Document and Entity Information

9 Months Ended

Jun. 28, 2014

Jul. 25, 2014

Document and Entity Information [Abstract]

Entity Registrant Name

DELTA APPAREL, INC

Entity Central Index Key

0001101396

Current Fiscal Year End Date

--09-27

Entity Filer Category

Accelerated Filer

Document Type

10-Q

Document Period End Date

Jun. 28, 2014

Document Fiscal Year Focus

2014

Document Fiscal Period Focus

Q3

Amendment Flag

false

Entity Common Stock, Shares Outstanding

7,877,674

Condensed Consolidated Balance Sheets (USD $)

In Thousands, unless otherwise specified

Jun. 28, 2014

Sep. 28, 2013

Current assets:

Cash and cash equivalents

$ 500

$ 829

Accounts receivable, less allowances of $3,139 and $2,958 respectively

70,129

68,707

Income tax receivable

169

1,232

Inventories, net

165,759

165,190

Prepaid expenses and other current assets

5,251

3,786

Deferred income taxes

10,481

5,981

Total current assets

252,289

245,725

Property, plant and equipment, net of accumulated depreciation of $75,453 and $71,453 respectively

42,160

40,600

Goodwill

36,729

Intangibles, net

23,832

24,837

Other assets

3,620

3,871

Total assets

358,630

351,762

Current liabilities:

Accounts payable

55,087

52,877

Accrued expenses

15,961

17,463

Current portion of long-term debt

15,054

3,704

Total current liabilities

86,102

74,044

Long-term debt, less current maturities

124,166

131,030

Deferred income taxes

4,510

3,610

Other liabilities

1,346

806

Contingent consideration

3,600

3,400

Total liabilities

219,724

212,890

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 7,877,674 and 7,873,848 shares outstanding as of June 28, 2014 and September 28, 2013, respectively

96

Additional paid-in capital

59,788

59,428

Retained earnings

100,384

100,579

Accumulated other comprehensive loss

(470)

(557)

Treasury stock —1,769,298 and 1,773,124 shares as of June 28, 2014 and September 28, 2013, respectively

(20,892)

(20,674)

Total shareholders’ equity

138,906

138,872

Total liabilities and shareholders' equity

$ 358,630

$ 351,762

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)

In Thousands, except Share data, unless otherwise specified

Jun. 28, 2014

Sep. 28, 2013

Statement of Financial Position [Abstract]

Allowances for accounts receivable

$ 3,139

$ 2,958

Accumulated Depreciation

$ 75,453

$ 71,453

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

7,877,674

7,873,848

Treasury stock, shares

1,769,298

1,773,124

Consolidated Statements of Operations (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Income Statement [Abstract]

Net sales

$ 123,534

$ 133,567

$ 338,004

$ 360,409

Cost of goods sold

100,796

105,081

273,945

282,754

Gross profit

22,738

28,486

64,059

77,655

Selling, general and administrative expenses

21,063

23,502

62,199

69,083

Change in fair value of contingent consideration

75

0

200

0

Other expense (income), net

8

327

(91)

506

Operating income

1,592

4,657

1,751

8,066

Interest expense, net

1,471

1,019

4,384

2,921

Income (loss) before benefit from income taxes

121

3,638

(2,633)

5,145

Benefit from income taxes

(2,045)

(330)

(2,438)

(475)

Net earnings (loss)

$ 2,166

$ 3,968

$ (195)

$ 5,620

Basic (loss) earnings per share (in dollars per share)

$ 0.27

$ 0.49

$ (0.02)

$ 0.69

Diluted (loss) earnings per share (in dollars per share)

$ 0.27

$ 0.48

$ (0.02)

$ 0.67

Weighted average number of shares outstanding

7,903

8,070

7,909

8,179

Dilutive effect of stock options and awards (in shares)

202

252

0

255

Weighted average number of shares assuming dilution

8,105

8,322

7,909

8,434

Consolidated Statements of Comprehensive (Loss) Income (USD $)

In Thousands, unless otherwise specified

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Comprehensive income (loss):

Net earnings (loss)

$ 2,166

$ 3,968

$ (195)

$ 5,620

Net unrealized (loss) gain on cash flow hedges

(76)

26

87

77

Comprehensive income (loss)

$ 2,090

$ 3,994

$ (108)

$ 5,697

Consolidated Statements of Cash Flows (USD $)

In Thousands, unless otherwise specified

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Operating activities:

Net (loss) earnings

$ (195)

$ 5,620

Adjustments to reconcile (loss) earnings to net cash provided by operating activities:

Depreciation and amortization

7,043

6,069

Amortization of deferred financing fees

263

273

Excess tax benefits from exercise of stock options

(27)

(34)

Benefits from deferred income taxes

(3,600)

(626)

Non-cash stock compensation

365

409

Change in fair value of contingent consideration

200

0

Loss on disposal or impairment of property and equipment

25

372

Release of cash held in escrow

3,000

0

Changes in operating assets and liabilities:

Accounts receivable

(1,422)

(5,530)

Inventories

(569)

2,300

Prepaid expenses and other assets

(1,465)

(284)

Other non-current assets

(11)

0

Accounts payable

2,210

5,575

Accrued expenses

(4,702)

(2,968)

Income tax receivable

1,090

5,066

Other liabilities

827

(65)

Net cash provided by operating activities

3,032

16,177

Investing activities:

Purchases of property and equipment, net

(7,696)

(6,235)

Proceeds from sale of equipment

71

72

Net cash used in investing activities

(7,625)

(6,163)

Financing activities:

Proceeds from long-term debt

375,738

361,995

Repayment of long-term debt

(371,252)

(366,280)

Repurchase of common stock

(1,180)

(6,792)

Proceeds from exercise of stock options

931

23

Payment of withholding taxes on exercise of stock options

0

(236)

Excess tax benefits from exercise of stock options

27

34

Net cash provided by (used in) financing activities

4,264

(11,256)

Net decrease in cash and cash equivalents

(329)

(1,242)

Cash and cash equivalents at beginning of period

829

1,840

Cash and cash equivalents at end of period

500

598

Supplemental cash flow information:

Cash paid during the period for interest

3,435

2,449

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

$ 225

$ (4,863)

Basis of Presentation and Description of Business

Basis of Presentation

Basis of Presentation and Description of Business

On August 26, 2013, our Board of Directors determined that the Company's fiscal year will begin on the Sunday closest to September 30th of each year and end on the Saturday closest to September 30th of each year. The change is intended to better align our planning, financial and reporting functions with the seasonality of our 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 consist of normal recurring adjustments considered necessary for a fair presentation. Operating results for the nine months ended June 28, 2014, are not necessarily indicative of the results that may be expected for our fiscal year ending September 27, 2014. 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 fiscal 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 Form 10-K for our fiscal year ended June 29, 2013, filed with the United States Securities and Exchange Commission (“SEC”).

“Delta Apparel”, the “Company”, and “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”), To The Game, LLC (“To The Game”), Art Gun, LLC (“Art Gun”), and other international subsidiaries, as appropriate to the context.

Delta Apparel, Inc. is an international apparel design, marketing, manufacturing and sourcing company that features a diverse portfolio of lifestyle basic and branded activewear apparel and headwear. We specialize in selling casual and athletic products through a variety of distribution channels and distribution tiers including specialty stores, boutiques, department stores, mid and mass channels, college bookstores and the U.S. military. Our products are made available direct-to-consumer on our websites at www.soffe.com, www.junkfoodclothing.com, www.saltlife.com and www.deltaapparel.com. We design and internally manufacture the majority of our products, which allows us to offer a high degree of consistency and quality control as well as leverage scale efficiencies. 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.

Accounting Policies

Our accounting policies are consistent with those described in our Significant Accounting Policies in our Form 10-K for the fiscal year ended June 29, 2013, filed with the SEC.

New Accounting Standards

Recently Adopted Standards

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Intangibles - Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment, ("ASU 2012-02"). This new guidance adds an optional qualitative assessment for determining whether an indefinite-lived intangible asset is impaired. Companies have the option to first perform a qualitative assessment to determine whether it is more likely than not (likelihood of more than 50%) that an indefinite-lived intangible is impaired. If a company determines that it is more likely than not that the fair value of such an asset exceeds its carrying amount, it would not need to calculate whether the fair value of such an asset exceeds its carrying amount and it would not need to calculate the fair value of the asset in that year. The company must, however, make a positive assertion about the conclusion and the circumstances taken into account to reach that conclusion. However, if the company determines otherwise, it must calculate the fair value of the asset and compare that value with its carrying amount. If the carrying amount of the company's intangible asset exceeds its fair value, the company must record an impairment charge for the amount of that excess, if any. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. ASU 2012-02 was adopted on June 30, 2013, and the adoption had no impact on our financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). This guidance requires companies to report information about reclassifications out of accumulated other comprehensive income in one place. These reclassifications must be presented by component. If these items are significant and are reclassified in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. If the items are not reclassified in their entirety to net income in the period, companies must cross-reference in a note. ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. ASU 2013-02 was adopted on June 30, 2013, and the adoption had no impact on our financial statements.

In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815), Inclusion of the Fed Funds Effective Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes ("ASU 2013-10"). This guidance allows an entity to now designate the Federal Funds Effective Swap Rate, (the Overnight Index Swap rate, or OIS rate, in the United States) as a benchmark interest rate for hedge accounting purposes in addition to the interest rate on direct Treasury obligations of the United States government and the London Interbank Offered Rate ("LIBOR"). The FASB also eliminated the restriction on designating different benchmark interest rate hedges for similar hedges. ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 2013. ASU 2013-10 was adopted on July 1, 2013, and the adoption had no impact on our financial statements.

In March 2014, the FASB issued ASU No. 2014-06, Technical Corrections and Improvements Related to Glossary Terms ("ASU 2014-06"). This guidance clarifies the Master Glossary of the Codification, consolidates multiple instances of the same term into a single definition and makes minor improvements to the Master Glossary. ASU 2014-06 is effective immediately. ASU 2014-06 was adopted on March 29, 2014, and the adoption had no impact on our financial statements.

Standards Not Yet Adopted

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, ("ASU 2013-11"). This new guidance requires entities to present unrecognized tax benefits as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred tax asset that exists as of the reporting date and presumes disallowance of the tax position at the reporting date. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. ASU 2013-11 is therefore effective for our fiscal year beginning September 28, 2014.

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 for 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, 2016, for public business entities and permits the use of either the retrospective or cumulative effect transition method. Early application is not permitted. ASU 2014-09 is therefore effective for our fiscal year beginning October 1, 2017. We are evaluating the effect that ASU 2014-09 will have on the Consolidated Financial Statements and related disclosures.

Salt Life Acquisition

On August 27, 2013, To The Game purchased substantially all of the assets of Salt Life Holdings, LLC, including all of its domestic and international trademark rights in the Salt Life brand (the "Salt Life Acquisition"). The purchase price for the Salt Life Acquisition consisted of: (i) a cash payment at closing of $12,000,000, (ii) a deposit at closing of $3,000,000 into an escrow account to be held to secure indemnification obligations of the seller under the asset purchase agreement and to be held for a period of up to fifty-four months following the closing, and (iii) delivery of two promissory notes in the aggregate principal amount of $22,000,000. An additional amount may be 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. At acquisition, we recorded an accrual of $3.4 million for the fair value of the contingent consideration associated with the Salt Life Acquisition. We financed the cash portion of the purchase price through our Fourth Amended and Restated Loan and Security Agreement, as amended on August 27, 2013. We expensed all acquisition related costs in the selling, general and administrative expense line item of our Condensed Consolidated Statements of Operations in the quarter ended September 28, 2013.

On December 6, 2013, we entered into an agreement (the "IMG Agreement") with IMG Worldwide, Inc. ("IMG") that provides for the termination of the Salt Life brand license agreements entered into between Delta and IMG (as agent on behalf of Salt Life Holdings) prior to the Salt Life Acquisition as well as the agency agreement entered into between Salt Life Holdings and IMG prior to the Salt Life Acquisition. In addition, the IMG Agreement provides that Delta and Salt Life Holdings are released from all obligations and liabilities under those agreements or relating to the Salt Life Acquisition. Pursuant to the IMG Agreement, To The Game and IMG entered into a new, multi-year agency agreement whereby IMG will represent To The Game with respect to the licensing of the Salt Life brand in connection with certain product and service categories. To The Game agreed to pay IMG installments totaling $3,500,000 to terminate the existing arrangements. As a result, the above-referenced $3,000,000 indemnification asset was released from escrow during the quarter ended December 28, 2013, and applied towards these payment obligations, along with additional amounts previously accrued for royalty obligations under the above-referenced Salt Life brand license agreements. In accordance with the payment terms, To The Game remitted an initial $1.55 million payment and the first $195 thousand installment during the March 2014 quarter and the second $195 thousand installment during the June 2014 quarter. As of June 28, 2014, there are eight quarterly installments of $195 thousand remaining. We have recorded the fair value of the liability as of June 28, 2014, on our financials with $0.8 million in accrued expenses and $0.6 million in other liabilities.

The Salt Life Acquisition continues our strategy of building lifestyle brands that take advantage of our creative capabilities, vertical manufacturing platform and international sourcing competencies. Prior to the Salt Life Acquisition, To The Game sold Salt Life-branded products under exclusive license agreements which began in January 2011. As such, the results of Salt Life sales have been included in the Condensed Consolidated Financial Statements since that time.

We accounted for the Salt Life Acquisition pursuant to ASC 805, Business Combinations, with the purchase price allocated based upon fair value. We have identified certain intangible assets associated with Salt Life, including trade name and trademarks, license agreements, non-compete agreements and goodwill. The total amount of goodwill is expected to be deductible for tax purposes. Components of the intangible assets recorded at acquisition are as follows:



			Economic Life
Goodwill	$	19,917	N/A

Intangibles:
Tradename/trademarks	16,000		30 yrs
License agreements	2,100		15 – 30 yrs
Non-compete agreements	770		6.6 yrs
Total intangibles	18,870

Total goodwill and intangibles	$	38,787

We are currently in the process of finalizing the valuations and thus the initial allocation of the purchase price is subject to change until the allocation is finalized.

Inventories

Inventories, net of reserves of $6.9 million as of both June 28, 2014, and September 28, 2013, consist of the following (in thousands):



	June 28, 2014		September 28, 2013
Raw materials	$	11,740	$	11,917
Work in process	17,040		15,121
Finished goods	136,979		138,152
	$	165,759	$	165,190

Raw materials include finished yarn and direct materials for the basics segment and include direct embellishment materials and undecorated garments and headwear for the branded segment. We regularly review inventory quantities on hand and record reserves for obsolescence, excess quantities, irregulars and slow-moving inventory based on historical selling prices, current market conditions, and forecasted product demand, to reduce inventory to its net realizable value.

Debt

On May 27, 2011, Delta Apparel, Soffe, Junkfood, To The Game and Art Gun entered into a Fourth Amended and Restated Loan and Security Agreement (the "Loan Agreement") with the financial institutions named in the Loan Agreement as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Capital Finance, LLC, as Sole Lead Arranger, and Wells Fargo Capital Finance, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Bookrunners.

On August 27, 2013, Delta Apparel, To The Game, Junkfood, Soffe and Art Gun entered into a Consent and First Amendment to the Fourth Amended and Restated Loan and Security Agreement with Wells Fargo Bank, National Association and the other lenders set forth therein (the "Amended Loan Agreement"). Pursuant to the Amended Loan Agreement, in general and among other things, (1) the lenders and agent parties consented to the Salt Life Acquisition, (2) the maturity of the loans (other than the below referenced first in last out Tranche B ("FILO Tranche B")) under the Amended Loan Agreement was extended one year to May 27, 2017, (3) the lenders consented to Delta Apparel's Honduran subsidiaries borrowing up to an additional $10,000,000 from a certain Honduran bank in connection with the purchase of certain equipment, and (4) the FILO Tranche B was added to provide Delta Apparel and its affiliate parties to the Amended Loan Agreement an additional 5% borrowing availability with respect to eligible accounts receivable and eligible inventory. The FILO Tranche B, and only the FILO Tranche B, will terminate by August 27, 2015 (subject to earlier cancellation by Delta Apparel), has a maximum borrowing availability of $10,000,000, and includes interest rates between 150 and 200 basis points higher than the rates applicable to the other loans available under the Amended Loan Agreement.

Pursuant to the Amended Loan Agreement, our line of credit is $145 million (subject to borrowing base limitations). Provided that no event of default exists, we have the option to increase the maximum credit available under the facility to $200 million (subject to borrowing base limitations), conditioned upon the Administrative Agent's ability to secure additional commitments and customary closing conditions.

As of June 28, 2014, we had $106.2 million outstanding under our U.S. credit facility at an average interest rate of 2.6%, and had the ability to borrow an additional $30.8 million. Our credit facility includes a financial covenant requiring that if the amount of availability falls below an amount equal to 12.5% of the lesser of the borrowing base or $145 million, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Loan Agreement) for the preceding 12-month period must not be less than 1.1 to 1.0. As availability was above the minimum, we were not subject to the FCCR covenant at June 28, 2014. At June 28, 2014, and September 28, 2013, there was $8.6 million and $9.9 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.

The Amended Loan 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 Loan Agreement as long-term debt.

In conjunction with the Salt Life Acquisition, we issued two promissory notes in the aggregate principal of $22.0 million, which include a one-time installment of $9.0 million due 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 have imputed interest at 1.92% and 3.62% on the promissory notes that mature on June 30, 2016, and June 30, 2019, respectively. At June 28, 2014, the discounted value of the promissory notes was $20.8 million.

In March 2011, we extinguished our existing debt with Banco Ficohsa, a Honduran bank, and entered into a new credit facility with it. The credit facility is secured by a first-priority lien on the assets of our Honduran operations and the loan is not guaranteed by the U.S. entity. The installment portion of the credit facility carries a fixed interest rate of 7% for a term of seven years and is denominated in U.S. dollars. As of June 28, 2014, we had $3.6 million outstanding on the installment portion of this loan. The revolving credit portion of the loan has a 7% fixed interest rate with an ongoing 18-month term (expiring March 2019) and is denominated in U.S. dollars. The revolving credit facility requires minimum payments during each 6-month period of the 18-month term; however, the loan agreement permits additional drawdowns to the extent payments are made, if 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 agreement permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants, and we intend to re-borrow funds, subject to the objective covenants, the amounts have been classified as long-term debt. As of June 28, 2014, we had $3.7 million outstanding under the revolving portion of the credit facility.

In October 2013, we entered into two new term loan agreements with Banco Ficohsa to finance our Honduran expansion project. These also are not guaranteed by the U.S. entity and are secured by a first-priority lien on the assets of our Honduran operations. The first loan, an eighteen month agreement for $1.8 million with a 7% fixed interest rate, is denominated in U.S. dollars, and has ratable monthly principal and interest payments due through the end of the term. As of June 28, 2014, we had $1.0 million outstanding on this loan agreement. The second loan, a seven-year agreement for $4.2 million with a 7% fixed interest rate, is denominated in U.S. dollars and has ratable monthly principal and interest payments due through the end of the term. As of June 28, 2014, we had $3.9 million outstanding on this loan agreement. The carrying value of these term loans approximates the fair value.

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 and packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled $4.2 million and $4.5 million for the three months ended June 28, 2014, and June 29, 3013, respectively. Distribution costs included in SG&A for the nine months ended June 28, 2014, and June 29, 2013, were $12.6 million and $13.1 million, 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 November 11, 2010, the Delta Apparel, Inc. shareholders approved the Delta Apparel, Inc. 2010 Stock Plan ("2010 Stock Plan"). Upon shareholder approval of the 2010 Stock Plan, 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"); instead, all stock awards have and will be granted under the 2010 Stock Plan. 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. We expense stock compensation costs in the SG&A expense line items of our Condensed Consolidated Statements of Operations over the vesting periods of each grant. During the three months ending June 28, 2014, we reduced expense by $0.4 million in connection with our outstanding awards due to adjustments to the expected vesting of the performance units. We recognized $0.2 million in stock based compensation expense during the three months ending June 29, 2013. For the nine months ending June 28, 2014, and June 29, 2013, total stock based compensation was $0.5 million and $0.6 million, respectively.

2010 Stock Plan

As of June 28, 2014, there was $0.7 million of total unrecognized compensation cost related to non-vested awards granted under the 2010 Stock Plan. This cost is expected to be recognized over a period of 1.2 years. No awards were granted under the 2010 Stock Plan during the quarter ended June 28, 2014.

Option Plan

All options granted under the Option Plan have vested. As such, no expense was recognized during the nine months ended June 28, 2014, or for the nine months ended June 29, 2013. During the three and nine months ended June 28, 2014, vested options representing 8,000 and 82,500 shares, respectively, of our common stock were exercised, and the shares issued, in accordance with their respective agreements.

Award Plan

All awards granted under the Award Plan have vested and been exercised, and no awards remain outstanding.

Purchase Contracts

We have entered into agreements, and have fixed prices, to purchase yarn, natural gas, finished fabric, and finished apparel and headwear products. At June 28, 2014, minimum payments under these contracts were as follows (in thousands):



Yarn	$	23,342
Natural gas	55
Finished fabric	1,965
Finished products	20,925
	$	46,287

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 and distribution methods.

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 Soffe, Junkfood, To The Game and Art Gun. These branded embellished and unembellished products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, college bookstores and the U.S. military. Products in this segment are marketed under our lifestyle brands of Soffe®, Intensity Athletics®, Junk Food®, The Game®, American Threads by The Game, and Salt Life®, as well as other labels.

The basics segment is comprised of our business units primarily focused on garment styles that are characterized by low fashion risk, and includes our Delta Activewear business which sells undecorated catalog tees and private label products. 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, retailers, corporate industry programs, and sports licensed apparel marketers. Typically these products are sold with value-added services such as embellishment, hangtags, ticketing, and hangers so that they are fully ready for retail.

Robert W. Humphreys, our chief operating decision maker, and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges (“segment operating earnings (loss)”). Our segment operating earnings (loss) may not be comparable to similarly titled measures used by other companies. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table.

Information about our operations as of and for the three and nine months ended June 28, 2014, and June 29, 2013, by operating segment, is as follows (in thousands):



	Basics		Branded			Consolidated
Three months ended June 28, 2014
Net sales	$	73,532	$	50,002		$	123,534
Segment operating earnings (loss)	2,159		(567		)	1,592
Segment assets *	176,524		182,106			358,630

Three months ended June 29, 2013
Net sales	$	78,047	$	55,520		$	133,567
Segment operating earnings (loss)	5,308		(651		)	4,657
Segment assets *	161,716		150,194			311,910



*		All goodwill and intangibles on our balance sheet are included in the branded segment.



	Basics		Branded			Consolidated
Nine months ended June 28, 2014
Net sales	$	196,244	$	141,760		$	338,004
Segment operating earnings (loss)	5,705		(3,954		)	1,751

Nine months ended June 28. 2013
Net sales	$	204,294	$	156,115		$	360,409
Segment operating earnings (loss)	12,604		(4,538		)	8,066

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



	Three Months Ended				Nine Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014			June 29, 2013
Segment operating earnings	$	1,592	$	4,657	$	1,751		$	8,066
Unallocated interest expense	1,471		1,019		4,384			2,921
Consolidated income (loss) before benefit from income taxes	$	121	$	3,638	$	(2,633	)	$	5,145

Income Taxes

Our effective income tax benefit for the nine months ended June 28, 2014, was 92.6%, compared to tax benefit of 9.2% for the same period in the prior year and an effective rate of 7.3% for the fiscal year ended June 29, 2013. We benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates lower than the United States. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income compared to profits maintained in the offshore taxable and tax-free jurisdictions, our estimated effective income tax rate for the fiscal year ending September 27, 2014, is expected to be approximately 93%. Changes in the mix of U.S. taxable income compared to profits maintained in tax-free jurisdictions, however, can have a significant impact on our overall effective tax rate.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. In the December quarter of fiscal year 2013, the Internal Revenue Service commenced an examination of our U.S. income tax returns for fiscal year 2010 (tax year 2009). Upon filing the carryback of our net operating losses from fiscal year 2012 to our fiscal years 2011 and 2010 (tax years 2010 and 2009) and receiving a cash refund of the taxes previously paid, the Internal Revenue Service expanded the examination to include our U.S. income tax returns for our 2011 and 2012 fiscal years. This examination was concluded in January 2014, and no tax deficiency was found. Based on the conclusion of the audit, these returns are no longer subject to further examination by the Internal Revenue Service. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by taxing authorities. The tax years 2010 to 2012 as well as the short tax year 2013, according to statute and with few exceptions, remain open to examination by various state, local and foreign jurisdictions. Tax years 2012 and the short tax year 2013 remain open for examination for federal purposes.

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.



	Effective Date	Notational Amount	Fixed LIBOR Rate		Maturity Date
Interest Rate Swap	September 9, 2013	$15 million	1.1700	%	September 9, 2016
Interest Rate Swap	September 9, 2013	$15 million	1.6480	%	September 11, 2017
Interest Rate Swap	September 19, 2013	$15 million	1.0030	%	September 19, 2016
Interest Rate Swap	September 19, 2013	$15 million	1.4490	%	September 19, 2017
Interest Rate Swap	September 1, 2011	$10 million	1.0700	%	September 1, 2014

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. The fair value of the cotton option contracts is included in the prepaid and other current assets line item on our Condensed Consolidated Balance Sheets. We did not own any cotton option contracts as of June 28, 2014, or as of September 28, 2013.

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
June 28, 2014	$	(765	)	—	$	(765	)	—
September 28, 2013	$	(906	)	—	$	(906	)	—

Contingent Consideration
June 28, 2014	$	(3,600	)	—	—			$	(3,600	)
September 28, 2013	$	(3,400	)	—	—			$	(3,400	)

The fair value of the interest rate swap agreements were 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.

The Salt Life Acquisition included 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 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 acquisition, as well as to remeasure the contingent consideration related to the acquisitions of Salt Life and Art Gun at each reporting period. Accordingly, the fair value measurement for contingent consideration falls in Level 3 of the fair value hierarchy.

During the three and nine months ended June 28, 2014, we expensed $75 thousand and $0.2 million, respectively, related to the change in fair value of the contingent consideration associated with the Salt Life Acquisition as a result of the passage of time. At June 28, 2014, we had $3.6 million accrued in contingent consideration related to the Salt Life Acquisition. Contingent consideration related to the acquisition of Art Gun remains de minimis.

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 June 28, 2014, and September 28, 2013:



	June 28, 2014			September 28, 2013
Accrued expenses	$	(16	)	$	(100	)
Deferred tax liabilities	295			349
Other liabilities	(749		)	(806		)
Accumulated other comprehensive loss	$	(470	)	$	(557	)

Assets Measured at Fair Value on a Non-Recurring Basis

Intangible assets acquired in connection with the Salt Life Acquisition are identified by type in Note D—Salt Life Acquisition and have been valued on a preliminary basis. These preliminary valuations included significant unobservable inputs (Level 3).

Legal Proceedings

Consumer Product Safety Commission

We previously received an inquiry from the U.S. Consumer Product Safety Commission (“Commission”) regarding a children's drawstring hoodie product sourced, distributed and sold by Junkfood, and its compliance with applicable product safety standards. The Commission subsequently investigated the matter, including whether Junkfood complied with the reporting requirements of the Consumer Product Safety Act (“CPSA”), and the garments in question were ultimately recalled. On or about July 25, 2012, Junkfood received notification from the Commission staff alleging that Junkfood knowingly violated CPSA Section 15(b) and that the staff will recommend to the Commission a $900,000 civil penalty. We dispute the Commission's allegations.

On August 27, 2012, Junkfood responded to the Commission staff regarding its recommended penalty, setting forth a number of defenses and mitigating factors that could result in a much lower penalty, if any, ultimately imposed by a court should the matter proceed to litigation. The Commission has since requested additional information regarding the matter and issued a subpoena for records and information. While we will continue to defend against these allegations, we believe a risk of loss is probable. Based upon current information, including the terms of previously published Commission settlements and related product recall notices, should the Commission seek enforcement of the recommended civil penalty and ultimately prevail on its claims at trial we believe there is a range of likely outcomes between $25,000 and an amount exceeding $900,000, along with interest and the Commission's costs and fees. During the quarter ended June 30, 2012, we recorded a liability for what we believe to be the most likely outcome within this range, and this liability remains recorded as of June 28, 2014.

California Wage and Hour Litigation

We were served with a complaint in the Superior Court of the State of California, County of Los Angeles, on or about March 13, 2013, by a former employee of our Delta Activewear business unit at our Santa Fe Springs, California distribution facility alleging violations of California wage and hour laws and unfair business practices with respect to meal and rest periods, compensation and wage statements, and related claims (the "Complaint"). The Complaint is brought as a class action and seeks to include all of our Delta Activewear business unit's current and certain former employees within California who are or were non-exempt under applicable wage and hour laws. The Complaint also names as defendants Junkfood, Soffe, an independent contractor of Soffe, and a former employee, and seeks to include all current and certain former employees of Junkfood, Soffe and the Soffe independent contractor within California who are or were non-exempt under applicable wage and hour laws. The Complaint seeks injunctive and declaratory relief, monetary damages and compensation, penalties, attorneys' fees and costs, and pre-judgment interest. The discovery process in this matter is ongoing and the issue of class certification remains pending.

While we will continue to vigorously defend this action and believe we have a number of meritorious defenses to the claims alleged, we believe a risk of loss is probable. Based upon current information, we believe there is a range of likely outcomes between approximately $15,000 and $975,000. During the quarter ended September 28, 2013, we recorded a liability for the most likely outcome within this range. However, depending upon the scope and size of any certified class and whether any of the claims alleged ultimately prevail at trial, we could be required to pay amounts exceeding $975,000.

Other

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 June 29, 2013, our Board of Directors had authorized management to use up to $30.0 million to repurchase Delta Apparel stock in open market transactions under our Stock Repurchase Program.

During the June quarter of fiscal years 2014 and 2013, we purchased 66,556 shares and 228,354 shares, respectively, of our common stock for a total cost of $1.0 million and $3.3 million, respectively. Through June 28, 2014, we have purchased 2,122,246 shares of our common stock for an aggregate of $25.3 million since the inception of the Stock Repurchase Program. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule 10b-18. As of June 28, 2014, $4.7 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 June 28, 2014:



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
March 30, 2014 to May 3, 2014	13,119	$	15.23	13,119		$5.5	million
May 4, 2014 to May 31, 2014	53,437	$14.99		53,437		$4.7	million
June 1, 2014 to June 28, 2014	—	—		—		$4.7	million
Total	66,556	$15.04		66,556		$4.7	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 have incurred royalty expense (included in SG&A expenses) of approximately $2.7 million and $3.9 million in the June quarter of fiscal years 2014 and 2013, respectively. For the nine months ended June 28, 2014, and June 29, 2013, we incurred royalty expenses of $7.1 million and $10.6 million, respectively.

At June 28, 2014, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):



Fiscal Year	Amount
2014	$	293
2015	2,619
2016	2,527
2017	100
	$	5,539

Goodwill and Intangible Assets

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



	June 28, 2014							September 28, 2013
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

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

Intangibles:
Tradename/trademarks	$	17,530	$	(1,129	)	$	16,401	$	17,530	$	(672	)	$	16,858	20 – 30 yrs
Customer relationships	7,220		(3,208		)	4,012		7,220		(2,937		)	4,283		20 yrs
Technology	1,220		(551		)	669		1,220		(459		)	761		10 yrs
License agreements	2,100		(87		)	2,013		2,100		(10		)	2,090		15 – 30 yrs
Non-compete agreements	1,287		(550		)	737		1,287		(442		)	845		4 – 8.5 yrs
Total intangibles	$	29,357	$	(5,525	)	$	23,832	$	29,357	$	(4,520	)	$	24,837

Amortization expense for intangible assets was $0.4 million for the three months ended June 28, 2014, and $0.2 million for the three months ended June 29, 2013. Amortization expense for intangible assets was $1.1 million for the nine months ended June 28, 2014, and $0.5 million for the nine months ended June 29, 2013. Amortization expense is estimated to be approximately $1.4 million each for fiscal years 2014 and 2015 and $1.3 million for fiscal years 2016, 2017 and 2018.

Subsequent Events

In response to our recent financial performance and our near-term view of business conditions, in August 2014 we announced the implementation of certain strategic initiatives, as well as others under evaluation, that are designed to improve net profitability. We have initiated a reorganization of key business functions and administrative structure at all levels and across all business units to streamline decision-making and information flow, as well as reduce duplicative and excess fixed costs. The reorganization is designed to de-layer the management structure, leverage back-office functions, and streamline departments through the use of information technology systems that have recently been, or are currently being, implemented. We are also evaluating other initiatives focused on improving net profitability in the face of continued marketplace weakness. These include (a) the restructuring of our manufacturing platform to lower product cost and strategically reduce capacity on certain product lines, and (b) a comprehensive rationalization of all under-performing business units, product lines and sales channels. The strategic initiatives being implemented or contemplated had no impact on our financial results for the quarter ended June 28, 2014.

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 and packing, and shipping goods for delivery to our customers.

Salt Life Acquisition (Tables)

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination

We have identified certain intangible assets associated with Salt Life, including trade name and trademarks, license agreements, non-compete agreements and goodwill. The total amount of goodwill is expected to be deductible for tax purposes. Components of the intangible assets recorded at acquisition are as follows:



			Economic Life
Goodwill	$	19,917	N/A

Intangibles:
Tradename/trademarks	16,000		30 yrs
License agreements	2,100		15 – 30 yrs
Non-compete agreements	770		6.6 yrs
Total intangibles	18,870

Total goodwill and intangibles	$	38,787

Inventories (Tables)

Schedule of Inventories, Net of Reserves

Inventories, net of reserves of $6.9 million as of both June 28, 2014, and September 28, 2013, consist of the following (in thousands):



	June 28, 2014		September 28, 2013
Raw materials	$	11,740	$	11,917
Work in process	17,040		15,121
Finished goods	136,979		138,152
	$	165,759	$	165,190

Purchase Contracts (Tables)

Purchase contracts minimum payments

At June 28, 2014, minimum payments under these contracts were as follows (in thousands):



Yarn	$	23,342
Natural gas	55
Finished fabric	1,965
Finished products	20,925
	$	46,287

Business Segments (Tables)

Segment reporting information by segment

Information about our operations as of and for the three and nine months ended June 28, 2014, and June 29, 2013, by operating segment, is as follows (in thousands):



	Basics		Branded			Consolidated
Three months ended June 28, 2014
Net sales	$	73,532	$	50,002		$	123,534
Segment operating earnings (loss)	2,159		(567		)	1,592
Segment assets *	176,524		182,106			358,630

Three months ended June 29, 2013
Net sales	$	78,047	$	55,520		$	133,567
Segment operating earnings (loss)	5,308		(651		)	4,657
Segment assets *	161,716		150,194			311,910



*		All goodwill and intangibles on our balance sheet are included in the branded segment.



	Basics		Branded			Consolidated
Nine months ended June 28, 2014
Net sales	$	196,244	$	141,760		$	338,004
Segment operating earnings (loss)	5,705		(3,954		)	1,751

Nine months ended June 28. 2013
Net sales	$	204,294	$	156,115		$	360,409
Segment operating earnings (loss)	12,604		(4,538		)	8,066

Reconciliation of segment operating income to consolidated income before income taxes

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



	Three Months Ended				Nine Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014			June 29, 2013
Segment operating earnings	$	1,592	$	4,657	$	1,751		$	8,066
Unallocated interest expense	1,471		1,019		4,384			2,921
Consolidated income (loss) before benefit from income taxes	$	121	$	3,638	$	(2,633	)	$	5,145

Derivatives and Fair Value Measurements (Tables)

Outstanding financial instruments

These financial instruments are not used for trading or speculative purposes.



	Effective Date	Notational Amount	Fixed LIBOR Rate		Maturity Date
Interest Rate Swap	September 9, 2013	$15 million	1.1700	%	September 9, 2016
Interest Rate Swap	September 9, 2013	$15 million	1.6480	%	September 11, 2017
Interest Rate Swap	September 19, 2013	$15 million	1.0030	%	September 19, 2016
Interest Rate Swap	September 19, 2013	$15 million	1.4490	%	September 19, 2017
Interest Rate Swap	September 1, 2011	$10 million	1.0700	%	September 1, 2014

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
June 28, 2014	$	(765	)	—	$	(765	)	—
September 28, 2013	$	(906	)	—	$	(906	)	—

Contingent Consideration
June 28, 2014	$	(3,600	)	—	—			$	(3,600	)
September 28, 2013	$	(3,400	)	—	—			$	(3,400	)

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 June 28, 2014, and September 28, 2013:



	June 28, 2014			September 28, 2013
Accrued expenses	$	(16	)	$	(100	)
Deferred tax liabilities	295			349
Other liabilities	(749		)	(806		)
Accumulated other comprehensive loss	$	(470	)	$	(557	)

Repurchase of Common Stock Repurchase of Common Stock (Tables)

Schedule of Repurchase of Common Stock

The following table summarizes the purchases of our common stock for the quarter ended June 28, 2014:



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
March 30, 2014 to May 3, 2014	13,119	$	15.23	13,119		$5.5	million
May 4, 2014 to May 31, 2014	53,437	$14.99		53,437		$4.7	million
June 1, 2014 to June 28, 2014	—	—		—		$4.7	million
Total	66,556	$15.04		66,556		$4.7	million

License Agreements (Tables)

Schedule of future minimum royalty payments

At June 28, 2014, based on minimum sales requirements, future minimum royalty payments required under these license agreements were as follows (in thousands):



Fiscal Year	Amount
2014	$	293
2015	2,619
2016	2,527
2017	100
	$	5,539

Goodwill and Intangible Assets (Tables)

Components of Intangible Assets

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



	June 28, 2014							September 28, 2013
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

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

Intangibles:
Tradename/trademarks	$	17,530	$	(1,129	)	$	16,401	$	17,530	$	(672	)	$	16,858	20 – 30 yrs
Customer relationships	7,220		(3,208		)	4,012		7,220		(2,937		)	4,283		20 yrs
Technology	1,220		(551		)	669		1,220		(459		)	761		10 yrs
License agreements	2,100		(87		)	2,013		2,100		(10		)	2,090		15 – 30 yrs
Non-compete agreements	1,287		(550		)	737		1,287		(442		)	845		4 – 8.5 yrs
Total intangibles	$	29,357	$	(5,525	)	$	23,832	$	29,357	$	(4,520	)	$	24,837

Salt Life Acquisition (Details) (USD $)

9 Months Ended

0 Months Ended

Jun. 28, 2014

installment

Dec. 6, 2013

Sep. 28, 2013

Jun. 28, 2014

Tradename/Trademarks [Member]

Minimum [Member]

Jun. 28, 2014

Tradename/Trademarks [Member]

Maximum [Member]

Jun. 28, 2014

License Agreements [Member]

Minimum [Member]

Jun. 28, 2014

License Agreements [Member]

Maximum [Member]

Jun. 28, 2014

Non-compete Agreements [Member]

Minimum [Member]

Jun. 28, 2014

Non-compete Agreements [Member]

Maximum [Member]

Jun. 28, 2014

Accrued Liabilities [Member]

Jun. 28, 2014

Other Liabilities [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Tradename/Trademarks [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Tradename/Trademarks [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

License Agreements [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

License Agreements [Member]

Minimum [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

License Agreements [Member]

Maximum [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Non-compete Agreements [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Non-compete Agreements [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Promissory Note [Member]

debt_instrument

Business Acquisition [Line Items]

Cash payment at closing

$ 12,000,000

Deposit at closing

3,000,000

Duration of cash held in escrow

54 months

Number of promissory notes delivered (debt instruments)

2

Aggregate Principal of promissory notes

22,000,000.0

Contingent consideration

3,600,000

3,400,000

Contractual agreements

3,500,000

Contractual Obligation, Due In Next Fiscal Quarter

1,550,000

Contractual Obligation, Amount of Quarterly Installment Payments

195,000

Number of Quarterly Installments

8

Contingent Liability, at Fair Value

800,000

600,000

Goodwill

36,729,000

19,917,000

Total intangibles

18,870,000

16,000,000

2,100,000

770,000

Total goodwill and intangibles

$ 38,787,000

Intangibles, economic life

20 years

30 years

15 years

30 years

4 years

8 years 6 months

30 years

15 years

30 years

6 years 7 months 6 days

Inventories (Details) (USD $)

Jun. 28, 2014

Sep. 28, 2013

Inventory Disclosure [Abstract]

Inventory valuation reserves

$ 6,900,000

Inventories, net of reserves:

Raw materials

11,740,000

11,917,000

Work in process

17,040,000

15,121,000

Finished goods

136,979,000

138,152,000

Inventories, net

$ 165,759,000

$ 165,190,000

Debt (Narrative) (Details) (USD $)

1 Months Ended

0 Months Ended

9 Months Ended

1 Months Ended

0 Months Ended

Jun. 28, 2014

Sep. 28, 2013

Oct. 31, 2013

Term Loan [Member]

debt_instrument

Aug. 27, 2013

Amended Loan Agreement [Member]

Mar. 24, 2014

Revolving Credit Facility, due May 2016 [Member]

Revolving Credit Facility [Member]

Jun. 28, 2014

Revolving Credit Facility, due May 2016 [Member]

Revolving Credit Facility [Member]

Aug. 27, 2013

Promissory Note, Maturity Date June 30, 2016 [Member]

Promissory Note [Member]

Aug. 27, 2013

Promissory Note, Maturity Date June 30, 2019 [Member]

Promissory Note [Member]

Mar. 31, 2011

Term Loan [Member]

Revolving Credit Facility [Member]

Jun. 28, 2014

Term Loan [Member]

Revolving Credit Facility [Member]

Mar. 31, 2011

Term Loan [Member]

Loans Payable [Member]

Jun. 28, 2014

Term Loan [Member]

Loans Payable [Member]

Oct. 31, 2013

Banco Ficohsa, Loan 1 [Member]

Term Loan [Member]

Jun. 28, 2014

Banco Ficohsa, Loan 1 [Member]

Term Loan [Member]

Oct. 31, 2013

Banco Ficohsa, Loan 2 [Member]

Term Loan [Member]

Jun. 28, 2014

Banco Ficohsa, Loan 2 [Member]

Term Loan [Member]

Aug. 27, 2013

Minimum [Member]

Amended Loan Agreement [Member]

Jun. 28, 2014

Minimum [Member]

Revolving Credit Facility, due May 2016 [Member]

Revolving Credit Facility [Member]

Aug. 27, 2013

Maximum [Member]

Amended Loan Agreement [Member]

Aug. 27, 2013

First In Last Out Tranche B [Member]

Amended Loan Agreement [Member]

Aug. 27, 2013

Salt Life Acquisition [Member]

Promissory Note [Member]

debt_instrument

Jun. 28, 2014

Salt Life Acquisition [Member]

Promissory Note [Member]

Debt Instrument [Line Items]

Extension period

1 year

Increase to borrowing capacity

$ 10,000,000

Increase to borrowing capacity (percent)

5.00%

Maximum borrowing capacity

10,000,000

Average interest rate under outstanding credit facility (percentage)

1.50%

2.00%

Line of credit after increase pursuant to amended loan agreement

145,000,000

Potential maximum credit available under the facility

200,000,000

Outstanding under credit facility

110,000,000

106,200,000

3,700,000

Interest rate during period (percent)

2.60%

Unused borrowing capacity

27,000,000

30,800,000

Amount of availability, percent of borrowing base (percent)

12.50%

Amount of availability, benchmark

145,000,000

Fixed charge coverage ratio, term

12 months

Fixed charge coverage ratio

1.1

Retained earnings free of restrictions

8,600,000

9,900,000

Number of promissory notes issued (debt instruments)

2

Aggregate Principal of promissory notes

1,800,000

4,200,000

22,000,000.0

Amount of one-time installment payment

9,000,000.0

Stated interest rate (percent)

7.00%

0.00%

Imputed interest (percent)

1.92%

3.62%

Discounted value of promissory notes

20,800,000

Long-term debt

$ 3,600,000

$ 1,000,000

$ 3,900,000

Debt instrument, term

18 months

7 years

18 months

7 years

Periodic payment duration

6 months

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

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Selling, General and Administrative Expense [Abstract]

Distribution costs

$ 4.2

$ 4.5

$ 12.6

$ 13.1

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

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Stock Options [Member]

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

Exercises in period (shares)

8,000

82,500

2010 Stock Plan [Member]

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

Aggregate number of shares that may be delivered (shares)

500,000

Allocated share-based compensation expense

$ 400,000

$ 200,000

$ 500,000

$ 600,000

Total compensation cost not yet recognized

700,000

Period for recognition

1 year 2 months 12 days

Option Plan [Member] |
Stock Options [Member]

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

Allocated share-based compensation expense

$ 0

Purchase Contracts (Details) (USD $)

In Thousands, unless otherwise specified

Jun. 28, 2014

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

$ 46,287

Yarn [Member]

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

23,342

Natural Gas [Member]

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

55

Finished Fabric [Member]

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

1,965

Finished Products [Member]

Long-term Purchase Commitment [Line Items]

Outstanding minimum payments

$ 20,925

Business Segments (Details) (USD $)

In Thousands, unless otherwise specified

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

segment

Jun. 29, 2013

Sep. 28, 2013

Segment Reporting Information [Line Items]

Number of business segments

2

Net sales

$ 123,534

$ 133,567

$ 338,004

$ 360,409

Segment operating earnings (loss)

1,592

4,657

1,751

8,066

Segment assets

358,630

311,910

358,630

311,910

351,762

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

Segment operating earnings (loss)

1,592

4,657

1,751

8,066

Unallocated interest expense

1,471

1,019

4,384

2,921

Income (loss) before benefit from income taxes

121

3,638

(2,633)

5,145

Basics [Member]

Segment Reporting Information [Line Items]

Net sales

73,532

78,047

196,244

204,294

Segment operating earnings (loss)

2,159

5,308

5,705

12,604

Segment assets

176,524

161,716

176,524

161,716

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

Segment operating earnings (loss)

2,159

5,308

5,705

12,604

Branded [Member]

Segment Reporting Information [Line Items]

Net sales

50,002

55,520

141,760

156,115

Segment operating earnings (loss)

(567)

(651)

(3,954)

(4,538)

Segment assets

182,106

150,194

182,106

150,194

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

Segment operating earnings (loss)

$ (567)

$ (651)

$ (3,954)

$ (4,538)

Income Taxes (Details)

9 Months Ended

12 Months Ended

3 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Sep. 28, 2013

Sep. 27, 2014

Forecast [Member]

Income Tax Contingency [Line Items]

Effective income tax rate (percent)

92.60%

9.20%

7.30%

93.00%

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

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Accrued Expenses [Member]

Sep. 28, 2013

Accrued Expenses [Member]

Jun. 28, 2014

Deferred Tax Liabilities [Member]

Sep. 28, 2013

Deferred Tax Liabilities [Member]

Jun. 28, 2014

Other Liabilities [Member]

Sep. 28, 2013

Other Liabilities [Member]

Jun. 28, 2014

Accumulated Other Comprehensive Loss [Member]

Sep. 28, 2013

Accumulated Other Comprehensive Loss [Member]

Jun. 28, 2014

Total [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Sep. 28, 2013

Total [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Jun. 28, 2014

Total [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Sep. 28, 2013

Total [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Jun. 28, 2014

Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Sep. 28, 2013

Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Jun. 28, 2014

Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Sep. 28, 2013

Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Jun. 28, 2014

Significant Other Observable Inputs (Level 2) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Sep. 28, 2013

Significant Other Observable Inputs (Level 2) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Jun. 28, 2014

Significant Other Observable Inputs (Level 2) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Sep. 28, 2013

Significant Other Observable Inputs (Level 2) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Jun. 28, 2014

Significant Unobservable Inputs (Level 3) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Sep. 28, 2013

Significant Unobservable Inputs (Level 3) [Member]

Recurring Basis [Member]

Interest Rate Swaps [Member]

Jun. 28, 2014

Significant Unobservable Inputs (Level 3) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Sep. 28, 2013

Significant Unobservable Inputs (Level 3) [Member]

Recurring Basis [Member]

Contingent Consideration Contract [Member]

Jun. 28, 2014

Maturity Date 9/9/2016 [Member]

Jun. 28, 2014

Maturity Date 9/11/2017 [Member]

Jun. 28, 2014

Maturity Date 9/19/2016 [Member]

Jun. 28, 2014

Maturity Date 9/19/2017 [Member]

Jun. 28, 2014

Maturity Date 9/1/2014 [Member]

Interest Rate Derivatives [Abstract]

Notational Amount

$ 15,000,000

$ 10,000,000

Fixed LIBOR Rate

1.17%

1.648%

1.003%

1.449%

1.07%

Fair Value, Assets and Liabilities Measured on Recurring Basis [Abstract]

Financial derivative liabilities, fair value

(765,000)

(906,000)

(3,600,000)

(3,400,000)

0

(765,000)

(906,000)

0

(3,600,000)

(3,400,000)

Derivatives related to interest rate swap agreements

(16,000)

(100,000)

(295,000)

(349,000)

(749,000)

(806,000)

(470,000)

(557,000)

Change in fair value of contingent consideration

75,000

0

200,000

0

Accrued contingent consideration

$ 3,600,000

Legal Proceedings (Details) (USD $)

Jul. 25, 2012

Pending Litigation [Member]

Jun. 28, 2014

California Wage and Hour Litigation [Member]

Jun. 28, 2014

California Wage and Hour Litigation [Member]

Pending Litigation [Member]

Loss Contingencies [Line Items]

Recommended civil penalty

$ 900,000

Minimum estimated loss

15,000

25,000

Maximum estimated loss

$ 975,000

$ 900,000

Repurchase of Common Stock (Details) (USD $)

In Millions, except Share data, unless otherwise specified

0 Months Ended

1 Months Ended

3 Months Ended

9 Months Ended

Jun. 28, 2014

May 31, 2014

May 3, 2014

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Equity [Abstract]

Authorized amount

$ 30.0

Shares repurchased (shares)

66,556

228,354

Shares repurchased, value

1.0

3.3

Aggregated number of shares repurchased (shares)

2,122,246

Aggregated shares repurchased, value

25.3

Dollar Value of Shares that May Yet Be Purchased Under the Plans

4.7

5.5

4.7

Purchases of Common Stock [Abstract]

Total Number of Shares Purchased

0

53,437

13,119

66,556

Average Price Paid per Share (in dollars per share)

$ 0.00

$ 14.99

$ 15.23

$ 15.04

Total Number of Shares Purchased as Part of Publicly Announced Plans

0

53,437

13,119

66,556

Dollar Value of Shares that May Yet Be Purchased Under the Plans

$ 4.7

$ 5.5

$ 4.7

License Agreements (Details) (USD $)

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Commitments and Contingencies [Abstract]

Royalty expense

$ 2,700,000

$ 3,900,000

$ 7,100,000

$ 10,600,000

License Agreements, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]

2014

293,000

2015

2,619,000

2016

2,527,000

2017

100,000

Total due

$ 5,539,000

Goodwill and Intangible Assets (Details) (USD $)

3 Months Ended

9 Months Ended

Jun. 28, 2014

Jun. 29, 2013

Jun. 28, 2014

Jun. 29, 2013

Sep. 28, 2013

Goodwill and Finite-Lived Intangible Assets [Line Items]

Goodwill, Cost

$ 36,729,000

Goodwill, Accumulated Amortization

0

Goodwill, Net Value

36,729,000

Intangibles, Cost

29,357,000

Intangibles, Accumulated Amortization

(5,525,000)

(4,520,000)

Intangibles, Net Value

23,832,000

24,837,000

Amortization of intangible assets

400,000

200,000

1,100,000

500,000

Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]

Amortization expense estimate for 2014

1,400,000

Amortization expense estimate for 2015

1,400,000

Amortization expense estimate for 2016

1,300,000

Amortization expense estimate for 2017

1,300,000

Amortization expense estimate for 2018

1,300,000

Tradename/Trademarks [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, Cost

17,530,000

Intangibles, Accumulated Amortization

(1,129,000)

(672,000)

Intangibles, Net Value

16,401,000

16,858,000

Tradename/Trademarks [Member] |
Minimum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

20 years

Tradename/Trademarks [Member] |
Maximum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

30 years

Customer Relationships [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, Cost

7,220,000

Intangibles, Accumulated Amortization

(3,208,000)

(2,937,000)

Intangibles, Net Value

4,012,000

4,283,000

Intangibles, economic life

20 years

Technology [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, Cost

1,220,000

Intangibles, Accumulated Amortization

(551,000)

(459,000)

Intangibles, Net Value

669,000

761,000

Intangibles, economic life

10 years

License Agreements [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, Cost

2,100,000

Intangibles, Accumulated Amortization

(87,000)

(10,000)

Intangibles, Net Value

2,013,000

2,090,000

License Agreements [Member] |
Minimum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

15 years

License Agreements [Member] |
Maximum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

30 years

Non-compete Agreements [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, Cost

1,287,000

Intangibles, Accumulated Amortization

(550,000)

(442,000)

Intangibles, Net Value

$ 737,000

$ 845,000

Non-compete Agreements [Member] |
Minimum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

4 years

Non-compete Agreements [Member] |
Maximum [Member]

Goodwill and Finite-Lived Intangible Assets [Line Items]

Intangibles, economic life

8 years 6 months