Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of a “large accelerated filer,” “accelerated filer” and, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

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

We include in selling, general and administrative expenses ("SG&A") 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 $3.5$3.7 million and $3.6$3.9 million for the three months ended December 31,April 1, 2017, and April 2, 2016, respectively, and Januarytotaled $7.2 million and $7.6 million for the six months ended April 1, 2017, and April 2, 2016, respectively. In addition, SG&A expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed products and other general and administrative expenses.

Under the 2010 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted and the size and type of each award and manner in which such awards will vest. The awards available consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. The aggregate number of shares of common stock that may be delivered under the 2010 Stock Plan is 500,000 plus any shares of common stock subject to outstanding awards under the Option Plan or Award Plan that are subsequently forfeited or terminated for any reason before being exercised. The 2010 Stock Plan limits the number of shares that may be covered by awards to any participant in a given calendar year and also limits the aggregate awards of restricted stock, restricted stock units and

performance stock granted in any given calendar year. If a participant dies or becomes disabled (as defined in the 2010 Stock Plan) while employed by the Company or serving as a director, all unvested awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2010 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2010 Stock Plan, and to make any other determinations that it deems necessary.

During the quarterthree and six months ended December 31, 2016,April 1, 2017, no restricted stock units or performance units were granted.

During the three months ended December 31, 2016, restricted stock units and performance units representing8,438representing 8,438 and 53,248 shares of our common stock, respectively, vested upon the filing of our Annual Report on Form 10-K for the fiscal year ended October 1, 2016, and were issued in accordance with their respective agreements. One-half of the restricted stock units were payable in common stock and one-half were payable in cash. All of the performance units were payable in common stock.

As of December 31, 2016,April 1, 2017, there was $2.3$1.8 million of total unrecognized compensation cost related to non-vested awards granted under the 2010 Stock Plan. This cost is expected to be recognized over a period of 1.91.7 years.

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

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 (loss)"earnings"). Our segment operating earnings (loss) may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2

in our Annual Report on Form 10-K for the fiscal year ended October 1, 2016, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).

Our effective income tax rate for the threesix months ended December 31, 2016,April 1, 2017, was 27.0%26.7%, compared to our effective income tax rate of 28.4%25.0% for the same period in the prior year, and 18.8% for the fiscal year ended October 1, 2016. During the second quarter of fiscal year 2017, we recognized a $1.3 million pre-tax gain on the sale of the Junkfood business. See Note D—Sale of Junkfood for further information on this transaction. We recordedaccounted for this event as a benefitdiscrete item for tax provision purposes, recording tax expense on the pre-tax gain. Excluding the effect of $0.2 million duringthis discrete item, the quartereffective tax provision on operations for the six months ended December 31, 2016.April 1, 2017, was 24.0%.

We benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than the United States. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income compared to profits in the offshore taxable and tax-free jurisdictions in which we operate, our estimated annual income tax rate for the fiscal year ending September 30, 2017, is currently expected to be approximately 27.0%24.0%. However, changes in the mix of U.S. taxable income compared

to profits in tax-free jurisdictions can have a significant impact on our overall effective tax rate. In addition, any changes to tax regulations could adversely affect our financial position and results of operations.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax years 2012 through2013 and 2014, according to statute and with few exceptions, remain open to examination by various federal, state, local and foreign jurisdictions.

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 gain/lossincome and are reclassified into interest expense as the related interest payments are made. Outstanding instruments as of December 31, 2016,April 1, 2017, are as follows:

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

The fair value of the interest rate swap agreements were derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. The fair value of the interest rate swap agreements were derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. 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). 

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 31, 2016,April 1, 2017, we had $2.4$2.3 million accrued in contingent consideration related to the Salt Life acquisition, a $0.1$0.2 million reduction from the accrual at October 1, 2016. The reduction in the fair value of contingent consideration is based on the inputs into the Monte Carlo model, including the time remaining in the measurement period. We still expectThe sales inexpectations for calendar year 2019 to approximatehave not significantly changed from the expectations for calendar 2019 sales used in the valuation of contingent consideration at acquisition. No contingent consideration is expected to be paid under the terms of our acquisition of the Art Gun business.

We have entered into license agreements that provide for royalty payments on net sales of licensed products as set forth in the agreements. These license agreements are within our branded segment. We incurred royalty expense (included in SG&A expenses) of $1.4$1.0 million and $1.9$1.5 million in each of the firstsecond quarters of fiscal years 2017 and 2016, respectively. Royalty expense for the six months ended April 1, 2017, and April 2, 2016, were approximately $2.4 million and $3.4 million, respectively.

Amortization expense for intangible assets was $0.4 million for the three-month period ended April 1, 2017, and $0.3 million for eachthe three-month period ended April 2, 2016. Each of the three-monthsix-month periods ended December 31,April 1, 2017, and April 2, 2016, and January 2, 2016.amortization expense was $0.7 million. Amortization expense is estimated to be approximately $1.3$1.1 million for fiscal year 2017, $0.9 million for fiscal years 2017, 2018 and 2019, $1.2$0.7 million for fiscal year 2020, and $1.1$0.6 million for fiscal year 2021.

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 Securities and Exchange Commission (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 “estimate”, “project”, “forecast”, “anticipate”,

The risks described in our Annual Report on Form 10-K for our fiscal year ended October 1, 2016, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, and/or operating results.

Although salesOn March 31, 2017, we sold the Junkfood business, a niche participant in the fiscal 2017 first quarter were down 5.4% fromlicensed-graphics space. Over the prior year’s first quarteryears, this has been a good business for us and we enjoyed nurturing it as well as seeing it more than double its revenue while we owned it. That being said, the first quarter’s topretail environment and bottom line comparisons are not indicativethe marketplace for licensed-graphic tees has been changing, and being a niche player in this space has become increasingly challenging. The sale puts the Junk Food brand in the hands of others more focused on this space who can continue to grow and develop the brand. For us, the sale of the growth we expectbusiness worked out well, yielding us a net gain of $0.11 per diluted share, and enabling us to see, there are many other factors signaling to us that growth will return as we progress throughfurther narrow our focus on the year. Many of the transient conditions that hampered our first quarter results have passed. We are introducing exciting new products, our inventory levels correspond to our growth objectives, our ecommerce businesses and sites continue to prosper, and margins are expanding.

During the quarter, our net income increased to $4.5 million, or $0.58 per diluted share, a 35% increase from $3.4 million, or $0.43 per diluted share, in the prior year second quarter. More significantly, after excluding the gain on the sale of Junkfood, our continuing effortsearnings were nearly 10% higher than those in the prior year. The Junkfood business has recently been very challenging, culminating in a 40% sales decline in the March quarter and a $1.2 million decrease in operating profit. Adjusting the quarter to improve efficiency and service for our customers while expanding our gross margins.

We expectachieved significant improvement in our Delta Activewear business during the second quarter. This was a result of our expanded sales and marketing strategies, our new product introductions, and our manufacturing realignment that was completed last year. The introduction of our Delta Activewear’s 2017 fashion basics introductions, which include Delta Dri female silhouettes and ourproducts is going well, particularly the Delta Platinum line, of triblends, to further expand fashion basics sales during 2017.

During the quarter, Salt Life experienced strong shipments for initial spring store sets and early indications point to good spring sell-through. Our product expansions in ladies and youth products are driving growth in these channels, and our performance products continue to be a strong product category. Salt Life has attracted a large internet following through its YouTube and other social media outlets, achieving over 1 million followers across social media. The traffic on the Salt Life website was up 24% and, through higher conversions and larger purchases, sales on the website grew by over 40%. We also have just introduced a new Salt Life Rewards program that provides a bonus incentive to consumers who shop on the Salt Life website. Overall, we anticipate continued double-digit growth through Salt Life’s omni-channel model and its branded ecommerce site.

Soffe, which is rebuilding volume through several emerging channels of distribution, is gradually overcoming the difficulties posed by some of its traditional retail customers. We are building our direct to consumer business at Soffe, achieving double-digit growth on our Soffe website. We opened a continuationnew Soffe retail store earlier in the year, and plan to open two more during the remainder of the current challenging environment,year. The retail stores are expected to be profitable and are used to reinforce the Soffe brand identity and connect directly with our consumers. We are seeing profits at Soffe, although still well below our long term goals. As we continue to build on the strength of the Soffe brand and leverage our strengths in Made in America products, along with continued improvement on the operational side, we believe fiscal 2017 willSoffe can improve its profitability to meet our goals for the business.

While the retail environment continues to be a yearchallenge, we believe that the strategic initiatives we completed over the last several years, combined with our broad channels of growth and improved profitabilitydistribution, will result in a future of solid performance for Delta Apparel. We have entered the year with exciting new products, we have lowered our manufacturing and distribution costs, and we are adopting innovative ways to serve our customers. We believe that Art Gun and our various ecommerce sites represent the wave of the future and we are developing synergies with them that should benefit all of our business units. We are nurturing our brands, and expect to see continued strong growth from Salt Life. We believe the initiatives that we completed in fiscal 2015 and 2016 across all of our business units, along with the leveraging of fixed costs across higher volumes, should further expand gross margins and operating profits, and build further value for our shareholders.

Net sales for the firstsecond quarter of 2017 were $85.3$104.1 million compared to $90.2$109.2 million in the prior year period. Salt Life and Art Gun continued their sales growth, but it was not enough to overcome sales declines in our other business units.

Our direct-to-consumer and ecommerce sales represented 7.2%5.2% of total revenues compared to 5.5% infor the samesecond quarter of 2017. For the prior year.first six-month period ended April 1, 2017, direct-to-consumer sales and ecommerce sales were 6.1% of total revenues. Overall our direct-to-consumer ecommerce growth for the second quarter and first six months of fiscal year 2017 were 17.4% and 21.0%, respectively, driven from increased sales on our Salt Life and Soffe sites.

Gross margins were relatively flat at 20.6%23.3% for the quarter compared with 20.9%23.6% in the 2016 firstsecond quarter. There wasBasics segment gross margin expansion of 160margins expanded by 90 basis points induring the branded segment, but this was offset by lowerquarter. Excluding the Junkfood business, gross margins in the basic segment.expanded by 290 basis points from prior year.

Selling, general, and administrative expenses were $17.3$18.3 million, or 20.3%17.5% of sales, for the quarter ended December 31, 2016,April 1, 2017, compared to $16.9$20.0 million, or 18.7%18.4% of sales, in the prior year period. The increasedecrease in expenses from the prior year was primarily attributable to higher equity award and management incentive costs.bad debt expense in the prior year as well as decreased selling costs, including royalty expenses.

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 $0.1 million in both the 2017 first quarter and $0.2 million in the 2016 first quartersecond quarters, principally from the reduced remaining time in the measurement period, resulting in the gains recorded. Our overall expectation ofThe sales expectations for thecalendar year 2019 measurement period hashave not significantly changed sincefrom the sales expectations used in the valuation of contingent consideration at acquisition.

During the firstsecond quarter of 2017, we recorded $0.1recognized $1.4 million in other income compared to $40 thousand$0.1 million in the prior year period and $1.6 million in the first six months of fiscal year 2017 compared to $0.2 million in the prior year six month period. The increase over prior year is due to the $1.3 million gain resulting from the sale of the Junkfood business.

Net interest expense for the firstsecond quarter of fiscal years 2017 and 2016 was $1.3 million.million and $1.4 million, respectively. In the first six months of fiscal year 2017, net interest expense totaled $2.6 million compared to $2.7 million in the prior year.

Our effective income tax rate for the threesix months ended December 31, 2016,April 1, 2017, was 27.0%26.7%, compared to our effective income tax rate of 28.4%25.0% for the same period last year and 18.8% for the full fiscal year 2016. We recorded an income tax benefitexpense of $0.2$1.4 million during the six months ended April 1, 2017. During the quarter, we recognized a $1.3 million pre-tax gain on the sale of the Junkfood business. We accounted for this transaction as a discrete item for tax provision purposes, recording $0.4 million of tax expense on the pre-tax gain. Excluding the effect of this discrete item, the effective tax rate on operations for the six months ended December 31, 2016.April 1, 2017, was 24.0%. We benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in the United States. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income compared to profits in the offshore taxable and tax-free jurisdictions in which we operate, our estimated annual income tax rate for the fiscal year ending September 30, 2017, is expected to be approximately 27%24.0%. However, changes in the mix of U.S. taxable income compared to profits in tax-free jurisdictions can have a significant impact on our overall effective tax rate.

Our net lossearnings for the quarter was $0.6were $4.5 million, or $0.08$0.58 per diluted share, compared with net earnings of $0.7$3.4 million, or $0.09$0.43 per diluted share, in the prior year quarter. Excluding the gain on the sale of the Junkfood business, net of taxes, our earnings would have been $3.7 million, or $0.47 per diluted share.

At December 31, 2016,April 1, 2017, accounts receivable were $48.2$59.6 million compared to $48.4$60.2 million at JanuaryApril 2, 2016, and $63.6 million as of October 1, 2016. Days sales outstanding were 5349 days as of December 31, 2016,April 1, 2017, and JanuaryApril 2, 2016, compared to 54 days at October 1, 2016.

Inventory levels increased $14.8$16.5 million from October 1, 2016, to $179.0$180.7 million at December 31, 2016.April 1, 2017. The increase from October 1, 2016, wasis due to the seasonally higher inventory levels coupled with an increase in our finished goods levels to better support our customers in anticipation of the spring selling season.needs.

Capital expenditures were $1.8$2.2 million during the firstsecond quarter of fiscal year 2017. Our capital expenditures primarily related to machinery and equipment and investments in our direct-to-consumer business as well asincluding our retail stores and enhancements to our information technology systems.systems as well as expenditures related to machinery and equipment. Depreciation and amortization expense, including non-cash compensation, was $2.8 million for the second quarter of fiscal year 2017, and $5.6 million for the first quartersix months of fiscal year 2017.

Total debt at December 31, 2016,April 1, 2017, was $119.8$97.4 million compared with $106.2$115.8 million at JanuaryApril 2, 2016. The increasedecrease in debt from the prior year is primarily due to the additional capital spending as part$25.0 million proceeds received on the sale of our offshore expansion, as well asthe Junkfood business offset by borrowings to fund increased inventory levels in ordercompared to better serve our customers.the prior year.

Sales in the branded segment were $24.5$33.3 million compared to $28.7$39.3 million in the prior year quarter. Salt Life achieved sales growth of 4%10.4% during the quarter, however,but this was hinderedoffset by Hurricane Matthewsales declines at Soffe and the mild weather during the first quarter.Junkfood. Soffe sales declined $1.5$1.1 million from the prior year quarter principally from the loss of sales associated with the closingbankruptcy of The Sports Authority.Authority, while Junkfood sales declined $2.940% million from the prior year quarter asquarter. Year-to-date sales for fiscal year 2017 in the branded segment were $57.8 million compared to $68.0 million in the prior period benefited fromyear. Salt Life sales for the first six months grew by 8.3%, while Soffe sales for the first six months declined primarily due to the bankruptcy of a major movie release. In addition, Junkfood is being impacted by the declines at retail in the specialty store channel.The Sports Authority.

Operating lossincome in the branded segment was $1.0$2.8 million, an increase of $0.3$0.2 million compared to the prior year quarter. The increased lossdecreased income was driven from lower sales and offset partially from higher gross margins andby lower SG&A costs. Excluding Junkfood, operating income would have increased by $0.1 million from the prior year quarter.

Net sales in our basics segment were $60.8 milliongrew 1.4% in the firstsecond quarter a 1.1% decreaseto $70.8 million from $61.5$69.8 million in the prior year period. Sales at Art Gun were up 28%11% compared to the prior year on 34% unit growth as we launched new customers and improved efficiencies .18% higher units. In our Delta Activewear business, the retail licensing channel experienced significantly slower sales at retail that impacted the blank business as well as our private label programs. However, the ad-specialty channel sales and fashion basic style sales increased from the prior year.

Basics segment operating income decreasedincreased to $4.7$7.6 million in the firstsecond quarter of 2017 from $5.8$6.7 million in the prior year quarter due to primarily lower sales andprincipally from improved gross margins. Art Gun had a strong holiday season and continuesOperating income for the first six months in the basics segment was relatively flat compared to exceed customers expectations with their quality, speed, and service.the prior year at 9.3% of sales compared to 9.5% in the prior year six months.

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 activities used $0.5$0.2 million and $1.0$5.4 million in cash in the first threesix months of fiscal years 2017 and 2016, respectively. The decreased outflow from the prior year is due to slightly higher collections from our customers and better leveraging of supply terms,terms. This was partially offset by the payment of the incentive compensation related to the 2016 fiscal year results.results and increased inventory levels.

Capital expenditures during the first threesix months of fiscal year 2017 were $1.9$3.7 million compared to $1.8$5.0 million in the same period last 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 were $1.6 million in expenditures financed under a lease arrangement and $0.1$0.5 million in unpaid expenditures in the first threesix months of fiscal 2017. We anticipate our fiscal year 2017 capital expenditures to be approximately $10 million and to be focused primarily on manufacturing equipment, along with direct-to-consumer, and information technology enhancements.

During the threesix months ended December 31, 2016, and January 2, 2016,April 1, 2017, cash used by financing activities was $20.8 million compared to $10.8 million provided by financing activities was $2.4 million and $2.7 million, respectively.for the first six months ended April 2, 2016. The cash provided by our financing activities during fiscal 2017 has beenreceived from the sale of the Junkfood business was used to fund ourreduce debt and was partially offset by cash used for operating activities, capital expenditures, and investing activities.share repurchases.

Based on our current expectations, we believe that our credit facility should be sufficient to satisfy our foreseeable working capital needs, and that cash flow generated by our operations and funds available under our credit facility should be sufficient to service our debt payment requirements, to satisfy our day-to-day working capital needs and to fund our planned capital expenditures. Any material deterioration in our results of operations, however, may result in the loss of our ability to borrow under our revolving credit facility and to issue letters of credit to suppliers, or may cause the borrowing availability under our 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 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 31, 2016,April 1, 2017, was above the minimum thresholds specified in our credit agreement, a significant deterioration in our business could cause our availability to fall below such thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit agreement. As of December 31, 2016,April 1, 2017, our FCCR was above the minimum threshold specified in our credit agreement.

During the threesix months ended December 31, 2016,April 1, 2017, we purchased 46,64396,043 shares of our common stock for an aggregate amount of $0.8$1.6 million (see Note N-RepurchaseO-Repurchase of Common Stock). As of December 31, 2016,April 1, 2017, there was $8.3$7.5 million of share repurchase authorization remaining. 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.

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.

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. Our plants generate small quantities of hazardous waste, which are either recycled or disposed of off-site. Several of our plants are required to possess one or more environmental permits, and we believe that we are currently in compliance with the requirements of those permits.

The environmental regulations applicable to our business are becoming increasingly stringent and we incur capital and other expenditures annually to achieve compliance with environmental standards. We currently do not expect that the amount of expenditures required to comply with environmental laws will have a material adverse affect 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 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.

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.

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—M—Derivatives and Fair Value Measurements for further discussion on derivatives and fair value measurements.

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 tax reform in the United States, changes relating to transfer pricing or 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.

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 United States Securities and Exchange Commission’s requirements. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information that 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.

There was no change during the firstsecond quarter of fiscal year 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.