Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2017
April 1, 2023
OR
☐
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
________
to ________
Commission File Number
1-15583
DELTA APPAREL, INC.

(Exact name of registrant as specified in its charter)
Georgia
GEORGIA58-2508794
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
322 South Main Street
Greenville, SC29601
(Address of principal executive offices)(Zip Code)
(864) 232-5200
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
2750 Premier Parkway
,
Suite 100
Duluth
,
Georgia
30097
(Address of principal executive offices)
(Zip Code)
(
678
)
775-6900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01
DLA
NYSE American
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. Yes
☑
No
☐
Indicate by check mark whether the
registrant (1) has filed all reportssubmitted electronically every Interactive Data File required to
be filed by Section 13 or 15(d)submitted pursuant to Rule 405 of the Securities Exchange Act of 1934
Regulation S-T
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.
Yes þ No o
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).
Yesþ
☑
Noo
☐
Indicate by check mark whether
the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging
growth
company. See the definitions
of a “large accelerated filer,” “accelerated
“accelerated filer”, “smaller
“smaller reporting company”
and "emerging growth
company" in Rule
12b-2 of the
Exchange
Act. (Check one):
Large accelerated filero
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
(Do not check if a smaller reporting company)
☐
Accelerated filer
☑
Non-accelerated filer
☐
Smaller reporting company
☑
Emerging growth company
☐
If an emerging
growth company,
indicate by check
mark if the
registrant has elected
not to use
the extended transition
period for complying
with any new
or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Acto
☐
Indicate by check mark whether the registrant is a shell company (as
(as defined in Rule 12b-2 of the Exchange Act). Yeso No þ

☐
No
☑
As ofJanuary 24, 2018,
April 28, 2023,
there were outstanding7,211,374
7,001,020
shares of the
registrant’s common
stock, par value
of $0.01
per share,
which is the
only class of
outstanding
common or voting stock of the registrant.

TABLE OF CONTENTS

Page
PART I.
Financial Information
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
15
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20
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
21
Item 6.
Exhibits
21
Signatures
21
Exhibits
     EX-31.1
     EX-31.2
EX-32.1
EX-32.2

Page

PART
I.

Financial Information
PART 1.FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited):
Item 1.Financial Statements
Condensed Consolidated Balance Sheets — March 2023 and September2022
3
Condensed Consolidated Statements of Operations — Three and SixMonths Ended March 2023 and March 2022
4
Condensed Consolidated Statements of Comprehensive (Loss) Income— Three and Six Months Ended March 2023 and March2022
5
Condensed Consolidated Statements of Shareholders' Equity —Three and Six Months Ended March 2023 and March 2022
6
Condensed Consolidated Statements of Cash Flows — Six MonthsEnded March 2023 and March 2022
7
Notes to Condensed Consolidated Financial Statements (unaudited)
8
Note A—Basis of Presentation and Description of Business
8
Note B—Accounting Policies
8
Note C—New Accounting Standards
8
Note D—Revenue Recognition
9
Note E—Inventories
9
Note F—Debt
10
Note G—Selling, General and Administrative Expense
11
Note H—Stock-Based Compensation
11
Note I—Purchase Contracts
11
Note J—Business Segments
11
Note K—Income Taxes
12
Note L—Derivatives and Fair Value Measurements
13
Note M—Legal Proceedings
13
Note N—Repurchase of Common Stock
13
Note O—Goodwill and Intangible Assets
14
Note P—Subsequent Events
14
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 4.
Controls and Procedures
18
PART
II.
Other Information
18
Item 1.
Legal Proceedings
18
Item 1A.
Risk Factors
18
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18
Item 5.
Other Information
18
Item 6.
Exhibits
18
Signatures
20
3
PART 1.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(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, respectively51,010
 47,557
  Income tax receivable404
 352
  Inventories, net174,505
 174,551
  Note receivable1,031
 2,016
  Prepaid expenses and other current assets3,885
 2,646
Total current assets231,438
 227,694
    
Property, plant and equipment, net of accumulated depreciation of $69,320 and $67,780, respectively45,449
 42,706
  Goodwill19,917
 19,917
  Intangibles, net15,925
 16,151
  Deferred income taxes2,656
 5,002
  Other assets6,277
 6,332
Total assets$321,662
 $317,802
    
Liabilities and Shareholders’ Equity   
Current liabilities: 
  
Accounts payable$45,597
 $47,183
Accrued expenses13,503
 17,704
Current portion of long-term debt6,600
 7,548
Total current liabilities65,700
 72,435
    
Long-term debt, less current maturities99,360
 85,306
Income tax payable8,058
 —
Other liabilities4,734
 2,574
Contingent consideration1,300
 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, respectively96
 96
Additional paid-in capital59,856
 61,065
Retained earnings117,402
 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’ equity142,510
 155,887
Total liabilities and shareholders' equity$321,662
 $317,802
March 2023
September 2022
Assets
Cash and cash equivalents
$
625
$
300
Accounts receivable, less allowances of $
124
and $
109
, respectively
62,020
68,215
Other receivables
1,125
1,402
Income tax receivable
1,680
1,969
Inventories, net
243,167
248,538
Prepaid expenses and other current assets
4,096
2,755
Total current assets
312,713
323,179
Property, plant and equipment, net of accumulated depreciation of $
114,569
and $
108,565
, respectively
70,739
74,109
Goodwill
37,897
37,897
Intangibles, net
22,834
24,026
Deferred income taxes
1,342
1,342
Operating lease assets
56,174
50,275
Equity method investment
9,036
9,886
Other assets
2,239
2,967
Total assets
$
512,974
$
523,681
Liabilities and Equity
Liabilities:
Accounts payable
$
66,071
$
83,553
Accrued expenses
18,581
27,414
Income taxes payable
671
379
Current portion of finance leases
8,843
8,163
Current portion of operating leases
8,861
8,876
Current portion of long-term debt
8,962
9,176
Total current liabilities
111,989
137,561
Long-term income taxes payable
2,131
2,841
Long-term finance leases
17,483
16,776
Long-term operating leases
48,804
42,721
Long-term debt
159,591
136,750
Deferred income taxes
337
4,310
Total liabilities
$
340,335
$
340,959
Shareholder's 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
authorized,
9,646,972
shares issued, and
7,001,020
and
6,915,663
shares outstanding as of March 2023 and September 2022,
respectively
96
96
Additional paid-in capital
60,912
61,961
Retained earnings
156,043
166,600
Accumulated other comprehensive income
180
141
Treasury stock -
2,645,952
and
2,731,309
shares as of March 2023 and September 2022,
respectively
(43,896)
(45,420)
Equity attributable to Delta Apparel, Inc.
173,335
183,378
Equity attributable to non-controlling interest
(696)
(656)
Total equity
172,639
182,722
Total liabilities and equity
$
512,974
$
523,681
See accompanying Notes to Condensed Consolidated Financial
Statements.

4
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
 Three Months Ended
 December 30,
2017		 December 31,
2016
Net sales$90,342
 $85,335
Cost of goods sold73,972
 67,777
Gross profit16,370
 17,558
    
Selling, general and administrative expenses14,979
 17,311
Change in fair value of contingent consideration(300) (100)
Other income, net(47) (122)
Operating income1,738
 469
    
Interest expense, net1,334
 1,301
Income (loss) before provision for income taxes404
 (832)
Provision for (benefit from) income taxes10,356
 (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 outstanding7,268
 7,598
Dilutive effect of stock options and awards—
 —
Weighted average number of shares assuming dilution7,268
 7,598
Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Net sales
$
110,335
$
131,698
$
217,630
$
242,444
Cost of goods sold
94,126
98,176
187,798
185,919
Gross profit
16,209
33,522
29,832
56,525
Selling, general and administrative expenses
19,298
19,714
38,168
37,197
Other expense (income), net
2,265
(533)
(356)
(929)
Operating (loss) income
(5,354)
14,341
(7,980)
20,257
Interest expense, net
3,723
1,801
6,613
3,399
(Loss) income before (benefit from) provision for income taxes
(9,077)
12,540
(14,593)
16,858
(Benefit from) provision for income taxes
(2,079)
2,414
(3,996)
3,062
Consolidated net (loss) income
(6,998)
10,126
(10,597)
13,796
Net (loss) income attributable to non-controlling interest
(6)
(11)
(40)
14
Net (loss) earnings attributable to shareholders
$
(6,992)
$
10,137
$
(10,557)
$
13,782
Basic (loss) income per share
$
(1.00)
$
1.46
$
(1.51)
$
1.98
Diluted (loss) income per share
$
(1.00)
$
1.44
$
(1.51)
$
1.95
Weighted average number of shares outstanding
7,001
6,953
6,978
6,976
Dilutive effect of stock awards
-
87
-
87
Weighted average number of shares assuming dilution
7,001
7,040
6,978
7,063
See accompanying Notes to Condensed Consolidated Financial
Statements.


5
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss(Loss) Income
(Amounts in thousands)
(Unaudited)
 Three Months Ended
 December 30,
2017		 December 31,
2016
Net loss$(9,952) $(607)
Other comprehensive income related to unrealized gain on derivatives, net of income tax85
 49
Comprehensive loss$(9,867) $(558)
Three Months Ended

Six Months Ended
March 2023
March 2022
March 2023
March 2022
Net (loss) income attributable to shareholders
$
(6,992)
$
10,137
$
(10,557)
$
13,782
Other comprehensive (loss) gain related to unrealized (loss)
gain on
derivatives, net of income tax
(30)
381
39
593
Consolidated comprehensive (loss) income
$
(7,022)
$
10,518
$
(10,518)
$
14,375
See accompanying Notes to Condensed Consolidated Financial
Statements.

6
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash FlowsShareholders’ Equity
(Amounts in thousands)thousands, except share amounts)
(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 amortization2,433
 2,415
Amortization of deferred financing fees76
 78
Provision for deferred income taxes2,346
 (194)
Non-cash stock compensation437
 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, net46
 (14,791)
Prepaid expenses and other assets(1,252) (770)
Other non-current assets61
 —
Accounts payable(1,902) 3,063
Accrued expenses(4,290) (5,264)
Income taxes8,007
 (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 assets1,000
 —
Proceeds from sale of fixed assets1
 —
Net cash used in investing activities(1,161) (1,883)
    
Financing activities:   
Proceeds from long-term debt119,529
 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 activities9,006
 2,350
Net increase in cash and cash equivalents31
 13
Cash and cash equivalents at beginning of period572
 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
Shares
Amount
Interest
Total
Balance as of September
2022
9,646,972
$
96
$
61,961
$
166,600
$
141
2,731,309
$
(45,420)
$
(656)
$
182,722
Net loss
-
-
-
(3,565)
-
-
-
-
(3,565)
Other comprehensive income
-
-
-
-
69
-
-
-
69
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(34)
(34)
Vested stock awards
-
-
(2,067)
-
-
(85,357)
1,524
-
(543)
Stock based compensation
-
-
665
-
-
-
-
-
665
Balance as of December
2022
9,646,972
$
96
$
60,559
$
163,035
$
210
2,645,952
$
(43,896)
$
(690)
$
179,314
Net loss
-
-
-
(6,992)
-
-
-
-
(6,992)
Other comprehensive loss
-
-
-
-
(30)
-
-
-
(30)
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(6)
(6)
Stock based compensation
-
-
353
-
-
-
-
-
353
Balance as of March 2023
9,646,972
$
96
$
60,912
$
156,043
$
180
2,645,952
$
(43,896)
$
(696)
$
172,639
Accumulated
Additional
Other
Non-
Common Stock
Paid-In
Retained
Comprehensive
Treasury Stock
Controlling
Shares
Amount
Capital
Earnings
(Loss)
Shares
Amount
Interest
Total
Balance as of September 2021
9,646,972
$
96
$
60,831
$
146,860
$
(786)
2,672,312
$
(42,149)
$
(658)
$
164,194
Net income
-
-
-
3,645
-
-
-
-
3,645
Other comprehensive income
-
-
-
-
212
-
-
-
212
Net income attributable to
non-controlling interest
-
-
-
-
-
-
-
25
25
Purchase of common stock
-
-
-
-
-
74,232
(2,143)
-
(2,143)
Vested stock awards
-
-
(1,766)
-
-
(76,460)
674
-
(1,092)
Stock based compensation
-
-
140
-
-
-
-
-
140
Balance as of December 2021
9,646,972
$
96
$
59,205
$
150,505
$
(574)
2,670,084
$
(43,618)
$
(633)
$
164,981
Net income
-
-
-
10,137
-
-
-
-
10,137
Other comprehensive income
-
-
-
-
381
-
-
-
381
Net loss attributable to non-
controlling interest
-
-
-
-
-
-
-
(11)
(11)
Purchase of common stock
-
-
-
-
-
28,015
(846)
-
(846)
Stock based compensation
-
-
714
-
-
-
-
-
714
Balance as of March 2022
9,646,972
$
96
$
59,919
$
160,642
$
(193)
2,698,099
$
(44,464)
$
(644)
$
175,356
See accompanying Notes to Condensed Consolidated Financial
Statements.

7
Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months Ended
March 2023
March 2022
Operating activities:
Consolidated net (loss) earnings
$
(10,597)
$
13,796
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation and amortization
7,642
7,434
Amortization of deferred financing fees
268
162
Change in inventory market reserves
(3,540)
1,290
(Benefit from) provision for deferred income taxes
(3,986)
583
Non-cash stock compensation
1,018
854
Loss on disposal of equipment
69
383
Loss on impairment of equipment
860
-
Other, net
(390)
(1,180)
Changes in operating assets and liabilities:
Accounts receivable
6,472
(10,524)
Inventories
8,911
(37,278)
Prepaid expenses and other current assets
(1,609)
(66)
Other non-current assets
2,019
1,014
Accounts payable
(17,657)
11,742
Accrued expenses
(8,659)
(3,215)
Change in net operating lease liabilities
169
243
Income taxes
(129)
1,352
Other liabilities
-
(1,049)
Net cash used in operating activities
(19,139)
(14,459)
Investing activities:
Purchases of property and equipment, net
(2,495)
(7,670)
Proceeds from sale of property and equipment
-
33
Proceeds from equipment under financed leases
4,417
-
Cash paid for intangible asset
-
(109)
Cash paid for business
-
(583)
Net cash provided by (used in) investing activities
1,922
(8,329)
Financing activities:
Proceeds from long-term debt
254,103
265,034
Repayment of long-term debt
(231,476)
(243,483)
Repayment of capital financing
(4,543)
(3,630)
Repurchase of common stock
-
(2,989)
Payment of withholding taxes on stock awards
(542)
(1,092)
Net cash provided by financing activities
17,542
13,840
Net increase (decrease) in cash and cash equivalents
325
(8,948)
Cash and cash equivalents at beginning of period
300
9,376
Cash and cash equivalents at end of period
$
625
$
428
Supplemental cash flow information
Finance lease assets exchanged for finance lease liabilities
$
5,930
$
5,379
Operating lease assets exchanged for operating lease liabilities
$
10,991
$
4,397
See accompanying Notes to Condensed Consolidated Financial
Statements.
8
Delta Apparel, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note A— Description of Business and Basis of Presentation and Description of Business
We prepared the accompanying interim condensed consolidated financial statements in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. We believe these Condensed Consolidated Financial Statements include all normal recurring adjustments considered necessary for a fair presentation. Operating results for the three-month period ended December 30, 2017, are not necessarily indicative of the results that may be expected for our fiscal year ending September 29, 2018. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality, with sales in our June quarter generally being the highest and sales in our December quarter generally being the lowest. For more information regarding our results of operations and financial position, refer to the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for our fiscal year ended September 30, 2017, filed with the United States Securities and Exchange Commission (“SEC”).
“Delta Apparel”, the “Company”, “we”, “us” and “our” are used interchangeably to refer to Delta Apparel, Inc. together with our domestic wholly-owned subsidiaries, including M.J. Soffe, LLC (“Soffe”), Culver City Clothing Company (f/k/a Junkfood Clothing Company) (“Junkfood”), Salt Life, LLC (“Salt Life”), and 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. (collectively with DTG2Go, LLC, Salt Life, LLC, M.J. Soffe, LLC, and other subsidiaries, "Delta Apparel," "we," "us," "our," or the "Company") is an
a vertically-integrated, international apparel company with approximately
7,000
employees worldwide. We design, marketing, manufacturingmanufacture,
source, and sourcing company that featuresmarket a diverse portfolio
of core activewear and lifestyle basicsapparel products under our primary brands of Salt Life®, Soffe®, and branded activewear apparel, headwearDelta. We are a
market leader in the on-demand, digital print and related accessory products.
fulfillment industry,
bringing DTG2Go's proprietary
technology and innovation
to our customers'
supply chains. We
specialize in selling
casual and
athletic products
through a variety of distribution
channels and distribution tiers, including department stores, mid outdoor
and mass channels, e-retailers, sporting goods and outdoor retailers,
independent and specialty stores,
better department stores and mid-tier
retailers, mass merchants, eRetailers, the U.S. military.
military, and through our
business-to-business digital platform. Our products are also
made available direct-to-consumer
on our websites ecommerce sites
and in our
branded retail stores. We believe this
Our diversified distributiongo-to-market
strategy allows us
to capitalize on
our strengths in
providing activewear and
lifestyle
apparel products to provide casual activewear to consumers purchasing from most types of retailers.a broad and evolving customer base whose
shopping preferences may span multiple
retail channels.
We design and internally manufacture the majority
of our products, whichwith more
than
90
% of the apparel
units that we sell sewn
in our own facilities.
This allows us to
offer
a high degree of
consistency and quality, controls as well as leverage
scale efficiencies. One of our strengths isefficiencies, and react quickly
to changes in trends within the speed with which we can reach the market from design to delivery.
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
We were incorporated in Georgia in 1999, and
our headquarters is located at 322 South Main Street, Greenville, South Carolina 29601 (telephone number: 864-232-5200). in Duluth, Georgia.
Our common stock trades on the NYSE
American exchange under the
symbol “DLA”. “DLA."
We operate on a
52-53 week
fiscal year
ending on
the Saturday
closest to
September 30.
Our 20182023 fiscal
year is
a 52-week
year and
will end
on September 29, 2018.
30, 2023 ("fiscal
2023"). Accordingly, this Quarterly Report on Form 10-Q presents our results for our second quarter of fiscal 2023. Our 20172022 fiscal year was a 52-week year and ended
on October 1, 2022 ("fiscal 2022").
For presentation purposes herein, all references to period
ended relate to the following fiscal years and dates:
Period Ended
Fiscal Year
Date Ended
March 2022
Fiscal 2022
April 2, 2022
June 2022
Fiscal 2022
July 2, 2022
September 30, 2017.2022

Fiscal 2022
October 1, 2022
December 2022
Fiscal 2023
December 31, 2022
March 2023
Fiscal 2023
April 1, 2023
We prepared the accompanying interim Condensed Consolidated
Financial Statements in accordance
with the instructions for Form
10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of
the information and footnotes required
by U.S. generally accepted accounting
principles ("U.S. GAAP") for complete
financial
statements.
We
believe
these
Condensed
Consolidated
Financial
Statements include
all
normal
recurring
adjustments considered
necessary
for
a
fair
presentation.
Operating results
for the
three and six months ended March 2023 are
not necessarily
indicative of
the results
that may
be expected
for our
fiscal 2023.
Although our
various product lines are
sold on a year-round
basis, the demand for
specific products or styles
reflects some seasonality.
By diversifying our product
lines and go-to-
market strategies over the years, we have reduced the overall seasonality of our business. Consumer demand for apparel is cyclical and dependent upon the overall level
of demand for soft
goods, which may or
may not coincide with
the overall level of
discretionary consumer spending.
These levels of demand
change as regional,
domestic
and international economic conditions
change. Therefore, the distribution
of sales by quarter in fiscal
2023 may not be indicative
of the distribution in future
years. 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 for our fiscal 2022, filed with the United
States Securities and Exchange Commission (“SEC”).
Our Condensed Consolidated Financial Statements include the accounts of Delta
Apparel and its wholly-owned and majority-owned domestic and foreign subsidiaries.
We
apply the
equity method of
accounting for
our investment in
31
% of
the outstanding
capital stock
of a
Honduran company.
During the
six months
ended March
2023 and March 2022,
we received dividends
from this investment
of $
1.2
million and $
1.1
million, respectively.
Our Ceiba Textiles
manufacturing facility is
leased
under an operating lease
arrangement with this Honduran
company. During the six months
ended March 2023
and March 2022, we
paid approximately $
0.9
million under
this arrangement.
We make
available copies of materials we file
with, or furnish to, the SEC free
of charge at https://ir.deltaapparelinc.com.
The information found on our 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 other filings
made with the
SEC. Requests should be
directed to: Investor
Relations Department, Delta
Apparel, Inc., 2750 Premiere
Parkway, Suite
100, Duluth,
Georgia 30097. Requests can also be made by telephone to 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 for theour fiscal year ended September 30, 2017,2022, filed with
the SEC.

SEC. See Note C for consideration of recently issued
accounting standards.
Note C—New Accounting Standards
Recently Adopted Standards
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-11, Simplifying the Measurement of Inventory, ("ASU 2015-11").  This new guidance requires an entity to measure inventory at the lower of cost and net realizable value. Currently, entities measure inventory at the lower of cost or market. ASU 2015-11 replaces market with net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  Subsequent measurement is unchanged for inventory measured under last-in, first-out or the retail inventory method.  ASU 2015-11 requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities.  Early application is permitted.  ASU 2015-11 was adopted in our fiscal year beginning October 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements
Standards Not Yet Adopted
In May 2014,June 2016, the FASB
issued ASU No. 2014-09, Revenue from Contracts with Customers2016-13,
Financial Instruments - Credit Losses
(Topic 326):
Measurement of Credit
Losses on Financial Instruments
(“ASU
2016-13”), ("ASU 2014-09"). This new guidancewhich requires an entity to recognizeassess impairment of its financial instruments
based on the amountentity's estimate of revenue to which it expects to be entitled forexpected credit losses. Since the transfer
issuance of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for annual periods beginning after December 15, 2017, for public business entities and permits the use of either the retrospective

or cumulative effect transition method. Early application is permitted only for annual reporting periods beginning after December 15, 2016. ASU 2014-09 will therefore be effective in our fiscal year beginning September 30, 2018. 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 2016,2016-13, the FASB issued ASU No. 2016-02, Leases, released several amendments
to improve and clarify
the implementation guidance. These
standards have been collectively
codified within ASC Topic
326,
Credit Losses
("ASU 2016-02"“ASC 326”). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. All leases will be required to be recorded on As a smaller reporting company as defined by
the balance sheet withSEC, the exceptionprovisions of short-term leases. Early application is permitted. The guidance must be adopted using a modified retrospective approach for leases that exist orASC 326 are entered into aftereffective
as of the beginning of our fiscal year
2024. We are currently evaluating the earliest comparative period inimpacts of the provisions of ASC 326 on our financial statements. ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018,condition,
results of operations, cash flows, and interim periods within those annual periods. ASU 2016-02 will therefore be effectivedisclosures.
9
Note D—Revenue Recognition
Our Condensed Consolidated Statements of Operations
include revenue streams from retail sales
at our branded retail stores; direct-to-consumer
ecommerce sales on our
consumer-facing websites; and sales from wholesale channels,
which includes our business-to-business ecommerce sales and sales in our fiscal year beginning September 29, 2019. We are evaluatingDTG2Go business.
The table
below identifies the effect that ASU 2016-02 will have on our Consolidated Financial Statementsamount and related disclosures.percentage of net sales
by distribution channel (in thousands):

Three Months Ended
Note D—DivestituresMarch 2023
On March 31, 2017, we completed 2022
Retail
$
3,157
3
%
$
2,370
1
%
Direct-to-consumer ecommerce
1,509
1
%
710
1
%
Wholesale
105,669
96
%
128,618
98
%
Net sales
$
110,335
100
%
$
131,698
100
%
Six Months Ended
March 2023
March 2022
Retail
$
6,611
3
%
$
5,273
2
%
Direct-to-consumer ecommerce
2,672
1
%
2,054
1
%
Wholesale
208,347
96
%
235,117
97
%
Net sales
$
217,630
100
%
$
242,444
100
%
The table below provides net sales by reportable segment and
the salepercentage of substantially all of the assets comprising our Junkfood business to JMJD Ventures, LLCnet sales by distribution channel 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
each reportable segment (in thousands):
Three Months Ended 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, and2023
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
91,344
0.0
%
0.3
%
99.7
%
Salt Life Group
18,991
16.5
%
6.9
%
76.6
%
Total
$
110,335
Three Months Ended March 30, 2018.2022
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.Net Sales

Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
115,335
0.1
%
0.1
%
99.8
%
Salt Life Group
16,363
14.1
%
3.3
%
82.6
%
Total
$
131,698
Six Months Ended March 2023
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
188,354
0.1
%
0.2
%
99.7
%
Salt Life Group
29,276
22.3
%
7.8
%
69.9
%
Total
$
217,630
Six Months Ended March 2022
Net Sales
Retail
Direct-to-consumer
ecommerce
Wholesale
Delta Group
$
217,256
0.1
%
0.2
%
99.7
%
Salt Life Group
25,188
19.8
%
6.3
%
73.9
%
Total
$
242,444
Note E—Inventories
Inventories, net of $9.9 reserves of $
14.1
million and $9.8 $
17.7
million in reserves, as of December 30, 2017,March 2023 and September 30, 2017,2022, respectively, consisted of the
following (in thousands):
 December 30,
2017		 September 30,
2017
Raw materials$8,639
 $8,973
Work in process16,179
 18,543
Finished goods149,687
 147,035
 $174,505
 $174,551

March 2023
September 2022
Raw materials
$
18,796
$
22,603
Work in process
18,574
23,501
Finished goods
205,797
202,434
$
243,167
$
248,538
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.
10
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.
The Borrowers entered into amendments
to the Amended Credit Agreement
with Wells Fargo
Onand the
other lenders
on November 27, 2017, Delta Apparel, Soffe, Junkfood, Salt Life,
March 9, 2018,
October 8, 2018, November 19,
2019, April 27, 2020,
August 28, 2020,
June 2,
2022, January 3,
2023,
February 3, 2023, and Art Gun (collectively,March 23, 2023.
On June 2, 2022, the “Borrowers”)Borrowers entered into a Firstthe
Seventh Amendment to the Fifth Amended and Restated
Credit Agreement with Wells
Fargo and the other lenders
set
forth therein (the “Seventh Amendment”). The Seventh
Amendment, (i) removes LIBOR based borrowing
and utilizes SOFR (Secured Overnight Financing Rate)
as the
primary pricing structure, (ii) amends
the pricing structure based on SOFR
plus a CSA (Credit Spread Adjustment)
defined as
10
bps for 1 month and
15
bps for 3-month
tenors, (iii) sets the SOFR floor to
0
bps, (iv) reloads the fair market value
of real estate and intellectual property within the
borrowing base calculation and resets their
respective amortization
schedules, (v) sets
the maturity
date to
5
years from
the closing
date, and
(vi) updates the
requirement for
our Fixed
Charge Coverage
Ratio
(“FCCR”) for the preceding 12-month period to not be less than
1.0
(previously
1.1
).
On January 3, 2023, the Borrowers entered into the Eighth Amendment to
the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set
forth therein (the “First“Eighth Amendment”). The Eighth
Amendment essentially clarifies the Amended
Credit Agreement’s provisions regarding the inclusion of eligible in-
The First Amendment transit inventory in the borrowing base and
amends the definition of Fixed Charge Coverage Ratio within Increased Reporting Event to include
12.5
% of the lesser of
the borrowing base and the maximum
revolver amount as opposed to
12.5
% of the line cap.
On February 3, 2023, the Borrowers entered into
the Ninth Amendment to the Fifth Amended and
Restated Credit Agreement with Wells Fargo and the other lenders set
forth therein (“Ninth Amendment”).
The Ninth Amendment adds
an Accommodation Period beginning
on the amendment date
and continuing through the
date following
September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i)
the minimum borrowing availability thresholds applicable to
the Amended Credit
Agreement are (a)
through (and including)
April 1, 2023,
$
7,500,000
, (b) on
and after April
2, 2023 through
(and including) June
4, 2023, $
9,000,000
,
(c) on and after June 5, 2023, through
the date following September 30, 2023,
upon which Borrowers satisfy minimum availability
thresholds, $
10,000,000
; and (d) at all
times thereafter,
$
0
; (ii)
the FCCR covenant
is suspended; (iii)
Borrowers must maintain
specified minimum EBITDA
levels for trailing
three-month periods starting
March 4, 2023; (iv) the Applicable Margin with respect to loans under
the Amended Credit Agreement is increased by
50
basis points; and (v) a Cash Dominion Trigger
Event occurs if availability is less than $
2,000,000
.
On March 23, 2023, the Borrowers entered into the Tenth Amendment to permit upthe Fifth Amended and Restated Credit Agreement with Wells
Fargo and the other lenders set
forth therein to $10 millionaccount for specified costs and expenses
in calculating EBITDA for purposes of the proceeds received from the March 31, 2017, sale of certain assets of the Junkfood business to be used towards share repurchases for up to one year from the date of that transaction. In addition, the definition of Permitted Purchase Money Indebtedness is amended to extend the time period within which the Borrowers may enter into capital leases and to increase the aggregate principal amount of such leases into which the Borrowers may enter to up to $15 million. The definition of Permitted Investments is also amended to permit the Borrowers to make investments in entities that are not a party to the Amended Credit Agreement in an aggregate amount of up to $2 million. The First Amendment also allows the change in the name of our Junkfood Clothing Company subsidiary to Culver City Clothing Company. There were no changes to the Agreement related to interest rate, borrowing capacity, or maturity.
Agreement.
The Amended Credit Agreement allows us to borrow
up to $145 $
170
million (subject to borrowing base limitations), including
a maximum of $25 $
25
million in letters of credit.
Provided that no event of default exists,
we have the option to increase the
maximum credit to $200$

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.Agreement contains a
subjective acceleration
clause and a “springing”
lockbox arrangement (as defined in
ASC 470, Debt) 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.
We classify
borrowings under the Amended
Credit Agreement as
long-term debt with consideration of current maturities.
As of December 30, 2017, there was $90.1 March 2023, we had
$
153.1
million outstanding under our U.S. revolving credit facility
at an average interest rate of 3.3% and additional borrowing
7.6
%. Our cash on hand combined
with the
availability of $26.6 million. This under the U.S. revolving
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,totaled $
12.8
million. At March 2023 and we would have satisfied our financial covenant had we been subject to it. At December 30, 2017, and September 30, 2017,
2022, there was $9.0 $
19.6
million and $7.7 $
24.9
million, respectively, of
retained earnings free of restrictions to make cash dividendsdividend
payments or stock repurchases.repurchases to the extent
permitted under our U.S. revolving credit facility.
The Amended Credit Agreement contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in FASB Codification No. 470, Debt ("ASC 470")) whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. Pursuant to ASC 470, we classify borrowings under the Amended Credit Agreement as long-term debt.
In August 2013, we acquired Salt Life and issued two promissory notes in the aggregate principal amount of $22.0 million, which included a one-time installment of $9.0 million that was due and paid as required on September 30, 2014, and quarterly installments commencing on March 31, 2015, with the final installment due on June 30, 2019. The promissory notes are zero-interest notes and state that interest will be imputed as required under Section 1274 of the Internal Revenue Code. We imputed interest at 1.92% on the promissory note that matured June 30, 2016, and was paid in full as required. We impute interest at 3.62% on the promissory note that matures on June 30, 2019. At December 30, 2017, the discounted value of the promissory note outstanding was $3.9 million.Honduran Debt
Since March 2011, we have
entered into term loans and a
revolving credit facility with Banco Ficohsa, a
Honduran bank, to finance investments in both
the operations
and capital expansion of our
Honduran facilities. Each 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 thesesettlement of
$
1.1
million and
$
9.5
million,
respectively. Additionally, in May 2022, we entered
into a new term
loan with a
five
-year term with a
principal amount of $
3.7
million. These loans is are
secured by a first-priorityfirst-
priority lien on the assets of our Honduran operations and isare 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. TheAs 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
borrowed are classified as long-term debt.
El Salvador Debt
In September 2022, we entered into
a new term loan with
a
five
-year term with a principal amount of
$
3.0
million with Banco Ficohsa, a Panamanian bank,
to finance
investments in our
El Salvador operations.
This loan is secured
by a first-priority lien
on the assets
of our El Salvador
operations and is
not guaranteed by
our U.S. entities.
The loan is
denominated in U.S.
dollars, and the
carrying value of
the debt approximates
its fair value.
Information about this
loan and
the outstanding balance
as of
March 2023 is listed as part of the long-term debt schedule below.
Additional information about these loans and the outstanding balances
as of December 30, 2017,March 2023 is as follows (in thousands):
 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 term243
Term loan established November 2014, interest at 7.5%, payable monthly with a six-year term1,850
Term loan established June 2016, interest at 8.0%, payable monthly with a six-year term1,286
Term loan established September 2017, interest at 8.0%, payable monthly with a six-year term3,817

March 2023
Revolving credit facility with Banco Ficohsa, a Honduran bank,
with interest at
7.9
%, due August 2025
$
3,300
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.75
%, quarterly installments which began September 2021
and are due through
December 2025
5,579
Term loan with Banco Ficohsa, a Honduran bank, interest at
7.75
%, quarterly installments which began March 2023 and are
due through May
2027
3,483
Term loan with Banco Ficohsa, a Panamanian bank, interest at the prevailing market rate
within the Panamanian Banking Market, monthly
installments which began October 2022 and are due through
August 2027
2,754
11
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
$
5.7
million
and $
5.6
million for the March 2023 and March 2022
quarters, respectively. Distribution costs included in SG&A expenses
totaled $3.9 million and $3.5 $
11.2
million for both the three-month periods six-months
ended December 30, 2017,March 2023 and December 31, 2016, respectively.2022. In addition, SG&A expenses include costs related to
sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed productsretail
store build-outs, and other general and administrative expenses.

Note H—Stock-Based Compensation
On February 4, 2015,6, 2020, our shareholders re-approvedapproved the Delta Apparel, Inc. 2020 Stock Plan ("2020
Stock Plan") to replace the 2010 Stock Plan, ("2010 Stock Plan") that
which was originally previously re-
approved by our shareholders on November 11, 2010. Since NovemberFebruary 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 2010 no additional awards have been or will be granted under eitherStock
Plan. The purpose of the Delta Apparel2020 Stock Option
Plan ("Option Plan") or the Delta Apparel Incentive Stock Award Plan ("Award Plan") and, instead, all stock awards have been and willis to continue to be granted under give our Board
of Directors and its Compensation Committee
the 2010 Stock Plan.ability
We account for these plans pursuant 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 ofdirectors. Under 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.
20102020 Stock Plan,
Under the 2010 Stock Plan, the Compensation Committee of our Board of
Directors has the authority to determine the
employees and directors to whom
awards may be granted, and
the size and type of
each award and manner in
which such awards will vest. The
awards available under the plan
consist of stock options,
stock appreciation rights, restricted
stock, restricted stock units, performance
stock, stock performance units, and
other stock and cash
awards. While employed by
the
Company or serving as a director, unvested awards 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 disability. The aggregate numberCompensation Committee
is authorized to establish the
terms and conditions of shares of common stock that may be deliveredawards
granted under the 2010 2020
Stock Plan, is 500,000 plusto
establish, amend and
rescind any shares of common stock subject rules
and regulations relating
to outstanding awards under the Option2020
Stock Plan, or Awardand
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 diesShares are generally issued from treasury stock upon
the vesting of the restricted stock units, performance units or becomes disabled (as defined in the 2010 Stock Plan) while employed by the Company or serving as a director, all unvested other
awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 20102020 Stock Plan, to establish, amendPlan.
Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During the March 2023 and rescind any rulesMarch
2022 quarters, we recognized $
0.4
million and regulations relating to$
0.9
million in stock-based compensation expense, respectively.
Associated with this compensation cost are
income tax
benefits recognized of $
0.2
million and $
0.2
million, respectively, for each of the 2010 Stock Plan,three-month periods ended March 2023 and to make any other determinations that it deems necessary.March
2022. During the six-months ended
March 2023 and March
2022, we recognized $
1.0
million and $
1.3
respectively, in stock-based compensation
expense. Associated with
the compensation cost
are income
tax benefits recognized of $
0.3
million and $
0.2
million, respectively, for each of the six-months periods ended March 2023 and March
2022.
During the three-month period ended December 30, 2017,2022 quarter, restricted
stock units and performance units representing 54,602 and 92,068
105,000
shares of our common stock respectively,
vested uponwith the filing of
our Annual Report on Form
10-K for the
fiscal year ended September 30, 2017,2022 and were issued in accordance with their respective
agreements. One-half of the restricted stock unitsOf these vested awards, all were payable 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.stock.
During the three-month period ended
December 30, 2017, restricted stock units and 2022 quarter,
performance stock units each consisting of 55,750
and restricted stock
units representing
5,000
and
18,000
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.
forfeited.
As of December 30, 2017,March 2023, there was $4.1 $
2.7
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 3
2.7
years.
Option Plan
All options granted under the Option Plan vested prior to October 3, 2015. As such, no expense was recognized during each of the three-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 2023,
minimum
payments under these contracts were as follows (in thousands):
Yarn$3,252
Finished fabric2,271
Finished products21,995
 $27,518

Yarn
$
14,985
Finished fabric
4,102
Finished products
4,797
$
23,884
Note J—Business Segments
We operate our business
Our operations are managed and reported in two distinct segments: brandedsegments, Delta Group and basics.AlthoughSalt Life
Group, which reflect the two segmentsmanner in which the business is managed, and results are similar
reviewed by the Chief Executive Officer, who is our chief operating decision maker.
The Delta Group is comprised of the following business
units, which are primarily focused on core activewear styles:
DTG2Go and Delta Activewear.
DTG2Go is a
market leader in their productionthe
on-demand, direct-to-garment digital print
and fulfillment industry,
bringing technology and innovation
to the supply
chains of our
many customers. Our ‘On-Demand DC’ digital solution provides retailers
and brands with immediate access to utilize DTG2Go’s broad network of print and fulfillment
facilities, while offering
the scalability to integrate
digital fulfillment within the
customer's own distribution facilities.
We use
highly-automated factory processes and regulatory environments, they
our proprietary
software to
deliver on-demand,
digitally printed
apparel direct
to consumers
on behalf
of
our customers.
Via
our
seven digital
fulfillment facilities
throughout the United States,
DTG2Go offers a robust
digital supply chain, shipping custom
graphic products within 24
to 48 hours to
consumers in the United States
and to
over 100
countries worldwide. DTG2Go
has made
significant investments in
its “digital-first” retail
model providing digital
graphic prints that
meet the high-
quality standards required
for brands, retailers
and intellectual property
holders. Through integration
with Delta Activewear,
DTG2Go also services
the eRetailer,
ad-
specialty, promotional and screen print marketplaces, among others.
Delta Activewear is a preferred supplier of activewear
apparel to regional and global brands as
well as direct to retail and wholesale
markets. The Activewear business is
organized around three key customer
channels – Delta Direct, Global
Brands, and Retail Direct –
that are distinct in their economic characteristics,
go-to-market strategies and how
their respective
customer bases
source their
various apparel
needs. Our
Delta Direct
channel services
the screen
print, promotional,
and eRetailer
markets as
well as
retail licensing
customers that sell through to many mid-tier and mass market retailers. Delta Direct products marketing,include a broad portfolio of apparel and distribution methods.accessories under the Delta, Delta
The Platinum, and Soffe
brands as well
as sourced
items from
select third
party brands.
Our fashion
basics segment is comprised of our business units primarily focused on garment styles characterized by low fashion risk, and line
includes our Platinum
Collection, which
offers fresh, fashionable
silhouettes with a luxurious look and feel,
as well as versatile fleece offerings.
We offer innovative
apparel products, including the Delta Activewear (which includesDri line of
performance shirts
built with moisture-wicking material
to keep athletes dry
and comfortable; ringspun
garments with superior
comfort, style and durability;
and Delta CatalogSoft, a
collection with
an incredible feel and FunTees) price. We also offer our heritage, mid-
and Art Gun business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Delta Platinum™, Delta Dri®, Delta Magnum Weight®, andheavier-weight Delta Pro Weight® and Magnum Weight® tee shirts.
The iconic Soffe brand offers activewear for salespirit
makers and record breakers and
is widely known for the original "cheer
short" with the signature roll-down waistband.
Soffe carries a wide range of activewear for the entire family. Soffe's heritage is anchored in the military, and we continue to be a diversified audience ranging proud supplier to both active duty and
veteran United States
military personnel worldwide.
The Soffe men's assortment
features the tagline
"anchored in the military,
grounded in training"
and offers everything
12
from physical training
gear certified by
the respective branches of
the military,
classic base layers
that include the
favored
3-pack tees, and
the iconic "ranger
panty."
Complementing the
Delta and
Soffe brand
apparel, we
offer
our customers
a
broad range
of
product categories
with nationally
recognized brands
including polos,
outerwear, headwear, bags and other accessories. Our Soffe products are also available direct to consumers
at www.soffe.com.
Our Global
Brands channel
serves as a
key supply chain
partner to
large licensed screen printers to small independent businesses. We also manufacture private label products formulti-national
brands, major branded
sportswear companies, trendy
regional brands, and
all
branches of the
United States armed
forces, providing services
ranging from custom
product development to
shipment of branded
products with “retail-ready”
value-
added services including embellishment, hangtags, and ticketing.
Our Retail Direct
channel serves brick
and mortar and
online retailers and sports-licensed apparel marketers. Typicallyby
providing our private labelportfolio
of Delta, Delta
Platinum, and
Soffe products are sold with value-added services such as hangtags, ticketing, hangers, and embellishment so thatdirectly
to the retail
locations

and
ecommerce fulfillment
they are fully ready for retail. Using digital print equipment
centers of
a
diversified customer
base including
sporting goods
and proprietary technology, Art Gun embellishes garments to create private label, custom-decorated apparel servicing the fast-growing e-retailer channels as well as the ad-specialty, promotional products and retail marketplaces.
outdoor retailers,
The branded segment is comprised of our business units focused on specialized apparel garments, headwear, and related accessories to meet consumer preferences and fashion trends, and includes our Salt Life, Soffe, and Coast business units. Our branded segment also included our Junkfood business unit prior to its disposition on March 31, 2017. These branded products are sold through
specialty and boutique
resort shops, traditional
farm and
fleet stores,
department stores, and mid-tier retailers, sporting goodsretailers. As a
key element of the integrated Delta Group
segment, each of Activewear’s primary channels offer
a seamless solution for
small-run decoration needs with on-demand digital print services,
powered by DTG2Go.
The Salt Life Group is
comprised of our Salt Life business, which
is built on the authentic, aspirational Salt
Life lifestyle brand that represents a passion
for the ocean,
the salt air, and, more importantly, a way of life and all it offers, from surfing, fishing, and diving to beach fun and sun-soaked relaxation. The Salt Life brand combines
function and fashion with a tailored fit for the active lifestyles of those that “live the Salt Life.” With increased worldwide appeal, Salt Life has continued to provide the
cotton graphic tees and logo decals that originally
drove awareness for the brand, and expanded into
performance apparel, swimwear, board shorts, sunglasses, bags, and
accessories. Consumers can also seamlessly experience the Salt Life
brand through retail partners including surf shops, specialty stores, e-retailers
department stores, and the U.S. military, as well as direct-to-consumer through brandedoutdoor
merchants or by accessing our Salt Life ecommerce sites and "brick and mortar" retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life®, Soffe®, and COAST®, as well as other labels.site
at www.saltlife.com.
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 (loss)
earnings"). Our
segment operating
(loss) earnings
may not
be comparable
to similarly
titled measures
used by
other
companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2022, 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
(in thousands).
 Three Months Ended
 December 30, 2017 December 31, 2016
Segment net sales:   
Basics$73,176
 $60,838
Branded17,166
 24,497
Total net sales$90,342
 $85,335
    
Segment operating income (loss):   
Basics$4,189
 $4,684
Branded458
 (1,000)
Total segment operating income$4,647
 $3,684

Three Months Ended
Six Months Ended
March 2023
March 2022
March 2023
March 2022
Segment net sales:
Delta Group
$
91,344
$
115,335
$
188,354
$
217,256
Salt Life Group
18,991
16,363
29,276
25,188
Total net sales
$
110,335
$
131,698
$
217,630
$
242,444
Segment operating (loss) earnings:
Delta Group
$
(7,487)
$
14,417
$
(7,363)
$
22,854
Salt Life Group
4,649
3,306
4,866
3,463
Total segment operating (loss) earnings
$
(2,838)
$
17,723
$
(2,497)
$
26,317
The following table reconciles the segment operating income(loss)
earnings to the consolidated income (loss) earnings before (benefit
from) provision for (benefit from) income taxes (in thousands):
 Three Months Ended
 December 30, 2017 December 31, 2016
Segment operating income$4,647
 $3,684
Unallocated corporate expenses2,909
 3,215
Unallocated interest expense1,334
 1,301
Consolidated income (loss) before provision for (benefit from) income taxes$404
 $(832)

Three Months Ended
Six Months Ended
Table of ContentsMarch 2023
March 2022
March 2023
March 2022
Segment operating (loss) earnings
$
(2,838)
$
17,723
$
(2,497)
$
26,317
Unallocated corporate expenses
2,516
3,382
5,483
6,060
Unallocated interest expense
3,723
1,801
6,613
3,399
Consolidated (loss) earnings before (benefit from) provision
for income
taxes
$
(9,077)
$
12,540
$
(14,593)
$
16,858
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 Legislationenacted on
December 22, 2017, 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. Duringsubsidiaries 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 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 estimatesincluded in our calculation 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, the effective tax rate the estimated impact of GILTI
and Section 163(j).
In addition, 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
foreign subsidiaries.
Our effective income tax
rate on operations for the three-month period
six-months ended December 30, 2017,March 2023 was (46.4%). This tax benefit relates
27.5
% compared to stock option excess benefits as a result from our adoption rate
of ASU 2016-09. This compares to an effective income tax rate of 27.0% for
18.2
% in the same
period inof the prior year,
and 5.9%an
effective rate of
17.9
% for the fiscal year ended September 30, 2017.
2022. 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
As such,
changes in
the anticipated amount mix
of U.S.
taxable income
compared to

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,The current year tax
rate decreased relative to prior periods due US losses expected
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 asgenerate a result of the New Tax Legislation.US tax benefit.
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.

13
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
2023, 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 2023 are as follows:
Effective Date
Effective Date
Notional Amount
Fixed LIBOR
Rate
Maturity Date
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 2023 and September 2022 (in thousands):
March 2023
September 2022
Deferred tax assets
$
(60)
$
(48)
Other non-current liabilities
240
189
Accumulated other comprehensive income
$
180
$
141
Notational
Amount
Fixed LIBOR RateMaturity Date
Interest Rate SwapJuly 19, 2017$10 million1.74%July 19, 2019
Interest Rate SwapJuly 19, 2017$10 million1.99%May 10, 2021
From time to time, we may purchase
cotton option contracts to economically
hedge the risk related to market fluctuations
in the cost of cotton used in
our operations. We
do not receive hedge accounting
treatment for these derivatives. As such,
the realized and unrealized gains and
losses associated with them are
recorded within cost of
goods sold on the Condensed Consolidated Statement of Operations.
No such cotton contracts were outstanding at March 2023
and September 2022.
FASB Codification No.
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 1 – Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2 – Inputs other
than quoted prices that are
observable for assets and
liabilities, either directly or indirectly. These inputs
include quoted prices for similar
assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are less active.
Level 3 – Unobservable
inputs that are supported
by little or no market
activity for assets or
liabilities and includes certain
pricing models, discounted
cash flow
methodologies and similar techniques.
◦
Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.
◦
Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.
The following financial assets (liabilities)liabilities are measured at fair
value on a recurring basis (in thousands):

 Fair Value Measurements Using
Period EndedTotal 
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
Active Markets
Other
Significant
for
Observable
Unobservable
Identical Assets
Inputs
Inputs
Period Ended
Total
(Level 1)
(Level 2)
(Level 3)
Interest Rate Swaps
March 2023
$
240
-
$
240
-
September 2022
$
189
-
$
189
-
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 2023 and September 2022, book value for fixed rate debt approximates approximated
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
(a Level
2
fair value
measurement).
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of 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 inputs into the Monte Carlo model, including the time remaining in the measurement period. The sales expectations for calendar year 2019 have been reduced from the sales expectations used in the valuation of contingent consideration at acquisition due to our current view of the retail environment. Our expectations are consistent with those at September 30, 2017.

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").At times,
TSA Stores, Inc. and related entities TSA Ponce, Inc. and TSA Caribe, Inc. filed an action against Soffe on March 16, 2016, in the United States Bankruptcy Court for the District of Delaware (the "TSA Action") essentially seeking a declaratory judgment that: (i) Soffe does not own the Products but rather has a security interest that is not perfected or senior and is avoidable; (ii) Soffe only has an unsecured claim against TSA; (iii) TSA and TSA's secured creditors have valid, unavoidable and senior rights in the Products and the Products are

the property of TSA’s estate; (iv) Soffe does not have a perfected purchase money security interest in the Products; (v) Soffe is not entitled to a return of the Products; and (vi) TSA can continue to sell the Products and Soffe is not entitled to any proceeds from such sales other than as an unsecured creditor. The TSA Action also contains claims seeking to avoid Soffe's filing of a financing statement related to the Products as a preference and recover the value of that transfer as well as to disallow Soffe's claims until it has returned preferential transfers or their associated value. TSA also brings a claim for a permanent injunction barring Soffe from taking certain actions. We believe that many of the claims in the TSA Action, including TSA’s claim for injunction, are now moot as a result of Soffe’s agreement to permit TSA to continue selling the Products in TSA’s going-out-of-business sale.
On May 16, 2016, TSA lender Wilmington Savings Fund Society, FSB, as Successor Administrative and Collateral Agent ("WSFS"), intervened in the TSA Action seeking a declaratory judgment that: (i) WSFS has a perfected interest in the Products and Proceeds that is senior to Soffe's interest; and (ii) the Proceeds paid to Soffe must be disgorged pursuant to an order previously issued by the court. WSFS's intervening complaint also contains a separate claim seeking the disgorgement of all Proceeds paid to Soffe along with accrued and unpaid interest.
Soffe has asserted counterclaims against WSFS in the TSA Action essentially seeking a declaratory judgment that: (i) WSFS is not perfected in the Products; and (ii) WSFS's interest in the Products is subordinate to Soffe's interest.
On May 24, 2016, Soffe joined an appeal filed by a number of TSA consignment vendors in the United States District Court for the District of Delaware challenging an order issued in the TSA Bankruptcy that, should WSFS or TSA succeed in the TSA Action, granted TSA and/or WSFS a lien on all Proceeds received by Soffe and requiring the automatic disgorgement of such Proceeds. Soffe and another entity are the remaining consignment vendors pursuing this appeal.
Although we will continue to vigorously defend against the TSA Action and pursue the above-referenced counterclaims and appeal, should TSA and/or WSFS ultimately prevail on their claims, we could be forced to disgorge all Proceeds received and forfeit our ownership rights in any Products that remain in TSA's possession. We believe the range of possible loss in this matter is currently $0 to $3.3 million; however, it is too early to determine the probable outcome and, therefore, no amount has been accrued related to this matter.
In addition, at times we are
party to various
legal claims,
actions and
complaints. We believe
that, as
a result
of legal
defenses, insurance
arrangements, and
indemnification provisions
with parties believed to be financially capable, such actions
should not have a material adverse effect on our operations, financial
condition, or liquidity.

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. We did
During the December quarter of fiscal year 2018, we purchased 145,124no
t purchase any shares of our common stock for a total cost of $3.0 million.during the March 2023
quarter. Through December 30, 2017,March 2023, we have purchased 3,038,611
3,735,114
shares
of our common stock
for an aggregate
of $41.7 $
56.4
million since the inception ofunder 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. As
of December 30, 2017, $8.3 March 2023,
$
3.6
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


14
Note O—Goodwill and Intangible Assets
Components of intangible assets consist of the following (in
(in thousands):
 December 30, 2017 September 30, 2017  
 CostAccumulated AmortizationNet Value CostAccumulated AmortizationNet 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
Technology1,220
(978)242
 1,220
(947)273
 10 yrs
License agreements2,100
(449)1,651
 2,100
(423)1,677
 15 – 30 yrs
Non-compete agreements1,037
(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 2023
September 2022
Accumulated
Net
Accumulated
Net
Economic
Cost
Amortization
Value
Cost
Amortization
Value
Life
Goodwill
$
37,897
$
-
$
37,897
$
37,897
$
-
$
37,897
N/A
Intangibles:
Tradename/trademarks
$
16,000
$
(5,117)
$
10,883
$
16,000
$
(4,851)
$
11,149
20
–
30
yrs
Customer relationships
7,400
(3,583)
3,817
7,400
(3,213)
4,187
20
yrs
Technology
10,083
(3,059)
7,024
10,083
(2,610)
7,473
10
yrs
License agreements
2,100
(992)
1,108
2,100
(940)
1,160
15
–
30
yrs
Non-compete
agreements
1,657
(1,655)
2
1,657
(1,600)
57
4
–
8.5
yrs
Total intangibles
$
37,240
$
(14,406)
$
22,834
$
37,240
$
(13,214)
$
24,026
Goodwill represents the
acquired goodwill net
of the cumulative$
0.6
million impairment losses recorded
in fiscal year 2011
2011. As
of $0.6 million. TheMarch 2023,
the Delta Group
segment assets
include $
18.0
million of goodwill, and the Salt Life Group 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 for
the March 2023
and March 2022
quarters was $0.2 $
0.6
million and $
0.6
million, respectively. Amortization
expense for the three-month period
six-months ended December 30, 2017,March
2023 and $0.3 March 2022 was $
1.2
million for the three-month period ended December 31, 2016.and $
1.2
million, respectively. Amortization expense is estimated to be
approximately $0.9 $
1.4
million for each of fiscal years 2018 and 2019,the year ended September
2023, approximately $0.7 $
1.4
million for fiscalthe year 2020,ended September 2024, and approximately $0.6
$
1.4
million for each of fiscalthe years 2021ended September 2025, 2026, and 2022.
2027.

Note P—Subsequent Events
None

None.
15
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”
“plan”, “estimate”, “project”, “forecast”
“forecast”, “outlook”, “anticipate”, “expect”, “intend”
“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 general U.S. and international economic conditions;
●
the
impact of
the
COVID-19 pandemic
on
our
operations,
financial condition,
liquidity,
and
capital investments,
including recent
labor
shortages,
inventory constraints, and supply chain disruptions;
●
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;
prices and availability;
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;
●
changes in economic, political or social stability at
our offshore locations or in areas in which we, or our suppliers
or vendors, operate;
●
our ability to attract and retain key management;
●
the volatility and uncertainty of energy, fuel and fuel prices;related costs;
●
material disruptions in our information systems related to our
business operations;
●
compromises of our data security or privacy breaches;security;
●
significant interruptions within our manufacturing or distribution operations;
changes in or our ability to comply with safety, health and environmental regulations;effective tax rate;
●
significant litigation in either domestic or international jurisdictions:jurisdictions;
●
recalls, claims and negative publicity associated with product
liability issues;
●
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; or our ability to attract and retain
employees;
cost increases●
negative publicity
resulting from violations
of manufacturing standards
or labor
laws or
unethical business practices
by our
suppliers or independent
contractors;
●
the inability of suppliers or other third-parties, including those providing key equipment, transportation, and reduction in future profitability dueother services, to perform their obligations
or fulfill the effectsterms of healthcare legislation;their contracts with us;
●
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;
violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;●
the illiquidity of our shares; and
●
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.

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, 2017,2022, filed with
the SEC. Any forward-looking statements
in this Quarterly Report on
Form 10-Q10-
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.law.

16
Business Outlook
Our second quarter
performance showcases the
resiliency in our
operating model and
the versatility provided
by our multiple market
strategies.
We believe thatwere pleased to report
double-digit revenue growth across three of our strong firstfive channels, including record
second quarter results, includingperformance at Salt Life and DTG2Go with year-over-year
sales growth
of 16% and 19%, respectively, as well as double-digit sales growth in our Retail Direct
channel.
Salt Life’s success during the quarter spanned across all channels of distribution and consumer recognition of the brand continues to proliferate across the United States
and internationally. Salt Life just recently opened its 23rd branded
retail store and first in the state
of New Jersey and plans to further expand
its footprint in the northeast
market later this year with
its first locations in New
York. Salt Life’s wholesale channel continues to expand
geographically, with approximately 1,800 retail
doors spread
across 48 states and other territories, and the www.saltlife.com eCommerce site receives
orders from all 50 states.
Salt Life also entered the multi-billion dollar home furnishings market during the quarter through a license agreement for
the Salt Life Home collection to be offered to
consumers across the
country. We
expect the future
royalty income generated
by Salt
Life’s expanding
license portfolio to
serve as
another primary revenue
channel
going forward.
DTG2Go’s exceptional top
line results during
the quarter were accompanied
by a strategic consolidation
of more digital
capacity into its locations
integrated with our
Delta Direct
channel’s
vertical blank
garment supply
and the
related closing
of a
single-purpose location
acquired in
connection with
a prior
acquisition. DTG2Go
continues to enhance selling price strategies, make productivity gains, and grow sales outside
of the December holiday quarter. DTG2Go’s digital first strategy has been
particularly instrumental in increasing
sales throughout the year
and we are seeing
greater adoption of Delta
Direct blank tees in that
channel. In addition,
the print quality
and consistency
on the
first generation
technology used
in DTG2Go’s
digital first
program is
improving and
DTG2Go continues
to tailor
its strategies
and product
offerings to meet the requirements of its key digital first customer
base.
DTG2Go expects to
launch an exciting new
on-demand portal in
the third fiscal
quarter designed to
allow customers to
seamlessly submit orders for
small run, quick
reaction, and overflow
replenishment orders.
The portal will
provide DTG2Go with
another avenue
to capitalize on
the cost and
speed limitations
of traditional screenprint
operations as well as the growing market for personalized
on-demand apparel documenting consumer experiences and events.
In our Delta Direct channel, the well-publicized
high inventory levels and lower demand
across the blank tee industry continued
to impact our business and drove
overall
sales below our
expectations for the
quarter. The retail license
customer base selling
into mid-tier and
mass retail supply
chains continues to
be the primary
area of softness
in this channel.
We are also seeing indications of an over-inventoried supply
chain in parts of our businessesGlobal
Brands channel where we provide
custom decorated product to large brands
and
sportswear companies
as well as
all branches
of the United
States military, among
others. While
the high inventory
levels among
brands and pre-tax profitabilityretailers
is currently
pressuring
our demand, we continue to see positive macrotrends
from brand and retailer nearshore sourcing strategies
targeting manufacturing and fulfillment platforms like ours
in
Central America.
The double-digit sales growth during the quarter in whatour Retail Direct channel,
where we provide decorated, “retail ready” products to brick and mortar and e-commerce
merchants, is seasonally indicative of
the momentum we see
in nearshoring strategies.
This channel is one
of several areas of
our most challenging period, provide solid momentumbusiness, including Salt
Life, DTG2Go, and Global
Brands, where
we sell
decorated products
directly to
consumers or
to customers
adjacent to
the consumer
point-of-sale. Sales
in these
channels typically
carry more
consistent margins due to
the decoration and other value-adding services
they require, along with the
potential to pass through raw
material cost risks in selling prices.
These channels are also more working capital friendly given they turn our inventory quicker. We plan to prioritize these sales opportunities as we move further intolook for more ways to
optimize the return on our fiscal year 2018. That momentum, coupled withcapital investments in the current
high interest rate environment.
Looking ahead, we believe our recent effortsdecisive action throughout the last three quarters in calibrating our production levels to rationalizethe lower demand for blank tees, moderating our business, should
inventory build, and streamlining our offshore manufacturing
cost structure have us well-positioned to take advantage of opportunities wherever and whenever they may arise.capitalize
Art Gun’s customer service focus and execution during the quarter facilitated both a return to its traditional high-growth trajectory as well as record sales and profitability. Its new production facility, which fully integrates with our Activewear business’s vertical manufacturing platform, should serve as a valuable differentiator for Art Gun in the digital print and fulfillment marketplace. We believe that the flexibility provided by the new facility, along with capacity expansions and new business opportunities, will enable Art Gun to continue to gain market share and further increase profitability as the year unfolds.
We are highly encouraged by the double-digit sales growth seen on both sides of our Activewear business during the quarter. The improving conditions in the retail licensing channel are a welcome contrast to last year's customer de-stocking activity. We expect 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, we are optimistic that the successes our FunTees business has achieved in diversifying its customer base and leveraging its design and manufacturing sophistication will continue.
Sales in our Salt Life business accelerated during the quarter through product expansions and additional doors. Sales on the www.saltlife.com ecommerce site continue to grow significantly and Salt Life's new retail store in Daytona Beach, Florida, is performing extremely well. The brand is expanding geographically both through its own direct-to-consumer strategies as well as additional doors with new retail accounts, giving Salt Life strong momentum heading into the latter half of the fiscal year.
Soffe’s strong sales growth over the prior year quarter with successes in the military and strategic sporting goods channels provides good velocity in that business moving forward. Soffe’s 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 increasesupticks in demand for apparel during the quarter and the successes we are seeing fromimprove 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
operating results
as we move
through the second half
of our fiscal
year.
We will
continue to focus on
incrementally reducing our inventory and
debt levels in the
coming quarters and

believe we should see sequential improvement in our margins as we
cycle through our higher-cost inventory through the back half of our fiscal
year.
Results of Operations
Financial results included herein have been presented on a generally accepted accounting principles ("GAAP") basis.
Net sales were $110.3 million in the second quarter of fiscal 2023, a
decrease of 16% compared to the prior year second
quarter net sales of $131.7 million.
Net sales
in the
Delta Group segment
decreased 21%
to $91.3
million in the
second quarter of
fiscal 2023
compared to $115.3
million in
the prior
year second
quarter. Sales in our Delta Direct and Global Brands
channels declined from the prior
year period. This was offset by record second
quarter DTG2Go sales, up 18%
from prior year, and
increased sales in our Retail Direct
channel during the quarter.
Net sales for the first six
months of 2023 were $188.4 million, a 13%
decline
from the prior year period.
The Salt Life Group
segment’s net sales for
the second quarter
of fiscal year 2018 were $90.3 2023
grew 16% and
reached a second
quarter record $19.0
million compared to $85.3
$16.4 million
in the prior year period. After adjusting for second quarter. The segment’s
growth was driven by increases in both our wholesale and direct to consumer channels. For
the $9.4 millionfirst six months of
fiscal 2023, net sales from the since-divested Junkfood business in the Salt Life segment were $29.3 million,
up 16% from prior year quarter, first quarter sales grew 19% year-over-year. Each business unit achieved double-digit sales growth over the prior year quarter.
Our direct-to-consumer retail and ecommerce sales represented 7.1% of total revenues for the first quarter of 2018. Overall growth in our direct-to-consumer retail and ecommerce sales for the quarter was only 1.1%, as the prior year sales included ecommerce and retailperiod net 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.$25.2 million.
Gross margins were 18.1%14.7% for the firstsecond quarter compared with 20.6% in the prior year period. Basics segment gross margins declined 270 basis pointsof fiscal 2023,
declining from the prior year second quarter gross margin of 25.5%.
Delta Group segment gross
margins were 5.5%
for the second quarter
of fiscal 2023, a
decline from prior year
second quarter margins
of 21.6%. Gross
margins
were primarily impacted by higher
inventory costs from higher cost inflationary
raw materials partially offset bymaterial and other input
pricing in fiscal 2022
flowing through sales during the benefits
quarter.
Plant curtailment costs of $0.9 million in the manufacturing realignment. Branded segmentsecond quarter of fiscal 2023 also impacted gross margins,
and second quarter gross margins adjusted for these costs
were 6.5%. Gross margins for the quarter
first six months of fiscal 2023 declined from 19.9% in
the prior year period to 6.8% of
sales. Adjusted for $4.3 million of plant
curtailment costs, gross margins for the six-months ended March
2023 were 9.1%.
Salt Life Group segment gross margins improved to 37.2%59.0% in
the second quarter of fiscal 2023, an improvement
of 660 basis points compared to 31.1%52.4% in the
prior year second quarter resulting
from a favorable mix of sales,
including increased direct-to-consumer sales
through both our ecommerce and
retail channels. For
the first six months of fiscal year 2023, gross margins grew to
58.3% of sales from 52.7% in the prior year period.
Selling, general, and administrative expenses ("SG&A") were $15.0
$19.3 million in the second quarter of fiscal 2023, or 17.5% of sales,
compared to $19.7 million, or 16.6%15.0%
of sales, in the prior year second quarter. The increase in SG&A as a percentage of sales was driven by the further expansion of Salt Life’s branded retail store footprint
and the deleveraging effect of overall lower sales
relative to the prior year period. SG&A
expenses for the first six months of fiscal
2023 were $38.2 million, or 17.5% of
sales, compared to $37.2 million, or 15.3% of sales, and driven
by fixed costs period-over-period compared to lower sales in the
current year.
17
Other loss for the 2023
second fiscal quarter includes $1.6 million of expenses
incurred in our Central American and Mexican
manufacturing operations to better align
our cost structure with market demand.
We also incurred $0.9 million in expense in our DTG2Go business
as we shifted the digital production capacity
from our legacy,
single-purpose Clearwater, Florida facility into our national footprint of dual-purpose facilities housing digital printing and blank garment distribution under one roof to
advance our integrated on-demand model and
further leverage the distinct competitive advantages it
provides DTG2Go.
In addition, the second fiscal quarter
includes
profits of $0.3
million related
to our Honduran
equity method
investment. Other
income for the
second
quarter of fiscal
2022 included a
valuation change
in our contingent
consideration liabilities of $0.5 million, a loss on disposal
of assets of $0.4 million, as well as profits related to our Honduran
equity method investment of $0.3 million.
Other income for the first six
months of fiscal includes a discrete
gain of $2.5 million from the
settlement of a commercial litigation matter
recorded in the first quarter of
fiscal
2023
as
well
as
profits
in
our
Honduran
equity
method
investment,
which
were
offset
by
the
above-referenced
costs
incurred
to
better
align
our
offshore
manufacturing cost structure with market
demand. Other income for the first
six months of fiscal 2022
was $0.9 million, including
profits related to our Honduran
equity
method investment and a valuation adjustment of our contingent consideration.
Operating loss in the second
quarter of fiscal 2023 was
$5.3 million, a decrease from the
prior year second fiscal quarter
operating profit of $14.4 million.
For the first six
months of fiscal year 2023, operating loss was $7.9 million,
declining from the prior year operating income of $20.2 million.
The Delta Group segment experienced an operating loss of
$7.5 million in the second quarter of fiscal 2023, or 8.2%
of net sales, compared to operating income of
$14.4 million, or 12.5% of net
sales, in the prior year second
quarter. The decline
in operating profit was driven by lower
gross margins. Operating loss was
$7.4
million, or 3.9% of sales, for the quarter ended December 30, 2017,first half of fiscal
2023, compared to 17.3operating income of $22.9 million,
or 20.3%10.5% of sales in the prior year period. When adjusted to exclude results
The Salt Life Group
segment earned operating
income of $4.6 million
in the since-divested Junkfood businesssecond quarter
of fiscal 2023, or
24.5% of net sales,
compared to $3.3 million,
or 20.2%
of net
sales, in the
prior year quarter, such expenses were $14.2 million, or 18.7%second
quarter. The
increase in operating
income as a
percentage of sales with
was driven by
improved gross margins.
For the quarter's increasefirst
six
months of $0.8fiscal 2023, operating income improved by $1.4 million primarily due
to variable selling costs on significantly higher sales volumes.$4.8 million.
The change in fair valueNet interest expense for the second quarter of contingent considerationfiscal year 2023 was associated with$3.7 million,
and for the Salt Life acquisition. Based upon our updated analysis, second quarter of fiscal year 2022 was $1.8 million. Net interest expense
for
the fair valuefirst six months of this liability decreased $0.3fiscal 2023 was $6.6 million in the 2018 first quarter compared
to a decrease of $0.1$3.4 million in the prior year period. The change is principally due to the reduced remaining time in the measurement period. The sales expectations for calendar year 2019 have been reduced from the sales expectations used in the valuation of contingent consideration at acquisition due to our current view of the retail environment. Our expectations are consistent with those at September 30, 2017.first six months.
During the first quarter we recorded $47 thousand in other income compared to $0.1 million in the prior year period. Net interest expense for the first quarter of each of fiscal years 2018 and 2017 was $1.3 million.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was enacted. The New Tax Legislation significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax on deemed repatriated cumulative earnings of foreign subsidiaries. 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, theOur effective tax rate on
operations for the three-monthsix-month period ended December 30, 2017, March 2023
was (46.4%)27.5%. 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% 18.2%
for the same period in the
prior year and 5.9%17.9 % for the full fiscal year ended September 30, 2017.2022. See Note
K—Income taxes for more information.
We benefit from havingNet loss attributable to shareholders for the second fiscal
quarter of 2023 was $7.0 million, or $1.00 per diluted share,
compared to net income in foreign jurisdictions that are either exempt from income taxesof $10.1 million, or have tax rates that are lower than those$1.44
per diluted share, in the United States. Based on our current projected pre-tax income and the anticipated amount of U.S. taxable income comparedprior year. Net loss attributable to profits in the offshore taxable and tax-free jurisdictions in which we operate, our estimated annual income tax rateshareholders for the first six months of 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.
Largely impacted by the New Tax Legislation, we experienced a net loss for the quarter of $10.02023 was $10.6 million, or $1.37$1.51 per diluted share, compared to a prior year
net lossincome of $0.6$13.8 million, or $0.08$1.95 per diluted share. Adjusting forshare, in the discrete impact of the new tax legislation, our net income was approximately $0.08 per diluted share.
prior year.
At December 30, 2017, accountsAccounts receivable were $51.0 $62.0
million at March 2023,
compared to $48.2$68.2 million at December 31, 2016, and $47.6 million
as of September 30, 2017. 2022.
Days sales outstanding ("DSO") decreased
as of March
2023 were 45
days compared to 52 days at September 2022.
Net inventory as of March 2023 was $243.2 million, a decrease of $5.4 million from 53 days inSeptember 2022 and an increase of $45.5 million from March 2022. The inventory
value is higher
than the prior year to 48 days, and was in line with the 49
second quarter as a

result of increased input
days at September 30, 2017. The improvement in DSO
costs; however, it
represents a sequential decline
from the prior year results from the since-divested Junkfood business, which carried higher DSO than our other business units.December 2022
quarter as a
Inventory levels remained flatresult of production adjustments to align with those at September 30, 2017, at $174.5 million as of December 30, 2017. Strong sales in the quarter offset the normal seasonal build in inventory that occurs in the December quarter.
Capital expenditures were $4.9 milliondemand during the first
second quarter of fiscal year 2018. Capital expenditures primarily related to machinery and equipment as well as investments in 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 $2.9 million for the first quarter of fiscal year 2018.2023.
Total net debt, at December 30, 2017,including capital lease financing and cash on hand, was $106.0 million compared with $119.8$194.3 million at December 31, 2016. TheMarch 2023, an
increase of $23.7 million from September 2022. Cash on hand
and availability under our
U.S. revolving credit
facility totaled $12.8
million at March 2023,
a $21.9 million decrease
from the prior year was primarilySeptember 2022
principally driven
by working
capital needs 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 increasedreduced consumer demand in the retail licensing channel coupled with 73% growth inimpacting 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 .inflationary input costs.
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.
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 results, we also provide non-GAAP information that management believes is useful to investors. We discuss adjusted income, adjusted earnings per share, adjusted gross margin, adjusted selling general and administrative expenses performance measures because management uses these measures in evaluating the Company's 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 ongoing performance. These non-GAAP measures have limitations 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 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 resulted in a cash
usage of $19.1 million for the six months
ended March 2023 compared to $14.5
million of cash used $7.8 million and $0.5 million in the
prior year. The increase
in cash
used in operating cash
flows in the
current year is
due to
the timing
of payments from
customers and to
vendors, in
addition to the
decreased earnings in
the
business in the first three monthshalf of fiscal years 2018 and 2017, respectively. The increased use of cash from the prior year is due to increased payments to suppliers to improve timing of payments and higher receivables from our customers from the higher sales compared to the prior year. This is offset partially by the prior year having a larger seasonal inventory build.2023.
Investing Cash Flows
Capital
Cash outflows for capital expenditures were $2.5 million during the first threesix months of fiscal year 2018 were $2.2 million2023 compared to $1.9$7.7 million in the same period lastin the
prior year. CapitalWe
currently
expect to spend less on
capital expenditures in both periods primarily related2023 compared to machinery and equipment, along
2022, with our expenditures expected
to focus on direct-to-consumer investments in our direct-to-consumer initiatives and information technology systems. There were $3.1 million in expenditures financed under a capital lease arrangement andincluding
new Salt

Life retail store openings,
$0.1 million in unpaid expenditures in the first three months of fiscal 2018. During the first three months of fiscal year 2018, investing cash flows also included $1.0 million in proceeds received from the promissory note related to the sale of our Junkfood business. See Note D—Divestitures, for further information on this transaction.
We anticipate our fiscal year 2018 capital expenditures to be approximately $13 million and to be focused primarily on manufacturing equipment along with information technology, and direct-to-consumer enhancements .manufacturing efficiencies.
Financing Activities
During the threesix months
ended December 30, 2017, March 2023,
cash provided by
financing activities was $9.0
$17.5 million compared to $2.4
$13.8 million provided by financing activities for in
the three months ended December 31, 2016. The cash provided by our financing activities during the first three months of fiscalprior year, 2018 was usedprimarily
related to fund funding
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 working capital needs, and that cash flow generatedcertain
capital investments offset by scheduled loan principal payments.
Future Liquidity and Capital Resources
See Note F – Debt to the Condensed
Consolidated Financial Statements for a discussion
of our operations and funds available undervarious financing arrangements,
including the terms of our revolving U.S.
credit facility.
Our credit facility, should be sufficient as well as cash flows
from operations, are intended
to service our debt payment requirements, to satisfyfund our day-to-day working
capital needs, and along with
capital lease financing arrangements,
to fund our planned capital expenditures. AnyHowever,
any material deterioration in our results of
operations however, may result in the loss
of our ability to borrow 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 ourOur availability at December 30, 2017,
March 2023 was above
the minimum thresholds specified
in our
credit agreement, a significant deterioration and we were compliant with the
applicable EBITDA covenant minimum thresholds. We
note that the execution of the Ninth
Amendment to the Fifth
Amended and Restated
Credit Agreement suspended
application of the
FCCR covenant until
the expiration of
its Accommodation Period.
Refer to Note
F for further
information.
18
Share Repurchase Program
The Company did not purchase any
shares under our previously announced share repurchase program
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.March 2023 quarter.
The total amount repurchased during
Purchases By Delta Apparel Of Its Own Shares
During the three months ended December 30, 2017, we purchased 145,124 shareslife of our common stock for an aggregate amountthe program
is $56.4 million.
At the end of $3.0 million (see Note N-Repurchasethe second
quarter of Common Stock). As of December 30, 2017, there was $8.3fiscal 2023, the
Company had $3.6 million of
remaining repurchase authorization remaining capacity
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.its existing

authorization.
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, 2017,2022, and
there have been no changes in those
policies since the filing of that Annual
Report on Form
10-K with the SEC.

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 international operations
are also subject to various federal, statecompliance with the U.S. Foreign
Corrupt Practices Act (the “FCPA”) and local environmentalother anti-bribery 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.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

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 4.
Controls and Procedures
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, principal
accounting officer,
as
appropriate to allow timely decisions regarding required disclosure.
Our management, with the
participation of our Chief
Executive Officer and Chief Financial Officer,principal
accounting officer, has
evaluated the effectiveness of our
disclosure controls and
procedures as of December 30, 2017,the end of the period covered by this quarterly report ("the Evaluation Date") and, based on their evaluation, our
Chief Executive Officer and Chief Financial Officerprincipal
accounting 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 changechanges during
the firstMarch 2023 quarter of fiscal year 2018
that hashave materially
affected, or is
are reasonably likely
to materially
affect, our
internal control
over financial
reporting.

PART II.
OTHER INFORMATION
PART II.OTHER INFORMATION

Item 1.
Item 1.Legal Proceedings
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
19
Item 6.
Exhibits
Exhibits
10.1
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Repurchases of Common Stock31.1
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
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
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase


SIGNATURES
Pursuant to the requirements of the Chief Executive Officerpursuant to Rule 13a-14(a) under theSecurities Exchange Act of 1934, as amended,as adopted pursuant to
31.2
32.1
32.2
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)
20
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)
 
DateFebruary 5, 2018By:/s/ Deborah H. Merrill  
Deborah H. Merrill
Chief Financial Officer and President, Delta Basics

22
DELTA
APPAREL, INC.
(Registrant)
Date
May 4, 2023
By:
/s/Nancy P. Bubanich
Nancy P. Bubanich
Chief Accounting Officer