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

(Unaudited)

	*March 2021*			*September 2020*
Assets
Cash and cash equivalents	$	12,551		$	16,458
Accounts receivable, less allowances of $577 and $684, respectively		66,079			60,146
Other receivables		408			854
Income tax receivable		0			983
Inventories, net		148,530			145,515
Prepaid expenses and other current assets		4,351			2,812
Total current assets		231,919			226,768

Property, plant and equipment, net of accumulated depreciation of $96,014 and $92,123, respectively		66,207			63,950
Goodwill		37,897			37,897
Intangibles, net		19,162			19,948
Deferred income taxes		3,226			4,052
Operating lease assets		49,570			54,645
Equity method investment		10,742			10,573
Other assets		2,142			2,398
Total assets	$	420,865		$	420,231

Liabilities and Equity
Liabilities:
Accounts payable	$	44,986		$	49,800
Accrued expenses		18,366			20,174
Income taxes payable		496			379
Current portion of finance leases		7,256			6,956
Current portion of operating leases		8,946			9,039
Current portion of long-term debt		7,536			7,559
Current portion of contingent consideration		2,400			2,120
Total current liabilities		89,986			96,027

Long-term income taxes payable		3,220			3,599
Long-term finance leases, less current maturities		18,552			11,328
Long-term operating leases, less current maturities		42,377			46,570
Long-term debt, less current maturities		114,375			112,782
Long-term contingent consideration		1,910			4,300
Other non-current liabilities		2,470			2,939
Total liabilities	$	272,890		$	277,545

Shareholder's 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 authorized, 9,646,972 shares issued, and 6,974,660 and 6,890,118 shares outstanding as of March 2021 and September 2020, respectively		96			96
Additional paid-in capital		59,842			61,005
Retained earnings		131,845			126,564
Accumulated other comprehensive loss		(998	)		(1,322	)
Treasury stock - 2,672,312 and 2,756,854 shares as of March 2021 and September 2020, respectively		(42,149	)		(43,133	)
Equity attributable to Delta Apparel, Inc.		148,636			143,210
Equity attributable to non-controlling interest		(661	)		(524	)
Total equity		147,975			142,686
Total liabilities and equity	$	420,865		$	420,231

~~(Unaudited)~~

December 30,
2017 September 30,
2017
Assets
Current assets:

  Cash and cash equivalents $ 603
$ 572
  Accounts receivable, less allowances of $1,502 and $1,433, respectively 51,010
47,557
  Income tax receivable 404
352
  Inventories, net 174,505
174,551
  Note receivable 1,031
2,016
  Prepaid expenses and other current assets 3,885
2,646
Total current assets 231,438
227,694

Property, plant and equipment, net of accumulated depreciation of $69,320 and $67,780, respectively 45,449
42,706
  Goodwill 19,917
19,917
  Intangibles, net 15,925
16,151
  Deferred income taxes 2,656
5,002
  Other assets 6,277
6,332
Total assets $ 321,662
$ 317,802

Liabilities and Shareholders’ Equity
Current liabilities:

Accounts payable $ 45,597
$ 47,183
Accrued expenses 13,503
17,704
Current portion of long-term debt 6,600
7,548
Total current liabilities 65,700
72,435

Long-term debt, less current maturities 99,360
85,306
Income tax payable 8,058
—
Other liabilities 4,734
2,574
Contingent consideration 1,300
1,600
Total liabilities $ 179,152
$ 161,915

Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding —
—
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 7,227,374 and 7,300,297 shares outstanding as of December 30, 2017, and September 30, 2017, respectively 96
96
Additional paid-in capital 59,856
61,065
Retained earnings 117,402
127,358
Accumulated other comprehensive income (loss) 51
(35 )
Treasury stock —2,419,598 and 2,346,675 shares as of December 30, 2017, and September 30, 2016, respectively (34,895 ) (32,597 )
Total shareholders’ equity 142,510
155,887
Total liabilities and shareholders' equity $ 321,662
$ 317,802

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended					Six Months Ended
	March 2021		March 2020			March 2021		March 2020

Net sales	$	108,626	$	96,660		$	203,349	$	192,550
Cost of goods sold		83,816		76,079			158,250		152,075
Gross profit		24,810		20,581			45,099		40,475

Selling, general and administrative expenses		17,061		17,850			33,091		35,924
Other loss (income), net		170		(823	)		1,360		(1,640	)
Operating income		7,579		3,554			10,648		6,191

Interest expense, net		1,837		1,808			3,491		3,610
Earnings before provision for income taxes		5,742		1,746			7,157		2,581
Provision for income taxes		1,441		526			2,013		570
Consolidated net earnings		4,301		1,220			5,144		2,011
Net loss attributable to non-controlling interest		97		91			137		223
Net earnings attributable to shareholders	$	4,398	$	1,311		$	5,281	$	2,234

Basic earnings per share	$	0.63	$	0.19		$	0.76	$	0.32
Diluted earnings per share	$	0.62	$	0.19		$	0.75	$	0.32

Weighted average number of shares outstanding		6,975		6,957			6,947		6,953
Dilutive effect of stock awards		130		98			105		110
Weighted average number of shares assuming dilution		7,105		7,055			7,052		7,063

~~(Unaudited)~~

Three Months Ended
December 30,
2017 December 31,
2016
Net sales $ 90,342
$ 85,335
Cost of goods sold 73,972
67,777
Gross profit 16,370
17,558

Selling, general and administrative expenses 14,979
17,311
Change in fair value of contingent consideration (300 ) (100 )
Other income, net (47 ) (122 )
Operating income 1,738
469

Interest expense, net 1,334
1,301
Income (loss) before provision for income taxes 404
(832 )
Provision for (benefit from) income taxes 10,356
(225 )
Net loss $ (9,952 ) $ (607 )

Basic loss per share $ (1.37 ) $ (0.08 )
Diluted loss per share $ (1.37 ) $ (0.08 )

Weighted average number of shares outstanding 7,268
7,598
Dilutive effect of stock options and awards —
—
Weighted average number of shares assuming dilution 7,268
7,598

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive ~~Loss~~

Income

(Amounts in thousands)

(Unaudited)

	Three Months Ended					Six Months Ended
	March 2021		March 2020			March 2021		March 2020

Net earnings attributable to shareholders	$	4,398	$	1,311		$	5,281	$	2,234
Other comprehensive income (loss) related to unrealized gain (loss) on derivatives, net of income tax		199		(595	)		324		(464	)
Consolidated comprehensive income	$	4,597	$	716		$	5,605	$	1,770

~~(Unaudited)~~

Three Months Ended
December 30,
2017 December 31,
2016
Net loss $ (9,952 ) $ (607 )
Other comprehensive income related to unrealized gain on derivatives, net of income tax 85
49
Comprehensive loss $ (9,867 ) $ (558 )

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Cash Flows~~

Shareholders’ Equity

(Amounts in ~~thousands)~~thousands, except share amounts)

(Unaudited)

										*Accumulated*
					*Additional*					*Other*									*Non-*
	*Common Stock*				*Paid-In*			*Retained*		*Comprehensive*			*Treasury Stock*						*Controlling*
	*Shares*		*Amount*		*Capital*			*Earnings*		*Income (Loss)*			*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 2019		9,646,972	$	96	$	59,855		$	136,937	$	(969	)		2,725,555		$	(41,750	)	$	(281	)	$	153,888

Net earnings		-		0		0			923		0			-			0			0			923
Other comprehensive income		-		0		0			0		131			-			0			0			131
Net loss attributable to non-controlling interest		-		0		0			0		0			-			0			(132	)		(132	)
Vested stock awards		0		0		(1,615	)		0		0			(67,406	)		631			0			(984	)
Stock based compensation		-		0		585			0		0			-			0			0			585
Balance as of December 2019		9,646,972		96		58,825			137,860		(838	)		2,658,149			(41,119	)		(413	)		154,411

Net earnings		-		0		0			1,311		0			-			0			0			1,311
Other comprehensive loss		-		0		0			0		(595	)		-			0			0			(595	)
Net loss attributable to non-controlling interest		-		0		0			0		0			-			0			(91	)		(91	)
Vested stock awards		0		0		4			0		0			(1,266	)		15			0			19
Purchase of common stock		0		0		0			0		0			99,971			(2,029	)		0			(2,029	)
Stock based compensation		-		0		611			0		0			-			0			0			611
Balance as of March 2020		9,646,972	$	96	$	59,440		$	139,171	$	(1,433	)		2,756,854		$	(43,133	)	$	(504	)	$	153,637

~~(Unaudited)~~

Three Months Ended
December 30,
2017 December 31,
2016
Operating activities:
Net loss $ (9,952 ) $ (607 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,433
2,415
Amortization of deferred financing fees 76
78
Provision for deferred income taxes 2,346
(194 )
Non-cash stock compensation 437
369
Change in the fair value of contingent consideration (300 ) (100 )
Loss on disposal of equipment —
5
Changes in operating assets and liabilities:
Accounts receivable, net (3,453 ) 15,448
Inventories, net 46
(14,791 )
Prepaid expenses and other assets (1,252 ) (770 )
Other non-current assets 61
—
Accounts payable (1,902 ) 3,063
Accrued expenses (4,290 ) (5,264 )
Income taxes 8,007
(150 )
Other liabilities (71 ) 44
Net cash used in operating activities (7,814 ) (454 )

Investing activities:
Purchases of property and equipment, net (2,162 ) (1,883 )
Proceeds from sale of Junkfood assets 1,000
—
Proceeds from sale of fixed assets 1
—
Net cash used in investing activities (1,161 ) (1,883 )

Financing activities:
Proceeds from long-term debt 119,529
115,707
Repayment of long-term debt (106,424 ) (111,749 )
Repayment of capital financing (257 ) (101 )
Repurchase of common stock (2,897 ) (965 )
Payment of withholding taxes on stock awards (945 ) (542 )
Net cash provided by financing activities 9,006
2,350
Net increase in cash and cash equivalents 31
13
Cash and cash equivalents at beginning of period 572
397
Cash and cash equivalents at end of period $ 603
$ 410

Supplemental cash flow information:
Cash paid during the period for interest $ 1,094
$ 1,209
Cash paid during the period for income taxes $ 19
$ 94
Non-cash financing activity - capital lease agreements $ 3,050
$ 1,619

										*Accumulated*
					*Additional*					*Other*									*Non-*
	*Common Stock*				*Paid-In*			*Retained*		*Comprehensive*			*Treasury Stock*						*Controlling*
	*Shares*		*Amount*		*Capital*			*Earnings*		*Income (Loss)*			*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 2020		9,646,972	$	96	$	61,005		$	126,564	$	(1,322	)		2,756,854		$	(43,133	)	$	(524	)	$	142,686

Net earnings		-		0		0			883		0			-			0			0			883
Other comprehensive income		-		0		0			0		125			-			0			0			125
Net loss attributable to non-controlling interest		-		0		0			0		0			-			0			(40	)		(40	)
Vested stock awards		0		0		(2,117	)		0		0			(84,542	)		984			0			(1,133	)
Stock based compensation		-		0		676			0		0			-			0			0			676
Balance as of December 2020		9,646,972		96		59,564			127,447		(1,197	)		2,672,312			(42,149	)		(564	)		143,197

Net earnings		-		0		0			4,398		0			-			0			0			4,398
Other comprehensive income		-		0		0			0		199			-			0			0			199
Net loss attributable to non-controlling interest		-		0		0			0		0			-			0			(97	)		(97	)
Stock based compensation		-		0		278			0		0			-			0			0			278
Balance as of March 2021		9,646,972	$	96	$	59,842		$	131,845	$	(998	)		2,672,312		$	(42,149	)	$	(661	)	$	147,975

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	*Six Months Ended*
	*March 2021*			*March 2020*
Operating activities:
Consolidated net earnings	$	5,144		$	2,011
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		6,695			6,381
Amortization of deferred financing fees		162			157
Provision for inventory market reserves		533			(687	)
Provision for deferred income taxes		826			0
Non-cash stock compensation		954			1,196
Gain on disposal of equipment		(2	)		(28	)
Other, net		(252	)		(1,555	)
Changes in operating assets and liabilities:
Accounts receivable, net		(5,487	)		1,480
Inventories, net		(3,548	)		(17,539	)
Prepaid expenses and other current assets		(1,539	)		(176	)
Other non-current assets		404			(285	)
Accounts payable		(2,373	)		4,065
Accrued expenses		(1,808	)		(5,640	)
Net operating lease liabilities		470			910
Income taxes		721			(485	)
Other liabilities		(145	)		(7	)
Net cash used provided by (used in) operating activities		755			(10,202	)
Investing activities:
Purchases of property and equipment, net		(1,215	)		(3,886	)
Proceeds from equipment under financed leases		2,312			0
Proceeds from sale of equipment		247			0
Cash paid for business		(1,679	)		(1,660	)
Net cash used in investing activities		(335	)		(5,546	)
Financing activities:
Proceeds from long-term debt		224,729			237,622
Repayment of long-term debt		(221,993	)		(203,622	)
Repayment of capital financing		(3,820	)		(2,714	)
Payment of contingent consideration		(2,110	)		(2,500	)
Payment of deferred financing costs		0			(1,079	)
Repurchase of common stock		0			(2,029	)
Payment of withholding taxes on stock awards		(1,133	)		(967	)
Net cash (used in) provided by financing activities		(4,327	)		24,711
Net (decrease) increase in cash and cash equivalents		(3,907	)		8,963
Cash and cash equivalents at beginning of period		16,458			605
Cash and cash equivalents at end of period	$	12,551		$	9,568

Supplemental cash flow information
Finance lease assets exchanged for finance lease liabilities	$	11,818		$	4,378
Operating lease assets exchanged for operating lease liabilities	$	47		$	4,084

See accompanying Notes to Condensed Consolidated Financial Statements.

Delta Apparel, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A— Description of Business and Basis of Presentation

Delta Apparel, Inc. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and ~~Description~~other subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is a vertically-integrated, international apparel company. With approximately 7,900 employees worldwide, we design, manufacture, source, and market a diverse portfolio of ~~Business~~

core activewear and lifestyle apparel products under our primary brands of Salt Life®, COAST®, Soffe®, and Delta. We are a market leader in the on-demand, digital print and fulfillment industry, bringing DTG2Go's proprietary technology and innovation to the supply chain of our customers. We specialize in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through our business-to-business digital platform. Our products are also made available direct-to-consumer on our ecommerce sites and in our branded retail stores. Our diversified distribution model allows us to capitalize on our strengths to provide our activewear and lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.

We design and internally manufacture the majority of our products. More than 90% of the apparel garments that we sell are sewn in our owned or leased facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador, Honduras, and Mexico, and we use domestic and foreign contractors as additional sources of production. Our distribution facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly replenishments to retailers. We were incorporated in Georgia in 1999, and our headquarters is located in Greenville, South Carolina. Our common stock trades on the NYSE American under the symbol “DLA."

We operate on a 52-53 week fiscal year ending on the Saturday closest to September 30. Our 2021 fiscal year is a 52-week year and will end on October 2, 2021, ("fiscal 2021"). Accordingly, this Form 10-Q presents our second quarter of fiscal 2021. Our 2020 fiscal year was a 53-week year and ended on October 3, 2020, ("fiscal 2020").

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

Period Ended	Fiscal Year	Date Ended
December 2019	Fiscal 2020	December 28, 2019
March 2020	Fiscal 2020	March 28, 2020
June 2020	Fiscal 2020	June 27, 2020
September 2020	Fiscal 2020	October 3, 2020
December 2020	Fiscal 2021	January 3, 2021
March 2021	Fiscal 2021	April 3, 2021
June 2021	Fiscal 2021	July 3, 2021
September 2021	Fiscal 2021	October 2, 2021

We prepared the accompanying interim ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements in accordance with the instructions for Form ~~10-Q~~10-Q and Article 10 of Regulation ~~S-X.~~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-month period~~three-month and six-month periods ended ~~December 30, 2017~~, March 2021 are not necessarily indicative of the results that may be expected for our fiscal ~~year ending September 29, 2018.~~2021. 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~~These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and footnotes included in our Annual Report on Form ~~10-K~~10-K for our fiscal ~~year ended September 30, 2017,~~2020, filed with the United States Securities and Exchange Commission (“SEC”).

~~“Delta Apparel”,~~

Our Condensed Consolidated Financial Statements include the ~~“Company”, “we”, “us” and “our” are used interchangeably to refer to~~accounts of Delta Apparel ~~Inc. together with our domestic~~and its 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 Art Gun, LLC (“Art Gun”), and other international subsidiaries, as appropriate to the context. On March 31, 2017, we sold substantially all of the assets comprising our Junkfood business to JMJD Ventures, LLC. See Note D—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 usemajority-owned domestic and foreign ~~contractors as additional sources~~subsidiaries. We apply the equity method of ~~production.~~accounting for our investment in 31% of the outstanding capital stock of a Honduran company. During the six-months ended March 2021 and March 2020, we received dividends from the investment of $0.3 million and $0.6 million, respectively. Our ~~distribution facilities are strategically located throughout~~Ceiba Textiles manufacturing facility is leased under an operating lease arrangement, with this Honduran company. During the ~~United States~~six-months ended March 2021, we paid approximately $1.3 million under this arrangement, which included repayment of rent deferrals related to ~~better serve our customers~~the June 2020 quarter. Payments of approximately $0.9 million were made during the six-months ended March 2020.

We make available copies of materials we file with, ~~same-day shipping~~or furnish to, the SEC free of charge at https://ir.deltaapparelinc.com. The information found on our ~~catalog products~~website is not part of this, or any other, report that we file with, or furnish to, the SEC. In addition, we will provide upon request, at no cost, paper or electronic copies of our reports and ~~weekly replenishments to retailers.~~

~~We were incorporated in Georgia in 1999 and our headquarters is located at~~ other filings made with the SEC. Requests should be directed to: Investor Relations Department, Delta Apparel, Inc., 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~~29601. Requests can also be made by telephone 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.~~864-232-5200, or via email at investor.relations@deltaapparel.com.

Note B—Accounting Policies

Our accounting policies are consistent with those described in our Significant Accounting Policies in our Annual Report on Form ~~10-K~~10-K for ~~the~~our fiscal ~~year ended September 30, 2017,~~2020, filed with the SEC. See Note C for consideration of recently issued accounting standards.

Note C—New Accounting Standards

Recently Adopted Standards

In ~~July 2015,~~ August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2015-11,~~ 2018-15,Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires customers to apply internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized implementation costs are required to be amortized over the term of the arrangement, beginning when the cloud computing arrangement is ready for its intended use. We adopted ASU 2018-15 prospectively as of the beginning of fiscal 2021, and the provisions did not have a material effect on our financial condition, results of operations, cash flows, or disclosures.

Standards Not Yet Adopted

In December 2019, the FASB issued ASU No.2019-12,Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification ("ASC") 740,Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective as of the beginning of our fiscal year 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We are currently evaluating the impacts of the provisions of ASU 2019-12 on our financial condition, results of operations, cash flows, and disclosures.

In June 2016, the FASB issued ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Inventory~~Credit Losses on Financial Instruments (“ASU 2016-13”), ~~("ASU 2015-11"). This new guidance~~which requires an entity to ~~measure inventory at~~assess impairment of its financial instruments based on the ~~lower~~entity's estimate of ~~cost~~expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and ~~net realizable value. Currently, entities measure inventory at~~clarify the ~~lower~~implementation guidance. These standards have been collectively codified within ASC Topic 326,Credit Losses (“ASC 326”). As a smaller reporting company as defined by the SEC, the provisions of ~~cost or market. ASU 2015-11 replaces market with net realizable value. Net realizable value is~~ASC 326 are effective as of the ~~estimated selling price in the ordinary course~~beginning 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~~2024. We are currently evaluating the impacts of ~~this standard did not have a material impact~~the provisions of ASC 326 on our ~~consolidated~~ financial ~~statements~~condition, results of operations, cash flows, and disclosures.

~~Standards Not Yet Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~

Note D—Revenue Recognition

Our Condensed Consolidated Statements of Operations include revenue streams from ~~Contracts with Customers, ("ASU 2014-09"). This new guidance requires an entity to recognize~~retail sales at our branded retail stores; direct-to-consumer ecommerce sales on our consumer-facing web sites; and sales from wholesale channels, which includes our business-to-business ecommerce and DTG2Go sales. The table below identifies the amount and percentage of ~~revenue to which it expects to be entitled~~net sales by distribution channel (in thousands):

	*Three Months Ended*
	*March 2021*				*March 2020*
Retail	$	2,448	2	%	$	962	1	%
Direct-to-consumer ecommerce		1,475	2	%		1,084	1	%
Wholesale		104,703	96	%		94,614	98	%
Net sales	$	108,626	100	%	$	96,660	100	%

	*Six Months Ended*
	*March 2021*				*March 2020*
Retail	$	4,887	2	%	$	2,195	1	%
Direct-to-consumer ecommerce		3,283	2	%		2,767	2	%
Wholesale		195,179	96	%		187,588	97	%
Net sales	$	203,349	100	%	$	192,550	100	%

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

	*Three Months Ended March 2021*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	94,219		0.3	%		0.2	%		99.5	%
Salt Life Group		14,407		15.1	%		8.8	%		76.1	%
Total	$	108,626

	*Three Months Ended March 2020*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	84,191		0.2	%		0.2	%		99.6	%
Salt Life Group		12,469		6.4	%		7.0	%		86.6	%
Total	$	96,660

	*Six Months Ended March 2021*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	181,843		0.3	%		0.2	%		99.5	%
Salt Life Group		21,506		20.5	%		12.8	%		66.7	%
Total	$	203,349

	*Six Months Ended March 2020*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	173,143		0.3	%		0.2	%		99.5	%
Salt Life Group		19,407		8.9	%		11.9	%		79.2	%
Total	$	192,550

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. Although we have not yet determined our adoption method, 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, 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.

~~Note D—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.

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 as a Gain on sale of business in our 2017 second fiscal quarter as a Gain on sale of business.

Note E—Inventories

Inventories, net of ~~$9.9~~reserves of $15.5 million and ~~$9.8~~$15.0 million, ~~in reserves,~~ as of ~~December 30, 2017,~~ March 2021 and September ~~30, 2017,~~ 2020, respectively, consisted of the following (in thousands):

	*March 2021*		*September 2020*
Raw materials	$	15,089	$	13,571
Work in process		13,787		13,984
Finished goods		119,654		117,960
	$	148,530	$	145,515

Raw materials include finished yarn and direct materials for the Delta Group, undecorated garments for the DTG2Go business, and direct embellishment materials for the Salt Life Group.

December 30,
2017 September 30,
2017
Raw materials $ 8,639
$ 8,973
Work in process 16,179
18,543
Finished goods 149,687
147,035
$ 174,505
$ 174,551

Note F—Debt

Credit Facility

On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement ~~(the~~(as further amended, the “Amended Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, the Sole Lead Arranger and the Sole Book Runner, and the financial institutions named therein as Lenders, which are Wells Fargo, PNC Bank, ~~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 ~~Art Gun,~~DTG2Go, LLC ~~(together with~~(collectively, the ~~Company, the “Companies”~~"Borrowers"), are co-borrowers under the Amended Credit Agreement.

~~On November 27, 2017, Delta Apparel, Soffe, Junkfood, Salt Life, and Art Gun (collectively, the “Borrowers”)~~ The Borrowers entered into ~~a First Amendment~~amendments 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~~ on November 27, 2017, 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 9, 2018, October 8, 2018, November 19, 2019, April 27, 2020, 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 Agreement related to interest rate, borrowing capacity, or maturity.

August 28, 2020.

The Amended Credit Agreement allows us to borrow up to ~~$145~~$170 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 December 30, 2017, there was $90.1 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.3% and additional borrowing availability of $26.6 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 ~~December 30, 2017, because our availability was above the minimum required under the Amended Credit Agreement, and we would have satisfied our financial covenant had we been subject to it.~~ ~~At December 30, 2017, and September 30, 2017, there was $9.0 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.~~ ASC 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~~We classify borrowings under the Amended Credit Agreement as long-term ~~debt.~~

~~In August 2013,~~ debt with consideration of current maturities.

As of March 2021, we had $109.9 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.4%. Our cash on hand combined with the availability under the U.S. credit facility totaled $44.2 million. At March 2021 and September 2020 there was $11.4 million and $8.8 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.

Promissory Note

On October 8, 2018, we acquired ~~Salt Life and~~substantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In conjunction with the acquisition, we issued ~~two~~a promissory ~~notes~~note 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~~$7.0 million. The promissory note bears interest at 6% with quarterly installments ~~commencing on March 31, 2015,~~ which began January 2, 2019, 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~~October 1, 2021. As of ~~the Internal Revenue Code. We imputed interest at 1.92%~~March 2021, there was $1.8 million outstanding 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 December 30, 2017, the discounted value of the promissory note outstanding was $3.9 million.

note.

Honduran Debt

Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and revolving credit facility with Banco Ficohsa, both with five-year terms, and simultaneously settled the prior term loans and revolving credit facility with outstanding balances at the time of settlement of $1.1 million and $9.5 million, respectively. Each of these new loans is secured by a ~~first-priority~~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~~As 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 objective 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 ~~December 30, 2017,~~ March 2021 is as follows (in thousands):

	*March 2021*
Revolving credit facility established December 2020, interest at 7.25%, due August 2025	$	1,000
Term loan established December 2020, interest at 7.5%, quarterly installments beginning September 2021 through December 2025		9,128

December 30,
2017
Revolving credit facility established March 2011, interest at 8.0% due March 2019 $ 4,804
Term loan established March 2011, interest at 7.0%, payable monthly with a seven-year term 243
Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term 1,850
Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term 1,286
Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term 3,817

Note G—Selling, General and Administrative Expense

We include in selling, general and administrative ("SG&A") expenses the costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking, packing, and shipping goods for delivery to our customers. Distribution costs included in SG&A expenses totaled ~~$3.9~~$5.2 million and ~~$3.5~~$4.8 million for the ~~three-month periods~~March 2021 and 2020 quarters, respectively. Distribution costs included in SG&A expenses totaled $10.4 million and $9.7 million for the six-months ended ~~December 30, 2017,~~ March 2021 and ~~December 31, 2016,~~2020, 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.

Note H—Stock-Based Compensation

On February ~~4, 2015,~~ 6, 2020, our shareholders ~~re-approved~~approved the Delta Apparel, Inc. ~~2010~~2020 Stock Plan ~~("2010~~("2020 Stock Plan") ~~that~~to replace the 2010 Stock Plan, which was ~~originally approved~~previously re-approved by our shareholders on ~~November 11, 2010.~~ ~~Since November 2010, no additional awards have been or will be granted under either~~February 4, 2015 and was scheduled to expire by its terms on September 14, 2020. The 2020 Stock Plan is substantially similar in both form and substance to the ~~Delta Apparel~~2010 Stock ~~Option~~Plan. The purpose of the 2020 Stock Plan ~~("Option Plan") or the Delta Apparel Incentive Stock Award Plan ("Award Plan") and, instead, all stock awards have been and will~~is to continue to ~~be granted under~~give our Board of Directors and its Compensation Committee the ~~2010 Stock Plan.~~

~~We account for these plans pursuant~~ability to ~~ASC 718, SAB 107, SAB 110,~~offer a variety of compensatory awards designed to enhance the Company’s long-term success by encouraging stock ownership among its executives, key employees and ~~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 December 30, 2017, and December 31, 2016, we recognized $0.5 million and $0.6 million, respectively, in stock-based compensation expense.

~~2010 Stock Plan~~

directors. Under the ~~2010~~2020 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted, and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, stock performance units, and other stock and cash awards. Unvested awards, while employed by the Company or servings as a director, become fully vested under certain circumstances as defined in the 2020 Stock Plan. Such circumstances include, but are not limited to, the participant’s death or becoming disabled. The ~~aggregate number~~Compensation Committee is authorized to establish the terms and conditions of ~~shares of common stock that may be delivered~~awards granted under the ~~2010~~2020 Stock Plan, ~~is 500,000 plus~~to establish, amend and rescind any ~~shares of common stock subject~~rules and regulations relating to ~~outstanding awards under~~ the ~~Option~~2020 Stock Plan, ~~or Award~~and to make any other determinations that it deems necessary. Similar to the 2010 Stock Plan, ~~that are subsequently forfeited or terminated for any reason before being exercised. The 2010~~the 2020 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and performance stock granted in a given calendar year. ~~If a participant dies or becomes disabled (as defined in~~Shares are generally issued from treasury stock upon the ~~2010 Stock Plan) while employed by~~vesting of 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 December 30, 2017,~~ restricted stock units, ~~and~~ performance units or other awards under the 2020 Stock Plan.

Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the March 2021 and 2020 quarters, we recognized $0.6 million and $0.5 million in stock-based compensation expense, respectively. Associated with the compensation cost are income tax benefits recognized of $0.1 million for each of the three-month periods ended March 2021 and March 2020. During the six-months ended March 2021 and March 2020, we recognized $1.5 million and $1.4 million, respectively, in stock-based compensation expense. Associated with the compensation cost are income tax benefits recognized of $0.4 million and $0.5 million for the six-months periods ended March 2021 and March 2020, respectively.

During the December 2020 quarter, performance stock units and restricted stock units representing ~~54,602~~42,000 and ~~92,068~~74,000 shares of our common stock, respectively, vested ~~upon~~with the filing of our Annual Report on Form ~~10-K~~10-K for ~~the~~ fiscal ~~year ended September 30, 2017,~~2020, and were issued in accordance with their respective agreements. ~~One-half of the restricted stock units~~All vested awards were ~~payable~~paid in common ~~stock and one-half were payable in cash. Of the performance units, 72,138 were payable in common stock and 19,930 were payable in cash.~~

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 issued and are eligible to vest upon the filing of our Annual Report on Form 10-K for the fiscal year ended 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 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 are payable one-half in common stock and one-half in cash.

stock.

As of ~~December 30, 2017,~~ March 2021, there was ~~$4.1~~$2.3 million of total unrecognized compensation cost related to unvested awards granted under the ~~2010~~2020 Stock Plan. This cost is expected to be recognized over a period of 31.6 years.

~~Option Plan~~

~~All options granted under the Option Plan vested prior to October 3, 2015. As such,~~ no ~~expense was recognized during each of the three-month periods ended December 30, 2017, and December 31, 2016. No options were exercised during the three-month period ended December 30, 2017.~~

Note I—Purchase Contracts

We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At ~~December 30, 2017,~~ March 2021, minimum payments under these contracts were as follows (in thousands):

Yarn	$	47,417
Finished fabric		3,687
Finished products		14,819
	$	65,923

Yarn $ 3,252
Finished fabric 2,271
Finished products 21,995
$ 27,518

Note J—Business Segments

~~We operate~~

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

chief operating decision maker.

The ~~basics segment~~Delta Group is comprised of our business units primarily focused on ~~garment~~core activewear styles, ~~characterized by low fashion risk,~~ and includes our DTG2Go,Delta Activewear, ~~(which includes Delta Catalog~~ and ~~FunTees) and Art Gun~~Soffe business units. We are a market ~~distribute~~leader in the on-demand, digital print and ~~manufacture unembellished knit~~fulfillment industry, bringing DTG2Go's proprietary technology and innovation to the supply chain of our customers. Delta Activewear is a preferred supplier of activewear apparel to regional and global brands, direct to retail and through wholesale markets. We offer a broad range of apparel and accessories through our catalog business under the ~~main~~Delta and Soffe brands, as well as other brands that we distribute utilizing our digital platform and network of ~~Delta Platinum™, Delta Dri®, Delta Magnum Weight®, and Delta Pro Weight® for sale~~fulfillment centers. In addition to ~~a diversified audience ranging~~our catalog business, we serve our customers as their supply chain partner, from ~~large licensed screen printers~~product development to ~~small independent businesses. We also manufacture private label~~shipment of their branded products, ~~for major branded sportswear companies, trendy regional brands, retailers, and sports-licensed apparel marketers. Typically our private label~~with the majority of products ~~are~~being sold with value-added services ~~such as~~including embellishment, hangtags, ~~ticketing, hangers,~~ and ~~embellishment~~ticketing, so that

they are ~~fully~~ ready for ~~retail. Using digital print equipment and proprietary technology, Art Gun embellishes garments~~retail sale 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.~~

end consumers.

The ~~branded segment~~Salt Life Group is comprised of our ~~business units~~lifestyle brands focused on ~~specialized~~a broad range of 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, outdoor retailers and 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"~~branded 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 and special charges ("segment operating earnings"). Our segment operating earnings may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form ~~10-K~~10-K for ~~the~~ fiscal ~~year ended September 30, 2017,~~2020, filed with the SEC.

Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).

Three Months Ended
December 30, 2017 December 31, 2016
Segment net sales:
Basics $ 73,176
$ 60,838
Branded 17,166
24,497
Total net sales $ 90,342
$ 85,335

Segment operating income (loss):
Basics $ 4,189
$ 4,684
Branded 458
(1,000 )
Total segment operating income $ 4,647
$ 3,684

	*Three Months Ended*				*Six Months Ended*
	*March 2021*		*March 2020*		*March 2021*		*March 2020*
Segment net sales:
Delta Group	$	94,219	$	84,191	$	181,843	$	173,143
Salt Life Group		14,407		12,469		21,506		19,407
Total net sales	$	108,626	$	96,660	$	203,349	$	192,550

Segment operating earnings:
Delta Group (1)	$	8,247	$	5,066	$	14,522	$	12,334
Salt Life Group		1,946		1,473		1,811		804
Total segment operating earnings	$	10,193	$	6,539	$	16,333	$	13,138

⁽¹⁾In fiscal 2021, the Delta Group operating earnings included $1.3 million of expense, reported within "Other loss (income), net", related to two catastrophic hurricanes that disrupted operations during the December 2020 quarter. In the March 2020 quarter, the Delta Group operating earnings included $1.9 million of cost of goods sold expense associated with government-mandated plant curtailments.

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

	*Three Months Ended*				*Six Months Ended*
	*March 2021*		*March 2020*		*March 2021*		*March 2020*
Segment operating earnings	$	10,193	$	6,539	$	16,333	$	13,138
Unallocated corporate expenses		2,614		2,985		5,685		6,947
Unallocated interest expense		1,837		1,808		3,491		3,610
Consolidated earnings before provision for income taxes	$	5,742	$	1,746	$	7,157	$	2,581

Three Months Ended
December 30, 2017 December 31, 2016
Segment operating income $ 4,647
$ 3,684
Unallocated corporate expenses 2,909
3,215
Unallocated interest expense 1,334
1,301
Consolidated income (loss) before provision for (benefit from) income taxes $ 404
$ (832 )

~~Table of Contents~~

Note K—Income Taxes

~~On December 22, 2017, the~~

The Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was ~~enacted. The New Tax Legislation~~enacted on December 22, 2017, which significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax ("transition tax") on deemed repatriated cumulative earnings of foreign ~~subsidiaries. During~~subsidiaries which will be paid over eight years. In addition, new taxes were imposed related to foreign income, including a tax on global intangible low-taxed income (“GILTI”) as well as a limitation on the ~~three-month period ended December 30, 2017, we recognized provisional amounts totaling $10.6 million~~deduction for business interest expense (“Section 163(j)"). GILTI is the excess of ~~tax expense.~~the shareholder’s net controlled foreign corporations ("CFC") net tested income over the net deemed tangible income. GILTI income is eligible for a deduction of up to 50% of the income inclusion, but the deduction is limited to the amount of U.S. adjusted taxable income. The Section 163(j) limitation does not allow the amount of deductible interest to exceed the sum of the taxpayer's business interest income and 30% of the taxpayer’s adjusted taxable income. We have ~~made reasonable estimates~~included in our calculation of our effective tax rate the ~~effects~~estimated impact of GILTI and Section 163(j). We have elected to account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our ~~existing deferred~~foreign subsidiaries.

The Coronavirus Aid, Relief, and Economic Security (“CARES Act”), which was enacted on March 27, 2020, provided temporary changes to income and non-income-based tax balances and the one-time transition tax; however, these 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 oflaws, including some provisions which were previously enacted under the New Tax Legislation. ~~Excluding~~The CARES Act revised the ~~effect~~U.S. corporate income tax code on a temporary basis by, among other things, eliminating the 80% of ~~this discrete item,~~taxable income limitation on net operating loss (“NOL”) carryforwards, allowing NOL carrybacks, and increasing the Section 163(j) interest limitation deduction from 30% to 50% of adjusted taxable income. We have included the estimated impact of these provisions in our effective tax rate calculation.

Our effective income tax rate on operations for the ~~three-month period~~six-months ended ~~December 30, 2017,~~ March 2021 was ~~(46.4%). This tax benefit relates~~27.6% compared to ~~stock option excess benefits as~~ a ~~result from our adoption of ASU 2016-09. This compares to an effective income tax~~ rate of ~~27.0% for~~20.3% in the same period inof the prior year, and ~~5.9%~~an effective rate of 23.6% for ~~the~~ fiscal ~~year ended September 30, 2017.~~

2020.We generally benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in the United States. ~~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%-13%. The change in the federal statutory rate from 34% to 21% as a result of the New Tax Legislation is effective at the beginning of our fiscal year. 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 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 US 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 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.

Note L—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. As of March 2021, all of our other comprehensive income was attributable to shareholders; none related to the non-controlling interest. Outstanding instruments as of ~~December 30, 2017,~~ March 2021 are as follows:


		*Notional*
	*Effective Date*	~~Notational~~ *Amount*		*Fixed LIBOR Rate*		*Maturity Date*
Interest Rate Swap	July 19, 2017	$1010.0 million	~~1.74%~~		~~July 19, 2019~~
~~Interest Rate Swap~~	~~July 19, 2017~~	~~$10 million~~	1.99%		May 10, 2021
Interest Rate Swap	July 25, 2018	$20.0 million		3.18%		July 25, 2023

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 2021 and September 2020 (in thousands):

	March 2021			September 2020
Deferred tax assets	$	335		$	442
Accrued expenses		(19)			(108	)
Other non-current liabilities		(1,314	)		(1,656	)
Accumulated other comprehensive loss	$	(998	)	$	(1,322	)

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.~~ No such cotton contracts were outstanding at March 2021 and September 2020.

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


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


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


◦
	○	Level 3 – Unobservable inputs that are supported by little ornomarket activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

The following financial ~~assets (liabilities)~~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
December 30, 2017 $ 83
—
$ 83
—
September 30, 2017 (56 ) —
(56 ) —

Cotton Options

December 30, 2017 $ (1 ) $ (1 ) —
—
September 30, 2017 (125 ) (125 ) —
—

Contingent Consideration
December 30, 2017 $ (1,300 ) —
—
$ (1,300 )
September 30, 2017 (1,600 ) —
—
(1,600 )

	*Fair Value Measurements Using*
				*Quoted Prices in*		*Significant Other*			*Significant*
				*Active Markets for*		*Observable*			*Unobservable*
				*Identical Assets*		*Inputs*			*Inputs*
Period Ended	*Total*			*(Level 1)*		*(Level 2)*			*(Level 3)*
Interest Rate Swaps
March 2021	$	(1,333	)		0	$	(1,333	)		0
September 2020	$	(1,764	)		0	$	(1,764	)		0

Contingent Consideration
March 2021	$	(4,310	)		0		0		$	(4,310	)
September 2020	$	(6,420	)		0		0		$	(6,420	)

The fair value of the interest rate swap agreements was derived from a 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 ~~December 31, 2017,~~March 2021 and September 2020, 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~~DTG2Go acquisition purchase price consisted of additional payments contingent on the ~~fair value and presentation in the~~ ~~Condensed Consolidated Balance Sheets~~ ~~for derivatives~~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 ~~interest swap agreements as~~fiscal years 2019,2020,2021 and 2022. The valuation of ~~December 30, 2017, and September 30, 2017 (in thousands):~~

December 30,
2017 September 30,
2017
Other assets $ 83
$ —
Deferred tax assets —
21
Accrued expenses —
(56 )
Deferred tax liabilities (32 ) —
Accumulated other comprehensive income (loss) $ 51
$ (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 December 30, 2017, we had $1.3 million accrued in contingent consideration related to the Salt Life acquisition, a $0.3 million reduction from the accrual at September 30, 2017. The reduction in the fair value of contingent consideration is based ~~on the~~upon inputs into the Monte Carlo model, including projected results, which then are discounted to a present value to derive the ~~time remaining~~fair value. The fair value of the contingent consideration is sensitive to changes in our projected results and discount rates. As of March 2021, we estimate the ~~measurement period. The sales expectations for calendar year 2019 have been reduced from the sales expectations used in the valuation~~fair value of contingent consideration ~~at acquisition~~ to be $4.3 million, a $2.1 million decrease from September 2020 due to ~~our current view of~~ the ~~retail environment. Our expectations are consistent with those at September 30, 2017.~~payment made during the December 2020 quarter for the fiscal 2020 contingent consideration period.

Note M—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~~

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

Note N—Repurchase of Common Stock

As of ~~December 30, 2017,~~ September 28, 2019, our Board of Directors authorized management to use up to ~~$50.0~~$60.0 million to repurchase stock in open market transactions under our Stock Repurchase Program.

~~During the December quarter of fiscal year 2018, we purchased 145,124~~

No shares of our common stock ~~for a total cost of $3.0 million.~~were repurchased in the March 2021 quarter. Through ~~December 30, 2017,~~ March 2021, we have purchased ~~3,038,611~~3,598,933 shares of our common stock for an aggregate of ~~$41.7~~$52.5 million ~~since the inception of~~under our Stock Repurchase ~~Program.~~Program since its inception. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule ~~10b-18.~~10b-18. As of ~~December 30, 2017, $8.3~~March 2021, $7.5 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 December 30, 2017:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Dollar Value of Shares that May Yet Be Purchased Under the Plans
October 1, 2017 to November 4, 2017 29,081
$21.04 29,081

$10.7 million
November 5, 2017 to December 2, 2017 46,444
20.67 46,444
9.7 million
December 3, 2017 to December 30, 2017 69,599
20.56 69,599
8.3 million
Total 145,124
$20.69 145,124

$8.3 million

Note O—Goodwill and Intangible Assets

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

December 30, 2017 September 30, 2017
Cost Accumulated Amortization Net Value Cost Accumulated Amortization Net Value Economic Life

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

Intangibles:
Tradename/trademarks $ 16,090
$ (2,329 ) $ 13,761
$ 16,090
$ (2,193 ) $ 13,897
20 – 30 yrs
Technology 1,220
(978 ) 242
1,220
(947 ) 273
10 yrs
License agreements 2,100
(449 ) 1,651
2,100
(423 ) 1,677
15 – 30 yrs
Non-compete agreements 1,037
(766 ) 271
1,037
(733 ) 304
4 – 8.5 yrs
Total intangibles $ 20,447
$ (4,522 ) $ 15,925
$ 20,447
$ (4,296 ) $ 16,151

	March 2021							September 2020
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

Goodwill	$	37,897	$	—		$	37,897	$	37,897	$	—		$	37,897	N/A

Intangibles:
Tradename/trademarks	$	16,090	$	(4,091	)	$	11,999	$	16,090	$	(3,820	)	$	12,270	20 – 30 yrs
Customer relationships		7,400		(2,103	)		5,297		7,400		(1,733	)		5,667	20 yrs
Technology		1,720		(1,411	)		309		1,720		(1,380	)		340	10 yrs
License agreements		2,100		(785	)		1,315		2,100		(733	)		1,367	15 – 30 yrs
Non-compete agreements		1,657		(1,415	)		242		1,657		(1,353	)		304	4 – 8.5 yrs
Total intangibles	$	28,967	$	(9,805	)	$	19,162	$	28,967	$	(9,019	)	$	19,948

Goodwill represents the acquired goodwill net of the cumulative impairment losses recorded in fiscal year 2011 of $0.6 million. ~~The~~As of March 2021, the Delta Group segment assets include $18.0 million of goodwill, and the Salt Life segment assets include $19.9 million.

Depending on the type of intangible asset, amortization is recorded ~~on our financial statements is included in the branded segment.~~

under cost of goods sold or selling, general and administrative expenses. Amortization expense for intangible assets was ~~$0.2~~$0.4 million during both the March 2021 and March 2020 quarters. Amortization for the ~~three-month period~~six-months ended ~~December 30, 2017,~~ March 2021 and ~~$0.3~~March 2020 was $0.8 million ~~for the three-month period ended December 31, 2016.~~and $0.9 million, respectively. Amortization expense is estimated to be approximately ~~$0.9~~$1.6 million for each of fiscal years ~~2018~~2021 and ~~2019, approximately $0.7~~2022, $1.5 million for fiscal year ~~2020,~~2023, and ~~approximately $0.6~~$1.4 million for each of fiscal years ~~2021~~2024 and ~~2022.~~2025.

Note P—Subsequent Events

None.

~~None~~

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

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the SEC, in our press releases, and in other reports to our shareholders. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. The words “plan”, “estimate”, “project”, “forecast”, “outlook”, “anticipate”, “expect”, “intend”, ~~“seek’~~“remain”, “seek", “believe”, “may”, “should” and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are subject to a number of business risks and inherent uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following:

~~the volatility and uncertainty of cotton and other raw material prices;~~

~~the general U.S. and international economic conditions;~~

~~the competitive conditions in the apparel industry;~~

~~restrictions on our ability to borrow capital or service our indebtedness;~~

~~deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers;~~

~~our ability to predict or react to changing consumer preferences or trends;~~

~~our ability to successfully open and operate new retail stores in a timely and cost-effective manner;~~

~~pricing pressures and the implementation of cost reduction strategies;~~

~~changes in economic, political or social stability at our offshore locations;~~

~~disruptions at our manufacturing and other facilities;~~

~~our ability to attract and retain key management;~~

~~the effect of unseasonable or significant weather conditions on purchases of our products;~~

~~significant changes in our effective tax rate;~~

~~interest rate fluctuations increasing our obligations under our variable rate indebtedness;~~

~~the ability to raise additional capital;~~

~~the ability to grow, achieve synergies and realize the expected profitability of acquisitions;~~

~~the volatility and uncertainty of energy and fuel prices;~~

~~material disruptions in our information systems related to our business operations;~~

~~data security or privacy breaches;~~

~~significant interruptions within our manufacturing or distribution operations;~~

~~changes in or our ability to comply with safety, health and environmental regulations;~~

~~significant litigation in either domestic or international jurisdictions:~~

~~the ability to protect our trademarks and other intellectual property;~~

~~the ability to obtain and renew our significant license agreements;~~

~~the impairment of acquired intangible assets;~~

~~changes in ecommerce laws and regulations;~~

~~changes in international trade regulations;~~

~~our ability to comply with trade regulations;~~

~~changes in employment laws or regulations or our relationship with employees;~~

~~cost increases and reduction in future profitability due to the effects of healthcare legislation;~~

~~foreign currency exchange rate fluctuations;~~

~~violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;~~

~~the illiquidity of our shares;~~

~~price volatility in our shares and the general volatility of the stock market; and~~

~~the costs required to comply with the regulatory landscape regarding public company governance and disclosure.~~

	●	the general U.S. and international economic conditions;
	●	the COVID-19 pandemic impact on our operations, financial condition, liquidity, and capital investments;

●

significant interruptions or disruptions within our manufacturing, distribution or other operations;

●

deterioration in the financial condition of our customers and suppliers and changes in the operations and strategies of our customers and suppliers;

●

the volatility and uncertainty of cotton and other raw material prices and availability;

●

the competitive conditions in the apparel industry;

●

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

●

our ability to successfully open and operate new retail stores in a timely and cost-effective manner;

●

the ability to grow, achieve synergies and realize the expected profitability of acquisitions;

●

changes in economic, political or social stability at our offshore locations;

●

our ability to attract and retain key management;

●

the volatility and uncertainty of energy, fuel and related costs;

●

material disruptions in our information systems related to our business operations;

●

compromises of our data security;

●

significant changes in our effective tax rate;

●

significant litigation in either domestic or international jurisdictions;

●

recalls, claims and negative publicity associated with product liability issues;

●

the ability to protect our trademarks and other intellectual property;

●

changes in international trade regulations;

●

our ability to comply with trade regulations;

●

changes in employment laws or regulations or our relationship with employees;

●

negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;

●

restrictions on our ability to borrow capital or service our indebtedness;

●

interest rate fluctuations increasing our obligations under our variable rate indebtedness;

●

the ability to raise additional capital;

●

the impairment of acquired intangible assets;

●

foreign currency exchange rate fluctuations;

●

the illiquidity of our shares; and

●

price volatility in our shares and the general volatility of the stock market.

A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations is ~~described~~set forth in Part 1 under the subheading "Risk Factors" in our Annual Report on Form 10-K for ~~our~~ fiscal ~~year ended September 30, 2017,~~2020, filed with the SEC. Any forward-looking statements in this Quarterly Report on Form 10-Q do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake to publicly update or revise the forward-looking statements, except as required by the federal securities laws.

Business Outlook

Our strong March 2021 quarter results reflect continued momentum in our business as we execute our bold growth strategies for fiscal 2021 and beyond. Through a combination of strong order demand and outstanding manufacturing and operational execution at all levels, we realized year-over-year sales growth of 12%, with double-digit growth in both the Delta Group and Salt Life Group segments. The sales growth, coupled with margin expansion and controlled spending, generated operating income of $7.6 million, which is more than double the $3.6 million in the prior year, and diluted earnings of $0.62 per share, which is more than triple the $0.19 per share in the prior year.

Our market-leading digital print business, DTG2Go, saw a slower start to the quarter but gained momentum as the quarter progressed, with double-digit unit growth in the March period and a resurgence of orders that have continued into April and May 2021. During the quarter, we continued to attract new customers and expand business with existing customers. In the second quarter, 20% of our orders came from new customers. Notably, the traditional retail channel more than tripled the units shipped compared to prior year. We believe that our ~~strong first quarter results, including double-digit sales growth across all of~~"On-Demand DC" solution can offer a compelling value proposition to brick-and-mortar retailers and brands alike, providing them with immediate access to our businesses and pre-tax profitability in what is seasonally our most challenging period, provide solid momentum as we move further into our fiscal year 2018. That momentum, coupled with our recent efforts to rationalize our business, should have us well-positioned to take advantage of opportunities wherever and whenever they may arise.

~~Art Gun’s customer service focus and execution during~~nine fulfillment centers strategically located throughout the ~~quarter facilitated both a return to its traditional high-growth trajectory~~country, as well as ~~record sales~~benefiting from having a fulfillment center right in their distribution facility. The platform provides our on-demand partners’ consumers limitless merchandise selection, personalization options, and ~~profitability. Its new production facility, which fully integrates~~seamless fulfillment across a broader supply chain with ~~our Activewear business’s vertical manufacturing platform, should serve~~no excess inventory risk. We continue to see this channel of distribution as a ~~valuable differentiator~~significant future growth opportunity for ~~Art Gun~~DTG2Go and believe the level service, speed, and economic benefits offered to the supply chain are unparalleled. Our customers also continue to realize the benefits of the seamless supply chain of Delta Apparel garments within our on-demand model, with DTG2Go’s usage of Delta Catalog blanks reaching a new record high of approximately 50% utilization in the March 2021 quarter compared to 30% utilization in the prior year quarter. This trend is promising as it creates a more efficient operation, reduces garment costs for our customers, and lowers working capital needs in the business.

We recently announced a strategic partnership with Dallas-based Autoscale.ai to integrate its technology that automates the product design, marketplace listings and advertising management for online retail with DTG2Go's market-leading digital ~~print~~production capabilities. The strategic alliance between DTG2Go and ~~fulfillment marketplace.~~Autoscale.ai brings the two technology-minded businesses together to provide a seamless solution to customers – from design to fulfillment. Autoscale.ai enables one single design to be instantaneously transformed into hundreds of variations for broader consumer appeal. The patent-pending software then automatically optimizes the product descriptions and lists those products virtually across multiple online marketplaces. Utilizing data-driven analytics and advanced automation built into the software, customers can easily focus designs on consumer preferences and more efficiently utilize advertising to boost sales. We believe that combining DTG2Go’s on-demand supply chain with Autoscale’s design automation technology will further revolutionize the ~~flexibility provided~~on-demand apparel retail marketplace.

We continue to see a steep recovery in our Delta Activewear business with double-digit year-over-year sales growth in our March quarter, overcoming the challenges caused by inventory constraints. We achieved year-over-year growth of 40% in our FunTees business with more shipments to brands and retailers alike. The diversification of our customer base is serving us well, and we are encouraged by the new ~~facility, along with capacity expansions~~programs we have secured and ~~new business~~future opportunities ~~will enable Art Gun to continue to gain market share and further increase profitability as~~we see in the ~~year unfolds.~~

direct-to-retail channel. We are ~~highly encouraged by the double-digit sales growth seen on both sides of our Activewear business during the quarter. The improving conditions~~also seeing strength in the retail licensing channel ~~are a welcome contrast to last year's customer de-stocking activity. We expect~~as well as our recently launched e-retailer channel. Although we remain inventory constrained in the ~~market penetration of Catalog's higher-margin Delta Platinum line and other fashion basics products to continue at its rapid pace as the year progresses. Moreover,~~near term, we are ~~optimistic~~working diligently to serve our customers’ needs and ultimately rebuild our inventory levels for future opportunities.

Demand for the Salt Life brand remained strong during the March quarter, resulting in double-digit growth compared to prior year. Consumers sought out the Salt Life brand through direct-to-consumer channels, which more than doubled in the quarter year-over-year. Branded retail store sales grew over 175% year-over-year, driven by strong performance at our recently opened branded retail stores in Destin, Estero, and Palm Beach Gardens, Florida, as well as over 25% same-store-sales growth. Salt Life enthusiasts actively engaged with the brand through all our online channels during the quarter, resulting in over 10% more followers on social media. We also added over 75% more email subscribers during the March 2021 quarter than we added in the March 2020 quarter, which is encouraging considering that approximately one quarter of all web sales in the ~~successes~~March quarter were generated from our ~~FunTees business has achieved~~email marketing channel. These dynamics led to over 40% growth of ecommerce sales year-over-year in ~~diversifying its customer base and leveraging its design and manufacturing sophistication will continue.~~

~~Sales in~~the March 2021 quarter. As we prepare for the forthcoming vacation seasons, we see growth opportunities with our Salt Life ~~business accelerated during the quarter through product expansions and additional doors. Sales on the www.saltlife.com~~consumer ecommerce site, ~~continue~~opening additional retail doors in select markets, and continuing to ~~grow significantly~~partner with our wholesale customers to expand the floor space and enhance the Salt ~~Life's new~~Life experience within their doors.

Results of Operations

Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis and, in certain limited instances, we have presented our financial results on a GAAP and non-GAAP (“adjusted”) basis, which is further described in the sections entitled “Non-GAAP Financial Measures.”

Net sales for the March quarter were $108.6 million, a 12% increase compared to sales of $96.7 million in the prior year. For the first six months of 2021, net sales were $203.3 million compared to $192.6 million in the prior year. Our direct-to-consumer sales channels, comprised of consumer-facing ecommerce sites and our branded retail ~~store~~stores, increased 92% in ~~Daytona Beach, Florida, is performing extremely well. The brand is expanding geographically~~the current quarter compared to the prior year quarter. Retail and total ecommerce sales represented 9% of total revenues for the second quarters of both ~~through its own direct-to-consumer strategies~~years as well as ~~additional doors with new retail accounts, giving Salt Life strong momentum heading into~~ the ~~latter half~~first six months of both years.

Net sales in the ~~fiscal year.~~

~~Soffe’s strong sales growth over~~Delta Group segment grew 12% to $94.2 million compared to $84.2 million in the prior year ~~quarter~~driven by broad-based demand for activewear apparel, particularly in our direct-to-retail and brand-direct sales channels, with ~~successes~~over 40% growth from prior year. The softness in DTG2Go in the ~~military and strategic sporting goods channels provides good velocity in that business moving forward. Soffe’s~~beginning of the quarter turned positive as the quarter progressed, with double-digit unit growth was augmented by significant gross margin expansion and profitability improvement during the quarter. Soffe has many ongoing initiatives to continue its growth and further bolster its top and bottom-line performance in the ~~coming quarters. In addition, Soffe's latest branded retail location, recently opened in Jacksonville, North Carolina,~~

~~should resonate well with military consumers in that market and serve as another valuable consumer touch-point in its omni-channel strategy.~~

The increases in demand for apparel during the quarter and the successes we are seeing from our sales and marketing efforts, operational improvements and cost-control initiatives are very encouraging. While we expect the markets to generally remain challenging, particularly for traditional retailers, we are pleased with what we are seeing across our businesses as we move through the year.

~~Results~~month of ~~Operations~~

March. Net sales for the first six months of 2021 were $181.8 million, a 5% improvement over the prior year.

The Salt Life Group segment second quarter ~~of fiscal year 2018 were $90.3~~revenue grew 16% to $14.4 million compared to ~~$85.3~~$12.5 million in the prior year period. ~~After adjusting for~~The segment’s growth was driven by over 175% increase in branded retail store sales and over 40% growth in consumer facing ecommerce sites. For the ~~$9.4~~first six months of 2021, net sales were $21.5 million, ~~of sales~~up over $2.0 million from ~~the since-divested Junkfood business in~~ the prior year ~~quarter, first quarter~~net sales ~~grew 19% year-over-year. Each business unit achieved double-digit sales growth over~~of $19.4 million.

Gross margins improved 150 basis points from the prior year ~~quarter.~~

~~Our direct-to-consumer retail and ecommerce sales represented 7.1%~~second quarter to 22.8% of ~~total revenues for~~sales. For the first ~~quarter~~six months of ~~2018. Overall growth in our direct-to-consumer retail and ecommerce sales for the quarter was only 1.1%, as~~fiscal year 2021, gross margins grew 120 basis points from the prior year sales included ecommerce and retail sales of the since-divested Junkfood business. Excluding these sales from the since-divested Junkfood business in the prior year quarter, sales growth in our direct-to-consumer retail and ecommerce channels was 9.7% year-over-year driven from increased sales on our Salt Life, Soffe, and Coast consumer ecommerce sites and in our new retail stores.

~~Gross margins were 18.1% for the first quarter compared with 20.6% in the prior year period. Basics~~to 22.2%.

The Delta Group segment gross margins ~~declined 270~~expanded 170 basis points from the prior year quarter ~~primarily~~to 19.5% driven by a favorable product mix, increased selling prices, and manufacturing efficiencies and process improvements. In the prior year March quarter, the segment incurred approximately $1.9 million of plant curtailment costs from ~~higher cost raw materials partially offset by the benefits of the manufacturing realignment. Branded segment margins~~government-mandated closures in El Salvador and Honduras. Margins for the ~~quarter~~first six months improved by 110 basis points to ~~37.2%~~19.3% of sales.

The Salt Life Group segment gross margins were 44.7% of sales compared to ~~31.1%~~44.8% in the prior year ~~period.~~

from a favorable mix of direct-to-consumer sales partially offset by higher tariff expenses. For the first six months of fiscal year 2021, gross margins grew by 30 basis points to 46.5% of sales due to a stronger mix of direct-to-consumer sales.

Selling, general, and administrative expenses ("SG&A") were ~~$15.0~~$17.1 million, or ~~16.6%~~15.7% of sales, compared to $17.9 million, 18.5% of sales, in the prior year. The improved results are from spending and cost controls as well as integration efficiencies in the Delta Group segment, which more than offset the additional costs incurred in the integration of our new Phoenix distribution facility. SG&A expenses for the first six months of 2021 were $33.1 million, or 16.3% of sales, compared to $35.9 million, or 18.7% of sales, in the prior year.

Other income for the 2021 and 2020 quarters includes profits related to our Honduran equity method investment. The first six months of 2021 other expense includes $1.3 million of expenses related to the impact of two hurricanes that disrupted our Honduran manufacturing facilities in the December 2020 quarter in addition to $0.4 million of long-lived asset impairment charges as the result of a strategic decision in the March 2021 quarter to exit branded Soffe retail stores. The prior year included valuation changes in our contingent consideration liabilities.

Operating profit in the second quarter increased to $7.6 million, more than double the $3.6 million of operating profit in the prior year. For the first six months of fiscal year 2021, operating income increased by 72% to $10.6 million. Operating income, adjusted for $1.3 million of hurricane-related expenses, was $12.0 million for the first half of fiscal 2021, an increase of 48% from the prior year operating income of $8.1 million, adjusted for the $1.9 million of plant curtailment costs.

The Delta Group segment had operating income of $8.2 million, or 8.8% of net sales, compared to $5.1 million, or 6.0% of net sales, in the prior year. The expanded operating profitability was driven by favorable gross margins, continuing cost controls, and $1.9 million of plant curtailment costs in the prior year. Adjusting for $1.3 million of hurricane-related disruption costs, operating income was $15.9 million, or 8.7% of sales, for the ~~quarter ended December 30, 2017,~~first half of fiscal 2021, compared to ~~17.3~~$14.2 million, or ~~20.3%~~8.2% of sales, in the prior year ~~period. When~~ adjusted for $1.9 million of plant curtailment costs.

The Salt Life Group segment had operating income of $1.9 million, 13.5% of sales compared to ~~exclude results in the since-divested Junkfood business in~~ the prior year ~~quarter, such expenses were $14.2~~operating income of $1.5 million, ~~or 18.7%~~11.8% of ~~sales, with~~sales. For the ~~quarter's increase of $0.8~~first six months, operating income improved by $1.0 million ~~primarily due~~ to ~~variable selling costs on significantly higher sales volumes.~~

$1.8 million. The change in fair value of contingent consideration was associated with the Salt Life acquisition. Based upon our updated analysis, the fair value of this liability decreased $0.3 million in the 2018 first quarter compared to a decrease of $0.1 million inincreases over the prior year ~~period. The change is principally~~are due to the ~~reduced remaining time in~~stronger mix of direct-to-consumer sales and continued cost controls.

Net interest expense for the ~~measurement period. The sales expectations for calendar~~second quarters of fiscal 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. Our expectations are consistent with those at September 30, 2017.

~~During the first quarter we recorded $47 thousand in other income compared to $0.1~~2021 and 2020 was $1.8 million in ~~the prior year period.~~both years. Net interest expense for the first ~~quarter~~six months of ~~each of fiscal years 2018 and 2017~~2021 was ~~$1.3 million.~~

~~On December 22, 2017,~~$3.5 million compared to $3.6 million in 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. During the three-month period ended December 30, 2017, we recognized provisional amounts totaling $10.6 million of tax expense. We have made reasonable estimates of the effects on our existing deferred tax balances and the one-time transition tax; however, these 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, theprior year first six months.

Our effective tax rate on operations for the ~~three-month~~six-month period ended ~~December 30, 2017,~~March 2021 was ~~(46.4%)~~27.6%. ~~This tax benefit relates to stock option excess benefits as a result from our adoption of ASU 2016-09.~~ This compares to an effective ~~income~~ tax rate of ~~27.0%~~20.3% 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 taxa 23.6% rate for the full fiscal year ending September 29, 2018, excluding the discrete tax expense associated with the New Tax Legislation, is currently expected to be approximately 12-13%. The change in the federal statutory rate from 34% to 21% as a result of the New Tax Legislation is effective at the beginning of our fiscal year. As such, the blended federal statutory tax rate2020. See Note K—Income taxes for more information.

We achieved net earnings for the ~~fiscal year is anticipated to be approximately 24.3%. However, changes in the mix~~March 2021 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.

~~Largely impacted by the New Tax Legislation, we experienced a net loss for the quarter of $10.0~~$4.4 million, or ~~$1.37~~$0.62 per diluted share, compared to ~~a prior year net loss of $0.6~~$1.3 million, or ~~$0.08~~$0.19 per diluted share, in the prior year. Net income for the first six months was $5.3 million, or $0.75 per diluted share, compared to $2.2 million, or $0.32 per diluted share, in the prior year. Adjusted for the $1.1 million after-tax expense, or $0.15 per diluted share, impact of the hurricane disruptions, net income for the first half of fiscal year 2021 was $6.4 million, or $0.90 per diluted share. ~~Adjusting~~Adjusted for the ~~discrete~~$1.5 million after-tax expense, or $0.20 per diluted share, impact of the ~~new tax legislation, our~~plant curtailments in March 2020, net income for the first half of fiscal year 2020 was ~~approximately $0.08~~$3.7 million or $0.52 per diluted share.

~~At December 30, 2017, accounts~~

Accounts receivable were ~~$51.0~~$66.1 million at March 2021, compared to ~~$48.2 million at December 31, 2016, and $47.6~~$60.1 million as of September ~~30, 2017.~~2020. Days sales outstanding ("DSO") ~~decreased from~~as of March 2021 were 53 days ~~in the prior year~~compared to ~~48 days, and was in line with the 49~~

51 days at September ~~30, 2017. The improvement in DSO from the prior year results from the since-divested Junkfood business, which carried higher DSO than our other business units.~~

~~Inventory levels remained flat with those at September 30, 2017, at $174.5 million~~2020.

Net inventory as of ~~December 30, 2017. Strong~~March 2021 was $148.5 million, an increase of $3 million from September 2020, but down $48.8 million, or approximately 25%, from a year ago. The strong sales in the first six months, along with the temporary hurricane disruptions during the December 2020 quarter ~~offset~~slowed the normal seasonal build inof inventory ~~that occurs in the December quarter.~~

~~Capital expenditures were $4.9 million~~ during the ~~first~~quarter. We have increased production during the March 2021 quarter and are now producing at record levels.

Total net debt, including capital lease financing and cash on hand, was $135.2 million at March 2021, an increase of ~~fiscal year 2018. Capital expenditures primarily related to machinery~~$13.0 million from September 2020. Cash on hand and ~~equipment as well as investments in~~availability under our ~~direct-to-consumer business, including our retail stores, and enhancements to our information technology systems. Depreciation and amortization expense, including non-cash compensation, was~~U.S. revolving credit facility totaled $44.2 million at March 2021, a $2.9 million ~~for the first quarter of fiscal year 2018.~~

~~Total debt at December 30, 2017, was $106.0 million compared with $119.8 million at December 31, 2016. The~~ decrease from ~~the prior year was~~September 2020 due primarily ~~due~~ to the ~~$27.0 million in proceeds received on the sale of the Junkfood business partially offset by borrowings to fund increased stock repurchases and improvement in the timing of payments made to suppliers.~~

~~Branded Segment~~

Sales in the branded segment were $17.2 million compared to $24.5 million in the prior year quarter, which included $9.4 million of sales in the since-divested Junkfood business. Excluding Junkfood sales in the prior year quarter, branded segment sales increased 14% year-over-year. Salt Life continued its growth trend with 12% sales growth primarily due to expanded product categories. Soffe achieved 28% sales growth over the prior year with a strong increase in military sales and success with strategic sporting goods retailers.

Operating income in the branded segment for the first quarter was $0.5 million, an improvement of $1.5 million compared to the prior year quarter. When adjusted for the since-divested Junkfood business, operating income increased by $1.1 million.

~~Basics Segment~~

Net sales in our basics segment grew 20.3% in the first quarter, to $73.2 million from $60.8 million in the prior year period. Activewear achieved strong sales growth of 20% over the prior year period, with growth in both Delta Catalog products and FunTees private label products. In our Catalog business, sales increased due to increased demand in the retail licensing channel coupled with 73% growth in our fashion basics products. FunTees also continued its strong growth, with customers requesting earlier delivery of products. Sales at Art Gun grew 26% over the prior year quarter primarily from increased volume with existing customers as well as new customer launches .

Basics segment operating income decreased to $4.2 million in the first quarter of 2018 from $4.7 million in the prior year quarter, driven from higher cost inventory being sold due to the higher raw material prices, partially offset by the benefits of the manufacturing realignment.

seasonal working capital build.

Non-GAAP Financial Measures

We provide all information required in accordance with U.S. GAAP, but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only U.S. GAAP financial measures. In an effort to provide investors with additional information regarding ~~the Company's~~our results, we also provide non-GAAP information that management believes is useful to investors. We discuss ~~adjusted~~operating income, ~~adjusted~~net income and earnings per diluted share ~~adjusted gross margin, adjusted selling general and administrative expenses~~ performance measures that are, for comparison purposes, adjusted to eliminate items or results stemming from discrete events. We do this because management uses these measures in evaluating ~~the Company's~~our underlying performance on a consistent basis across periods. We also believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of ~~the Company's~~our ongoing performance. These non-GAAP measures have ~~limitations~~imitations as analytical tools, and securities analysts, investors and other interested parties should not consider any of these non-GAAP measures in isolation or as a substitute for analysis ~~of the Company's~~or our results as reported under U.S. GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

Liquidity and Capital Resources

~~Our current primary cash needs are for working capital, capital expenditures, and debt service, as well as to fund share repurchases under our Stock Repurchase Program.~~

Operating Cash Flows

Operating activities ~~used $7.8~~provided $0.7 million ~~and $0.5~~of cash for the six months ended March 2021 compared to $10.2 million inof cash used in the ~~first three months~~prior year. The improved operating cash flows in the current year are due to operating income expansion coupled with a lower build of ~~fiscal years 2018 and 2017, respectively. The increased use of cash~~inventory resulting from the ~~prior year is due to~~strong sales demand for our products. This was partially offset by increased payments to suppliers due to ~~improve timing of payments and~~ higher ~~receivables from our customers from~~production in the ~~higher sales compared to the prior year. This is offset partially by the prior year having a larger seasonal inventory build.~~

current period.

Investing Cash Flows

~~Capital~~

Total capital expenditures for the six months ended March 2021 were $8.4 million and primarily related to investments in digital printing capacity and our new Phoenix, Arizona distribution center. Cash outflows for capital expenditures were $1.2 million during the first ~~three~~six months of ~~fiscal year 2018 were $2.2 million~~2021 compared to ~~$1.9~~$3.9 million in the same period ~~last~~in the prior year. ~~Capital expenditures in both periods primarily related to machinery and equipment, along with investments in our direct-to-consumer initiatives and information technology systems. There~~As of March 2021, there were ~~$3.1~~$11.9 million inof capital expenditures financed under a capital lease arrangement and

~~$0.1~~ $0.3 million in unpaid ~~expenditures in~~expenditures. In addition, we received proceeds of $2.3 million during the first ~~three~~six months of fiscal ~~2018. During~~2021 from finance lease arrangements related to prior year capital expenditure cash outflows. Total capital expenditures during the first ~~three~~six months of fiscal ~~year 2018, investing cash flows also included $1.0~~2020 were $6.7 million ~~in proceeds received from the promissory note~~and primarily related to ~~the sale of~~investments in our ~~Junkfood business. See Note D—Divestitures, for further information on this transaction.~~

distribution expansion, retail stores, and machinery and equipment.

We anticipate our fiscal ~~year 2018~~2021 capital expenditures, including those financed under capital leases, to be approximately ~~$13~~$20 million and to be focused primarily on our distribution expansion, digital print equipment, manufacturing equipment, ~~along with~~ information technology, and direct-to-consumer ~~enhancements .~~

investments, including additional Salt Life retail store openings.

Financing Activities

During the ~~three~~six months ended ~~December 30, 2017,~~March 2021, cash ~~provided~~used by financing activities was ~~$9.0~~$4.3 million ~~compared~~and primarily related to ~~$2.4 million provided~~scheduled loan principal payments and DTG2Go contingent earnout payments, partially offset by ~~financing activities for the three months ended December 31, 2016. The cash provided by our financing activities during the first three months of fiscal year 2018 was used~~advances to fund ~~our operating activities as well as share repurchases.~~

~~Based on our current expectations, we believe that our credit facility should be sufficient to satisfy our foreseeable~~operations, working capital needs, and capital expenditures.

Future Liquidity and Capital Resources

See Note F – Debt to the Condensed Consolidated Financial Statements for discussion of our various financing arrangements, including the terms of our revolving U.S. credit facility.

Prior to the amendments executed on April 27, 2020 and August 28, 2020 (collectively, the "Bridge Amendments"), our U.S. revolving credit facility included a financial covenant that ~~cash flow generated by our operations and funds available~~if the availability under our credit facility ~~should~~falls below the amounts specified in our U.S. credit agreement, our fixed charge coverage ratio ("FCCR") for the preceding 12-month period must not be ~~sufficient~~less than 1.1 to ~~service~~1.0. The Bridge Amendments amend the financial covenant provisions from the amendment dates through July 3, 2021, including effectively lowering the minimum availability thresholds and removing the requirement that our ~~debt payment~~FCCR for the preceding 12-month period must not be less than 1.1 to 1.0. Our availability at March 2021 was above both the minimum availability threshold per the Bridge Amendments as well as the higher thresholds in the U.S. credit agreement that would trigger an FCCR covenant requirement. Had we been subject to the FCCR requirements at March 2021, we would have been in compliance with this covenant.

Our credit facility, as well as cash flows from operations, are intended to ~~satisfy~~fund our day-to-day working capital needs, and along with finance lease arrangements, to fund our planned capital expenditures. ~~Any~~However, any material deterioration in our results of operations, ~~however,~~such as those that could occur due to the COVID-19 pandemic, may result in the loss of our ability to borrow or issue letters of credit to suppliers under our U.S. revolving credit facility, ~~and to issue letters of credit to suppliers,~~ or may cause the borrowing availability under that facility to be insufficient for our needs. Availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness. Moreover, our credit facility includes a financial covenant that if the availability under our credit facility falls below the amounts specified in our U.S. credit agreement, our fixed charge coverage ratio (FCCR) for the preceding 12-month period must not be less than 1.1 to 1.0. While our availability at December 30, 2017, was above the minimum thresholds specified in our credit agreement,Additionally, a significant deterioration in our business results could cause our availability to fall below ~~such~~minimum thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit ~~agreement.~~

agreement, which we may not be able to maintain.

Purchases By Delta Apparel Of Its Own Shares

During the ~~three months ended December 30, 2017,~~March 2021 quarter, we ~~purchased 145,124~~did not purchase any shares of our common stock ~~for an aggregate amount of $3.0 million~~ (see Note ~~N-Repurchase~~N—Repurchase of Common Stock). As of ~~December 30, 2017,~~March 2021, there was ~~$8.3~~$7.5 million of repurchase authorization remaining under our Stock Repurchase Program. We evaluate current leverage, working capital requirements, our free cash flow outlook, stock valuation and future business opportunities to determine when we believe the repurchase of our stock is a sound investment opportunity that we can pursue without sacrificing future growth plans.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which were prepared in accordance with U.S. GAAP. The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounts receivable and related reserves, inventory and related reserves, the carrying value of goodwill, and the accounting for income taxes.

A detailed discussion of critical accounting policies is contained in the Significant Accounting Policies included in Note 2 to the Audited Consolidated Financial Statements included in our Annual Report on Form 10-K for ~~the~~ fiscal ~~year ended September 30, 2017,~~2020, and there have been no changes in those policies since the filing of that Annual Report on Form 10-K with the ~~SEC.~~

SEC, except as disclosed in Note C—New Accounting Standards related to the adoption of the cloud computing standard.

Environmental and Other Regulatory Matters

We are subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions and solid waste disposal. The labeling, distribution, importation, marketing, and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Consumer Product Safety Commission and state attorneys general in the United States. Our ~~plants generate small quantities of hazardous waste, which~~international operations are ~~either recycled or disposed of off-site.~~

also subject to compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other anti-bribery laws applicable to our operations.

The environmental and other regulations applicable to our business are becoming increasingly stringent, and we incur capital and other expenditures annually to achieve compliance with these environmental ~~standards.~~standards and regulations. We currently do not expect that the amount of expenditures required to comply with these environmental ~~laws~~standards or other regulatory matters will have a material adverse ~~affect~~effect on our operations, financial condition or liquidity. There can be no assurance, however, that future changes in federal, state, or local regulations, interpretations of existing regulations or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, while we believe that we are currently in ~~material~~ compliance with all applicable environmental and other regulatory requirements, the extent of our liability, if any, for past failures to

comply with laws, regulations and permits applicable to our operations cannot be determined and could have a material adverse effect on our operations, financial condition and liquidity.

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~

~~Commodity Risk Sensitivity~~

We have a supply agreement with Parkdale Mills, Inc. and Parkdale America, LLC (collectively "Parkdale") to supply our yarn requirements until December 31, 2018. Under the supply agreement, we purchase from Parkdale all of our yarn requirements for use in our manufacturing operations, excluding yarns that Parkdale does not manufacture or cannot manufacture due to temporary capacity constraints. The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost.Thus, we are subject to the commodity risk of cotton prices and cotton price movements, which could result in unfavorable yarn pricing for us. We fix the cotton prices as a component of the purchase price of yarn, pursuant to the supply agreement, in advance of the shipment of finished yarn from Parkdale. Prices are set according to prevailing prices, as reported by the New York Cotton Exchange, at the time we elect to fix specific cotton prices.

~~Yarn with respect to which we have fixed cotton prices at~~ ~~December 30, 2017, was valued at $3.3 million, and is scheduled for delivery between January 2018 and March 2018. At~~ ~~December 30, 2017~~, a 10% decline in the market price of the cotton covered by our fixed price yarn would have had a negative impact of approximately $0.2 million on the value of the yarn. This compares to what would have been a negative impact of $0.5 million at our 2017 fiscal year-end based on the yarn with fixed cotton prices at September 30, 2017. The impact of a 10% decline in the market price of the cotton covered by our fixed price yarn would have been lower at ~~December 30, 2017, than at September 30, 2017, due to lower commitments at~~ ~~December 30, 2017, compared to September 30, 2017, combined with lower cotton costs.~~

We may use derivatives, including cotton option contracts, to manage our exposure to movements in commodity prices. We do not designate our options as hedge instruments upon inception. Accordingly, we mark to market changes in the fair market value of the options in cost of goods sold in our Condensed Consolidated Statements of Operations. See Note L—Derivatives and Fair Value Measurements, for further discussion on derivatives and fair value measurements.

If Parkdale’s operations are disrupted and it is not able to provide us with our yarn requirements, we may need to obtain yarn from alternative sources. Although alternative sources are presently available, we may not be able to enter into short-term arrangements with substitute suppliers on terms as favorable as our current terms with Parkdale. ~~In addition, the cotton futures we have fixed with Parkdale may not be transferable to alternative yarn suppliers.~~ ~~Because there can be no assurance that we would be able to pass along the higher cost of yarn to our customers, this could have a material adverse effect on our results of operations.~~

~~Interest Rate Sensitivity~~

~~Our U.S. revolving credit facility provides that the outstanding amounts owed shall bear interest at variable rates. If the amount of outstanding floating rate indebtedness at~~ ~~December 30, 2017, under our U.S. revolving credit facility had been outstanding during the entire three-month period ended~~ ~~December 30, 2017~~, and the interest rate on this outstanding indebtedness was increased by 100 basis points, our expense would have increased by approximately $0.2 million, or 13.1% of actual interest expense, during the quarter. This compares to an increase of $0.5 million, or 10.9%, for the 2017 fiscal year based on the outstanding floating rate indebtedness at September 30, 2017, or an average of $0.1 million per quarter. The dollar amount, as well as the percentage, of the increase in interest expense is higher as of December 30, 2017, primarily due to the higher floating rate debt level as of December 30, 2017, compared to September 30, 2017. The actual increase in interest expense resulting from a change in interest rates would depend on the magnitude of the increase in rates and the average principal balance of floating rate indebtedness.

~~Derivatives~~

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 as described in Note L—Derivatives and Fair Value Measurements.

~~Tax Reform~~

We are subject to income taxes in both the United States and various foreign jurisdictions. Governments in the jurisdictions in which we operate implement changes to tax laws and regulations from time to time. Any changes in corporate income tax laws, such as the recently-enacted tax reform legislation in the United States, changes relating to transfer pricing or further changes regarding the repatriation of capital, and any changes in the interpretation of existing tax laws and regulations could lead to increases in overall tax liability and adversely affect our financial position and results of operations. See Note K—Income Taxes, for further discussion on the New Tax Legislation that was enacted on December 22, 2017.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to reasonably assure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s requirements. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~December 30, 2017~~,the end of period covered by this quarterly report ("the Evaluation Date") and, based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective atas of the ~~evaluation date.~~

Evaluation Date.
Changes in Internal Control Over Financial Reporting

There ~~was~~were no ~~change~~changes during the ~~first~~March 2021 quarter ~~of fiscal year 2018~~ that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II.
OTHER INFORMATION

Item 1.
Legal Proceedings

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

Item 1A.

Risk Factors

None

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) Repurchases of Common Stock

See Note N—Repurchase of Common Stock, Part I, in Item 1, which is incorporated herein by reference.

Item 5.

Other Information

None

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

~~(c) Repurchases of Common Stock~~

~~See Note N—Repurchase of Common Stock, and Note F—Debt, in Item 1, which are incorporated herein by reference.~~


Item 6.	Exhibits

Exhibits


31.1
~~31.1~~		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			DELTA APPAREL, INC. (Registrant)
			~~DELTA APPAREL, INC.~~ ~~(Registrant)~~
Date	~~February 5, 2018~~ May 6, 2021	By:	/s/ Deborah H. Merrill
			Deborah H. Merrill Chief Financial Officer and President, Delta ~~Basics~~Group

22
16

Georgia		58-2508794

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

322 South Main Street
Greenville, SC		29601
(Address of principal executive offices)		(Zip Code)

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



Large accelerated filer o ☐	Accelerated filer þ ☑	Non-accelerated filer o ☐	Smaller reporting company o ☑	Emerging growth company o ☐
		~~(Do not check if a smaller reporting company)~~

		Page
PART I.	Financial Information

Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets — March 2021 and September 2020	3

	Condensed Consolidated Statements of Operations — Three and Six months ended March 2021 and March 2020	4

	Condensed Consolidated Statements of Comprehensive Income — Three and Six months ended March 2021 and March 2020	5

	Condensed Consolidated Statements of Shareholders' Equity — Three and Six months ended March 2021 and March 2020	6

	Condensed Consolidated Statements of Cash Flows — Six months ended March 2021 and March 2020	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8
	Note A—Basis of Presentation and Description of Business	8
	Note B—Accounting Policies


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


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


		8
	Note C—New Accounting Standards	~~Page~~8
~~PART I.~~	~~Financial Information~~Note D—Revenue Recognition	9
	Note E—Inventories	9
	Note F—Debt	10
	Note G—Selling, General and Administrative Expense	10
	Note H—Stock-Based Compensation	10
	Note I—Purchase Contracts	10
	Note J—Business Segments	11
	Note K—Income Taxes	11
	Note L—Derivatives and Fair Value Measurements	12
	Note M—Legal Proceedings	12
	Note N—Repurchase of Common Stock	13
	Note O—Goodwill and Intangible Assets	13
	Note P—Subsequent Events	13

~~Item 1.~~	~~Financial Statements:~~

	~~Condensed Consolidated Balance Sheets — December 30, 2017, and September 30, 2017 (unaudited)~~	3

	~~Condensed Consolidated Statements of Operations — Three months ended December 30, 2017, and December 31, 2016 (unaudited)~~	4

	~~Condensed Consolidated Statements of Comprehensive Loss — Three months ended December 30, 2017, and December 31, 2016 (unaudited)~~	5

	~~Condensed Consolidated Statements of Cash Flows — Three months ended December 30, 2017, and December 31, 2016 (unaudited)~~	6

	~~Notes to Condensed Consolidated Financial Statements (unaudited)~~	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1514

Item 3. 4.	~~Quantitative~~Controls and ~~Qualitative Disclosures About Market Risk~~Procedures	2015

PART II.	Other Information

Item 1.	Legal Proceedings	15

Item 1A.	Risk Factors	15

~~Item 4.~~	~~Controls and Procedures~~	21

~~PART II.~~	~~Other Information~~

~~Item 1.~~	~~Legal Proceedings~~	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2115

Item 6. 5.	~~Exhibits~~Other Information	2115

~~Signatures~~ Item 6.	Exhibits	2115

~~Exhibits~~ Signatures		16
~~EX-31.1~~
~~EX-31.2~~ Exhibits
~~EX-32.1~~ EX-31.1
~~EX-32.2~~ EX-31.2



	December 30, 2017			September 30, 2017
Assets
Current assets:
Cash and cash equivalents	$	603		$	572
Accounts receivable, less allowances of $1,502 and $1,433, respectively	51,010			47,557
Income tax receivable	404			352
Inventories, net	174,505			174,551
Note receivable	1,031			2,016
Prepaid expenses and other current assets	3,885			2,646
Total current assets	231,438			227,694

Property, plant and equipment, net of accumulated depreciation of $69,320 and $67,780, respectively	45,449			42,706
Goodwill	19,917			19,917
Intangibles, net	15,925			16,151
Deferred income taxes	2,656			5,002
Other assets	6,277			6,332
Total assets	$	321,662		$	317,802

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	45,597		$	47,183
Accrued expenses	13,503			17,704
Current portion of long-term debt	6,600			7,548
Total current liabilities	65,700			72,435

Long-term debt, less current maturities	99,360			85,306
Income tax payable	8,058			—
Other liabilities	4,734			2,574
Contingent consideration	1,300			1,600
Total liabilities	$	179,152		$	161,915

Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding	—			—
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 7,227,374 and 7,300,297 shares outstanding as of December 30, 2017, and September 30, 2017, respectively	96			96
Additional paid-in capital	59,856			61,065
Retained earnings	117,402			127,358
Accumulated other comprehensive income (loss)	51			(35		)
Treasury stock —2,419,598 and 2,346,675 shares as of December 30, 2017, and September 30, 2016, respectively	(34,895		)	(32,597		)
Total shareholders’ equity	142,510			155,887
Total liabilities and shareholders' equity	$	321,662		$	317,802



	Three Months Ended
	December 30, 2017			December 31, 2016
Net sales	$	90,342		$	85,335
Cost of goods sold	73,972			67,777
Gross profit	16,370			17,558

Selling, general and administrative expenses	14,979			17,311
Change in fair value of contingent consideration	(300		)	(100		)
Other income, net	(47		)	(122		)
Operating income	1,738			469

Interest expense, net	1,334			1,301
Income (loss) before provision for income taxes	404			(832		)
Provision for (benefit from) income taxes	10,356			(225		)
Net loss	$	(9,952	)	$	(607	)

Basic loss per share	$	(1.37	)	$	(0.08	)
Diluted loss per share	$	(1.37	)	$	(0.08	)

Weighted average number of shares outstanding	7,268			7,598
Dilutive effect of stock options and awards	—			—
Weighted average number of shares assuming dilution	7,268			7,598



	December 30, 2017
Revolving credit facility established March 2011, interest at 8.0% due March 2019	$	4,804
Term loan established March 2011, interest at 7.0%, payable monthly with a seven-year term	243
Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term	1,850
Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term	1,286
Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term	3,817



Yarn	$	3,252
Finished fabric	2,271
Finished products	21,995
	$	27,518



	Three Months Ended
	December 30, 2017		December 31, 2016
Segment net sales:
Basics	$	73,176	$	60,838
Branded	17,166		24,497
Total net sales	$	90,342	$	85,335

Segment operating income (loss):
Basics	$	4,189	$	4,684
Branded	458		(1,000		)
Total segment operating income	$	4,647	$	3,684



	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
December 30, 2017	$	83		—			$	83		—
September 30, 2017	(56		)	—			(56		)	—

Cotton Options
December 30, 2017	$	(1	)	$	(1	)	—			—
September 30, 2017	(125		)	(125		)	—			—

Contingent Consideration
December 30, 2017	$	(1,300	)	—			—			$	(1,300	)
September 30, 2017	(1,600		)	—			—			(1,600		)



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
October 1, 2017 to November 4, 2017	29,081	$21.04	29,081		$10.7	million
November 5, 2017 to December 2, 2017	46,444	20.67	46,444	9.7		million
December 3, 2017 to December 30, 2017	69,599	20.56	69,599	8.3		million
Total	145,124	$20.69	145,124		$8.3	million


EX-32.1
EX-32.2