Document and Entity Information

9 Months Ended

Jul. 1, 2017

Jul. 21, 2017

Document and Entity Information [Abstract]

Entity Registrant Name

DELTA APPAREL, INC

Entity Central Index Key

0001101396

Current Fiscal Year End Date

--09-30

Entity Filer Category

Accelerated Filer

Document Type

10-Q

Document Period End Date

Jul. 01, 2017

Document Fiscal Year Focus

2017

Document Fiscal Period Focus

Q3

Amendment Flag

false

Entity Common Stock, Shares Outstanding

7,488,661

Condensed Consolidated Balance Sheets (USD $)

In Thousands, unless otherwise specified

Jul. 1, 2017

Oct. 1, 2016

Current assets:

Cash and cash equivalents

$ 489

$ 397

Accounts receivable, less allowances of $1,852 and $1,978, respectively

56,310

63,609

Income tax receivable

842

86

Inventories, net

175,873

164,247

Note receivable

2,889

0

Prepaid expenses and other current assets

4,414

4,145

Total current assets

240,817

232,484

Property, plant and equipment, net of accumulated depreciation of $67,453 and $63,585, respectively

42,443

43,503

Goodwill

19,917

36,729

Intangibles, net

16,376

20,922

Deferred income taxes

3,705

5,246

Other assets

6,034

5,768

Total assets

329,292

344,652

Current liabilities:

Accounts payable

47,491

51,395

Accrued expenses

17,832

21,706

Current portion of long-term debt

7,771

9,192

Total current liabilities

73,094

82,293

Long-term debt, less current maturities

94,885

106,603

Other liabilities

2,141

1,241

Contingent consideration

1,900

2,500

Total liabilities

172,020

192,637

Shareholders’ equity:

Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding

0

Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 7,495,326 and 7,609,727 shares outstanding as of July 1, 2017 and October 1, 2016, respectively

96

Additional paid-in capital

60,880

60,847

Retained earnings

125,091

116,679

Accumulated other comprehensive loss

(12)

(112)

Treasury stock —2,151,646 and 2,037,245 shares as of July 1, 2017 and October 1, 2016, respectively

(28,783)

(25,495)

Total shareholders’ equity

157,272

152,015

Total liabilities and shareholders' equity

$ 329,292

$ 344,652

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)

In Thousands, except Share data, unless otherwise specified

Jul. 1, 2017

Oct. 1, 2016

Statement of Financial Position [Abstract]

Allowances for accounts receivable

$ 1,852

$ 1,978

Accumulated Depreciation

$ 67,453

$ 63,585

Shareholders' equity:

Preferred stock, par value (in dollars per share)

$ 0.01

Preferred stock, shares authorized

2,000,000

Preferred stock, shares issued

0

Preferred stock, shares outstanding

0

Common stock, par value (in dollars per share)

$ 0.01

Common stock, shares authorized

15,000,000

Common stock, shares issued

9,646,972

Common stock, shares outstanding

7,495,326

7,609,727

Treasury stock, shares

2,151,646

2,037,245

Condensed Consolidated Statements of Operations (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Income Statement [Abstract]

Net sales

$ 104,281

$ 111,552

$ 293,755

$ 310,883

Cost of goods sold

82,012

86,566

229,697

241,301

Gross profit

22,269

24,986

64,058

69,582

Selling, general and administrative expenses

16,964

19,396

52,523

56,311

Change in fair value of contingent consideration

(400)

(300)

(600)

Gain on sale of business

0

(1,295)

0

Restructuring costs

0

1,663

0

1,663

Other income, net

(146)

0

(413)

(178)

Operating income

5,851

4,227

13,843

12,386

Interest expense, net

1,256

1,338

3,868

4,009

Income before provision for income taxes

4,595

2,889

9,975

8,377

Provision for income taxes

127

347

1,563

1,716

Net income

$ 4,468

$ 2,542

$ 8,412

$ 6,661

Basic earnings per share (in dollars per share)

$ 0.59

$ 0.33

$ 1.11

$ 0.86

Diluted earnings per share (in dollars per share)

$ 0.57

$ 0.32

$ 1.07

$ 0.84

Weighted average number of shares outstanding (in shares)

7,541

7,714

7,580

7,736

Dilutive effect of stock options and awards (in shares)

325

288

289

235

Weighted average number of shares assuming dilution (in shares)

7,866

8,002

7,869

7,971

Condensed Consolidated Statements of Comprehensive Income (USD $)

In Thousands, unless otherwise specified

3 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Statement of Comprehensive Income [Abstract]

Net income

$ 4,468

$ 2,542

$ 8,412

$ 6,661

Other comprehensive income (loss) related to unrealized gain (loss) on derivatives, net of income tax

18

26

100

220

Comprehensive income

$ 4,486

$ 2,568

$ 8,512

$ 6,881

Condensed Consolidated Statements of Cash Flows (USD $)

In Thousands, unless otherwise specified

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Operating activities:

Net income

$ 8,412

$ 6,661

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

7,203

7,209

Amortization of deferred financing fees

247

335

Excess tax benefits from stock awards

(379)

(89)

Provision for deferred income taxes

1,541

1,735

Gain on sale of Junkfood assets

(1,295)

0

Non-cash stock compensation

1,223

1,450

Change in fair value of contingent consideration

(600)

Fixed asset impairment charge

0

831

Loss on disposal of equipment

11

63

Changes in operating assets and liabilities:

Accounts receivable, net

7,299

2,876

Inventories, net

(15,104)

(18,775)

Prepaid expenses and other assets

(777)

(2,238)

Other non-current assets

(521)

47

Accounts payable

(3,529)

(4,084)

Accrued expenses

(4,323)

(2,459)

Income taxes

(377)

(108)

Other liabilities

77

128

Net cash used in operating activities

(892)

(7,018)

Investing activities:

Purchases of property and equipment, net

(5,513)

(9,480)

Proceeds from sale of Junkfood assets

25,000

0

Proceeds from sale of fixed assets

1

23

Net cash provided by (used in) investing activities

19,488

(9,457)

Financing activities:

Proceeds from long-term debt

349,555

372,608

Repayment of long-term debt

(362,694)

(352,517)

Repayment of capital financing

(450)

(251)

Payment of deferred financing fees

0

(1,001)

Repurchase of common stock

(4,127)

(1,818)

Payment of withholding taxes on stock awards

(1,167)

(163)

Excess tax benefits from stock awards

379

89

Net cash (used in) provided by financing activities

(18,504)

16,947

Net increase in cash and cash equivalents

92

472

Cash and cash equivalents at beginning of period

397

300

Cash and cash equivalents at end of period

489

772

Supplemental cash flow information:

Cash paid during the period for interest

3,462

3,274

Cash paid during the period for income taxes, net of refunds received

354

217

Non-cash financing activity - capital lease agreements

1,675

1,374

Non-cash financing activity - note receivable

$ 2,889

$ 0

Basis of Presentation and Description of Business

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 nine-month period ended July 1, 2017, are not necessarily indicative of the results that may be expected for our fiscal year ending September 30, 2017. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality, with sales in our June quarter generally being the highest and sales in our December quarter generally being the lowest. For more information regarding our results of operations and financial position, refer to the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for our fiscal year ended October 1, 2016, filed with the United States Securities and Exchange Commission (“SEC”).

“Delta Apparel”, the “Company”, “we”, “us” and “our” are used interchangeably to refer to Delta Apparel, Inc. together with our domestic wholly-owned subsidiaries, including M.J. Soffe, LLC (“Soffe”), Junkfood Clothing Company (“Junkfood”), Salt Life, LLC (“Salt Life”), and Art Gun, LLC (“Art Gun”), and other international subsidiaries, as appropriate to the context. On March 31, 2017, we sold the Junkfood business to JMJD Ventures, LLC. See Note D—Sale of Junkfood for further information on this transaction.

Delta Apparel, Inc. is an international apparel design, marketing, manufacturing and sourcing company that features a diverse portfolio of lifestyle basics and branded activewear apparel, headwear and related accessory products. We specialize in selling casual and athletic products through a variety of distribution channels and distribution tiers, including department stores, mid and mass channels, e-retailers, sporting goods and outdoor retailers, independent and specialty stores, and the U.S. military. Our products are also made available direct-to-consumer on our websites and in our branded retail stores. We believe this diversified distribution allows us to capitalize on our strengths to provide casual activewear to consumers purchasing from most types of retailers.

We design and internally manufacture the majority of our products, which allows us to offer a high degree of consistency and quality controls as well as leverage scale efficiencies. One of our strengths is the speed with which we can reach the market from design to delivery. We have manufacturing operations located in the United States, El Salvador, Honduras and Mexico, and 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 at 322 South Main Street, Greenville, South Carolina 29601 (telephone number: 864-232-5200). Our common stock trades on the NYSE MKT under the symbol “DLA”. We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2017 fiscal year is a 52-week year and will end on September 30, 2017. Our 2016 fiscal year was a 52-week year and ended on October 1, 2016.

Accounting Policies

Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended October 1, 2016, filed with the SEC.

New Accounting Standards

Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09"). This new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for annual periods beginning after December 15, 2017, for public business entities and permits the use of either the retrospective or cumulative effect transition method. Early application is permitted only for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will therefore be effective in our fiscal year beginning September 30, 2018. We are evaluating the effect that ASU 2014-09 will have on our Consolidated Financial Statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern, ("ASU 2014-15"). The new guidance requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable). Management is required to make this evaluation for both annual and interim reporting periods. When management identifies events or conditions that indicate that it is probable that the entity will be unable to meet its obligations as they become due, the standard allows management to consider the mitigating effect of its plans to determine whether substantial doubt is alleviated. Management will have to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. This guidance is effective for annual periods ending after December 15, 2016, and for interim periods within annual periods beginning thereafter, but may be adopted earlier. ASU 2014-15 will therefore be effective for the current annual period ending September 30, 2017. The adoption will not have a material impact on our Consolidated Financial Statements and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, ("ASU 2015-11"). This new guidance requires an entity to measure inventory at the lower of cost and net realizable value. Currently, entities measure inventory at the lower of cost or market. ASU 2015-11 replaces market with net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured under last-in, first-out or the retail inventory method. ASU 2015-11 requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities. Early application is permitted. ASU 2015-11 will therefore be effective in our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 2015-11 will have on our Consolidated Financial Statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases, ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. All leases will be required to be recorded on the balance sheet with the exception of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. ASU 2016-02 will therefore be effective in our fiscal year beginning September 29, 2019. We are evaluating the effect that ASU 2016-02 will have on our Consolidated Financial Statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. ASU 2016-09 will therefore be effective in our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 2016-09 will have on our Consolidated Financial Statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, ("ASU 2016-15"). ASU 2016-15 clarifies how entities should classify certain cash receipts and payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 31, 2019. ASU 2016-15 will therefore be effective in our fiscal year ending October 3, 2020. We are evaluating the effect that ASU 2016-15 will have on our Consolidated Financial Statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill, ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by eliminating the requirement to calculate the implied fair value of goodwill, Step 2 of today's goodwill impairment test, to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard does not change the guidance on completing Step 1 of the goodwill impairment test. ASU 2017-04 is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted. ASU 2017-04 will therefore be effective in our fiscal year ending October 3, 2020. We are evaluating the effect that ASU 2017-04 will have on our Consolidated Financial Statements and related disclosures.

Sale of Junkfood

On March 31, 2017, we completed the sale of our Junkfood business to JMJD Ventures, LLC, for $27.9 million, with cash received at closing of $25.0 million and the recording of a $2.9 million note receivable with payments scheduled due between June 30, 2017, and March 30, 2018, subject to a final tangible asset adjustment which was made in the quarter. The note receivable was amended on June 29, 2017, to revise the repayment schedule for payments to be made between September 29, 2017, and March 30, 2018. The business sold consisted of vintage-inspired Junk Food branded and private label products sold in the United States and internationally.

The $1.3 million pre-tax gain on the sale of the Junkfood business resulted from the proceeds of $27.9 million less the costs of assets sold and other expenses, and less direct selling costs associated with the transaction. The pre-tax gain was recorded in the Condensed Consolidated Statement of Operations as Gain on sale of business. For income tax purposes, the gain on the sale was treated as a discrete item and resulted in $0.4 million in income tax expense recorded during our 2017 second quarter.

Restructuring Plan

On May 10, 2016, in connection with certain strategic manufacturing initiatives, we announced plans to realign our manufacturing operations with the closing of our textile manufacturing facility in Maiden, North Carolina, the consolidation of sew facilities in Mexico, and the expansion of production at our lower-cost Ceiba Textiles facility in Honduras. In September 2016, we sold the real estate and certain machinery, equipment and supply parts used in the Maiden facility for approximately $1.7 million. As part of the closing of the Maiden facility and the expansion of operations at our offshore facilities, we incurred the following costs in our basics segment during the third and fourth quarters of fiscal year 2016 (in thousands):



	Fiscal Year Ended
	October 1, 2016
Excess manufacturing costs related to the shutdown and start-up operations	$	1,096
Total expenses included in cost of goods sold	1,096

Employee termination costs	597
Fixed asset impairment	607
Inventory and supply part impairment	144
Other costs to exit facility	393
Total restructuring costs	1,741
Total manufacturing realignment expenses	$	2,837

We paid $0.4 million of the above-referenced employee termination costs during fiscal year 2016 and $0.1 million during the first nine months of fiscal year 2017, with $0.1 million remaining accrued at July 1, 2017. We have not incurred, and do not expect to incur, any significant expense related to these manufacturing initiatives in fiscal year 2017.

Inventories

Inventories, net of $9.0 million and $8.8 million in reserves, as of July 1, 2017, and October 1, 2016, respectively, consisted of the following (in thousands):



	July 1, 2017		October 1, 2016
Raw materials	$	8,623	$	11,442
Work in process	18,969		18,158
Finished goods	148,281		134,647
	$	175,873	$	164,247

Debt

On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, National Association and Regions Bank. Our subsidiaries, M.J. Soffe, LLC, Junkfood Clothing Company, Salt Life, LLC, and Art Gun, LLC (together with the Company, the “Companies”), are co-borrowers under the Amended Credit Agreement.

The Amended Credit Agreement allows us to borrow up to $145 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 credit facility matures on May 10, 2021. In fiscal year 2016, we paid $1.0 million in financing costs associated with the Amended Credit Agreement. Wells Fargo and the above-referenced Lenders consented to the sale of our Junkfood business prior to the March 31, 2017, closing of the transaction.

As of July 1, 2017, there was $84.2 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.3% and additional borrowing availability of $38.4 million. This credit facility includes a financial covenant requiring that if the amount of availability falls below the threshold amounts set forth in the Amended Credit Agreement, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Credit Agreement) for the preceding 12-month period must not be less than 1.1 to 1.0. We were not subject to the FCCR covenant at July 1, 2017, because our availability was above the minimum required under the Amended Credit Agreement. At July 1, 2017, and October 1, 2016, there was $10.5 million and $10.7 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.

The Amended Credit Agreement contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in FASB Codification No. 470, Debt ("ASC 470")) whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. Pursuant to ASC 470, we classify borrowings under the Amended Credit Agreement as long-term debt.

In August 2013, we acquired Salt Life and issued two promissory notes in the aggregate principal amount of $22.0 million, which included a one-time installment of $9.0 million that was due and paid as required on September 30, 2014, and quarterly installments commencing on March 31, 2015, with the final installment due on June 30, 2019. The promissory notes are zero-interest notes and state that interest will be imputed as required under Section 1274 of the Internal Revenue Code. We imputed interest at 1.92% on the promissory note that matured June 30, 2016, and was paid in full as required. We impute interest at 3.62% on the promissory note that matures on June 30, 2019. At July 1, 2017, the discounted value of the promissory note outstanding was $5.3 million.

Since March 2011, we have entered into loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance both the operations and capital expansion of our Honduran facilities. Each of these loans is secured by a first-priority lien on the assets of our Honduran operations and is not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars and the carrying value of the debt approximates the fair value. The revolving credit facility requires minimum payments during each six-month period of the 18-month term; however, the loan agreement permits additional drawdowns to the extent payments are made and certain objective covenants are met. The current revolving Honduran debt, by its nature, is not long-term, as it requires scheduled payments each six months. However, as the loan permits us to re-borrow funds up to the amount repaid, subject to certain covenants, and we intend to re-borrow funds, subject to those covenants, the amounts have been classified as long-term debt.

Information about these loans and the outstanding balances as of July 1, 2017, is as follows (in thousands):



	July 1, 2017
Revolving credit facility established March, 2011, interest at 8.0% due March, 2019	$	4,750
Term loan established March, 2011, interest at 7.0%, payable monthly with a seven-year term	$	730
Term loan established November, 2014, interest at 7.5%, payable monthly with a six-year term	$	2,150
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term	$	1,431
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term	$	4,083

Selling, General and Administrative Expense

We include in selling, general and administrative ("SG&A") expenses 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 $3.8 million and $3.7 million for the three-month periods ended July 1, 2017, and July 2, 2016, respectively, and totaled $10.9 million and $11.2 million for the nine-month period ended July 1, 2017, and July 2, 2016, respectively. In addition, SG&A expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed products and other general and administrative expenses.

Stock-Based Compensation

On February 4, 2015, our shareholders re-approved the Delta Apparel, Inc. 2010 Stock Plan ("2010 Stock Plan") that was originally approved by our shareholders on November 11, 2010. The re-approval of the 2010 Stock Plan, including the material terms of the performance goals included in the 2010 Stock Plan, enables us to continue to grant equity incentive compensation awards that are structured in a manner intended to qualify as tax deductible, performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986. Since November 2010, no additional awards have been or will be granted under either the Delta Apparel Stock Option Plan ("Option Plan") or the Delta Apparel Incentive Stock Award Plan ("Award Plan") and, instead, all stock awards have been and will continue to be granted under the 2010 Stock Plan.

Compensation expense is recorded on the SG&A expense line item in our Condensed Consolidated Statements of Operations over the vesting periods. During the three-month and nine-month periods ended July 1, 2017, we recognized $0.6 million and $1.6 million, respectively, in stock-based compensation expense. During the three-month and nine-month periods ended July 2, 2016, we recognized $0.7 million and $1.8 million, respectively, in stock-based compensation expense.

2010 Stock Plan

Under the 2010 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. The aggregate number of shares of common stock that may be delivered under the 2010 Stock Plan is 500,000 plus any shares of common stock subject to outstanding awards under the Option Plan or Award Plan that are subsequently forfeited or terminated for any reason before being exercised. The 2010 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. If a participant dies or becomes disabled (as defined in the 2010 Stock Plan) while employed by the Company or serving as a director, all unvested awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2010 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2010 Stock Plan, and to make any other determinations that it deems necessary.

During the three-month and nine-month periods ended July 1, 2017, no restricted stock units were granted. During the three-month and nine-month periods ended July 1, 2017, performance stock units representing 126,000 shares of our common stock were granted. Of these units, and subject to satisfaction of the applicable performance criteria, 42,000 will vest with the filing of our Annual Report on Form 10-K for our fiscal year ending September, 29, 2018, 42,000 will vest with the filing of our Annual Report on Form 10-K for our fiscal year ending September, 28, 2019, and 42,000 will vest with the filing of our Annual Report on Form 10-K for our fiscal year ending October 3, 2020.

During the three-month period ended April 1, 2017, restricted stock units and performance units representing 45,000 and 5,000 shares of our common stock, respectively, vested on an accelerated basis as a result of the sale of the Junkfood business and were issued in accordance with their respective agreements. One-half of the performance units were payable in common stock and one-half were payable in cash. Of the restricted stock units, 42,500 were payable in common stock and 2,500 were payable in cash. The $0.3 million expense related to the accelerated vesting of equity awards in connection with the sale of the Junkfood business was recorded in the Gain on sale of business line item in our Condensed Consolidated Statements of Operations.

During the three-month period ended December 31, 2016, restricted stock units and performance units representing 8,438 and 53,248 shares of our common stock, respectively, vested upon the filing of our Annual Report on Form 10-K for the fiscal year ended October 1, 2016, and were issued in accordance with their respective agreements. One-half of the restricted stock units were payable in common stock and one-half were payable in cash. All of the performance units were payable in common stock.

As of July 1, 2017, there was $3.4 million of total unrecognized compensation cost related to unvested awards granted under the 2010 Stock Plan. This cost is expected to be recognized over a period of 3.7 years.

Option Plan

All options granted under the Option Plan vested prior to October 3, 2015. As such, no expense was recognized during each of the three-month and nine-month periods ended July 1, 2017, and July 2, 2016.

During the three-month period ended July 1, 2017, options representing 80,000 shares of our common stock were exercised and the shares issued in accordance with their respective agreements. No options were exercised during the three and nine-month periods ended July 2, 2016.

Purchase Contracts

We have entered into agreements to purchase yarn, finished fabric, and finished apparel products at fixed prices. At July 1, 2017, minimum payments under these contracts were as follows (in thousands):



Yarn	$	19,158
Finished fabric	2,829
Finished products	17,146
	$	39,133

Business Segments

We operate our business in two distinct segments: branded and basics. Although the two segments are similar in their production processes and regulatory environments, they are distinct in their economic characteristics, products, marketing, and distribution methods.

The basics segment is comprised of our business units primarily focused on garment styles characterized by low fashion risk, and includes our Delta Activewear (which includes Delta Catalog and FunTees) and Art Gun business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Delta Pro Weight® and Delta Magnum Weight® for sale to a diversified audience ranging from large licensed screen printers to small independent businesses. We also manufacture private label products for major branded sportswear companies, trendy regional brands, retailers, and sports- licensed apparel marketers. Typically our private label products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so that they are fully ready for retail. Using digital printing equipment and proprietary technology, Art Gun embellishes garments to create private label, custom decorated apparel servicing the fast-growing e-retailer channels.

The branded segment is comprised of our business units focused on specialized apparel garments and headwear to meet consumer preferences and fashion trends, and includes our Salt Life, Soffe, and Coast business units, as well as Junkfood until its divestiture on March 31, 2017. These branded embellished and unembellished products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, e-retailers and the U.S. military, as well as direct-to-consumer through branded ecommerce sites and "brick and mortar" retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life®, Soffe®, and COAST®, as well as other labels. The results of the Coast business have been included in the branded segment since its acquisition on August 30, 2016.

Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from operations before interest and income taxes ("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 the fiscal year ended October 1, 2016, 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
	July 1, 2017		July 2, 2016
Segment net sales:
Basics	$	79,009	$	72,097
Branded	25,272		39,455
Total net sales	104,281		111,552

Segment operating income:
Basics	7,497		5,193
Branded	2,146		2,661
Total segment operating income	9,643		7,854



	Nine Months Ended
	July 1, 2017		July 2, 2016
Segment net sales:
Basics	$	210,657	$	203,453
Branded	83,098		107,430
Total net sales	293,755		310,883

Segment operating income:
Basics	19,745		17,653
Branded	3,923		4,481
Total segment operating income	23,668		22,134

The following reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):



	Three Months Ended				Nine Months Ended
	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016
Segment operating income	$	9,643	$	7,854	$	23,668	$	22,134
Unallocated corporate expenses	3,792		3,627		9,825		9,748
Unallocated interest expense	1,256		1,338		3,868		4,009
Consolidated income before provision for income taxes	$	4,595	$	2,889	$	9,975	$	8,377

As a result of the sale of the Junkfood business (see Note D—Sale of Junkfood), branded segment assets have declined by approximately $31.7 million from October 1, 2016, to $124.5 million as of July 1, 2017. Basics segment assets have increased by $17.6 million since October 1, 2016, to $195.9 million as of July 1, 2017, due principally to higher inventory levels for replenishment orders and higher receivables resulting from the spring selling season.

Income Taxes

Our effective income tax rate for the nine-month period ended July 1, 2017, was 15.7%, compared to our effective income tax rate of 20.5% for the same period in the prior year, and 18.8% for the fiscal year ended October 1, 2016. During the second quarter of fiscal year 2017, we recognized a $1.3 million pre-tax gain on the sale of the Junkfood business. See Note D—Sale of Junkfood for further information on this transaction. We accounted for this event as a discrete item for tax provision purposes, recording tax expense on the pre-tax gain. Excluding the effect of this discrete item, the effective tax provision on operations for the nine-month period ended July 1, 2017, was 12.7%.

We 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. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income compared to profits in the offshore taxable and tax-free jurisdictions in which we operate, our estimated annual income tax rate for the fiscal year ending September 30, 2017, is currently expected to be approximately 13%. However, changes in the mix of U.S. taxable income compared to profits in tax-free or lower-tax jurisdictions can have a significant impact on our overall effective tax rate. In addition, any changes to tax regulations could adversely affect our financial position and results of operations.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax years 2013, 2014 and 2015, according to statute and with few exceptions, remain open to examination by various federal, state, local and foreign jurisdictions.

Derivatives and Fair Value Measurements

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. We have designated our interest rate swap contracts as cash flow hedges of our future interest payments. As a result, the gains and losses on the swap contracts are reported as a component of other comprehensive income and are reclassified into interest expense as the related interest payments are made. Outstanding instruments as of July 1, 2017, are as follows:



	Effective Date	Notational Amount	Fixed LIBOR Rate		Maturity Date
Interest Rate Swap	September 9, 2013	$15 million	1.6480	%	September 11, 2017
Interest Rate Swap	September 19, 2013	$15 million	1.4490	%	September 19, 2017

From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized and unrealized gains and losses associated with them are recorded within cost of goods sold on the Condensed Consolidated Statement of Operations.

FASB Codification No. 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.

The following financial liabilities are measured at fair value on a recurring basis (in thousands):



	Fair Value Measurements Using
Period Ended	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest Rate Swaps
July 1, 2017	$	(19	)	—			$	(19	)	—
October 1, 2016	$	(182	)	—			$	(182	)	—

Cotton Options
July 1, 2017	$	(291	)	$	(291	)	—			—
October 1, 2016	$	—		$	—		—			—

Contingent Consideration
July 1, 2017	$	(1,900	)	—			—			$	(1,900	)
October 1, 2016	$	(2,500	)	—			—			$	(2,500	)

The fair value of the interest rate swap agreements was derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. Book value for fixed rate debt approximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of July 1, 2017, and October 1, 2016 (in thousands):



	July 1, 2017			October 1, 2016
Deferred tax assets	7			70
Accrued expenses	(19		)	(182		)
Accumulated other comprehensive loss	$	(12	)	$	(112	)

In August 2013, we acquired Salt Life and issued contingent consideration payable in cash after the end of calendar year 2019 if financial performance targets involving the sale of Salt Life-branded products are met during the 2019 calendar year. We used a Monte Carlo model utilizing the historical results and projected cash flows based on the contractually defined terms, discounted as necessary, to estimate the fair value of the contingent consideration for Salt Life at the acquisition date as well as to remeasure the contingent consideration related to the acquisition of Salt Life at each reporting period. Accordingly, the fair value measurement for contingent consideration falls in Level 3 of the fair value hierarchy.

At July 1, 2017, we had $1.9 million accrued in contingent consideration related to the Salt Life acquisition, a $0.6 million reduction from the accrual at October 1, 2016. The reduction in the fair value of contingent consideration is based on the inputs into the Monte Carlo model, including the time remaining in the measurement period. The sales expectations for calendar year 2019 have been reduced from the sales expectations used in the valuation of contingent consideration at acquisition due to overall softness in the retail environment. The Art Gun agreement concluded in the quarter and no contingent consideration will be paid under the terms of our acquisition of the Art Gun business.

Legal Proceedings

The Sports Authority Bankruptcy Litigation

Soffe is involved in several related litigation matters stemming from The Sports Authority's ("TSA") March 2, 2016, filing of a voluntary petition(s) for relief under Chapter 11 of the United States Bankruptcy Code (the "TSA Bankruptcy"). Prior to such filing, Soffe provided TSA with products to be sold on a consignment basis pursuant to a "pay by scan" agreement and the litigation matters relate to Soffe's interest in the products it provided TSA on a consignment basis (the "Products") and the proceeds derived from the sale of such products (the "Proceeds").

TSA Stores, Inc. and related entities TSA Ponce, Inc. and TSA Caribe, Inc. filed an action against Soffe on March 16, 2016, in the United States Bankruptcy Court for the District of Delaware (the "TSA Action") essentially seeking a declaratory judgment that: (i) Soffe does not own the Products but rather has a security interest that is not perfected or senior and is avoidable; (ii) Soffe only has an unsecured claim against TSA; (iii) TSA and TSA's secured creditors have valid, unavoidable and senior rights in the Products and the Products are the property of TSA’s estate; (iv) Soffe does not have a perfected purchase money security interest in the Products; (v) Soffe is not entitled to a return of the Products; and (vi) TSA can continue to sell the Products and Soffe is not entitled to any proceeds from such sales other than as an unsecured creditor. The TSA Action also contains claims seeking to avoid Soffe's filing of a financing statement related to the Products as a preference and recover the value of that transfer as well as to disallow Soffe's claims until it has returned preferential transfers or their associated value. TSA also brings a claim for a permanent injunction barring Soffe from taking certain actions. We believe that many of the claims in the TSA Action, including TSA’s claim for injunction, are now moot as a result of Soffe’s agreement to permit TSA to continue selling the Products in TSA’s going-out-of-business sale.

On May 16, 2016, TSA lender Wilmington Savings Fund Society, FSB, as Successor Administrative and Collateral Agent ("WSFS"), intervened in the TSA Action seeking a declaratory judgment that: (i) WSFS has a perfected interest in the Products and Proceeds that is senior to Soffe's interest; and (ii) the Proceeds paid to Soffe must be disgorged pursuant to an order previously issued by the court. WSFS's intervening complaint also contains a separate claim seeking the disgorgement of all Proceeds paid to Soffe along with accrued and unpaid interest.

Soffe has asserted counterclaims against WSFS in the TSA Action essentially seeking a declaratory judgment that: (i) WSFS is not perfected in the Products; and (ii) WSFS's interest in the Products is subordinate to Soffe's interest.

On May 24, 2016, Soffe joined an appeal filed by a number of TSA consignment vendors in the United States District Court for the District of Delaware challenging an order issued in the TSA Bankruptcy that, should WSFS or TSA succeed in the TSA Action, granted TSA and/or WSFS a lien on all Proceeds received by Soffe and requiring the automatic disgorgement of such Proceeds. Soffe and another entity are the remaining consignment vendors pursuing this appeal.

Although we will continue to vigorously defend against the TSA Action and pursue the above-referenced counterclaims and appeal, should TSA and/or WSFS ultimately prevail on their claims, we could be forced to disgorge all Proceeds received and forfeit our ownership rights in any Products that remain in TSA's possession. We believe the range of possible loss in this matter is currently $0 to $3.3 million; however, it is too early to determine the probable outcome and, therefore, no amount has been accrued related to this matter.

Other

With respect to the other significant legal proceedings for which information was reported in Part I, Item 3 of our Annual Report on Form 10-K filed with the SEC on November 29, 2016, there have been no material changes in such legal proceedings.

In addition, 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 effect on our operations, financial condition, or liquidity.

Repurchase of Common Stock

As of July 1, 2017, our Board of Directors authorized management to use up to $40.0 million to repurchase stock in open market transactions under our Stock Repurchase Program.

During the June quarter of fiscal year 2017, we purchased 122,265 shares of our common stock for a total cost of $2.4 million. Through July 1, 2017, we have purchased 2,698,458 shares of our common stock for an aggregate of $34.9 million since the inception of our Stock Repurchase Program. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of July 1, 2017, $5.1 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.

The following table summarizes the purchases of our common stock for the quarter ended July 1, 2017:



Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Dollar Value of Shares that May Yet Be Purchased Under the Plans
April 2, 2017 to May 6, 2017	21,000	$18.12	21,000		$7.1	million
May 7, 2017 to June 3, 2017	67,903	$19.26	67,903		$5.8	million
June 4, 2017 to July 1, 2017	33,362	$20.12	33,362		$5.1	million
Total	122,265	$19.30	122,265		$5.1	million

License Agreements

We have entered into license agreements that provide for royalty payments on net sales of licensed products as set forth in the agreements. These license agreements are within our branded segment. We incurred royalty expense (included in SG&A expenses) of $51 thousand and $2.2 million in each of the third quarters of fiscal years 2017 and 2016, respectively. Royalty expense for the nine-month periods ended July 1, 2017, and July 2, 2016, were approximately $2.4 million and $5.6 million, respectively. Our license agreements have been predominately associated with the Junkfood business, which was sold on March 31, 2017. See Note D—Sale of Junkfood for further information on this transaction. With the divestiture of the Junkfood business, license agreements are not expected to be a significant part of our business going forward.

At July 1, 2017, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):



Fiscal Year	Amount
2017	$	51
2018	60
	$	111

Goodwill and Intangible Assets

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



	July 1, 2017							October 1, 2016
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

Goodwill	$	19,917	$	—		$	19,917	$	36,729	$	—		$	36,729	N/A

Intangibles:
Tradename/trademarks	$	16,090	$	(2,059	)	$	14,031	$	17,620	$	(2,514	)	$	15,106	20 – 30 yrs
Customer relationships	—		—			—		7,220		(4,016		)	3,204		20 yrs
Technology	1,220		(916		)	304		1,220		(826		)	394		10 yrs
License agreements	2,100		(398		)	1,702		2,100		(320		)	1,780		15 – 30 yrs
Non-compete agreements	1,037		(698		)	339		1,287		(849		)	438		4 – 8.5 yrs
Total intangibles	$	20,447	$	(4,071	)	$	16,376	$	29,447	$	(8,525	)	$	20,922

Goodwill represents the acquired goodwill net of the cumulative impairment losses recorded in fiscal year 2011 of $0.6 million. The goodwill recorded on our financial statements is all included in the branded segment.

The sale of Junkfood, completed on March 31, 2017, included intangible assets, net of accumulated amortization, consisting of trademarks of $0.6 million and customer relationships of $3.0 million. Goodwill associated with Junkfood was reduced by $16.8 million as a result of the sale.

Amortization expense for intangible assets was $0.2 million for the three-month period ended July 1, 2017, and $0.3 million for the three-month period ended July 2, 2016. Amortization expense for the nine-month periods ended July 1, 2017, and July 2, 2016, was $0.9 million and $1.0 million, respectively. Amortization expense is estimated to be approximately $1.1 million for fiscal year 2017, $0.9 million for each of fiscal years 2018 and 2019, $0.7 million for fiscal year 2020, and $0.6 million for fiscal year 2021.

Selling, General and Administrative Expense (Policies)

Selling, General and Administrative Expenses

We include in selling, general and administrative ("SG&A") expenses 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.

Restructuring Plan (Tables)

Restructuring and Related Costs

As part of the closing of the Maiden facility and the expansion of operations at our offshore facilities, we incurred the following costs in our basics segment during the third and fourth quarters of fiscal year 2016 (in thousands):



	Fiscal Year Ended
	October 1, 2016
Excess manufacturing costs related to the shutdown and start-up operations	$	1,096
Total expenses included in cost of goods sold	1,096

Employee termination costs	597
Fixed asset impairment	607
Inventory and supply part impairment	144
Other costs to exit facility	393
Total restructuring costs	1,741
Total manufacturing realignment expenses	$	2,837

Inventories (Tables)

Schedule of Inventories, Net of Reserves

Inventories, net of $9.0 million and $8.8 million in reserves, as of July 1, 2017, and October 1, 2016, respectively, consisted of the following (in thousands):



	July 1, 2017		October 1, 2016
Raw materials	$	8,623	$	11,442
Work in process	18,969		18,158
Finished goods	148,281		134,647
	$	175,873	$	164,247

Debt (Tables)

Schedule of Long-term Debt Instruments

Information about these loans and the outstanding balances as of July 1, 2017, is as follows (in thousands):



	July 1, 2017
Revolving credit facility established March, 2011, interest at 8.0% due March, 2019	$	4,750
Term loan established March, 2011, interest at 7.0%, payable monthly with a seven-year term	$	730
Term loan established November, 2014, interest at 7.5%, payable monthly with a six-year term	$	2,150
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term	$	1,431
Term loan established June, 2016, interest at 8.0%, payable monthly with a six-year term	$	4,083

Purchase Contracts (Tables)

Purchase contracts minimum payments

At July 1, 2017, minimum payments under these contracts were as follows (in thousands):



Yarn	$	19,158
Finished fabric	2,829
Finished products	17,146
	$	39,133

Business Segments (Tables)

Segment reporting information by segment

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 the fiscal year ended October 1, 2016, 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
	July 1, 2017		July 2, 2016
Segment net sales:
Basics	$	79,009	$	72,097
Branded	25,272		39,455
Total net sales	104,281		111,552

Segment operating income:
Basics	7,497		5,193
Branded	2,146		2,661
Total segment operating income	9,643		7,854



	Nine Months Ended
	July 1, 2017		July 2, 2016
Segment net sales:
Basics	$	210,657	$	203,453
Branded	83,098		107,430
Total net sales	293,755		310,883

Segment operating income:
Basics	19,745		17,653
Branded	3,923		4,481
Total segment operating income	23,668		22,134

The following reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):



	Three Months Ended				Nine Months Ended
	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016
Segment operating income	$	9,643	$	7,854	$	23,668	$	22,134
Unallocated corporate expenses	3,792		3,627		9,825		9,748
Unallocated interest expense	1,256		1,338		3,868		4,009
Consolidated income before provision for income taxes	$	4,595	$	2,889	$	9,975	$	8,377

Derivatives and Fair Value Measurements (Tables)

Outstanding financial instruments

Outstanding instruments as of July 1, 2017, are as follows:



	Effective Date	Notational Amount	Fixed LIBOR Rate		Maturity Date
Interest Rate Swap	September 9, 2013	$15 million	1.6480	%	September 11, 2017
Interest Rate Swap	September 19, 2013	$15 million	1.4490	%	September 19, 2017

Financial liabilities measure at fair value on a recurring basis

The following financial liabilities are measured at fair value on a recurring basis (in thousands):



	Fair Value Measurements Using
Period Ended	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Interest Rate Swaps
July 1, 2017	$	(19	)	—			$	(19	)	—
October 1, 2016	$	(182	)	—			$	(182	)	—

Cotton Options
July 1, 2017	$	(291	)	$	(291	)	—			—
October 1, 2016	$	—		$	—		—			—

Contingent Consideration
July 1, 2017	$	(1,900	)	—			—			$	(1,900	)
October 1, 2016	$	(2,500	)	—			—			$	(2,500	)

Summary of fair value and presentation in the consolidated balance sheets for derivatives

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of July 1, 2017, and October 1, 2016 (in thousands):



	July 1, 2017			October 1, 2016
Deferred tax assets	7			70
Accrued expenses	(19		)	(182		)
Accumulated other comprehensive loss	$	(12	)	$	(112	)

License Agreements (Tables)

Schedule of future minimum royalty payments

At July 1, 2017, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):



Fiscal Year	Amount
2017	$	51
2018	60
	$	111

Goodwill and Intangible Assets (Tables)

Components of Intangible Assets

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



	July 1, 2017							October 1, 2016
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

Goodwill	$	19,917	$	—		$	19,917	$	36,729	$	—		$	36,729	N/A

Intangibles:
Tradename/trademarks	$	16,090	$	(2,059	)	$	14,031	$	17,620	$	(2,514	)	$	15,106	20 – 30 yrs
Customer relationships	—		—			—		7,220		(4,016		)	3,204		20 yrs
Technology	1,220		(916		)	304		1,220		(826		)	394		10 yrs
License agreements	2,100		(398		)	1,702		2,100		(320		)	1,780		15 – 30 yrs
Non-compete agreements	1,037		(698		)	339		1,287		(849		)	438		4 – 8.5 yrs
Total intangibles	$	20,447	$	(4,071	)	$	16,376	$	29,447	$	(8,525	)	$	20,922

Sale of Junkfood (Details) (Disposed of by Sale, Junkfood, USD $)

In Millions, unless otherwise specified

0 Months Ended

3 Months Ended

Mar. 31, 2017

Jul. 1, 2017

Mar. 31, 2017

Disposed of by Sale |
Junkfood

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Consideration from sale

$ 27.9

Sale of business

25.0

27.9

Note receivable

2.9

Gain on sale of asset

1.3

Tax expense from provision for gain on disposal

$ 0.4

Restructuring Plan (Details) (USD $)

3 Months Ended

9 Months Ended

12 Months Ended

1 Months Ended

12 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Oct. 1, 2016

Sep. 30, 2016

Facility Closing

Oct. 1, 2016

Cost of Goods, Total

Oct. 1, 2016

Restructuring Charges

Oct. 1, 2016

Restructuring Charges

Employee termination costs

Oct. 1, 2016

Restructuring Charges

Other costs to exit facility

Oct. 1, 2016

Fixed asset impairment

Restructuring Charges

Facility Closing

Oct. 1, 2016

Inventory and supply part impairment

Restructuring Charges

Facility Closing

Restructuring Cost and Reserve [Line Items]

Proceeds from sale of productive assets, per agreement

$ 1,700,000

Total restructuring costs

0

1,663,000

0

1,663,000

1,096,000

1,741,000

597,000

393,000

607,000

144,000

Total manufacturing realignment expenses

2,837,000

Payments for employee termination benefits

100,000

400,000

Accrual of employee termination benefits

$ 100,000

Inventories (Details) (USD $)

Jul. 1, 2017

Oct. 1, 2016

Inventory Disclosure [Abstract]

Inventory valuation reserves

$ 9,000,000

$ 8,800,000

Inventories, net of reserves:

Raw materials

8,623,000

11,442,000

Work in process

18,969,000

18,158,000

Finished goods

148,281,000

134,647,000

Inventories, net

$ 175,873,000

$ 164,247,000

Debt (Schedule of Debt) (Details) (USD $)

In Thousands, unless otherwise specified

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Term Loan |
Term loan established March, 2011

Debt Instrument [Line Items]

Long-term Debt

$ 730

Stated interest rate (percentage)

7.00%

Debt instrument, term (in years)

7 years

Term Loan |
Term loan established November, 2014, interest at 7.5%, payable monthly with a six-year term

Debt Instrument [Line Items]

Long-term Debt

2,150

Stated interest rate (percentage)

7.50%

Debt instrument, term (in years)

6 years

Term Loan |
Term loan established June, 2016

Debt Instrument [Line Items]

Long-term Debt

1,431

Stated interest rate (percentage)

8.00%

Debt instrument, term (in years)

6 years

Secured Debt |
Term loan established June, 2016

Debt Instrument [Line Items]

Long-term Debt

4,083

Stated interest rate (percentage)

8.00%

Debt instrument, term (in years)

6 years

Revolving Credit Facility |
Line of Credit

Debt Instrument [Line Items]

Long-term Debt

$ 4,750

Stated interest rate (percentage)

8.00%

Debt (Narrative) (Details) (USD $)

9 Months Ended

12 Months Ended

0 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Revolving Credit Facility, due May 2017

Revolving Credit Facility

Oct. 1, 2016

Revolving Credit Facility, due May 2017

Revolving Credit Facility

Jul. 1, 2017

Revolving Credit Facility, due May 2016

Revolving Credit Facility

Oct. 1, 2016

Revolving Credit Facility, due May 2016

Revolving Credit Facility

Aug. 27, 2013

Salt Life Acquisition

Promissory Note

debt_instrument

Jul. 1, 2017

Salt Life Acquisition

Promissory Note

Aug. 27, 2013

Salt Life Acquisition

Promissory Note, Maturity Date June 30, 2016

Promissory Note

Aug. 27, 2013

Salt Life Acquisition

Promissory Note, Maturity Date June 30, 2019

Promissory Note

Jul. 1, 2017

Letter of Credit

Line of Credit

Jul. 1, 2017

Revolving Credit Facility

Line of Credit

Debt Instrument [Line Items]

Maximum borrowing capacity

$ 25,000,000

$ 145,000,000

Potential maximum credit available under the facility

200,000,000

Payment of deferred financing fees

0

(1,001,000)

(1,000,000)

Outstanding under credit facility

84,200,000

Interest rate during period (percent)

3.30%

Unused borrowing capacity

38,400,000

Fixed charge coverage ratio, term (in months)

12 months

Fixed charge coverage ratio

1.1

Retained earnings, amount available for dividends and stock repurchases

10,500,000

10,700,000

Number of promissory notes issued (debt instruments)

2

Aggregate principal of promissory notes

22,000,000

Amount of one-time installment payment

9,000,000

Imputed interest (percent)

1.92%

3.62%

Debt instrument, discounted value

$ 5,300,000

Selling, General and Administrative Expense (Details) (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Selling, General and Administrative Expense [Abstract]

Production and Distribution Costs

$ 3.8

$ 3.7

$ 10.9

$ 11.2

Stock-Based Compensation (Narrative) (Details) (USD $)

3 Months Ended

9 Months Ended

3 Months Ended

9 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Performance Shares

Jul. 2, 2016

Performance Shares

Jul. 2, 2016

Restricted Stock Units (RSUs)

Jul. 1, 2017

2010 Stock Plan

Jul. 1, 2017

Option Plan

Stock Options

Jul. 1, 2017

Junkfood

Disposed of by Sale

Performance Shares

Mar. 31, 2017

Junkfood

Disposed of by Sale

Restricted Stock Units and Performance Stock Units

Jul. 1, 2017

Junkfood

Disposed of by Sale

Restricted Stock Units (RSUs)

Jul. 1, 2017

Vest Upon Filing of 10-K for the Year Ending September 29, 2018

Jul. 1, 2017

Vest Upon Filing of 10-K for the Year Ending September 28, 2019

Jul. 1, 2017

Vest Upon Filing of 10-K for the Year Ending October 3, 2020

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Allocated share-based compensation expense

$ 600,000

$ 1,600,000

$ 700,000

$ 1,800,000

$ 0

Shares granted (in shares)

126,000

Aggregate number of shares that may be delivered (shares)

500,000

Vested in the period (shares)

53,248

8,438

5,000

45,000

42,000

Stock issued (in shares)

42,500

Number of shares payable in cash (in shares)

2,500

Accelerated compensation costs

300,000

Total compensation cost not yet recognized

$ 3,400,000

Period for recognition

3 years 8 months 12 days

Options exercised (in shares)

80,000

Purchase Contracts (Details) (USD $)

In Thousands, unless otherwise specified

Jul. 1, 2017

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

$ 39,133

Yarn

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

19,158

Finished fabric

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

2,829

Finished products

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

$ 17,146

Business Segments (Details) (USD $)

3 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

segment

Jul. 2, 2016

Oct. 1, 2016

Segment Reporting Information [Line Items]

Number of business segments

2

Net sales

$ 104,281,000

$ 111,552,000

$ 293,755,000

$ 310,883,000

Segment operating income (loss)

5,851,000

4,227,000

13,843,000

12,386,000

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]

Segment operating income

5,851,000

4,227,000

13,843,000

12,386,000

Unallocated corporate expenses

16,964,000

19,396,000

52,523,000

56,311,000

Unallocated interest expense

1,256,000

1,338,000

3,868,000

4,009,000

Income before provision for income taxes

4,595,000

2,889,000

9,975,000

8,377,000

Segment assets

329,292,000

344,652,000

Operating Segments

Segment Reporting Information [Line Items]

Segment operating income (loss)

9,643,000

7,854,000

23,668,000

22,134,000

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]

Segment operating income

9,643,000

7,854,000

23,668,000

22,134,000

Operating Segments |
Basics

Segment Reporting Information [Line Items]

Net sales

79,009,000

72,097,000

210,657,000

203,453,000

Segment operating income (loss)

7,497,000

5,193,000

19,745,000

17,653,000

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]

Segment operating income

7,497,000

5,193,000

19,745,000

17,653,000

Increase (decrease) in asset

(17,600,000)

Segment assets

195,900,000

Operating Segments |
Branded

Segment Reporting Information [Line Items]

Net sales

25,272,000

39,455,000

83,098,000

107,430,000

Segment operating income (loss)

2,146,000

2,661,000

3,923,000

4,481,000

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]

Segment operating income

2,146,000

2,661,000

3,923,000

4,481,000

Increase (decrease) in asset

(31,700,000)

Segment assets

124,500,000

Corporate

Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Abstract]

Unallocated corporate expenses

$ 3,792,000

$ 3,627,000

$ 9,825,000

$ 9,748,000

Income Taxes (Details) (USD $)

In Millions, unless otherwise specified

9 Months Ended

12 Months Ended

3 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Oct. 1, 2016

Sep. 30, 2017

Forecast

Jul. 1, 2017

Disposed of by Sale

Junkfood

Income Tax Contingency [Line Items]

Effective income tax rate (percent)

15.70%

20.50%

18.80%

Gain on sale of asset

$ 1.3

Effective income tax rate, excluding gain on sale of assets (percent)

12.70%

Derivatives and Fair Value Measurements (Details) (USD $)

3 Months Ended

9 Months Ended

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Jul. 2, 2016

Jul. 1, 2017

Deferred tax assets

Oct. 1, 2016

Deferred tax assets

Jul. 1, 2017

Accrued expenses

Oct. 1, 2016

Accrued expenses

Jul. 1, 2017

Accumulated other comprehensive loss

Oct. 1, 2016

Accumulated other comprehensive loss

Jul. 1, 2017

September 11, 2017

Jul. 1, 2017

September 19, 2017

Jul. 1, 2017