deliveries into

the second quarter.

Total net debt, including capital lease financing and cash on hand,was $185.2 million as of December 31, 2022, an increase of $14.6 million from September 2022 and

$39 million fromDecember 2021. Cash onhand and availability underthe Company’sU.S. revolving credit facilitytotaled $27.2 million asof December 31, 2022,a

decrease of $7.5 million fromSeptember 2022 and $5.8 million fromDecember 2021, with the increase fromSeptember 2022 principally driven by investments in the

business to support working capital needs.

Liquidity and Capital Resources

Operating Cash Flows

Operating activities resulted in a cash usageof $11.9 million for the threemonths ended December 2022 compared to $13.2million of cash used in theprior year. The

improvement in cash used in operating cash flows in the current year are due to the timing of payments from customers and to vendors, in addition to reduced inventory

in the first quarter of fiscal 2023 compared to the prioryear as a result of reduced customer demand.

Investing Cash Flows

Cash outflows for capital expenditures were $2.1 million during the first three months of 2023 compared to $1.8 million in the same period in the prior year. During the

three-months ended June 2022, there were $0.1 million of capital expendituresfinanced under a capital lease arrangement. Wecurrently expect to spend less on capital

expenditures in 2023 ascompared to 2022, withour expenditures expected to focuson digital print equipment,information technology, manufacturingefficiency, and

direct-to-consumer investments,including new Salt Life retail store openings.

Financing Activities

During the three months ended December 2022, cash provided by financingactivities was $9.6 million and primarily related to fundingour operating activities, working

capital needs, and certain capital investments offset by scheduled loanprincipal payments.

Future Liquidity and Capital Resources

See Note F – Debt to the CondensedConsolidated Financial Statements for a discussionof our various financing arrangements,including the terms of our revolving U.S.

credit facility.

Our credit facility, as well as cash flowsfrom operations, are intendedto fund our day-to-day workingcapital needs, and along withcapital lease financing arrangements,

to fund our planned capital expenditures. However,any material deterioration in our results ofoperations may result in the lossof our ability to borrow underour 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 restrictour ability toborrow additional fundsor service ourindebtedness. Additionally,a significant deterioration in ourbusiness results couldcause our

availability tofall belowminimum thresholds, therebyrequiring usto maintainthe minimumFCCR specified inour creditagreement, whichwe maynot beable to

maintain. Refer to Item 5. Other Information forfurther information regarding our current financial covenants. Whileour availability at December 2022 wasabove the

minimum thresholdsspecified inour creditagreement, asignificant deteriorationin ourbusiness couldcause ouravailability tofall belowsuch thresholds,thereby

requiring us to maintain the minimum FCCR specified inour credit agreement.

Share Repurchase Program

The Company did notpurchase any shares underour previously announced sharerepurchase program in thefirst quarter of fiscal2023. The total amountrepurchased

during the life ofthe program is $56.4 million.At the end ofthe first quarter offiscal 2023, the Company had$3.6 million of remaining repurchase capacity underits

existing authorization.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared

in accordance withU.S. GAAP. The preparation ofour Condensed ConsolidatedFinancial Statements requiresus to make estimatesand judgments thataffect 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 otherfactors that we believe to be reasonable under the circumstances,

the results of which form the basis formaking judgments about the carrying valuesof assets and liabilities that arenot readily apparent from other sources. Actualresults

 

 

 

18

maydifferfrom theseestimates underdifferentassumptions orconditions. Themost significantestimates andassumptions relatetorevenue recognition,accounts

receivable and related reserves, inventory and related reserves,the carrying value of goodwill, and the accounting forincome taxes.

Adetailed discussionofcriticalaccounting policiesiscontained intheSignificantAccounting PoliciesincludedinNote 2totheAudited ConsolidatedFinancial

Statements included in our Annual Reporton Form 10-K for fiscal 2022, andthere have been no changes in thosepolicies since the filing of that AnnualReport on Form

10-K with the SEC.

Environmental and Other Regulatory Matters

Weare subjectto variousfederal, stateand localenvironmental lawsand regulationsconcerning, amongother things,wastewater discharges,storm waterflows, air

emissions andsolid wastedisposal. Thelabeling, distribution, importation,marketing, andsale ofour productsare subjectto extensiveregulation by variousfederal

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 compliancewith 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 increasinglystringent, and we incur capital and other expenditures annually to achieve

compliance with these environmentalstandards and regulations. We currently do notexpect that the amount ofexpenditures required to comply withthese environmental

standards or other regulatorymatters will havea material adverseeffect on our operations,financial condition orliquidity. There can be noassurance, however, that future

changes infederal, state,orlocal regulations,interpretations ofexisting regulationsorthe discoveryofcurrently unknownproblems orconditions willnotrequire

substantial additional expenditures. Similarly, while we believe that we are currently incompliance with all applicable environmental and other regulatory requirements,

the extent ofour liability, if any, for pastfailures to complywith laws, regulationsand permits applicableto our operationscannot be determinedand could havea material

adverse effect on our operations, financial condition and liquidity.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other proceduresthat are designed to reasonably assure that informationrequired to be disclosed in the reports that

we fileor submitunder theExchange Actis recorded,processed, summarizedand reportedwithin thetime periodsspecified inthe SEC’srequirements. Disclosure

controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or

submit undertheExchange Actisaccumulated andcommunicated toour management,including ourChief ExecutiveOfficerandprincipal accountingofficer,as

appropriate to allow timely decisions regarding required disclosure.

Our management, with theparticipation of our ChiefExecutive Officer and principalaccounting officer, hasevaluated the effectiveness of ourdisclosure controls and

procedures asof theend ofperiod covered bythis quarterlyreport ("theEvaluation Date") and,based ontheir evaluation,our ChiefExecutive Officerand principal

accounting officer have concluded that these controls and procedureswere effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting

There were no changes during the December2022 quarter that have materially affected, orare reasonably likely to materially affect,our internal control overfinancial

reporting.

PART II.OTHER INFORMATION

Item 1.Legal Proceedings

See Note M—Legal Proceedings, in Part I, Item 1, whichis incorporated herein by reference.

Item 1A.Risk Factors

None

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

(c) Repurchases of Common Stock

See Note N—Repurchase of Common Stock, Part I, in Item1, which is incorporated herein by reference.

Item 5.Other Information

Ninth Amendment to the Fifth Amended and RestatedCredit Agreement

On February 3, 2023, Delta Apparel, Inc. and its 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”) entered into a Ninth Amendment to the Fifth Amended and Restated Credit Agreement with Wells

Fargo Bank (the “Agent”) and the other lenders set forth therein(“Ninth Amendment”). The Fifth Amended and Restated Credit Agreement, dated as of May 10, 2016,

was filed asExhibit 10.1 toDelta Apparel’s QuarterlyReport on Form10-Q filed withthe SEC onMay 12, 2016.The First Amendmentto the AmendedCredit Agreement

was filed asExhibit 10.2.5 toDelta Apparel’sAnnual Report onForm 10-K filedwith the SECon November 28,2017. The Consentand Second Amendmentto the

Amended Credit Agreement was filedas Exhibit 10.1 toDelta Apparel’s Form 8-Kfiled with the SECon March 13, 2018.The Consent and Third Amendmentto the

Amended Credit Agreement was filed as Exhibit 10.1 to DeltaApparel’s Form 8-K filed with the SEC onOctober 9, 2018. The Consent and Fourth Amendment to the

Amended Credit Agreementwas filed asExhibit 10.2.8 toDelta Apparel's AnnualReport on Form10-K filed withthe SEC on November21, 2019. TheFifth Amendment

to theAmended CreditAgreement wasfiledas Exhibit10.1 toDelta Apparel’sQuarterly ReportonForm 10-Qfiledwith theSEC onApril 30,2020.The Sixth

Amendment to the Amended Credit Agreement wasfiled as Exhibit 10.1 to Delta Apparel’s Form 8-K filed with theSEC on August 31, 2020. The Seventh Amendment

to the Amended Credit Agreement was filed as Exhibit10.1 to Delta Apparel’s Form 8-K filed with the SEC on June 3, 2022.

The Ninth Amendment adds anAccommodation Period beginning on the amendment date andcontinuing through the date following September 30,2023, upon which

Borrowers satisfy minimum availability thresholdsand during which: (i)the minimum borrowing availability thresholdsapplicable to the AmendedCredit 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 alltimes thereafter, $0; (ii) the

Fixed Charge CoverageRatio (“FCCR”)covenant issuspended; (iii)Borrowers mustmaintain specifiedminimum EBITDAlevels for trailingthree-month periodsstarting

March 4, 2023; (iv) the Applicable Margin with respect to loansunder the Amended Credit Agreement is increased by50 basis points; and (v) a Cash Dominion Trigger

19

Event occurs if availabilityis less than $2,000,000.The Ninth Amendment also,among other things, (i)amends the FILO maximumamount calculation by reloading5%

of eligibleaccounts receivable(capped at$3,000,000) anddeferring theapplicable amortizationschedules toAugust 1,2023; (ii)defers themonthly amortizationpayments

for realestate, machinery andequipment, andintellectual property assetsto August 1,2023; (iii)requires weekly reportingof availability throughthe datefollowing

September 30, 2023, upon which Borrowerssatisfy minimum availability thresholds;and (iv) prohibits certain restricted paymentsthrough the date following September

30, 2023, upon which Borrowers satisfy minimum availabilitythresholds.

We expect the Ninth Amendment will enhanceour borrowing base and allowus to access more ofour availability under the AmendedCredit Agreement while easingthe

financial covenant restrictions for the remainder of fiscal 2023.

The foregoing summary of the Ninth Amendment and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference

to the text of the Ninth Amendment, which is filed herewithas Exhibit 10.2 to this Quarterly Report on Form 10-Qand which is incorporated herein by reference.

Separate fromthe relationshiprelated totheAmended CreditAgreement, asamended, certainlenders thereunderhave engagedin, ormay inthe futureengage in,

transactions with, and perform services for, Delta Apparel, Inc. and/or itssubsidiaries in the ordinary course of business

20

Item 6.Exhibits

Exhibits

10.1

10.2

10.3

31.1

31.2

32.1

32.2

101.INS

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Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

104

Cover Page Interactive Data File - (formatted as Inline XBRLand contained in Exhibit 101)

 

21

SIGNATURES

Pursuant to the requirementsof the Securities ExchangeAct of 1934, theregistrant has duly causedthis report to besigned on its behalfby the undersigned thereunto

duly authorized.

DELTAAPPAREL, INC.

(Registrant)

Date

February 7, 2023

By:

/s/Nancy P. Bubanich

Nancy P. Bubanich

Chief Accounting Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

EXECUTION VERSION

EIGHTH AMENDMENT TO

FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

THIS EIGHTH AMENDMENTTO FIFTH AMENDEDAND RESTATED CREDIT AGREEMENT (this "Amendment")is made and enteredinto on January3, 2023,

by and among DELTAAPPAREL, INC., a Georgiacorporation ("Delta"), M. J. SOFFE, LLC, a North Carolina limited liability company("Soffe"), CULVER CITY

CLOTHING CONWANY,a Georgiacorporation ("Culver City"),SALTLIFE, LLC,a Georgialimited liabilitycompany ("Salt Life"),DTG2GO, LLC, aGeorgia

limited liability company ("DTG2GO"; Delta, Soffe,Culver City, Salt Life, and DTG2GO, each individually, a "Borrower" and, collectively, "Borrowers"); the parties

to the CreditAgreement (as defined below)from time totime as Lenders (eachindividually, a"Lender" and collectively,"Lenders"); and WELLS FARGOBANK,

NATIONALASSOCIATION,anational bankingassociation ("WellsFargo"), inits capacityasagent forLenders (togetherwith itssuccessors insuch capacity,

"Agent").

Recitals:

Borrowers, Agentand Lendersare parties toa certainFifth Amended andRestated Credit Agreementdated asof May10, 2016(as atany timeamended, restated,

modified or supplemented, the"Credit Agreement"), pursuant to whichAgent and Lenders have madecertain loans and otherfinancial accommodations available to

Borrowers.

The parties desire to amend the Credit Agreement as hereinafterset forth.

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally

acknowledged, the parties hereto, intending to be legally boundhereby, agree as follows:

1.

Definitions. All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the

Credit Agreement.

2.

Amendments to Credit Agreement.The Credit Agreement is hereby amended as follows:

(a)

By deleting the last paragraphin the definition of "Borrowing Base"set forth in Schedule I. 1 to theCredit Agreement, and by substitutingthe

following in lieu thereof:

Notwithstanding anything tothe contrary containedherein, (A) theportion of theBorrowing Base onany date calculatedwith reference toEligible

Real Property, Eligible Intellectual Property and Eligible Equipmentcollectively, shall not exceed (i) at any time prior tothe first day of the fiscal

month immediately following theSeventh Amendment Date,twenty percent (20%) ofthe Maximum Revolver Amountand (ii) at any timeon and

after the first day of the fiscal monthimmediately following the Seventh AmendmentDate, twenty-five percent (25%) ofthe Maximum Revolver

Amount, (B) the portionof the Borrowing Baseon any date calculatedwith reference to EligibleIn-Transit Inventory, shall not exceed$6,000,000

at any time,and (C) theaggregate amountof Adjusted RevolverUsage basedon Eligible Inventoryconsisting of yarnclassified as work-in-process

outstanding at any time shall not exceed $2,500,000 at anytime.

(b)

By deleting the definitions of "Eligible In-Transit Inventory" and "Increased Reporting Event" set forth in Schedule 1.1to the Credit Agreement

and by substituting the following in lieu thereof:

“Eligible In-Transit Inventory"means those items of Inventory that do not qualify as Eligible Inventory solely becausethey are not in a location set forth on

Schedule 4.23 or in transit among such locations and aBorrower does not have actual and exclusive possessionthereof, but as to which,

(a)

such Inventory is either

(1)

the subject of aQualified Import Letter ofCredit and the applicableLetter of Credit has

been drawn upon in full and the Issuing Bank has honored suchdrawing, or

(2)

as determined by Agent in its Permitted Discretion, not subjectto (i) any Person's right of

reclamation, repudiation, stoppagein transit ordiversion or (ii) anyother right orclaim of anyother Person which

is (or is capable of being) senior to, or paripassu with, the Lien of Agent or Agent determines that anyPerson's

right or claim impairs, or interfereswith, directly or indirectly,the ability of Agent to realize on,or reduces the

amount that Agent may realize from the sale or otherdisposition of such Inventory,

(b)

such Inventory currently is in transit (whether by vessel, air,or land) from a location outside of the continental

United States to a location set forth on Schedule 4.23

(c)

title to such Inventory has passed to a Borrower,

(d)

such Inventory is insuredagainst types of loss,damage, hazards, and risks,and in amounts, satisfactoryto Agent

in its Permitted Discretion,

(e)

such Inventory either

 

 

 

 

 

 

 

 

 

2

(1)

is the subjectof a negotiablebill of ladinggoverned by thelaws of astate withinthe United

States (x) that isconsigned to Agent or oneof its agents (either directlyor by means of endorsements),(y) that

was issued by the carrier respecting the subject Inventory,and (z) that either is (I) in the possession of Agent or

a customs broker(in each casein the continentalUnited States), or(Il) the subjectof a telefacsimilecopy that

Agent has received fromthe Issuing Bank whichissued the applicableLetter of Creditand as to whichAgent also

has received a confirmation from such Issuing Bank that such document is in-transit by air-courier to Agent or a

customs broker (in each case, in the continental United States),or

(2)

is the subjectof a negotiablecargo receipt governedby thelaws of astate withinthe United

States andis notthe subjectof abill oflading (otherthan anegotiable billof ladingconsigned to,and inthe

possessionof,aconsolidatororAgent,ortheirrespectiveagents)andsuchnegotiablecargoreceiptis(x)

consigned to Agent orone of itsagents (either directly orby means of endorsements),(y) that was issuedby a

consolidator respecting the subject Inventory, (z) that either is (I) in the possessionof Agent or a customs broker

(in each case in the continental United States), or (Il) the subject of a telefacsimile copy that Agent has received

from theIssuing Bank whichissued the applicableLetter of Creditand as towhich Agent alsohas received a

confirmationfrom such Issuing Bankthat such document is in-transitby air-courier to Agent ora customs broker

(in each case, in the continental United States),

(f) suchBorrower hasprovided acertificate toAgent thatcertifies that,such Inventorymeets allof Borrowers'representations and

warranties contained in the Loan Documents concerning Eligible In-Transit Inventory,that it knows of no reason why suchInventory

would notbe accepted bysuch Borrower whenit arrives inthe continental UnitedStates and thatthe shipment asevidenced by the

documents conforms to the related order documents, and

(g) such Inventory shall not have been in transit for morethan fortyfive (45) days.

"Increased Reporting Event" means, at any time, AlternateExcess Availability is less than the greater of (a) 12.5% of the lesserof the Borrowing

Base andthe Maximum RevolverAmount, and(b) $20,000,000 (suchamount tobe increased prorata with theamount ofany increasein the

Commitments pursuant to Section 2.14).

3.

RatificationandReaffirmation.EachBorrowerherebyratifies andreaffirmstheObligations, eachoftheLoanDocuments andallofsuchBorrower's

covenants, duties, indebtedness and liabilities under the Loan Documents.

4.

Acknowledgments and Stipulations. Each Borroweracknowledges and stipulates that theCredit Agreement and the other LoanDocuments executed by such

Borrower arelegal, validand bindingobligations of suchBorrower thatare enforceableagainst suchBorrower inaccordance withthe terms thereof;all of theObligations

are owing and payablewithout defense, offset or counterclaim (andto the extent there existsany such defense, offset orcounterclaim on the date hereof,the same is

hereby waived by such Borrower); thesecurity interests and Liens granted bysuch Borrower in favor ofAgent are duly perfected, first prioritysecurity interests and

Liens; and, as ofthe opening of businesson December 21, 2022,the unpaid principal amountof the Revolver Loanstotaled $144,579,131.18, and the undrawnface

amount of all Letters of Credit totaled $425,000.

5.

Representations and Warranties. Each Borrower represents and warrants to Agentand Lenders, to induce Agent and Lenders to enter into this Amendment,

that no Default or Event of Defaultexists on the date hereof; the execution, delivery and performance of this Amendment have been dulyauthorized by all requisite

corporate action onthe part of suchBorrower and thisAmendment has beenduly executed anddelivered by such Borrower;and all ofthe representations andwarranties

made bysuchBorrower inthe CreditAgreement aretrue andcorrect inall materialrespects (exceptthat suchmaterialityqualifier shallnot beapplicable toany

representations and warranties that alreadyare qualified or modified by materiality in thetext thereof) on and as ofthedate hereof, as though made onand as of the date

hereof (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and

correct in all material respects (except that such materialityqualifier shall not be applicable to any representationsand warranties that already are qualified or modified

by materiality in the text thereof) as of such earlier date).

6.

Reference to CreditAgreement. Upon theeffectiveness of thisAmendment, each referencein the CreditAgreement to '

I

this Agreement," "hereunder,"or

words of like import shall mean and be a reference to the CreditAgreement, as amended by this Amendment.

7.

Breach of Amendment.This Amendmentshall be partof the CreditAgreement anda breachof any representation,warranty or covenantherein shall constitute

an Event of Default.

8.

Conditions Precedent.The effectiveness of the amendments contained in Section 2 hereofare subject to the satisfaction of each of thefollowing conditions

precedent, in form and substance satisfactory to Agent, unlesssatisfaction thereof is specifically waived in writingby Agent:

(a)

Agent's receipt of duly executed counterparts of this Amendment;

(b)

Agent's receipt of acertificate from theSecretary of eachLoan Party attestingto the resolutionsof such Loan Party'sboard of directorsauthorizing

its execution, delivery, and performance of the Loan Documents to which it is a party;

(c)

no Default or Event of Default shall exist both before andafter giving pro forma effect to this Amendment; and

(d)

the representations and warranties of each Borrower or itsSubsidiaries contained in the Credit Agreement or in theother Loan Documents shall

be true and correct in all material respects (except that suchmateriality qualifier shall not be applicable to any representations and warranties that already are qualified

or modified by materialityin the text thereof)on and as ofthe date of suchextension of credit, asthough made on andas of such date(except to the extent thatsuch

representations and warranties relate solely to an earlier date, in which case such representationsand warranties shall be true and correct in all material respects (except

that such materiality qualifier shall not be applicable to any representations and warrantiesthat already are qualified or modified by materiality in the text thereof) as of

such earlier date).

9.

Expenses ofAgent.Borrowers agreeto pay, ondemand, allcosts andexpenses incurredby Agentin connectionwith thepreparation, negotiationand execution

of this Amendment and any otherLoan Documents executed pursuant hereto and anyand all amendments, modifications, and supplements thereto, including, without

 

 

 

 

 

 

 

 

3

limitation, the costs and fees of Agent's legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to

herein or contemplated hereby.

10.

Effectiveness: Governing Law.This Amendment shall be effectiveupon acceptance by Agent andLenders (notice of which acceptance ishereby waived),

whereupon the same shall be governed by and construed inaccordance with the internallaws of the State of Georgia.

11.

Successors and Assigns.This Amendment shall be binding upon and inure to thebenefit of the parties hereto and their respective successorsand assigns.

12.

No Novation etc. Except asotherwise expressly provided in thisAmendment, nothing herein shallbe deemed to amend ormodify any provision of theCredit

Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Amendment is not intended to be, norshall it be construed to

create, a novation or accord and satisfaction, and the Credit Agreementas herein modified shall continue in full force andeffect.

13.

Counterparts: Telecopied Signatures.This Amendment maybeexecuted in anynumber of counterpartsand by differentparties to thisAmendment on separate

counterparts, eachof which, whenso executed,shall be deemedan original, butall such counterpartsshall constituteone and thesame agreement.Any signaturedelivered

by a party by facsimile transmission shall be deemed tobe an original signature hereto.

14.

Further Assurances.Each Borrower agreesto take such furtheractions as Agentshall reasonably requestfrom time totime in connectionherewith to evidence

or give effect to the amendments set forth herein or any of the transactionscontemplated hereby.

15.

Section Titles.Section titles and references usedin this Amendment shall bewithout substantive meaning or content ofany kind whatsoever andare not a

part of the agreements among the parties hereto.

16.

Release of Claims.To induceAgent and Lenders toenter into thisAmendment, each Borrower herebyreleases, acquits and foreverdischarges Agent and

Lenders, and all officers, directors, agents,employees, successors and assigns ofAgent and Lenders,from any and all liabilities, claims, demands,actions or causes of

action of any kind or nature (ifthere be any), whether absoluteor contingent, disputed or undisputed,at law or in equity, or known or unknown, thatsuch Borrower now

has or everhad against Agent orany Lender arising underor in connection withany of the LoanDocuments or otherwise. EachBorrower represents and warrants to

Agent and Lendersthat such Borrower hasnot transferred orassigned to any Personany claim thatsuch Borrower ever hador claimed tohave against Agent orany

Lender.

17.

Waiverof Jury Trial.Tothe fullest extentpermitted by applicablelaw, theparties hereto eachhereby waives theright to trialby juryin any action,suit,

counterclaim or proceeding arising out of or related to this Amendment.

[Remainder of page intentionally left blank; signatures appearon following pages.]

4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal and delivered by their respective duly authorized officers on

the date first written above.

BORROWERS:

DELTAAPPAREL INC.

By: /s/ Nancy Bubanich

Name: Nancy Bubanich

Title: Chief Accounting Officer

M.J. SOFFE, LLC

By: /s/ Nancy Bubanich

Name: Nancy Bubanich

Title: Chief Accounting Officer

CULVER CITY CLOTHING COMPANY

By: /s/ Nancy Bubanich

Name: Nancy Bubanich

Title: Chief Accounting Officer

SALT LIFE, LLC

By: /s/ Nancy Bubanich

Name: Nancy Bubanich

Title: Chief Accounting Officer

DTG2GO, LLC

By: /s/ Nancy Bubanich

Name: Nancy Bubanich

Title: Chief Accounting Officer

[Signatures continue on the following page.]

5

AGENT:

WELLS FARGO BANK, NATIONAL ASSOCIATION

By: /s/ Christopher M. Waterstreet

Name: Christopher M. Waterstreet

Title: Vice President

LENDERS:

WELLS FARGO BANK, NATIONAL ASSOCIATION

By: /s/ Christopher M. Waterstreet

Name: Christopher M. Waterstreet

Title: Vice President

[Signatures continue on the following page.]

6

REGIONS BANK:

By: /s/ Scott Martin

Name: Scott Martin

Title: Managing Director

PNC BANK, NATIONAL ASSOCIATION:

By: /s/ Doug Meckelnburg

Name: Doug Meckelnburg

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

EXECUTION VERSION

NINTH AMENDMENT

TO

FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

THIS NINTHAMENDMENT TO FIFTHAMENDED ANDRESTATED CREDIT AGREEMENT (this “Amendment”)is made andentered intoon February

3, 2023, byand among

DELTA APPAREL, INC.

, a Georgiacorporation (“Delta”),

M. J. SOFFE,LLC

, a NorthCarolina limitedliability company(“Soffe”),

CULVER

CITY CLOTHINGCOMPANY

, aGeorgia corporation(“Culver City”),

SALTLIFE, LLC

, aGeorgia limited liabilitycompany (“Salt Life”),

DTG2GO, LLC

, a

Georgia limited liability company (“DTG2GO”; Delta,Soffe, Culver City, Salt Life, and DTG2GO, each individually, a “Borrower”and, collectively, “Borrowers”); the

parties tothe CreditAgreement (as definedbelow) from timeto timeas Lenders(each individually,a “Lender”and collectively,“Lenders”); and

WELLS FARGO

BANK, NATIONAL ASSOCIATION

, a national bankingassociation (“Wells Fargo”), in itscapacity as agent forLenders (together withits successors insuch capacity,

“Agent”).

Recitals:

Borrowers, Agent andLenders are partiesto acertain Fifth Amendedand Restated CreditAgreement dated asof May10, 2016(as atany time amended,

restated, modifiedor supplemented,the “Credit Agreement”),pursuant to whichAgent and Lendershave made certainloans and otherfinancial accommodationsavailable

to Borrowers.

The parties desire to amend the Credit Agreement as hereinafterset forth.

NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby

severally acknowledged, the parties hereto, intending to be legallybound hereby, agree as follows:

1.Definitions.

All capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the

Credit Agreement.

2.Amendments to Credit Agreement.

(a)

Certain Definitions.Schedule 1.1 of theCredit Agreement is herebyamended to add,in addition toand not inlimitation thereof, the

following new definitions in the appropriate alphabetical order:

“ “Accommodation Period”means the periodcommencing upon theNinth Amendment Datethrough and includingthe date upon which

Agent has received from Borrowers, (a) a Borrowing Base Certificate as of the month ending September 30, 2023, evidencing that the

Availabilityof Borrowers,as ofthe dateof receiptofsuch BorrowingBase Certificate,is equalto ormore thanthe greaterof(i)

seventeen andone-half percent(17.50%) ofthe lesserof (A)the BorrowingBase or(B) theMaximum RevolverAmount and(ii)

$25,000,000 or (b) a written request by Borrowers to Agent, at any time afterreceipt of such Borrowing Base Certificate, to terminate

the Accommodation Period together withevidence that, as of thedate of such writtenrequest, the AverageAvailability of Borrowers

for the consecutive thirty (30)day period ending on suchdate of determination is morethan the greater of suchamounts specified in the

foregoing clause (a).For purposes of this definition, Availabilityand Average Availabilitywill be calculated without giving effect to

the Availability Block.

“Availability Block” means, (a) on and after the Ninth Amendment Date 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 andafter June 5, 2023through the dateof (i) receiptby

Agent of a Borrowing Base Certificate as of the monthending September 30, 2023, evidencing that the Availability (calculated for this

purpose, without giving effect to the AvailabilityBlock) of Borrowers, as of the date of receipt ofsuch Borrowing Base Certificate, is

equal toor morethan the greaterof (A)seventeen andone-half percent (17.50%)of thelesser of(1) theBorrowing Base or(2) the

Maximum Revolver Amountand (B) $25,000,000,$10,000,000 or (ii) awritten request byBorrowers to Agent, atany time after receipt

of such Borrowing Base Certificate, toreduce the Availability Block, together with evidencethat, as of the date ofsuch written request,

the Average Availability of Borrowers for the consecutive thirty (30) day period ending on such date of determination is more than the

greater of such amounts specified in the foregoing clause (c) and(d) at all times thereafter, $0.

“Increased Interest Period” means on the first day of the Accommodation Period through and including the date after expiration of the

Accommodation Period and upon which Borrowers have provided evidence, in formand substance acceptable to Agent, that as of the

last day of anytwo (2) consecutive quarters, Borrowers havemaintained a Fixed Charge Coverage Ratiogreater than 1.00 to1.00, in

each case, for the trailing three (3) month period then ended.

“Ninth Amendment Date” means February 3, 2023.

“Ninth Amendment Fee Letter” means that certain fee letter,dated as of the Ninth Amendment Date, among Borrowers and Agent,in

form and substance reasonably satisfactory to Agent.

“Non-AmortizingPeriod”means,withrespecttotheBorrowingBase,theperiodcommencingonFebruary1,2023throughand

including July 31, 2023.

“Restricted Payment Accommodation Period”means the period commencing upon the Ninth Amendment Date through and including

the date upon which Agent has received from Borrowers (a) a Borrowing Base Certificateas of the month ending September 30, 2023,

evidencing that the Availability of Borrowers, as of the date of receipt of such Borrowing Base Certificate, is equal to or more than the

greater of (i)twentypercent(20%) of thelesser of (A)the Borrowing Baseor (B) theMaximum Revolver Amountand (ii) $30,000,000

or (b) a written request by Borrowers toAgent, at any time after receipt of suchBorrowing Base Certificate, to terminate the Restricted

PaymentAccommodationPeriodtogetherwithevidencethat,asofthedateofsuchwrittenrequest,theAverageAvailabilityof

Borrowers for theconsecutive thirty (30)day period endingon suchdate of determinationis more thanthe greater ofsuch amounts

specified in the foregoing clause (a).For purposes of this definition, Availabilityand Average Availabilitywill be calculated without

giving effect to the Availability Block

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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(b)

Restricted Payments.Section 6.7(c)of theCredit Agreementis amendedto addthe followingnew sentenceat theend

thereof:

“Notwithstanding the foregoing or anythingto the contrary contained herein, inno event shall any Restricted Paymentsbe made during

the Restricted Payment Accommodation Period.”