DELTA APPAREL, INC, 10-Q filed on 5/7/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
6 Months Ended
Mar. 31, 2018
Apr. 26, 2018
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 Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   7,132,440
v3.8.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2018
Sep. 30, 2017
Current assets:    
Cash and cash equivalents $ 434 $ 572
Accounts receivable, less allowances of $1,447 and $1,433, respectively 60,083 47,557
Income tax receivable 0 352
Inventories, net 172,213 174,551
Note receivable 200 2,016
Prepaid expenses and other current assets 3,985 2,646
Total current assets 236,915 227,694
Property, plant and equipment, net of accumulated depreciation of $71,477 and $67,780, respectively 50,093 42,706
Goodwill 29,717 19,917
Intangibles, net 20,885 16,151
Deferred income taxes 1,996 5,002
Other assets 6,288 6,332
Total assets 345,894 317,802
Current liabilities:    
Accounts payable 50,315 46,335
Accrued expenses 13,669 17,704
Income tax payable 256 0
Current portion of capital lease financing 2,336 848
Current portion of long-term debt 6,356 7,548
Total current liabilities 72,932 72,435
Long-term taxes payable 7,414 0
Long-term capital lease financing, less current maturities 8,402 2,519
Long-term debt, less current maturities 105,798 85,306
Other liabilities 0 55
Contingent consideration 5,850 1,600
Total liabilities 200,396 161,915
Shareholders’ equity:    
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding 0 0
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 7,152,440 and 7,300,297 shares outstanding as of March 31, 2018, and September 30, 2017, respectively 96 96
Additional paid-in capital 60,561 61,065
Retained earnings 121,032 127,358
Accumulated other comprehensive income (loss) 167 (35)
Treasury stock —2,494,532 and 2,346,675 shares as of March 31, 2018, and September 30, 2017, respectively (36,358) (32,597)
Total shareholders’ equity 145,498 155,887
Total liabilities and shareholders' equity $ 345,894 $ 317,802
v3.8.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2018
Sep. 30, 2017
Statement of Financial Position [Abstract]    
Allowances for accounts receivable $ 1,447 $ 1,433
Accumulated Depreciation $ 71,477 $ 67,780
Shareholders' equity:    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 2,000,000 2,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized 15,000,000 15,000,000
Common stock, shares issued 9,646,972 9,646,972
Common stock, shares outstanding 7,152,440 7,300,297
Treasury stock, shares 2,494,532 2,346,675
v3.8.0.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2018
Apr. 01, 2017
Mar. 31, 2018
Apr. 01, 2017
Income Statement [Abstract]        
Net sales $ 100,004 $ 104,138 $ 190,346 $ 189,473
Cost of goods sold 77,769 79,908 151,741 147,685
Gross profit 22,235 24,230 38,605 41,788
Selling, general and administrative expenses 16,737 18,250 31,717 35,559
Change in fair value of contingent consideration (100) (100) (400) (200)
Gain on sale of business 0 (1,295) 0 (1,295)
Other income, net (16) (145) (64) (267)
Operating income 5,614 7,520 7,352 7,991
Interest expense, net 1,350 1,312 2,685 2,613
Income before provision for income taxes 4,264 6,208 4,667 5,378
Provision for income taxes 632 1,661 10,988 1,436
Net income (loss) $ 3,632 $ 4,547 $ (6,321) $ 3,942
Basic earnings (loss) per share (in dollars per share) $ 0.50 $ 0.60 $ (0.87) $ 0.52
Diluted earnings (loss) per share (in dollars per share) $ 0.48 $ 0.58 $ (0.87) $ 0.50
Weighted average number of shares outstanding (in shares) 7,195 7,600 7,231 7,599
Dilutive effect of stock options and awards (in shares) 301 245 0 271
Weighted average number of shares assuming dilution (in shares) 7,496 7,845 7,231 7,870
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2018
Apr. 01, 2017
Mar. 31, 2018
Apr. 01, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 3,632 $ 4,547 $ (6,321) $ 3,942
Other comprehensive income related to unrealized gain on derivatives, net of income tax 116 33 202 82
Comprehensive income (loss) $ 3,748 $ 4,580 $ (6,119) $ 4,024
v3.8.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Mar. 31, 2018
Apr. 01, 2017
Operating activities:    
Net (loss) income $ (6,321) $ 3,942
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 4,759 4,866
Amortization of deferred financing fees 153 170
Excess tax benefits from stock awards 0 (106)
Provision for deferred income taxes 3,006 1,446
Gain on sale of Junkfood assets 0 (1,295)
Non-cash stock compensation 1,142 768
Change in fair value of contingent consideration (400) (200)
Loss on disposal of equipment 10 1
Changes in operating assets and liabilities, net of effect of acquisition:    
Accounts receivable, net (11,704) 4,011
Inventories, net 3,497 (19,930)
Prepaid expenses and other assets (1,469) (421)
Other non-current assets 88 (165)
Accounts payable (2,081) 12,447
Accrued expenses (4,128) (5,622)
Income taxes 8,022 (136)
Other liabilities (111) 69
Net cash used in operating activities (5,537) (155)
Investing activities:    
Purchases of property and equipment, net (3,543) (3,712)
Proceeds from sale of Junkfood assets 1,946 25,000
Proceeds from sale of fixed assets 5,001 0
Cash paid for business (11,350) 0
Net cash (used in) provided by investing activities (7,946) 21,288
Financing activities:    
Proceeds from long-term debt 235,117 221,510
Repayment of long-term debt (215,816) (239,930)
Repayment of capital financing (678) (274)
Payment of deferred financing fees 2 0
Repurchase of common stock (4,335) (1,714)
Payment of withholding taxes on stock awards (945) (542)
Excess tax benefits from stock awards 0 106
Net cash provided by (used in) financing activities 13,345 (20,844)
Net (decrease) increase in cash and cash equivalents (138) 289
Cash and cash equivalents at beginning of period 572 397
Cash and cash equivalents at end of period 434 686
Supplemental cash flow information:    
Cash paid during the period for interest 2,459 2,379
Cash paid during the period for income taxes 19 140
Non-cash financing activity - seller financing 5,000 0
Non-cash financing activity - capital lease agreements 3,050 1,619
Non-cash financing activity - note receivable $ 0 $ 2,850
v3.8.0.1
Basis of Presentation and Description of Business
6 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation and Description of Business
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 three and six-month periods ended March 31, 2018, are not necessarily indicative of the results that may be expected for our fiscal year ending September 29, 2018. 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 September 30, 2017, 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”), Culver City Clothing Company (f/k/a Junkfood Clothing Company) (“Junkfood”), Salt Life, LLC (“Salt Life”), and DTG2Go, LLC (f/k/a Art Gun, LLC) (“DTG2Go”), and other international subsidiaries, as appropriate to the context. On March 9, 2018, we purchased substantially all the assets of Teeshirt Ink, Inc. d/b/a DTG2Go. See Note D—Acquisitions, for further information on this transaction. On March 31, 2017, we sold substantially all of the assets comprising our Junkfood business to JMJD Ventures, LLC. See Note E—Divestitures, 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 American exchange under the symbol “DLA”. We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2018 fiscal year is a 52-week year and will end on September 29, 2018. Our 2017 fiscal year was a 52-week year and ended on September 30, 2017.
v3.8.0.1
Accounting Policies
6 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
Accounting Policies
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 September 30, 2017, filed with the SEC.
v3.8.0.1
New Accounting Standards
6 Months Ended
Mar. 31, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
New Accounting Standards
New Accounting Standards
Recently Adopted Standards
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-11, Simplifying the Measurement of Inventory, ("ASU 2015-11").  This guidance requires an entity to measure inventory at the lower of cost or net realizable value. Previously, entities measured 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 was adopted in our fiscal year beginning October 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
Standards Not Yet Adopted
In May 2014, the FASB issued 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 have identified a committee, agreed on a methodology for review of our revenue arrangements and initiated the review process for adoption of this ASU, have determined that we will use the modified retrospective method and are evaluating the effect that ASU 2014-09 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.
v3.8.0.1
Acquisitions
6 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
On March 9, 2018, our Art Gun, LLC subsidiary purchased substantially all of the assets of Teeshirt Ink, Inc. d/b/a DTG2Go, a premium provider of direct-to-garment digital printed products. In connection with the transaction, we changed the name of Art Gun, LLC to DTG2Go, LLC and now market the consolidated digital print business under the DTG2Go name. We believe the DTG2Go acquisition makes us a clear leader in the direct-to-garment digital print and fulfillment marketplace and accelerated our geographic expansion plans for that business. The integrated business currently operates from two locations in Florida and a location in Nevada serving the western United States, and we expect to open a location on our Soffe campus in North Carolina in the June quarter to service the northeastern region. With this acquisition, DTG2Go nearly doubled its revenue and capacity, broadened its product line into posters and stickers, and further enhanced service levels with quicker delivery capabilities in the United States and to over 100 countries worldwide.
We have included the financial results of the acquired entity, since the date of the acquisition, in our basics segment, with the acquisition contributing $1.1 million in sales during the March quarter. We expensed $0.1 million in acquisition related costs in our selling, general and administrative expense line item of our Condensed Consolidated Statements of Operations in the quarter ended March 31, 2018.
The DTG2Go acquisition purchase price consisted of $16.4 million in cash and additional payments contingent on the combined business’s achievement of certain performance targets related to sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the period from April 1, 2018, through September 29, 2018, as well as for our fiscal years 2019, 2020, 2021 and 2022. At March 31, 2018, we had $4.7 million provisionally accrued in contingent consideration. The cash portion of the purchase price included: (i) a payment at closing of $11.4 million, less the amount of any indebtedness of the sellers with respect to any assets included in the transaction, and (ii) two additional payments of $2.5 million, with the first payment subject to post-closing net working capital adjustments, due July 1, 2018, and the second due September 9, 2018. We have provisionally calculated the post–closing working capital adjustment of $0.1 million and recorded this amount in the interim Condensed Consolidated Balance Sheets as of March 31, 2018. The below table represents the consideration paid:
Cash
$
11,350

Deferred consideration
5,000

Contingent consideration
4,650

Provisional working capital adjustment
95

Total consideration
$
21,095



The initial allocation of consideration to the assets and liabilities are noted in the table below. The Company is in the process of finalizing its valuations of the intangible assets acquired, and assets held for sale; thus, the provisional measurements of intangible assets, goodwill and assets held for sale are subject to change. The total amount of goodwill is expected to be deductible for tax purposes.
Accounts receivable
$
822

Inventory, net of reserves
1,159

Assets held for sale
5,000

Goodwill
9,800

Intangible assets
5,200

Accounts payable, including payable to sellers
(5,981
)
Contingent consideration
(4,650
)
Consideration paid
$
11,350


We accounted for the DTG2Go acquisition pursuant to ASC 805, Business Combinations, with the purchase price allocated provisionally based upon fair value. Assets held for sale include property, plant, and equipment of $5.0 million that were acquired as part of the DTG2Go acquisition. Subsequently, a capital lease arrangement was entered into to finance the purchase of the equipment. The capital lease is for $5.0 million and the lease term is thirty-six months. No gain or loss was recorded in conjunction with this transaction.
v3.8.0.1
Divestitures
6 Months Ended
Mar. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Divestitures
Divestitures
On March 31, 2017, we completed the sale of substantially all of the assets comprising our Junkfood business to JMJD Ventures, LLC for $27.9 million. The business sold consisted of vintage-inspired Junk Food branded and private label products sold in the United States and internationally. We received cash at closing of $25.0 million and recorded a $2.9 million note receivable with payments due between June 30, 2017, and March 30, 2018. 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. As of March 31, 2018, all payments have been received against the note receivable recorded as part of the transaction.
We realized a $1.3 million pre-tax gain on the sale of the Junkfood business resulting 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 in our 2017 second fiscal quarter as a Gain on sale of business.
v3.8.0.1
Inventories
6 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Inventories
Inventories
Inventories, net of $10.6 million and $9.8 million in reserves, as of March 31, 2018, and September 30, 2017, respectively, consisted of the following (in thousands):
 
March 31,
2018
 
September 30,
2017
Raw materials
$
10,681

 
$
8,973

Work in process
14,058

 
18,543

Finished goods
147,474

 
147,035

 
$
172,213

 
$
174,551

v3.8.0.1
Debt
6 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Debt
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, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life, LLC, and DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the "Borrowers"), are co-borrowers under the Amended Credit Agreement.
On November 27, 2017, the Borrowers entered into a First Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “First Amendment”).
The First Amendment amends the definition of Fixed Charge Coverage Ratio within the Amended Credit Agreement to permit up to $10 million of the proceeds received from the March 31, 2017, sale of certain assets of the Junkfood business to be used towards share repurchases for up to one year from the date of that transaction. In addition, the definition of Permitted Purchase Money Indebtedness is amended to extend the time period within which the Borrowers may enter into capital leases and to increase the aggregate principal amount of such leases into which the Borrowers may enter to up to $15 million. The definition of Permitted Investments is also amended to permit the Borrowers to make investments in entities that are not a party to the Amended Credit Agreement in an aggregate amount of up to $2 million. The First Amendment also allows the change in the name of our Junkfood Clothing Company subsidiary to Culver City Clothing Company. There were no changes to the Amended Credit Agreement related to interest rate, borrowing capacity, or maturity.
On March 9, 2018, the Borrowers entered into a Consent and Second Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the “Second Amendment”).
Pursuant to the Second Amendment, Wells Fargo and the other lenders set forth therein consented to Art Gun, LLC’s acquisition of substantially all of the assets of TeeShirt Ink Inc. d/b/a DTG2Go. The Second Amendment also: (i) revises certain provisions in the Amended Credit Agreement relating to our ability to pay cash dividends or distributions to shareholders or to repurchase shares of our common stock so that the effects of the Tax Cuts and Jobs Act of 2017 do not negatively impact our ability to make such dividends or distributions or to repurchase shares of our common stock during our 2018 fiscal year; (ii) amends the definition of Permitted Investments in the Amended Credit Agreement to allow investments in the Honduras partnership (as defined in the Amended Credit Agreement) in an aggregate original principal amount not to exceed $6 million; (iii) amends the definition of Permitted Purchase Money Indebtedness in the Amended Credit Agreement to increase the aggregate principal amount of capital leases into which we may enter to up to $25 million; (iv) permits the name change of Art Gun, LLC to DTG2Go, LLC; and (v) adds new definitions relating to the DTG2Go acquisition. There were no changes to the Amended Credit Agreement related to interest rate, borrowing capacity, or maturity.
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.
As of March 31, 2018, there was $97.5 million outstanding under our U.S. revolving credit facility at an average interest rate of 4.1% and additional borrowing availability of $23.8 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 March 31, 2018, because our availability was above the minimum required under the Amended Credit Agreement, but we would have satisfied our financial covenant had we been subject to it. At March 31, 2018, and September 30, 2017, there was $15.4 million and $7.7 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 March 31, 2018, the discounted value of the promissory note outstanding was $3.2 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 its 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.
Additional information about these loans and the outstanding balances as of March 31, 2018, is as follows (in thousands):
 
March 31,
2018
Revolving credit facility established March 2011, interest at 8.0% due March 2019
$
4,977

Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term
1,700

Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term
1,213

Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term
3,551

v3.8.0.1
Selling, General and Administrative Expense
6 Months Ended
Mar. 31, 2018
Selling, General and Administrative Expense [Abstract]  
Selling, General and Administrative Expense
Selling, General and Administrative Expense
We include in selling, general and administrative ("SG&A") expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled $4.4 million and $3.7 million for the three-month periods ended March 31, 2018, and April 1, 2017, respectively, and totaled $8.3 million and $7.2 million for the six-month periods ended March 31, 2018, and April 1, 2017, 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.
v3.8.0.1
Stock-Based Compensation
6 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
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. 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.
We account for these plans pursuant to ASC 718, SAB 107, SAB 110, and ASU 2016-09. Shares are generally issued from treasury stock upon exercise of the options or the vesting of the restricted stock units and performance units.
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 periods ended March 31, 2018, and April 1, 2017, we recognized $0.7 million and $0.4 million, respectively, in stock-based compensation expense. During the six-month periods ended March 31, 2018, and April 1, 2017, we recognized $1.2 million and $1.0 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 period ended March 31, 2018, restricted stock units and performance stock units, each consisting of 2,000 shares of our common stock, were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for the fiscal year ending September 28, 2019. One-half of the restricted stock units and one-half of the performance units are payable in common stock and one-half are payable in cash. In addition, restricted stock units representing 90,000 shares of our common stock were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for the fiscal year ending October 3, 2020. These restricted stock units are payable in common stock.
During the three-month period ended December 30, 2017, restricted stock units and performance stock units, each consisting of 55,750 shares of our common stock, were granted and are eligible to vest upon the filing of our Annual Report on Form 10-K for the fiscal year ending September 28, 2019. One-half of the restricted stock units and one-half of the performance units are payable in common stock and one-half are payable in cash.
During the three-month period ended December 30, 2017, restricted stock units and performance units representing 54,602 and 92,068 shares of our common stock, respectively, vested upon the filing of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, and were issued in accordance with their respective agreements. One-half of the restricted stock units were paid in common stock and one-half were paid in cash. Of the performance units, 72,138 were paid in common stock and 19,930 were paid in cash
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. The restricted stock units and performance units were paid one-half in common stock and one-half in cash.
As of March 31, 2018, there was $5.2 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 2.7 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 and six-month periods ended March 31, 2018, and April 1, 2017, nor were any options exercised during those periods. The options expired during the quarter and accordingly were forfeited.
v3.8.0.1
Purchase Contracts
6 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Purchase Contracts
Purchase Contracts
We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At March 31, 2018, minimum payments under these contracts were as follows (in thousands):
Yarn
$
9,954

Finished fabric
4,324

Finished products
17,258

 
$
31,536

v3.8.0.1
Business Segments
6 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Business Segments
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 DTG2Go business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Delta Platinum™, Delta Dri®, Delta Magnum Weight®, and Delta Pro 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 print equipment and proprietary technology, DTG2Go embellishes garments to create private label, custom-decorated apparel servicing the fast-growing e-retailer channels as well as the ad-specialty, promotional products and retail marketplaces.
The branded segment is comprised of our business units focused on specialized apparel garments, headwear, and related accessories to meet consumer preferences and fashion trends, and includes our Salt Life, Soffe, and Coast business units. Our branded segment also included our Junkfood business unit prior to its disposition on March 31, 2017. These branded products are sold through specialty and boutique shops, traditional department stores and 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.
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 September 30, 2017, 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
 
Six Months Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Segment net sales:
 
 
 
 
 
 
 
Basics
$
73,712

 
$
70,811

 
$
146,889

 
$
131,647

Branded
26,292

 
33,327

 
43,457

 
57,826

Total net sales
$
100,004

 
$
104,138

 
$
190,346

 
$
189,473

 
 
 
 
 
 
 
 
Segment operating income:
 
 
 
 
 
 
 
Basics
$
6,209

 
$
7,560

 
$
10,401

 
$
12,248

Branded
2,554

 
2,780

 
3,010

 
1,776

Total segment operating income
$
8,763

 
$
10,340

 
$
13,411

 
$
14,024


The following table reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):
 
Three Months Ended
 
Six Months Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Segment operating income
$
8,763

 
$
10,340

 
$
13,411

 
$
14,024

Unallocated corporate expenses
3,149

 
2,820

 
6,059

 
6,033

Unallocated interest expense
1,350

 
1,312

 
2,685

 
2,613

Consolidated income before provision for income taxes
$
4,264

 
$
6,208

 
$
4,667

 
$
5,378



Basic segment assets increased by approximately $27.0 million since September 30, 2017, to $218.6 million as of March 31, 2018, principally as a result of the digital print acquisition. See Note D—Acquisitions for further information. In addition, receivables increased from September 30, 2017 due to the seasonality of the business. Branded segment assets have increased by $4.8 million since September 30, 2017, to $122.2 million as of March 31, 2018 due to higher receivables.
v3.8.0.1
Income Taxes
6 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was enacted. The New Tax Legislation significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax on deemed repatriated cumulative earnings of foreign subsidiaries. The Tax Act creates a new requirement that certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Global intangible low-taxed income (“GILTI”) is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return.  Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Therefore, we have not made any adjustments related to potential GILTI tax in our financial statements. During the six-month period ended March 31, 2018, we recognized provisional amounts totaling $10.6 million of tax expense. In our December quarter, we made reasonable estimates of the effects on our existing deferred tax balances and the one-time transition tax. No change was made to the provisional amount in the March quarter; however, amounts may change as more information becomes available. We accounted for the $10.6 million provisional amount as a discrete item for tax provision purposes, recording tax expense on our best estimate of the effect of the New Tax Legislation. Excluding the effect of this discrete item, the effective tax rate on operations for the six-month period ended March 31, 2018, was 9.4%. This compares to an effective income tax rate of 26.7% for the same period in the prior year, and 5.9% for the fiscal year ended September 30, 2017.
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 29, 2018, excluding the discrete tax expense associated with the New Tax Legislation, is currently expected to be approximately 12%-15%. The change in the federal statutory rate from 34% to 21% as a result of the New Tax Legislation is effective as of December 22, 2017, in our fiscal year 2018. As such, the blended federal statutory tax rate for the fiscal year is anticipated to be approximately 24.3%. 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, the impact of the New Tax Legislation may differ from our initial provisional estimates, possibly materially, due to, among other things, changes in interpretations and assumptions made regarding the New Tax Legislation, guidance that may be issued and actions we may take as a result of the New Tax Legislation.
Provisional amounts
As noted above, we consider the estimate of the effects on our existing deferred tax balances and the one-time transition tax to be provisional.
Deferred tax assets and liabilities: We remeasured our deferred tax assets and liabilities based on an estimated scheduling of when we anticipate these amounts will reverse and by applying estimated rates based on the period we believe they will reverse. However, we are still analyzing certain aspects of the New Tax Legislation and refining our scheduling and calculations, which could potentially affect the remeasurement of these balances. The provisional amount of expense related to the remeasurement of our deferred tax balance was approximately $1.1 million, which was recognized during the first quarter.
Transition tax: Our current estimate of the one-time transition tax is based on an estimate of our total earnings and profits (E&P) from our foreign subsidiaries which were previously deferred from U.S. income taxes. A deferred tax liability for such undistributed earnings was not previously recognized since the earnings are considered to be permanently reinvested. We recorded a provisional amount related to this one-time transition tax of $9.5 million during the first quarter which will be paid over eight years. We anticipate that the benefit resulting from the reduction of the federal tax rate from 34% to 21% will offset the future payments of the transition tax, resulting in minimal cash flow impact. We have not completed our analysis of the total E&P or the split between liquid and illiquid assets for our foreign subsidiaries. As such, this amount may change when we finalize our analysis.
State tax effect: We continued to apply ASC 740 based on the provisions of the state tax laws that were in effect immediately prior to the New Tax Legislation being enacted. It is currently impractical to determine the changes to our state provision resulting from the New Tax Legislation; however, we believe the impact will not be material.
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax years 2014, 2015 and 2016, according to statute and with few exceptions, remain open to examination by various federal, state, local and foreign jurisdictions.
v3.8.0.1
Derivatives and Fair Value Measurements
6 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Derivatives and Fair Value Measurements
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 March 31, 2018, are as follows:
 
Effective Date
 
Notational
Amount
 
Fixed LIBOR Rate
 
Maturity Date
Interest Rate Swap
July 19, 2017
 
$10.0 million
 
1.74%
 
July 19, 2019
Interest Rate Swap
July 19, 2017
 
$10.0 million
 
1.99%
 
May 10, 2021

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 assets (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
 
 
 
 
 
 
 
March 31, 2018
$
272

 

 
$
272

 

September 30, 2017
(56
)
 

 
(56
)
 

 
 
 
 
 
 
 
 
Cotton Options
 
 
 

 
 
 
 
March 31, 2018
$

 
$

 

 

September 30, 2017
(125
)
 
(125
)
 

 

 
 
 
 
 
 
 
 
Contingent Consideration
 
 
 
 
 
 
 
March 31, 2018
$
(5,850
)
 

 

 
$
(5,850
)
September 30, 2017
(1,600
)
 

 

 
(1,600
)

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. At March 31, 2018, 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 March 31, 2018, and September 30, 2017 (in thousands):
 
March 31,
2018
 
September 30,
2017
Other assets
$
272

 
$

Deferred tax assets

 
21

Accrued expenses

 
(56
)
Deferred tax liabilities
(105
)
 

Accumulated other comprehensive income (loss)
$
167

 
$
(35
)

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 March 31, 2018, we had $1.2 million accrued in contingent consideration related to the Salt Life acquisition, a $0.4 million reduction from the accrual at September 30, 2017. 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 our current view of the retail environment.
On March 9, 2018, we acquired Teeshirt Ink, Inc. d/b/a DTG2Go. See Note D—Acquisitions. The purchase price consisted of $16.4 million in cash and additional contingent consideration based on achievement of certain performance targets related to sales and EBITDA for the period from April 1, 2018, through September 29, 2018, as well as for our fiscal years 2019, 2020, 2021 and 2022. At March 31, 2018, we had $4.7 million provisionally accrued in contingent consideration. The fair value of contingent consideration is based on the inputs into the Monte Carlo model, including the time remaining in the measurement period. Accordingly, the fair value measurement for contingent consideration falls in Level 3 of the fair value hierarchy.
v3.8.0.1
Legal Proceedings
6 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Legal Proceedings
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.
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 adverse effect on our operations, financial condition, or liquidity.
v3.8.0.1
Repurchase of Common Stock
6 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Repurchase of Common Stock
Repurchase of Common Stock
As of March 31, 2018, our Board of Directors authorized management to use up to $50.0 million to repurchase stock in open market transactions under our Stock Repurchase Program.
During the March quarter of fiscal year 2018, we purchased 74,934 shares of our common stock for a total cost of $1.5 million. Through March 31, 2018, we have purchased 3,113,545 shares of our common stock for an aggregate of $43.2 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 March 31, 2018, $6.8 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 March 31, 2018:
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
December 31, 2017 to February 3, 2018
 
23,070

 
$20.46
 
23,070

 

$7.8
 million
February 4, 2018 to March 3, 2018
 
22,000

 
19.09
 
22,000

 
7.4
 million
March 4, 2018 to March 31, 2018
 
29,864

 
19.12
 
29,864

 
6.8
 million
Total
 
74,934

 
$19.52
 
74,934

 

$6.8
 million
v3.8.0.1
Goodwill and Intangible Assets
6 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets
Goodwill and Intangible Assets
Components of intangible assets consist of the following (in thousands):
 
March 31, 2018
 
September 30, 2017
 
 
 
Cost
Accumulated Amortization
Net Value
 
Cost
Accumulated Amortization
Net Value
 
Economic Life
 
 
 
 
 
 
 
 
 
 
Goodwill
$
29,717

$

$
29,717

 
$
19,917

$

$
19,917

 
N/A
 
 
 
 
 
 
 
 
 
 
Intangibles:
 
 
 
 
 
 
 
 
 
Tradename/trademarks
$
16,090

$
(2,465
)
$
13,625

 
$
16,090

$
(2,193
)
$
13,897

 
20 – 30 yrs
Customer relationships
5,200


5,200

 



 
8 – 10 yrs
Technology
1,220

(1,009
)
211

 
1,220

(947
)
273

 
10 yrs
License agreements
2,100

(474
)
1,626

 
2,100

(423
)
1,677

 
15 – 30 yrs
Non-compete agreements
1,037

(814
)
223

 
1,037

(733
)
304

 
4 – 8.5 yrs
Total intangibles
$
25,647

$
(4,762
)
$
20,885

 
$
20,447

$
(4,296
)
$
16,151

 
 


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 included in both the basics and branded segment. Basics segment includes $9.8 million of goodwill, and the branded segment includes $19.9 million.
On March 9, 2018, we acquired Teeshirt Ink, Inc. d/b/a DTG2Go. See Note D—Acquisitions. We have provisionally identified certain intangible assets associated with the acquisition, including technology, customer relationships, non-compete agreements and goodwill. Goodwill associated with DTG2Go was provisionally recorded at $9.8 million, along with technology, customer relationships, and non-compete agreements of $5.2 million. The Company is in the process of finalizing its valuations of the intangible assets acquired; thus, the provisional measurements of these intangible assets are recorded in customer relationships until these are finalized.
Amortization expense for intangible assets was $0.3 million for the three-month period ended March 31, 2018, and $0.4 million for the three-month period ended April 1, 2017. Amortization expense for the six-month periods ended March 31, 2018, and April 1, 2017, was $0.5 million and $0.7 million, respectively. Amortization expense is estimated to be approximately $1.3 million for fiscal year 2018, approximately $1.5 million for fiscal year 2019, approximately $1.4 million for fiscal year 2020, and approximately $1.3 million for each of fiscal years 2021 and 2022.
v3.8.0.1
Subsequent Events
6 Months Ended
Mar. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events
Subsequent Events
None
v3.8.0.1
Accounting Policies (Policies)
6 Months Ended
Mar. 31, 2018
Accounting Policies [Abstract]  
New Accounting Pronouncements
Recently Adopted Standards
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-11, Simplifying the Measurement of Inventory, ("ASU 2015-11").  This guidance requires an entity to measure inventory at the lower of cost or net realizable value. Previously, entities measured 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 was adopted in our fiscal year beginning October 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.
Standards Not Yet Adopted
In May 2014, the FASB issued 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 have identified a committee, agreed on a methodology for review of our revenue arrangements and initiated the review process for adoption of this ASU, have determined that we will use the modified retrospective method and are evaluating the effect that ASU 2014-09 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.
Selling, General and Administrative Expenses
We include in selling, general and administrative ("SG&A") expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers.
v3.8.0.1
Acquisitions (Tables)
6 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Schedule of purchase consideration
The below table represents the consideration paid:
Cash
$
11,350

Deferred consideration
5,000

Contingent consideration
4,650

Provisional working capital adjustment
95

Total consideration
$
21,095

The initial allocation of consideration to the assets and liabilities
Accounts receivable
$
822

Inventory, net of reserves
1,159

Assets held for sale
5,000

Goodwill
9,800

Intangible assets
5,200

Accounts payable, including payable to sellers
(5,981
)
Contingent consideration
(4,650
)
Consideration paid
$
11,350

v3.8.0.1
Inventories (Tables)
6 Months Ended
Mar. 31, 2018
Inventory Disclosure [Abstract]  
Schedule of inventories, net of reserves
Inventories, net of $10.6 million and $9.8 million in reserves, as of March 31, 2018, and September 30, 2017, respectively, consisted of the following (in thousands):
 
March 31,
2018
 
September 30,
2017
Raw materials
$
10,681

 
$
8,973

Work in process
14,058

 
18,543

Finished goods
147,474

 
147,035

 
$
172,213

 
$
174,551

v3.8.0.1
Debt (Tables)
6 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Schedule of information loans and the outstanding balances
Additional information about these loans and the outstanding balances as of March 31, 2018, is as follows (in thousands):
 
March 31,
2018
Revolving credit facility established March 2011, interest at 8.0% due March 2019
$
4,977

Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term
1,700

Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term
1,213

Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term
3,551

v3.8.0.1
Purchase Contracts (Tables)
6 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Purchase contracts minimum payments
At March 31, 2018, minimum payments under these contracts were as follows (in thousands):
Yarn
$
9,954

Finished fabric
4,324

Finished products
17,258

 
$
31,536

v3.8.0.1
Business Segments (Tables)
6 Months Ended
Mar. 31, 2018
Segment Reporting [Abstract]  
Segment reporting information by segment
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
 
Six Months Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Segment net sales:
 
 
 
 
 
 
 
Basics
$
73,712

 
$
70,811

 
$
146,889

 
$
131,647

Branded
26,292

 
33,327

 
43,457

 
57,826

Total net sales
$
100,004

 
$
104,138

 
$
190,346

 
$
189,473

 
 
 
 
 
 
 
 
Segment operating income:
 
 
 
 
 
 
 
Basics
$
6,209

 
$
7,560

 
$
10,401

 
$
12,248

Branded
2,554

 
2,780

 
3,010

 
1,776

Total segment operating income
$
8,763

 
$
10,340

 
$
13,411

 
$
14,024


The following table reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):
 
Three Months Ended
 
Six Months Ended
 
March 31, 2018
 
April 1, 2017
 
March 31, 2018
 
April 1, 2017
Segment operating income
$
8,763

 
$
10,340

 
$
13,411

 
$
14,024

Unallocated corporate expenses
3,149

 
2,820

 
6,059

 
6,033

Unallocated interest expense
1,350

 
1,312

 
2,685

 
2,613

Consolidated income before provision for income taxes
$
4,264

 
$
6,208

 
$
4,667

 
$
5,378



Basic segment assets increased by approximately $27.0 million since September 30, 2017, to $218.6 million as of March 31, 2018, principally as a result of the digital print acquisition. See Note D—Acquisitions for further information. In addition, receivables increased from September 30, 2017 due to the seasonality of the business. Branded segment assets have increased by $4.8 million since September 30, 2017, to $122.2 million as of March 31, 2018 due to higher receivables.
v3.8.0.1
Derivatives and Fair Value Measurements (Tables)
6 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Outstanding financial instruments
Outstanding instruments as of March 31, 2018, are as follows:
 
Effective Date
 
Notational
Amount
 
Fixed LIBOR Rate
 
Maturity Date
Interest Rate Swap
July 19, 2017
 
$10.0 million
 
1.74%
 
July 19, 2019
Interest Rate Swap
July 19, 2017
 
$10.0 million
 
1.99%
 
May 10, 2021
Financial liabilities measure at fair value on a recurring basis
The following financial assets (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
 
 
 
 
 
 
 
March 31, 2018
$
272

 

 
$
272

 

September 30, 2017
(56
)
 

 
(56
)
 

 
 
 
 
 
 
 
 
Cotton Options
 
 
 

 
 
 
 
March 31, 2018
$

 
$

 

 

September 30, 2017
(125
)
 
(125
)
 

 

 
 
 
 
 
 
 
 
Contingent Consideration
 
 
 
 
 
 
 
March 31, 2018
$
(5,850
)
 

 

 
$
(5,850
)
September 30, 2017
(1,600
)
 

 

 
(1,600
)
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 March 31, 2018, and September 30, 2017 (in thousands):
 
March 31,
2018
 
September 30,
2017
Other assets
$
272

 
$

Deferred tax assets

 
21

Accrued expenses

 
(56
)
Deferred tax liabilities
(105
)
 

Accumulated other comprehensive income (loss)
$
167

 
$
(35
)
v3.8.0.1
Repurchase of Common Stock Equity (Tables)
6 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Summary of the purchases of our common stock
The following table summarizes the purchases of our common stock for the quarter ended March 31, 2018:
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
December 31, 2017 to February 3, 2018
 
23,070

 
$20.46
 
23,070

 

$7.8
 million
February 4, 2018 to March 3, 2018
 
22,000

 
19.09
 
22,000

 
7.4
 million
March 4, 2018 to March 31, 2018
 
29,864

 
19.12
 
29,864

 
6.8
 million
Total
 
74,934

 
$19.52
 
74,934

 

$6.8
 million
v3.8.0.1
Goodwill and Intangible Assets (Tables)
6 Months Ended
Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Components of Intangible Assets
Components of intangible assets consist of the following (in thousands):
 
March 31, 2018
 
September 30, 2017
 
 
 
Cost
Accumulated Amortization
Net Value
 
Cost
Accumulated Amortization
Net Value
 
Economic Life
 
 
 
 
 
 
 
 
 
 
Goodwill
$
29,717

$

$
29,717

 
$
19,917

$

$
19,917

 
N/A
 
 
 
 
 
 
 
 
 
 
Intangibles:
 
 
 
 
 
 
 
 
 
Tradename/trademarks
$
16,090

$
(2,465
)
$
13,625

 
$
16,090

$
(2,193
)
$
13,897

 
20 – 30 yrs
Customer relationships
5,200


5,200

 



 
8 – 10 yrs
Technology
1,220

(1,009
)
211

 
1,220

(947
)
273

 
10 yrs
License agreements
2,100

(474
)
1,626

 
2,100

(423
)
1,677

 
15 – 30 yrs
Non-compete agreements
1,037

(814
)
223

 
1,037

(733
)
304

 
4 – 8.5 yrs
Total intangibles
$
25,647

$
(4,762
)
$
20,885

 
$
20,447

$
(4,296
)
$
16,151

 
 
v3.8.0.1
New Accounting Standards (Narrative) (Details) - $ / shares
3 Months Ended 6 Months Ended
Mar. 31, 2018
Apr. 01, 2017
Mar. 31, 2018
Apr. 01, 2017
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]        
Diluted earnings per share (in dollars per share) $ 0.48 $ 0.58 $ (0.87) $ 0.50
v3.8.0.1
Acquisitions (Details)
$ in Thousands
1 Months Ended
Mar. 09, 2018
USD ($)
country
payment
Mar. 31, 2018
USD ($)
Business Acquisition [Line Items]    
Revenue, actual $ 1,100  
Contingent consideration   $ 1,200
Capital lease term   36 months
Capital lease obligations   $ 5,000
Teeshirt Ink, Inc    
Business Combinations [Abstract]    
Assets held for sale 5,000  
Business Acquisition [Line Items]    
Acquisition related costs 100  
Purchase price 16,400  
Contingent consideration 4,650 $ 4,700
Consideration paid $ 11,350  
Number of payments | payment 2  
Additional payment $ 2,500  
Working capital adjustment $ 95  
DTG2Go    
Business Acquisition [Line Items]    
Number of countries, over | country 100  
v3.8.0.1
Acquisitions (Purchase Price) (Details) - USD ($)
$ in Thousands
Mar. 09, 2018
Mar. 31, 2018
Business Acquisition [Line Items]    
Contingent consideration   $ 1,200
Teeshirt Ink, Inc    
Business Acquisition [Line Items]    
Cash $ 11,350  
Deferred consideration 5,000  
Contingent consideration 4,650 $ 4,700
Provisional working capital adjustment 95  
Total consideration $ 21,095  
v3.8.0.1
Acquisitions (Purchase price allocation) (Details) - USD ($)
$ in Thousands
Mar. 09, 2018
Mar. 31, 2018
Sep. 30, 2017
Business Acquisition [Line Items]      
Goodwill   $ 29,717 $ 19,917
Contingent consideration   (1,200)  
Teeshirt Ink, Inc      
Business Acquisition [Line Items]      
Accounts receivable $ 822    
Inventory, net of reserves 1,159    
Assets held for sale 5,000    
Goodwill 9,800    
Intangible assets 5,200    
Accounts payable, including payable to sellers (5,981)    
Contingent consideration (4,650) $ (4,700)  
Consideration paid $ 11,350    
v3.8.0.1
Divestitures (Details) - Disposed of by Sale - Junkfood
$ in Millions
Mar. 31, 2017
USD ($)
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
Note receivable 2.9
Gain on sale of asset $ 1.3
v3.8.0.1
Inventories (Details) - USD ($)
$ in Thousands
Mar. 31, 2018
Sep. 30, 2017
Inventory Disclosure [Abstract]    
Inventory valuation reserves $ 10,600 $ 9,800
Inventories, net of reserves:    
Raw materials 10,681 8,973
Work in process 14,058 18,543
Finished goods 147,474 147,035
Inventories, net $ 172,213 $ 174,551
v3.8.0.1
Debt (Schedule of Debt) (Details)
$ in Thousands
6 Months Ended
Mar. 31, 2018
USD ($)
Term Loan | Term loan established November, 2014  
Debt Instrument [Line Items]  
Long-term debt $ 1,700
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 $ 1,213
Stated interest rate (percentage) 8.00%
Debt instrument, term (in years) 6 years
Secured Debt | Term Loan Established September, 2017  
Debt Instrument [Line Items]  
Long-term debt $ 3,551
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 $ 4,977
Stated interest rate (percentage) 8.00%
v3.8.0.1
Debt (Narrative) (Details)
6 Months Ended 12 Months Ended
Aug. 27, 2013
USD ($)
debt_instrument
Mar. 31, 2018
USD ($)
Apr. 01, 2017
USD ($)
Oct. 01, 2016
USD ($)
Mar. 09, 2018
USD ($)
Nov. 27, 2017
USD ($)
Sep. 30, 2017
USD ($)
Debt Instrument [Line Items]              
Payment of deferred financing fees   $ (2,000) $ 0        
Restrictions on Proceeds from Debt for Payment of Dividend and Stock Repurchase, Maximum Aggregate Amount of Dividends and Stock Repurchases Permitted | Revolving Credit Facility              
Debt Instrument [Line Items]              
Maximum borrowing capacity         $ 6,000,000 $ 10,000,000  
Capital Lease and Increase Aggregate Principal Amount Such Leases Borrower May Enter Into | Revolving Credit Facility              
Debt Instrument [Line Items]              
Maximum borrowing capacity         $ 25,000,000 15,000,000  
Investments in Entities Not a Party to Amended Credit Agreement | Revolving Credit Facility              
Debt Instrument [Line Items]              
Maximum borrowing capacity           $ 2,000,000  
Revolving Credit Facility, due May 2017 | Revolving Credit Facility              
Debt Instrument [Line Items]              
Retained earnings, amount available for dividends and stock repurchases   15,400,000         $ 7,700,000
Revolving Credit Facility, due May 2016 | Revolving Credit Facility              
Debt Instrument [Line Items]              
Payment of deferred financing fees       $ 1,000,000      
Outstanding under credit facility   $ 97,500,000          
Fixed charge coverage ratio, term (in months)   12 months