UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March 28, 2020~~January 2, 2021

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

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

(864) 232-5200

(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 has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑ No ☐

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 “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer ☐

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 Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~April 23, 2020,~~January 27, 2021, there were outstanding ~~6,890,118~~6,974,660 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.

	March 28, 2020			September 28, 2019			*December 2020*			*September 2020*
Assets
Current Assets:
Cash and cash equivalents	$	9,568		$	605		$	10,255		$	16,458
Accounts receivable, less allowances of $366 and $327, respectively		58,682			59,337
Accounts receivable, less allowances of $854 and $684, respectively								62,592			60,146
Other receivables		725			1,550			1,054			854
Income tax receivable		703			729			1,180			983
Inventories, net		197,333			179,107			148,521			145,515
Prepaid expenses and other current assets		3,369			2,270			3,609			2,812
Total current assets		270,380			243,598			227,211			226,768

Property, plant and equipment, net of accumulated depreciation of $86,893 and $81,787, respectively		62,587			61,404
Property, plant and equipment, net of accumulated depreciation of $93,283 and $92,123, respectively								67,779			63,950
Goodwill		37,897			37,897			37,897			37,897
Intangibles, net		20,734			21,607			19,555			19,948
Deferred income taxes		1,514			1,514			3,313			4,052
Operating lease assets		43,226			-			52,171			54,645
Equity method investment		10,309			10,388			10,462			10,573
Other assets		2,484			1,580			2,233			2,398
Total assets	$	449,131		$	377,988		$	420,621		$	420,231

Liabilities and Equity
Current liabilities:
Accounts payable	$	56,022		$	52,320		$	55,023		$	49,800
Accrued expenses		15,033			20,791			18,130			20,174
Current portion of contingent consideration		1,970			2,790
Income taxes payable								383			379
Current portion of finance leases		6,965			6,434			6,915			6,956
Current portion of operating leases		8,525			-			8,892			9,039
Current portion of long-term debt		7,577			6,540			7,112			7,559
Current portion of contingent consideration								0			2,120
Total current liabilities		96,092			88,875			96,455			96,027

Long-term taxes payable		3,585			3,977
Long-term contingent consideration		3,610			6,304
Long-term income taxes payable								3,599			3,599
Long-term finance leases, less current maturities		12,239			12,836			13,409			11,328
Long-term operating leases, less current maturities		35,611			-			44,522			46,570
Long-term debt, less current maturities		141,088			109,296			112,595			112,782
Deferred income taxes		1,355			1,519
Long-term contingent consideration								4,310			4,300
Other non-current liabilities		1,914			1,293			2,534			2,939
Total liabilities	$	295,494		$	224,100		$	277,424		$	277,545

Shareholder's equity:
Preferred stock - $0.01 par value, 2,000,000 shares authorized, none issued and outstanding		-			-			0			0
Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 6,890,118 and 6,921,417 shares outstanding as of March 28, 2020, and September 28, 2019, respectively		96			96
Common stock - $0.01 par value, 15,000,000 authorized, 9,646,972 shares issued, and 6,974,660 and 6,890,118 shares outstanding as of December 2020 and September 2020, respectively								96			96
Additional paid-in capital		59,440			59,855			59,564			61,005
Retained earnings		139,171			136,937			127,447			126,564
Accumulated other comprehensive loss		(1,433	)		(969	)		(1,197	)		(1,322	)
Treasury stock - 2,756,854 and 2,725,555 shares as of March 28, 2020, and September 28, 2019, respectively		(43,133	)		(41,750	)
Treasury stock - 2,672,312 and 2,756,854 shares as of December 2020, and September 2020, respectively								(42,149	)		(43,133	)
Equity attributable to Delta Apparel, Inc.		154,141			154,169			143,761			143,210
Equity attributable to non-controlling interest		(504	)		(281	)		(564	)		(524	)
Total equity		153,637			153,888			143,197			142,686
Total liabilities and equity	$	449,131		$	377,988		$	420,621		$	420,231

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 and six-month periods ended ~~March 28, 2020~~, are not necessarily indicative of the results that may be expected for our fiscal year ending October 3, 2020. 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. The COVID-19 pandemic is occurring during the seasonally strongest months of the business. As such, the historic seasonality may not be indicative of future results. 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 28, 2019, filed with the United States Securities and Exchange Commission (“SEC”).

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 a vertically-integrated, international apparel company. With approximately ~~8,400~~7,700 employees worldwide, we design, manufacture, source, and market a diverse portfolio of core activewear and lifestyle apparel products under our primary brands of Salt Life®, COAST®, Soffe®, and Delta. We are a market leader in the ~~direct-to-garment~~on-demand, digital print and fulfillment industry, bringing ~~DTG2Go~~DTG2Go's proprietary technology and innovation to the supply chain of our customers. We specialize in selling casual and athletic products through a variety of distribution channels and tiers, including outdoor and sporting goods retailers, independent and specialty stores, better department stores and mid-tier retailers, mass merchants and e-retailers, the U.S. military, and through our business-to-business ~~ecommerce sites.~~digital platform. Our products are also made available direct-to-consumer on our ~~websites~~ecommerce sites and in our branded retail stores. ~~This~~Our diversified distribution model allows us to capitalize on our strengths to provide our activewear and lifestyle apparel products to a broad and evolving customer base whose shopping preferences may span multiple retail channels.

We design and internally manufacture the majority of our products. More than 90% of the apparel ~~units~~garments that we sell are sewn in our owned or leased facilities. This allows us to offer a high degree of consistency and quality, leverage scale efficiencies, and react quickly to changes in trends within the marketplace. We have manufacturing operations located in the United States, El Salvador, Honduras, and Mexico, and we use domestic and foreign contractors as additional sources of production. Our distribution facilities are strategically located throughout the United States to better serve our customers with same-day shipping on our catalog products and weekly replenishments to retailers.

We were incorporated in Georgia in 1999, and our headquarters is located in Greenville, South Carolina. Our common stock trades on the NYSE American under the symbol “DLA."

We operate on a ~~52-53~~52-53 week fiscal year ending on the Saturday closest to September 30. Our ~~2020~~2021 fiscal year is a ~~53-week~~52-week year and will end on October ~~3, 2020.~~2, 2021, ("fiscal 2021"). Accordingly, this Form 10-Q presents our first quarter of fiscal 2021. Our ~~2019~~2020 fiscal year was a ~~52-week~~53-week year and ended on October 3, 2020, ("fiscal 2020"). For presentation purposes herein, all references to periods ended December 2020 and December 2019 relate to the fiscal periods ended on January 2, 2021, and December 28, 2019, respectively. References to September ~~28, 2019.~~2020 and September 2021 relate to information as of October 3, 2020 and October 2, 2021, respectively.

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 periods ended December 2020 are not necessarily indicative of the results that may be expected for our fiscal year ending September 2021. Although our various product lines are sold on a year-round basis, the demand for specific products or styles reflects some seasonality, with sales in our June quarter generally being the highest and sales in our December quarter generally being the lowest. 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 year ended September 2020, 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 December 2020 quarter, we received dividends from the investment of $0.3 million. Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with this Honduran company. During the December 2020 quarter, we paid approximately $0.8 million under this arrangement which included repayment of rent deferrals related to the June 2020 quarter. Payments of approximately $0.4 million were made during the December 2019 quarter.

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., 322 South Main Street, Greenville, South Carolina 29601. Requests can also be made by telephone to ~~864-232-5200,~~864-232-5200, or via email at investor.relations@deltaapparel.com.

Note C—New Accounting Standards

Recently Adopted Standards

In August ~~2017,~~ 2018, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Update ("ASU"), No. ~~2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, ("ASU 2017-12"). The amendments in ASU 2017-12 apply to any entity that elects to apply hedge accounting in accordance with U.S. GAAP. ASU 2017-12 permits more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments, and the ability to hedge risk components for nonfinancial hedges. In addition, this ASU requires an entity to present the earnings effect of hedging the instrument in the same income statement line in which the earnings effect of the hedge item is reported. In addition, companies no longer need to separately measure and report hedge ineffectiveness and can use an amortization approach or continue with mark-to-market accounting. We adopted ASU 2017-12 as of September 29, 2019. The provisions of ASU 2017-12 did not have a material effect on our financial condition, results of operations, cash flows or disclosures.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles~~ 2018- ~~Goodwill and other (Topic 350), Simplifying the Test for Goodwill Impairment~~, ("ASU 2017-04"). To simplify the subsequent measurement of goodwill, ASU 2017-04 eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We early adopted ASU 2017-04 as of September 29, 2019. The provisions of ASU 2017-04 did not have a material effect on our financial condition, results of operations, cash flows or disclosures.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (“ASU 2016-02”), which requires lessees to include most leases on the balance sheet as lease liabilities with an associated right-of-use ("ROU") asset. Since the issuance of ASU 2016-02, the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the allowable adoption methods. These standards have been collectively codified within Accounting Standard Codification, ("ASC ") 842, ~~Leases~~ (“ASC 842”). We adopted ASC 842 using the modified retrospective method and applied the standard to all leases existing as of September 29, 2019. Information for prior years presented has not been restated and continues to reflect the authoritative accounting standards in effect for those periods. We elected the package of transition practical expedients that allows us to carryforward our historical assessments of whether existing contracts contain leases, determinations of lease classification, and treatments of initial direct costs. As of September 29, 2019, we recognized total operating lease liabilities of $44.6 million in our Consolidated Balance Sheets, of which $36.1 million was recorded within Long-term operating leases, less current maturities and $8.5 million was recorded within Current portion of operating leases. We additionally derecognized $0.8 million of previously recorded net deferred rent balances and recorded operating lease ROU assets of $43.8 million related to our operating leases, which are reflected within Operating lease assets in our Consolidated Balance Sheets. The adoption of the new leasing standard had no significant impact on covenants or other provisions of our secured credit facility.

~~Standards Not Yet Adopted~~

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

Standards Not Yet Adopted

In December 2019, the FASB issued ASU No.2019-12,Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions within Accounting Standards Codification ("ASC") 740,Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective ~~for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those annual periods. ASU 2018-15 will therefore be effective for us~~ as of ~~October 4, 2020 including~~ the ~~interim periods within~~beginning of our fiscal year ~~2021 annual period. The~~2022. Most amendments within the standard ~~allows changes~~are required to be applied ~~either retrospectively~~on a prospective basis, while certain amendments must be applied on a retrospective or ~~prospectively.~~modified retrospective basis. We are currently evaluating the ~~effect that~~impacts of the provisions of ASU ~~2018-15 will have~~2019-12 on our financial ~~statements~~condition, results of operations, cash flows, and ~~related~~ disclosures.

In June 2016, the FASB issued ASU No.2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on the entity's estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. These standards have been collectively codified within ASC Topic 326,Credit Losses (“ASC 326”). As a smaller reporting company as defined by the SEC, the provisions of ASC 326 are effective as of the beginning of our fiscal year 2024. We are currently evaluating the impacts of the provisions of ASC 326 on our financial condition, results of operations, cash flows, and disclosures.

Note D—Revenue Recognition

We only recognize revenue to the extent that it is probable that we will not recognize a significant reversal of revenue when the uncertainties related to the variability are ultimately resolved. In determining our estimates for discounts, allowances, chargebacks, and returns, we consider historical and current trends, agreements with our customers and retailer performance. We record these discounts, returns and allowances as a reduction to net sales in our Condensed Consolidated Statements of Operations and as a refund liability in our accrued expenses in our Condensed Consolidated Balance Sheets, with the estimated value of inventory expected to be returned in prepaid and other current assets in our Condensed Consolidated Balance Sheets. As of March 28, 2020, and September 28, 2019, there was $1.0 million in refund liabilities for customer returns, allowances, markdowns and discounts within accrued expenses.

Our revenue streams consist of retail stores, direct-to-consumer ecommerce, and wholesale channels which are included in our Condensed Consolidated Statements of Operations. The table below identifies the amount and percentage of net sales by ~~revenue stream~~distribution channel (in thousands):

	Three Months Ended										*Three Months Ended*
	March 28, 2020					March 30, 2019					*December 2020*					*December 2019*
	$		%			$		%			$		%			$		%
Retail	$	962		1	%	$	872		1	%	$	2,438		3	%	$	1,234		1	%
Direct-to-consumer ecommerce		1,084		1	%		1,019		1	%		1,809		2	%		1,683		2	%
Wholesale		94,614		98	%		100,947		98	%		90,476		95	%		92,972		97	%
Net Sales	$	96,660		100	%	$	102,838		100	%
Net sales											$	94,723		100	%	$	95,889		100	%

Six Months Ended

March 28, 2020

March 30, 2019

$
%
$
%

Retail
$ 2,195 1 % $ 1,884 1 %
Direct-to-consumer ecommerce
2,767 1 % 2,601 1 %
Wholesale
187,588 98 % 200,028 98 %
Net sales
$ 192,550 100 % $ 204,513 100 %

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

December 2020 Quarter

Net Sales

Retail

Direct-to-consumer ecommerce

Wholesale

Delta Group
$ 87,624 0.2 % 0.4 % 99.4 %
Salt Life Group
7,099 31.4 % 21.1 % 47.5 %
Total
$ 94,723

December 2019 Quarter

Net Sales

Retail

Direct-to-consumer ecommerce

Wholesale

Delta Group
$ 88,950 0.3 % 0.3 % 99.4 %
Salt Life Group
6,939 13.5 % 20.7 % 65.8 %
Total
$ 95,889

Second Quarter Fiscal Year 2020

Net Sales

Retail

ecommerce

Wholesale

Delta Group
$ 84,191 0.2 % 0.2 % 99.6 %
Salt Life Group
12,469 6.4 % 7.1 % 86.5 %
Total
$ 96,660

Second Quarter Fiscal Year 2019

Net Sales

Retail

ecommerce

Wholesale

Delta Group
$ 89,526 0.3 % 0.3 % 99.4 %
Salt Life Group
13,312 4.4 % 5.7 % 89.9 %
Total
$ 102,838

Year To Date Fiscal Year 2020

Net Sales

Retail

ecommerce

Wholesale

Delta Group
$ 173,143 0.3 % 0.3 % 99.4 %
Salt Life Group
19,407 8.9 % 11.9 % 79.2 %
Total
$ 192,550

Year To Date Fiscal Year 2019

Net Sales

Retail

ecommerce

Wholesale

Delta Group
$ 183,916 0.3 % 0.3 % 99.4 %
Salt Life Group
20,597 6.1 % 9.7 % 84.2 %
Total
$ 204,513

Note F—Debt

Credit Facility

On May 10, 2016, we entered into a Fifth Amended and Restated Credit Agreement (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 DTG2Go, LLC (f/k/a Art Gun, LLC) (collectively, the "Borrowers"), are co-borrowers under the Amended Credit Agreement. The Borrowers entered into amendments to the Amended Credit Agreement with Wells Fargo and the other lenders on November 27, 2017, March 9, 2018, ~~and~~ October 8, ~~2018.~~

On 2018, November 19, 2019, ~~the Borrowers entered into a Consent~~ April 27, 2020, and Fourth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo and the other lenders set forth therein (the "Fourth Amendment"). The Fourth Amendment, among other things, (i) increased the borrowing capacity under the Amended Credit Agreement from $145 million to $170 million (subject to borrowing base limitations), (ii) extended the maturity date from May 21, 2021 to November 19, 2024, (iii) reduced pricing on the revolver and first-in last-out "FILO" borrowing components by 25 basis points, and (iv) added 25% of the fair value of eligible intellectual property to the borrowing base calculation. In addition, the Fourth Amendment amended the definition of Fixed Charge Coverage Ratio to exclude up to $10 million of capital expenditures incurred by the Borrowers in connection with the expansion of their distribution facility located within the Town of Clinton, Anderson County, Tennessee.August 28, 2020.

The Amended Credit Agreement allows us to borrow up to $170 million (subject to borrowing base limitations), including a maximum of $25 million in letters of credit. Provided that no event of default exists, we have the option to increase the maximum credit to $200 million (subject to borrowing base limitations), conditioned upon the Administrative Agent's ability to secure additional commitments and customary closing conditions.

~~As of~~ ~~March 28, 2020~~, there was $135.7 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.2%. Our cash on hand combined with the additional borrowing availability under the U.S. credit facility totaled $30.5 million. This credit facility includes a financial covenant requiring that if the amount of availability falls below the threshold amounts set forth in the Amended Credit Agreement, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Credit Agreement) for the preceding 12-month period must not be less than 1.1 to 1.0. We were not subject to the FCCR covenant at ~~March 28, 2020, because our availability was above the minimum required under the Amended Credit Agreement, but we would have satisfied our financial covenant had we been subject to it. At~~ ~~March 28, 2020, and~~ ~~September 28, 2019, there was $15.2 million and $16.1 million, respectively, of retained earnings free of restrictions to make cash dividends or stock repurchases.~~

The Amended Credit Agreement contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in ASC 470,Debt ("ASC 470")) whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. We classify borrowings under the Amended Credit Agreement as long-term ~~debt.~~debt with consideration of current maturities.

~~See Note Q~~—~~Subsequent Events for a discussion~~As of December 2020, we had $107.1 million outstanding under our U.S. revolving credit facility at an average interest rate of 3.4%. Our cash on hand combined with the ~~Fifth Amendment~~availability under the U.S. credit facility totaled $43.7 million. At December 2020 and September 2020 there was $9.2 million and $8.8 million, respectively, of retained earnings free of restrictions to ~~the Fifth Amended and Restated Credit Agreement entered into on April 27, 2020.~~make cash dividends or stock repurchases.

Promissory Note

On October 8, 2018, we acquired substantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services. In conjunction with the acquisition, we issued a promissory note in the principal amount of $7.0 million. The promissory note bears interest at 6% with quarterly installments which began January 2, 2019, with the final installment due October 1, 2021. As of ~~March 28,~~December 2020, there was ~~$4.1~~$2.3 million outstanding on the promissory note.

Honduran Debt

Since March 2011, we have entered into term loans and a revolving credit facility with Banco Ficohsa, a Honduran bank, to finance both the operations and capital expansion of our Honduran facilities. In December 2020, we entered into a new term loan and revolving credit facility with Banco Ficohsa, both with five-year terms, and simultaneously settled the prior term loans and revolving credit facility with outstanding balances of $1.1 million and $9.5 million, respectively. Each of these new loans is secured by a ~~first-priority~~first-priority lien on the assets of our Honduran operations and is not guaranteed by our U.S. entities. These loans are denominated in U.S. dollars, and the carrying value of the debt approximates its fair value. ~~The~~As the revolving credit facility requires minimum payments during each six-month period of the 12 to 18-month terms; however, the loan agreement permits additional drawdowns to the extent payments are made and certain objective covenants are met. The current revolving Honduran debt, by its nature, is not long-term, as it requires scheduled payments each six months. However, as the loan permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants, and we intend to re-borrow funds, subject to those covenants, the amounts have been classified as long-term debt.

Additional information about these loans and the outstanding balances as of ~~March 28,~~December 2020, is as follows (in thousands):

March 28,

2020

Revolving credit facility established March 2011, weighted average interest at 6.6% expiring August 2025
$ 6,267
Term loan established November 2014, interest at 6.0%, payable monthly with a six-year term
500
Term loan established June 2016, interest at 6.0%, payable monthly with a six-year term
631
Term loan established October 2017, interest at 6.0%, payable monthly with a six-year term
1,420

December 2020

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

~~Note G—Leases~~

We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Honduras, El Salvador, and Mexico. We also lease machinery and equipment under finance lease arrangements in the U.S. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities and the related assets as the present value of the lease payments over the related term. We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Condensed Consolidated Balance Sheet. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Condensed Consolidated Statements of Operations. Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are not material to our consolidated lease cost. Our operating lease agreements for buildings generally include provisions for the payment of our proportional share of operating costs, property taxes, and other variable payments. These incremental payments are excluded from our calculation of operating lease liabilities and right of use assets. We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities.

Generally, the rate implicit in our operating leases is not readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases as of March 28, 2020, was 4.2%. We discount our finance lease payments based on the rate implicit and stated in the lease. The weighted average discount rate for finance leases as of March 28, 2020, was 5.1%.

The following table presents the future undiscounted payments due on our operating and finance lease liabilities as well as a reconciliation of those payments to our operating and finance lease liabilities, recorded as of March 28, 2020 (in thousands):

Operating

Finance

Leases

Leases

2020
$
5,509
$ 3,989
2021
9,488 6,684
2022
8,116 4,475
2023
6,119 3,464
2024
4,675 1,965
Thereafter
17,635 295
Undiscounted fixed lease payments
$ 51,542 $ 20,872
Discount due to interest
(7,406 )
(1,668)

Total lease liabilities $ 44,136 $ 19,204
Less current maturities
(8,525 ) (6,965 )
Lease liabilities, excluding current maturities
$ 35,611 $ 12,239

As of March 28, 2020, we have entered into certain operating leases that have not yet commenced and which will result in annual fixed lease payments that range from $1.0 million to $1.3 million per year for a 10-year period.

Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with a Honduran company, of which we own 31% of the outstanding capital stock of the lessor at March 28, 2020. During the six-months ended March 28, 2020, and March 30, 2019, we paid approximately $0.9 million in lease payments under this arrangement.

As of March 28, 2020, we recorded $43.2 million of operating lease, ROU assets which were reflected within Operating lease assets in our Condensed Consolidated Balance Sheet, and $25.3 million of finance lease ROU assets, which were reflected within Property, plant, and equipment, net in our Condensed Consolidated Balance Sheet.

~~The weighted average remaining lease terms for our operating leases and finance leases were approximately 7 years and 4 years, respectively, as of March 28, 2020.~~

~~The components of total lease expense were as follows for the six months ended March 28, 2020 (in thousands):~~

Operating lease fixed expense
$ 5,513
Operating lease variable cost expense
879
Finance lease amortization of ROU assets expense
1,630
Finance lease interest expense
486
Total lease expense
$ 8,508

Total operating lease expense, excluding variable lease costs, recognized during the six months ended March 30, 2019, prior to the adoption of ASC 842, was $5.2 million. In addition, during the six months ended March 30, 2019, we also incurred expenses related to finance leases, including interest expense and depreciation expense of financed Property, plant and equipment.

Cash outflows for operating lease payments and interest payments for finance leases during the six months ended March 28, 2020, were $5.4 million and $0.5 million, respectively, and are classified within Net cash used in operating activities on the Condensed Consolidated Statement of Cash Flows. Cash outflows for finance lease payments during the six months ended March 28, 2020, were $3.2 million and are classified within Net cash provided by financing activities on the Condensed Consolidated Statement of Cash Flows.

ROU assets obtained in exchange for operating lease and finance lease liabilities during the six months ended March 28, 2020, were $4.1 million and $4.4 million, respectively. During the six-month period ended March 30, 2019, prior to the adoption of ASC 842, we entered into new finance lease obligations totaling $5.7 million.

~~We do not have significant leasing transactions in which we are the lessor.~~

Note I—H—Stock-Based Compensation

On February 6, 2020, our shareholders approved the Delta Apparel, Inc. 2020 Stock Plan ("("2020 Stock Plan") to replace the 2010 Stock Plan, which was previously re-approved by our shareholders on February 4, 2015 and was scheduled to expire by its terms on September 14, 2020. The 2020 Stock Plan is substantially similar in both form and substance to the 2010 Stock Plan. The purpose of the 2020 Stock Plan is to continue to give our Board of Directors and its Compensation Committee the ability to 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 directors. Under the 2020 Stock Plan, the Compensation Committee of our Board of Directors has the authority to determine the employees and directors to whom awards may be granted, and the size and type of each award and manner in which such awards will vest. The awards available under the plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock and cash awards. If a participant dies or becomes disabled (as defined in the 2020 Stock Plan) while employed by the Company or serving as a director, all unvested awards become fully vested. The Compensation Committee is authorized to establish the terms and conditions of awards granted under the 2020 Stock Plan, to establish, amend and rescind any rules and regulations relating to the 2020 Stock Plan, and to make any other determinations that it deems necessary. The aggregate number of shares of common stock that may be delivered under the 2020 Stock Plan is 449,714 plus any shares of common stock subject to outstanding awards under the 2010 Stock Plan that are subsequently forfeited or terminated for any reason before being exercised. Similar to the 2010 Stock Plan, 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. ~~The 2010 Stock Plan terminated and the 2020 Stock Plan became effective on February 6, 2020, the date of shareholders’ approval.~~

Shares are generally issued from treasury stock upon the vesting of the restricted stock units, performance units or other awards under the ~~2010 Stock Plan and~~ 2020 Stock Plan.

Compensation expense is recorded within SG&A in our Condensed Consolidated Statements of Operations over the vesting periods. During both the ~~three-month periods ended~~ ~~March 28,~~December 2020, and ~~March 30,~~ 2019, quarters, we recognized ~~$0.5~~$0.9 million ~~and $0.6 million, respectively,~~ in stock-based compensation expense. ~~During~~Associated with the ~~six-month periods ended March 28, 2020, and March 30, 2019, we~~compensation cost are income tax benefits recognized ~~$1.4~~of $0.3 million and ~~$1.3~~$0.4 million ~~respectively, in stock-based compensation expense.~~for the December 2020 and 2019 quarters, respectively.

~~On February 5,~~During the December 2020quarter, performance stock units and restricted stock units representing 42,000 and 74,000 shares of our common stock, ~~were granted under the 2010 Stock Plan and are eligible to vest upon~~respectively, vested with the filing of our Annual Report on Form ~~10-K~~10-K for ~~the~~ fiscal ~~year ending October 1, 2022~~2020, and ~~are payable~~were issued in accordance with their respective agreements. All vested awards were paid in common stock.

On September 29, 2019, restricted stock units and performance units, each consisting of 60,000 shares of our common stock, were granted under the 2010 Stock Plan and are eligible to vest upon the filing of our Annual Report on Form 10-K for the fiscal year ending October 2, 2021. One-half of the restricted stock units and one-half of the performance units are payable in common stock with the remainder payable in cash.

As of ~~March 28,~~December 2020,, there was ~~$4.0~~$3.2 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 ~~2.6~~1.9 years. ~~No awards have been granted under the 2020 Stock Plan.~~

Note K—J—Business Segments

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

The Delta Group is comprised of our business units primarily focused on core activewear styles, and includes our DTG2Go,Delta Activewear, ~~(encompassing our Delta Catalog~~ and ~~FunTees businesses),~~ Soffe ~~and DTG2Go~~ business units. We are a market ~~distribute~~leader in the on-demand, digital print and ~~manufacture unembellished knit~~fulfillment industry, bringing DTG2Go's proprietary technology and innovation to the supply chain of our customers. Delta Activewear is a preferred supplier of activewear apparel to the wholesale and private label markets. We offer a broad range of apparel and accessories through our catalog business under the ~~main~~Delta and Soffe brands as well as other brands that we distribute utilizing our digital platform and network of ~~Soffe~~^®~~, Delta Platinum, Delta Pro Weight~~^®~~, and Delta Magnum Weight~~^® ~~for sale~~fulfillment centers. In addition to ~~a diversified audience ranging from large licensed screen printers to small independent businesses. Through~~ our ~~FunTees~~catalog business, we serve our customers as their supply chain partner, from product development to shipment of their branded products, with the majority of products being sold with value-added services including embellishment, ~~hangers,~~ hangtags, and ticketing, so that they are ready for retail sale to ~~the~~ end customers. We assist our customers in managing their production and inventory needs and provide technology tools to help them manage and grow their business. We sell our products to a diversified audience, including sporting goods retailers, large licensed screen printers, specialty and resort stores, and ad-specialty and promotional products businesses. We also service major branded sportswear companies, trendy regional brands, retailers, and sports-licensed apparel marketers. Our DTG2Go business is a market leader in the direct-to-garment digital print and fulfillment industry, bringing technology and innovation to the supply chain of our many customers. We use highly-automated factory processes and our proprietary software to deliver on-demand, digitally printed apparel direct to consumers on behalf of our customers. Utilizing its seven fulfillment facilities throughout the United States, DTG2Go offers a robust digital supply chain to ship custom graphic products typically within 24 to 48 hours to consumers in the United States and to over 100 countries worldwide.consumers.

The Salt Life Group is comprised of our lifestyle brands focused on a broad range of apparel garments, headwear and related accessories to meet consumer preferences and fashion trends, and includes our Salt Life and Coast business units. These products are sold through specialty and boutique shops, outdoor retailers and traditional department stores, ~~and outdoor retailers,~~ as well as direct-to-consumer through branded ecommerce sites and branded retail stores. Products in this segment are marketed under our lifestyle brands of Salt Life® and COAST®, as well as other labels.

Our Chief Operating Decision Maker and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges ("segment operating earnings"). Our segment operating ~~income~~ earnings may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form ~~10-K~~10-K for ~~the~~ fiscal ~~year ended September 28, 2019,~~2020, filed with the SEC. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following table (in thousands).

	Three Months Ended				Six Months Ended				*Three Months Ended*
	March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019		*December 2020*			*December 2019*
Segment net sales:
Delta Group	$	84,191	$	89,526	$	173,143	$	183,916	$	87,624		$	88,950
Salt Life Group		12,469		13,312		19,407		20,597		7,099			6,939
Total net sales	$	96,660	$	102,838	$	192,550	$	204,513	$	94,723		$	95,889

Segment operating income:
Segment operating income (loss):
Delta Group ⁽¹⁾	$	5,066	$	3,367	$	12,334	$	6,144	$	6,276		$	7,266
Salt Life Group		1,473		2,733		804		3,012		(136	)		(668	)
Total segment operating income	$	6,539	$	6,100	$	13,138	$	9,156	$	6,140		$	6,598

⁽¹⁾⁽¹⁾In ~~the quarter ended March 28, 2020,~~fiscal 2021, the Delta Group operating income included $1.9 million of cost of goods sold expense from plant curtailments caused by government mandated country closures in El Salvador and Honduras in March 2020. In the quarter ended December 29, 2018, the Delta Group operating income included $2.5$1.3 million of expense, ~~incurred in connection with the settlement of litigation~~reported within "Other loss/(income), net", related to two hurricanes that disrupted operations during the ~~2016 bankruptcy filing of a customer.~~December 2020 quarter.

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

Three Months Ended

December 2020

December 2019

Segment operating income
$ 6,140 $ 6,598
Unallocated corporate expenses
3,071 3,961
Unallocated interest expense
1,654 1,802
Consolidated earnings before provision for income taxes
$ 1,415 $ 835

Three Months Ended

Six Months Ended

March 28, 2020

March 30, 2019

March 28, 2020

March 30, 2019

Segment operating income
$ 6,539 $ 6,100 $ 13,138 $ 9,156
Unallocated corporate expenses
2,985 3,405 6,947 6,422
Unallocated interest expense
1,808 1,985 3,610 3,750
Consolidated earnings (loss) before provision for income taxes
$ 1,746 $ 710 $ 2,581 $ (1,016 )

~~The Delta Group segment assets have increased by $48.0 million since September 28, 2019, to $363.7 million as of~~ ~~March 28, 2020, primarily as a result of the adoption of ASU 2016-02 and increases in working capital due to the seasonality of the business. The Salt Life Group segment assets have increased by $13.4 million since~~ ~~September 28, 2019, to $71.0 million as of~~ ~~March 28, 2020~~, primarily due to seasonal inventory build and the adoption of ASU 2016-02. The working capital of both segments increased as well due to the impact of slower sales and collections in late March 2020 due to the COVID-19 pandemic.

Note L—K—Income Taxes

The Tax Cuts and Jobs Act of 2017 (the “New Tax Legislation”) was enacted on December 22, 2017, which significantly revised the U.S. corporate income tax code by, among other things, lowering federal corporate income tax rates, implementing a modified territorial tax system and imposing a repatriation tax ("transition tax") on deemed repatriated cumulative earnings of foreign subsidiaries 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 deduction for business interest expense (“Section ~~163(j)~~163(j)"). GILTI is the excess of the shareholder’s net controlled foreign corporations ("CFC") net tested income over the net deemed tangible income. GILTI income is eligible for a deduction of up to 50% of the income inclusion, but the deduction is limited to the amount of U.S. adjusted taxable income. The Section ~~163(j)~~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, and the taxpayer’s floor plan financing interest expense for the year.~~income. We have included in our calculation of our effective tax rate the estimated impact of GILTI and Section ~~163(j) which were effective for us beginning in fiscal year 2019.~~163(j). We have elected to account for the tax on GILTI as a period cost and, therefore, do not record deferred taxes related to GILTI on our foreign subsidiaries.

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

Certain tax deductions, including many of those provided under the New Tax Legislation and the CARES Act, include limitations based on U.S. taxable income, which may be impacted due to anticipated lower pre-tax income as a result of the impacts of the COVID-19 pandemic. Our effective income tax rate on operations for the ~~six-month period ended March 28,~~December 2020 quarter was ~~20.3%~~39.3% compared to a rate of ~~74.6%~~4.6% in the same period of the prior year, and an effective rate of ~~5.5%~~23.6% for fiscal ~~year 2019.~~

2020.We generally benefit from having income in foreign jurisdictions that are either exempt from income taxes or have tax rates that are lower than those in the United States. ~~However,~~As such, 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. Furthermore, we may be limited in our ability to deduct 50% of applicable foreign earnings under the GILTI income inclusion or to deduct U.S. interest expense based on ~~anticipated lower~~our U.S. taxable ~~income due to the COVID-19 pandemic.~~income. In addition, the future impact of the CARES Act and New Tax Legislation may differ from historical amounts, possibly materially, due to, among other things, changes in interpretations and assumptions made regarding the CARES Act and New Tax Legislation, guidance that may be issued, and actions we may take as a result of the CARES Act and New Tax Legislation.

Note M—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 28,~~December 2020, all of our other comprehensive income was attributable to shareholders; none related to the non-controlling interest. Outstanding instruments as of ~~March 28,~~December 2020, are as follows:

		*Notional*
	*Effective Date*	*Amount*	*Fixed LIBOR Rate*	*Maturity Date*
Interest Rate Swap	July 19, 2017	$10.0 million	1.99%	May 10, 2021
Interest Rate Swap	July 25, 2018	$20.0 million	3.18%	July 25, 2023

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of ~~March 28,~~December 2020 and September ~~28, 2019 (in~~2020 (in thousands):

	March 28,			September 28,			December 2020			September 2020
	2020			2019
Deferred tax liabilities	$	481		$	324
Deferred tax assets							$	401		$	442
Accrued expenses								(65)			(108	)
Other non-current liabilities		(1,914	)		(1,293	)		(1,533	)		(1,656	)
Accumulated other comprehensive loss	$	(1,433	)	$	(969	)	$	(1,197	)	$	(1,322	)

From time to time, we may purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations. We do not receive hedge accounting treatment for these derivatives. As such, the realized and unrealized gains and losses associated with them are recorded within cost of goods sold on the Condensed Consolidated Statement of Operations. No such cotton contracts were outstanding at ~~March 28,~~December 2020 or and September ~~28, 2019.~~2020.

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

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

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

	○	Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

The following financial liabilities are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Period Ended

Total

(Level 1)

(Level 2)

(Level 3)

Interest Rate Swaps

March 28, 2020
$ (1,914 ) — $ (1,914 ) —
September 28, 2019
$ (1,293 ) — $ (1,293 ) —

Contingent Consideration

March 28, 2020
$ (5,580 ) — — $ (5,580 )
September 28, 2019
$ (9,094 ) — — $ (9,094 )

Fair Value Measurements Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Period Ended

Total

(Level 1)

(Level 2)

(Level 3)

Interest Rate Swaps

December 2020
$ (1,598 ) 0 $ (1,598 ) 0
September 2020
$ (1,764 ) 0 $ (1,764 ) 0

Contingent Consideration

December 2020
$ (4,310 ) 0 0 $ (4,310 )
September 2020
$ (6,420 ) 0 0 $ (6,420 )

The fair value of the interest rate swap agreements was derived from a discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. At ~~March 28,~~December 2020and September ~~28, 2019,~~2020, book value for fixed rate debt approximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).

The DTG2Go acquisition purchase price consisted of additional payments contingent on the combined business’s achievement of certain performance targets related to sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the period from April 1, 2018, through September 29, 2018, as well as for our fiscal years 2019,2020,2021 and 2022. The valuation of the fair value of the contingent consideration is based upon inputs into the Monte Carlo model, including projected results, which then are discounted to a present value to derive the fair value. The fair value of the contingent consideration is sensitive to changes in our projected results and discount rates. ~~At September 28, 2019, the fair value of contingent consideration was estimated at $8.9 million. During the six-months ended March 28, 2020, $2.5 million was paid related to the 2019 period.~~ As of ~~March 28,~~December 2020, we estimate the fair value of contingent consideration to be ~~$5.6~~$4.3 million, a ~~$0.8~~$2.1 million ~~reduction~~decrease from September ~~28, 2019, resulting from changes in the projections and adjustments~~2020 due to the ~~discount rate.~~payment made during the December 2020 quarter for the fiscal 2020 period.

In August 2013, we acquired Salt Life, which included contingent consideration as part of the purchase price and which is 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. During the quarter ended March 28, 2020, it was determined that the calendar year 2019 performance targets were not achieved and, as a result, the $0.2 million accrual as of September 28, 2019, was reversed. At March 28, 2020, no amount was accrued for contingent consideration in relation to the acquisition of Salt Life.

Note O—N—Repurchase of Common Stock

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

No shares of our common stock were repurchased in the December 2020 quarter. Through ~~March 28,~~December 2020,, we have purchased 3,598,933 shares of our common stock for an aggregate of $52.5 million under our Stock Repurchase Program since its inception. All purchases were made at the discretion of management and pursuant to the safe harbor provisions of SEC Rule ~~10b-18.~~10b-18. As of ~~March 28,~~December 2020,~~, $7.5~~$7.5 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.

~~The following table summarizes the purchases of our common stock for the quarter ended March 28, 2020:~~

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans

Dollar Value of Shares that May Yet Be Purchased Under the Plans
December 29, 2019 to February 1, 2020

—

—

—

$9.5 million
February 2, 2020 to February 29, 2020

53,761

$
22.21

53,761

8.3 million
March 1, 2020 to March 28, 2020
46,210
18.08

46,210

7.5 million
Total

99,971

$
20.30

99,971

$7.5 million

Note P—O—Goodwill and Intangible Assets

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

	March 28, 2020							September 28, 2019								December 2020							September 2020
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

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

Intangibles:
Tradename/trademarks	$	16,090	$	(3,549	)	$	12,541	$	16,090	$	(3,278	)	$	12,812	20 – 30 yrs	$	16,090	$	(3,956	)	$	12,134	$	16,090	$	(3,820	)	$	12,270	20 – 30 yrs
Customer relationships		7,400		(1,363	)		6,037		7,400		(993	)		6,407	8 – 10 yrs		7,400		(1,918	)		5,482		7,400		(1,733	)		5,667	20 yrs
Technology		1,720		(1,349	)		371		1,720		(1,289	)		431	10 yrs		1,720		(1,396	)		324		1,720		(1,380	)		340	10 yrs
License agreements		2,100		(682	)		1,418		2,100		(630	)		1,470	15 – 30 yrs		2,100		(759	)		1,341		2,100		(733	)		1,367	15 – 30 yrs
Non-compete agreements		1,657		(1,290	)		367		1,657		(1,170	)		487	4 – 8.5 yrs		1,657		(1,383	)		274		1,657		(1,353	)		304	4 – 8.5 yrs
Total intangibles	$	28,967	$	(8,233	)	$	20,734	$	28,967	$	(7,360	)	$	21,607		$	28,967	$	(9,412	)	$	19,555	$	28,967	$	(9,019	)	$	19,948

Goodwill ~~was recorded in conjunction with our acquisitions of Salt Life and DTG2Go businesses and~~ represents the acquired goodwill net of the ~~$0.6 million~~ cumulative impairment losses recorded in fiscal year ~~2011. At March 28,~~2011 of $0.6 million. As of December 2020, ~~the Salt Life reporting within the Salt Life Group segment and DTG2Go reporting unit within~~ the Delta Group segment ~~had goodwill of $19.9 million and~~assets include $18.0 million ~~respectively. We evaluate the carrying value~~ of goodwill, annually on the first day of our third fiscal quarter or more frequently if events or circumstances indicate that an impairment loss may have occurred. Such circumstances could include, but are not limited to, a significant adverse change in business climate, increased competition or other economic conditions.

~~As of March 28, 2020, we performed an interim goodwill impairment evaluation using the optional qualitative assessment provided within ASC 350~~~~, Intangibles - Goodwill~~ and ~~Other~~ ~~and concluded that it is more likely than not that the fair value of~~ the Salt Life and DTG2Go reporting units are greater than the carrying value at March 28, 2020. In reaching this conclusion, we applied various management judgments and estimates, including the results of prior annual impairment tests and the drivers of the near-term reduced projected results. In the annual goodwill impairment evaluation performed during the fiscal 2019 June quarter, we estimated the fair value of the reporting units using a discounted cash flow methodology using key assumptions as described in the fiscal 2019 Form 10-K, ~~Critical Accounting Policies~~~~. As a result of this analysis, we estimated that the fair value of the reporting units exceeded their carrying values by significant margins.~~segment assets include $19.9 million.

Prior to the COVID-19 pandemic, we anticipated double-digit topline growth in our DTG2Go and Salt Life businesses for fiscal year 2020 compared to the prior year. For the Salt Life reporting unit, we expect results to be negatively impacted in the short term by the temporary closure of retail channels, including the Salt Life-branded retail stores, as a result of the COVID-19 pandemic impact in the U.S. There remains uncertainty as to when these channels will re-open and to what level they will be restored. We have seen continued strength in ecommerce sales channels, including our Salt Life consumer site. During the March quarter ended March 28, 2020, Salt Life web sales increased 20% over the prior year. In April, we have experienced further acceleration of Salt Life ecommerce sales, with sales more than doubling over the same period in the prior year. This continuing revenue stream provides support of the underlying strength of the Salt Life brand and expectations regarding future performance as the U.S economy re-opens. We have also taken actions to improve cash flows and operating income in the short and long-term. The DTG2Go business has experienced a notable increase in sales orders in the final week of the fiscal 2020 March quarter that has further accelerated into April. In April 2020, the average daily orders received is more than double that of March 2020 and approximates the average daily orders received during the December 2019 holiday period. Greater than 90% of DTG2Go sales come through ecommerce sales channels, which show positive sales trends during the COVID-19 pandemic. Considering the significant excess of fair value over carrying value in the prior year impairment evaluations and the leading indicators of strong Salt Life ecommerce and DTG2Go sales in recent weeks, we concluded that it is more likely than not that the fair values of the Salt Life and DTG2Go reporting units are greater than the carrying value.

~~Although we are aggressively managing our response to the recent COVID-19 pandemic, its impact~~Depending on the ~~Salt Life~~type of intangible asset, amortization is recorded under cost of goods sold or selling, general and DTG2Go reporting units' full year fiscal 2020 and beyond results and cash flows is uncertain. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on retailers as well as the ability of our customers, supply chain, and distribution to operate with minimal disruption for the remainder of fiscal 2020 and beyond, all of which could negatively impact the reporting units' financial position, results of operations, cash flows, and outlook. Given the current macro-economic environment and the uncertainties regarding its potential impact on our business, there can be no assurance that our estimates and assumptions used in our impairment tests will prove to be accurate predictions of the future. If our assumptions regarding fair value are not achieved, it is possible that an impairment review may be triggered and goodwill or other intangible assets may be impaired in a future period.

administrative expenses. Amortization expense for intangible assets was $0.4 million during the December 2020 quarter and $0.5 million ~~for~~during the ~~three-month periods ended~~ ~~March 28, 2020, and~~ ~~March 30,~~December 2019~~, respectively, and $0.9 million and $1.0 million for the six-month periods ended March 28, 2020, and March 30, 2019, respectively.~~quarter. Amortization expense is estimated to be approximately ~~$1.7~~$1.6 million for fiscal ~~year 2020, $1.6 million for each of fiscal~~ years 2021 and 2022, $1.5 million for fiscal year 2023, and ~~approximately~~ $1.4 million for fiscal ~~year 2024.~~years 2024 and 2025.

Note Q—P—Subsequent Events

On ~~April 27, 2020,~~January 26, 2021, Belk, Inc. (“Belk”), a department store chain and Delta Apparel ~~Inc. and its subsidiaries, M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life, LLC, and DTG2Go, LLC (f/k/a Art Gun, LLC)~~customer, announced that it has entered into a ~~Fifth Amendment~~Restructuring Support Agreement with its majority owner, Sycamore Partners, as well as the majority of its lenders to recapitalize the business, significantly reduce debt by approximately $450 million, and extend maturities on all term loans to July 2025. Belk expects to complete the financial restructuring transaction through an expedited “pre-packaged” reorganization under Chapter 11 of the U.S. Bankruptcy Code by the end of February 2021. Per the announcement, suppliers will be unimpaired and will continue to be paid in the ordinary course for all goods and services provided to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Fifth Amendment”). The Fifth Amendment amends the financial covenant provisions from the amendment date through October 3,company. At December 2020, including effectively lowering the minimum availability thresholds and removing the requirement that our Fixed Charge Coverage Ratio (“FCCR”) for the preceding 12-month period must not be less than 1.1 to 1.0. The Fifth Amendment also, among other things, (i) allows for an additional 30 days of aged receivables from customers in the borrowing base through August 1, 2020, (ii) ceases amortization of real estate and machinery and equipment assets in the borrowing base through August 1, 2020, (iii) postpones amortization of trademark assets in the borrowing base until October 4, 2020; (iv) amends the definition of Fixed Charge Coverage Ratio to reference the monthly amortization of the borrowing bases that were amended as part of the Fourth Amendment to the Fifth Amended and Restated Credit Agreement on November 19, 2019, (v) amends the LIBOR rate definition to include a floor rate of 1.0%, and (vi) requires weekly reportingwe had approximately $1.1 million of accounts receivable from Belk. We have followed our normal policy of estimating reserves for doubtful accounts and have not established a specific reserve for this receivable based on our assessment of the customer’s ability to ~~the Agent through October 3, 2020.~~

~~We expect the Fifth Amendment will enhance our borrowing base and allow us~~meet its financial obligations pursuant to ~~access more of our availability under the Amended Credit Agreement while easing the financial covenant restrictions for the remainder of fiscal 2020.~~

~~See Part II, Item 5. Other Information for additional detail regarding the Fifth Amendment.~~this announcement.

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

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

A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations is set forth in ~~Item 1A of this report entitled "Risk Factors" in this Form 10-Q and in~~ Part 1 under the subheading "Risk Factors" in our Annual Report on Form 10-K for ~~our~~ fiscal ~~year ended September 28, 2019,~~2020, filed with the SEC. Any forward-looking statements in this Quarterly Report on Form 10-Q do not purport to be predictions of future events or circumstances and may not be realized. Further, any forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q, and we do not undertake to publicly update or revise the forward-looking statements, except as required by the federal securities laws.

Our first quarter results provided a strong start to deliver on our fiscal 2021 goals. Through a combination of strong order demand and impeccable manufacturing and operational execution at all levels, our December 2020 ~~second~~ quarter sales were nearly flat with prior year levels, despite the notable headwinds from inventory constraints, hurricane-related disruptions in Central America, and freight carrier limitations during the holiday season. Furthermore, we were able to improve gross margins 70 basis points, with expansion in both the Delta Group and Salt Life Group segments. Operating income for the current quarter increased 16% from the prior year, and adjusted for the $1.3 million of pre-tax expense related to the Honduran hurricane disruptions, adjusted operating income increased 67%, or $1.8 million, in the December 2020 quarter from the prior year. The higher operating income was ~~trending towards~~offset from a ~~projected 9% increase~~significantly higher tax rate, resulting in ~~sales~~diluted earnings of $0.13 per share in both the December 2020 and 2019 quarters. Excluding the impact of the hurricane disruptions, adjusted diluted EPS was $0.28, a 115% improvement from the prior year.

DTG2Go remains a market leader in the on-demand, direct-to-garment digital print and fulfillment industry. We are the only digital print supplier in the world that can offer a seamless, vertically-integrated solution, utilizing our proprietary software and internal supply chain to offer a fully-decorated, on-demand product shipped directly to the consumer. This unique model eliminates non-value-added costs and reduces the risks involved with third-party supply chains. Despite the shipping limitations and earlier guaranteed holiday delivery cut-offs imposed by major freight carriers, the DTG2Go business had a strong holiday season. DTG2Go saw double digit growth in units shipped during holiday, with a significant amount of the growth coming from new customers. During this holiday season, we digitally printed and shipped to consumers in all 50 U.S. states and over 130 countries worldwide.

Digital print demand this holiday season was particularly strong in the retail channel with our new 'On-Demand DC' service model, which provides retailers immediate access to utilize DTG2Go’s broad network of print and fulfillment facilities, while offering the scalability to integrate digital fulfillment within the retailer’s own distribution facility. With the launch of DTG2Go’s first ‘On-Demand DC’, our customer was able to more than double their on-demand business during the first quarter from a year ago, providing a better consumer experience while also benefiting from reduced shipping costs. We believe our 'On-Demand DC' solution is a compelling value proposition to traditional brick and mortal retailers and brands alike, offering their consumers limitless merchandise selections, personalization options, and seamless fulfillment across a broader supply chain with no excess inventory risk.

Our customers continue to realize the benefits of the seamless supply chain of Delta Apparel garments within our on-demand model, with DTG2Go’s usage of Delta Catalog blanks reaching a new record high of approximately 45% utilization in the December 2020 quarter compared to 28% in the prior year quarter. This trend is promising as it creates a more efficient operation, reduces garment costs for our ~~fiscal 2020 March quarter until the COVID-19 pandemic halted retail~~customers, and lowers working capital needs in the ~~U.S.~~business.

We continue to see a steep recovery in ~~mid-March. With~~our Delta Activewear business with year-over-year sales growth in our December quarter, overcoming the challenges caused by inventory constraints. We are seeing notable strength in the retail licensing channel as well as our recently launched e-retailer channel. We also saw year-over-year growth in our private label business. The diversification of our customer base is serving us well, and we are encouraged by the new programs we have secured in the direct-to-retail channel and future opportunities we see in this ~~March impact,~~channel. In order to meet the broad-based demand we have in Activewear, our team is focused on efficiently manufacturing and replenishing inventory levels, ultimately expecting to achieve all-time record-level production outputs in the back half of fiscal 2021.

Our Delta Group integration strategies, designed to foster sales ~~declined 6%~~growth and improve operating efficiencies, are on schedule. The recently published 2021 Delta Activewear print and digital editions of our catalog not only feature our Delta products, including our more fashion-forward Platinum Collection, but also for the ~~2020~~first time includes our entire Soffe product line. With the inclusion of Soffe, we have expanded our activewear and athleisure product categories, with our Military Collection, including the Soffe ranger panties, our Fundamentals and Essentials, including the iconic Soffe short, and our Core Layers, which includes warm-ups and other layering products. We also highlight Intensity by Soffe, which focuses on outfitting the female athlete. Complementing the Delta and Soffe brands, we provide our customers with a broad range of product categories with nationally recognized branded products including polos, outerwear, headwear, bags and other accessories. As previously announced and to further leverage the one-stop shop offering, we have merged our Delta Catalog and Soffe sales, customer service, marketing, merchandising and inventory planning teams to better position Soffe for growth and to reduce redundant costs. During the December quarter, we began the transition of Soffe into our new Phoenix distribution facility, which will now serve as Soffe’s primary distribution center in addition to being a key Delta Catalog distribution location and DTG2Go digital print fulfillment center. We successfully launched the first phase of Soffe’s transition to the Activewear ERP system in early January, and anticipate completing all phases of the integration by the end of fiscal 2021. As this final piece is completed, the Soffe brand will be fully merged within the Activewear operations, creating opportunities to focus on the growth of the brand while benefitting from significant operating efficiencies.

Demand for the Salt Life brand remained strong during the fall season, resulting in growth for the December quarter compared to prior year. ~~Despite these headwinds, we are pleased to have delivered strong gross margin performance that more than offset our lower sales performance during~~Consumers sought out the Salt Life brand through direct-to-consumer channels, which grew over 60% year-over-year in the quarter.

~~Second quarter fiscal 2020 reported gross margins improved 290 basis points from~~ Sales performance at our recently opened branded retail stores in Destin, Estero, and Palm Beach Gardens, Florida, drove retail sales growth of over 150% compared to the prior year ~~to 21.3% as we leveraged~~December quarter. Salt Life enthusiasts actively engaged with the brand through all our vertical manufacturing platform and benefited from internal process efficiencies implemented over the last several quarters. The March 2020 gross margins were hurt by approximately $1.9 million, or 200 basis points, of plant curtailment expenses caused by government-mandated country closures in El Salvador and Honduras in March 2020. Adjusting for these plant curtailment expenses, gross margins would have been 23.3%online channels during the ~~March~~quarter, resulting in 13% more followers on social media and 50% more YouTube subscribers compared to the prior year. We also added over 150% more email subscribers during the December 2020 quarter ~~an improvement of 490 basis points from~~than we added in the ~~prior year~~December 2019 quarter. As we prepare for the forthcoming spring and ~~260 basis points from the fiscal 2020 December quarter.~~

The strength of our business model remains anchored in our diversification of our sales channels and our unique business capabilities, as well as our geographic diversification across the U.S., Central America, and Mexico. We are leveraging our clear competitive advantages in this disruptive period to gain greater business tractionsummer seasons, we see growth opportunities with existing customers and attract new customers to Delta Apparel. Unlike many apparel companies, we are not disproportionately exposed to any specific customer or sales channel, such as brick and mortar, department stores, mass merchants or wholesale distributors. Over 17% of our sales are generated through various ecommerce channels, including our branded consumer websites and our DTG2Go business. Sales on our Salt Life ~~website increased nearly 20%~~consumer ecommerce site, opening additional retail doors in select markets, and continuing to partner with our wholesale customers to expand the ~~March 2020 quarter compared to prior year. In April, we have experienced further acceleration of~~floor space and enhance the Salt Life ecommerce sales with sales more than doubling over the same period in the prior year. Sales on our Soffe consumer website in April have also more than doubled over prior year, and we are experiencing strong sales of Soffe product on ecommerce sites of our retail partners.

We have a unique business model with proprietary technology in DTG2Go whose advantages are more transparent to the marketplace in this time of supply chain disruption combined with consumer restrictions on traditional shopping habits. The DTG2Go business experienced headwinds in early March related to the COVID-19 pandemic, but orders increased the last week of March and have accelerated further in April, with increased demand from existing customers and the rapid onboarding of several new customers. In April 2020, the average daily orders received is more than double that of March 2020 and approximates the average daily orders received during the December 2019 holiday period. Greater than 90% of DTG2Go sales come through ecommerce sales channels, which have shown positive sales trends during the COVID-19 pandemic. With the recent supply chain disruptions in the marketplace, customers appear to be appreciating DTG2Go’s strong competitive advantages with our large geographic network of production facilities, half of which are integrated with our Delta distribution facilities. Although the order backlog at DTG2Go is currently significant, we remain temporarily limited in our production output as adjustments were made to work schedules and in our facilities to comply with social distancing guidelines and curfews implemented by certain local governments. We expect the current positive trends at DTG2Go will continue into the future, as we believe that as the retail market evaluatesexperience within their ~~go-forward strategy, there will be an increased adoption rate for the on-demand supply chain model.~~ doors.

We are also seeing strength within our military business, which historically has represented about 5% of our overall revenue. We service all branches of the military, and are seeing solid orders during this pandemic, with opportunities for growth.

~~Overall we estimate that approximately 25% of our revenue has not been hurt~~encouraged by the ~~COVID-19 pandemic,~~broad-based demand we see across our businesses, and ~~in many situations has experienced an acceleration of growth. The remaining business, however, has been significantly impacted~~our proven ability to execute at the operational level to meet that demand. Although the environment in the ~~near-term, and it is unclear at this point how quickly and to what extent it will recover.~~

We are committed to servicing our customers with same-day shipping, picking to the piece level, retail ready packaging and EDI support, and operate the majority of our business based on at-once orders. We maintain an inventory position, located in our US-based distribution centers, to service the business. Since mid-March, our manufacturing operations in El Salvador and Honduras have been curtailed due to government-mandated country-wide shutdowns. We have, however, been able to continue operations in our U.S. manufacturing facilities, which principally service the military business, and in our Mexico-based facilities, which are producing private-label and catalog products. We are also producing face masks and face coverings in our facilities in North Carolina and Mexico, and recently received approval for a small group of employees in Honduras and El Salvador to also produce face masks. This allows us to keep more workers actively employed and provides an additional revenue stream for Delta Apparel. We expect to restart production at our manufacturing facilities in El Salvador and Honduras when conditions in these countries allow and demand rebuilds tocoming months includes a level ~~that requires additional production. We will also evaluate the level~~ of ~~social distancing and other protocols required, which could limit the number of employees allowed in our facilities when production resumes.~~

~~While~~uncertainty, we are unable to quantify the impact on our forward results, we have taken swift and decisive action to navigate through these difficult times to strengthen our financial position, as we prudently preserve cash to improve our liquidity. We immediately paused capital projects that were not critical in the short term to the business, suspended our share repurchase program, and took actions to reduce our fixed costs. We have temporarily furloughed or permanently terminated approximately 300 employees in the U.S., and have also reduced spending across all aspects of the business. As it relates to the CARES Act, we are taking advantage of payroll tax deferrals and credits that are afforded to companies our size with the newly enacted legislation. On April 27, 2020, we secured a bridge amendment to our U.S. revolving credit facility, which provides additional flexibility and increased access to the availability provided under the agreement. We are also looking at other available debt financing options that may be prudent.

~~During these unprecedented times, we are benefiting from our fully-integrated and diversified business model. We~~ believe we are ~~in a solid financial position~~well positioned to capitalize on multiple market demand opportunities across our businesses. There are many factors outside of our control that can influence how the year continues to unfold, including levels of consumer spending, higher unemployment rates, potential future COVID-19 disruptions and ~~are~~the speed and effectiveness of related vaccines, and the overall U.S. and global economic conditions. We remain confident ~~we will emerge from this pandemic stronger, ready~~that our diversified sales channels and uniquely positioned business models provide the optimal strategy that should allow us to ~~profitably grow our business~~successfully navigate near-term challenges and continue to ~~provide value for all of our stakeholders.~~drive future profitable growth.

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

Net sales for the ~~March~~December quarter were ~~$96.7~~$94.7 million compared to sales of ~~$102.8~~$95.9 million in the prior ~~year March quarter. Prior~~year. Our direct-to-consumer sales channels, comprised of consumer-facing ecommerce sites and our branded retail stores, increased 13% in the current quarter compared to the COVID-19 pandemic in the United States, our second quarter sales were growing but the mid-March shutdowns in retail channels dramatically halted revenue during the final month of the quarter. For the first six months of 2020, net sales were $192.6 million compared to $204.5 million. The first quarter sales were hurt by the shortened holiday calendarprior year. Retail and ~~mid-week Christmas Day, combined with earlier shipping cut-off for in-hands holiday receipts.~~

~~Our retail stores and~~total ecommerce sales ~~including our direct-to-consumer~~represented 10% and business-to-business ecommerce sites, increased 16% over the prior year three-month period. The growth was driven by increased sales on our Activewear and Salt Life ecommerce sites as well as growth at our Salt Life retail stores. Retail and ecommerce sales represented 9% of total revenues for the ~~three-month~~December 2020 and ~~six-month periods ended March 28, 2020, compared to 7% and 8% for the three-month and six-month periods ended March 30,~~December 2019 quarters, respectively.

Net sales in the Delta Group segment were ~~$84.2~~$87.6 million compared to ~~$89.5~~$89.0 million in the prior year. ~~The~~Sales orders in Activewear were strong for the quarter, but delivery was hindered by inventory shortages and the impact of two major hurricanes in Central America. Our FunTees business had strong growth both within our traditional brand direct channel as well as our fast-growing retail direct channel. Catalog sales continued to realize year-over-year growth with strong sales in the retail licensing channel as well as our recently launched e-retailer channel. DTG2Go’s orders were down to begin the quarter, but quickly returned to strong growth in ~~our FunTees business, including shipments~~November, only to ~~several new direct-to-retail programs in~~be hampered by freight carrier constraints during the current year, was offset by declines in our Catalog business, which was impacted by the COVID-19 pandemic. Our DTG2Go business was also impacted by the pandemic in early March with orders rebounding the last week of March.holiday season.

The Salt Life Group segment ~~second~~first quarter revenue ~~was $12.5~~grew to $7.1 million compared to ~~$13.3~~$6.9 million in the prior year period. The ~~segment~~segment’s growth was ~~impacted~~driven by ~~the temporary closure of~~an increase in overall direct-to-consumer sales, with growth in both ecommerce and retail ~~including our Salt Life branded retail stores, in March based on government guidelines for COVID-19. However, our direct-to-consumer web sales increased by nearly 20% from the prior year.~~sales.

Gross margins in the second quarter expanded 290 basis points from the prior quarter to 21.3% despite being reduced by $1.9 million, or 200 basis points, from plant curtailments caused by government-mandated country closures in El Salvador and Honduras in March. For the first six months of fiscal year 2020, gross margins improved ~~by 270~~70 basis points from the prior year first quarter increasing to ~~21.0% from manufacturing efficiencies as well as lower raw material costs.~~21.4% of sales, with margin expansion in both business segments.

The Delta Group segment gross margins grew to 17.8% from 14.0% in the prior year from the continued process efficiencies and further leveraging of the segment’s integrated vertical manufacturing platform. The segment incurred $1.9 million in expenses associated with plant curtailments. Adjusting for the $1.9 million, or 230 basis points, in plant curtailment expenses, gross margins would have been 20.1% ~~during the March 2020 quarter, an improvement~~ ~~of 610~~ improved 50 basis points from the prior year to 19.1% driven by favorable product mix, lower raw material costs, and ~~150 basis points from the fiscal 2020 December quarter. Gross margins expanded 320 basis points from prior year to 18.2% for the first six months of fiscal year 2020.~~manufacturing efficiencies and process improvements.

The Salt Life Group segment gross margins ~~were 44.8% in the second quarter compared~~improved 140 basis points to ~~48.0% in the prior year quarter as recently-enacted tariffs increased product costs. Gross margins for the first six months~~50.2% driven by a stronger mix of ~~fiscal year 2020 were 46.2% when compared to the prior year 48.4%.~~direct-to-consumer sales.

Selling, general, and administrative expenses ("SG&A") were ~~$17.9~~$16.0 million, or ~~18.5%,~~16.9% of sales, compared to ~~$17.1~~$18.1 million, ~~or 16.6%~~18.8% of sales, in the prior year. ~~The increase resulted from investments in our distribution expansion~~Expenses decreased due to cost reductions implemented during the pandemic that have continued, including lower personnel costs, reduced travel expenses, and ~~fixed costs not fully leveraged against revenues. SG&A for the first six months of fiscal year 2020 were $36.1 million, or 18.7% of~~a more digitally-focused sales ~~compared to $33.8 million, or 16.5% of sales, in the prior year.~~and marketing strategy.

Other ~~income~~expense includes $1.3 million of expenses related to the impact of two hurricanes that disrupted our Honduran manufacturing facilities in ~~both years primarily~~the December 2020 quarter. In addition, the December 2020 quarter includes profits related to our Honduran equity method ~~investment and~~investment. The December 2019 quarter included valuation changes in our contingent consideration ~~liabilities.~~liabilities as well as profits related to our Honduran equity method investment.

Operating ~~income~~profit in the ~~second~~first quarter ~~was $3.6~~increased 16% to $3.1 million compared to ~~$2.7~~$2.6 million in the prior year. ~~For~~Operating income, adjusted for $1.3 million of hurricane-related expenses, was $4.4 million for the ~~first six months, operating income was $6.2 million compared to $2.7 million in~~current quarter, an increase of 67% from the prior year.

The Delta Group segment had operating income ~~increased~~ in the current fiscal year quarter ~~by $1.7 million to $5.1~~of $6.3 million, or ~~6.0%~~7.2% of net sales, compared to ~~$3.4~~$7.3 million, or ~~3.8%~~8.2% of net sales, in the prior year. ~~The increase is attributable to the strong gross margin expansion, partially offset by lower sales and higher distribution expenses. For the first six months~~Adjusting for $1.3 million of ~~fiscal year 2020, Delta Group segment~~hurricane-related disruption costs, operating income was ~~$12.3~~$7.6 million, ~~compared to $6.1 million~~or 8.7% of sales, in the ~~prior year.~~December 2020 quarter. The expanded operating profitability was driven by favorable gross margins as well as continuing cost controls.

The Salt Life Group segment incurred an operating ~~income was $1.5 million, or 12.5%~~loss of ~~sales compared to prior year $2.7 million, or 21.4% of sales. For the first six months of fiscal year 2020, Salt Life Group segment income was $0.8~~$0.1 million compared to ~~$3.0 million in the prior year. Operating income declined from lower sales coupled with higher product costs from the newly-enacted tariffs on imported goods. In addition,~~ the prior year ~~benefited from higher favorable adjustments~~loss of $0.7 million. Operating income improved due to the ~~fair value~~stronger mix of ~~contingent earn-out liability.~~direct-to-consumer sales.

Net interest expense for the ~~second~~first quarter of fiscal year 2021 was ~~$1.8~~$1.7 million as compared to ~~$2.0~~$1.8 million in the prior ~~year. For the first six months of fiscal~~ year ~~2020, interest expense was $3.6 million compared~~period due to ~~$3.8 million in the prior year. The~~ lower interest ~~expense is due to favorable interest rates in the current fiscal year.~~rates.

Our effective tax ~~rate~~benefit on operations for the ~~six-month period ended March 28, 2020,~~December quarter was ~~20.3%~~39.3%. This compares to an effective tax rate of ~~74.6%~~4.6% for the same period in the prior year and ~~5.5%~~a 23.6% rate for the full fiscal year ~~ended September 28, 2019.~~2020. See Note L—K—Income ~~Taxes~~taxes for more information.

~~We achieved net earnings~~Net income for both the ~~second fiscal quarter of $1.3 million, or $0.19 per diluted share, an increase of 46% compared to the prior year~~December 2020 and 2019 quarters was $0.9 million, or $0.13 per diluted share. ~~When adjusted~~Adjusted for the ~~$1.9~~$1.1 million ~~pre-tax,~~after-tax expense, or ~~$0.20~~$0.15 per diluted share, impact of ~~plant curtailment expenses, our~~the hurricane disruptions, net ~~earnings would have been $0.39 per diluted share in the 2020 fiscal second quarter. Net~~ income for the ~~first six months~~December 2020 quarter was ~~$2.2~~$2.0 million, or ~~$0.32 per diluted share, compared to the prior year $0.2 million net loss, or $0.03,~~$0.28 per diluted share.

Accounts receivable were ~~$58.7~~$63.6 million at ~~March 28,~~December 2020, compared to ~~$59.3~~$61.0 million as of September ~~28, 2019.~~2020. Days sales outstanding ("DSO") as of ~~March 28,~~December 2020 were 5557 days compared to 4851 days at September ~~28, 2019. We experienced slower collections on accounts receivable in March 2020 from customers extending terms due to the COVID-19 pandemic.~~2020.

Net inventory ~~was $197.3 million~~ as of ~~March 28,~~December 2020 was $148.5 million, an increase of ~~$18.2~~$3 million from September ~~28, 2019.~~2020, but down $48.8 million from a year ago. The ~~increase is from our~~stronger than anticipated December 2020 quarter sales, along with the temporary hurricane disruptions, slowed the normal seasonal build of inventory ~~as well as~~during the ~~stronger mix of fashion basics, fleece~~quarter. We have already ramped up production at an accelerated pace in January and ~~performance products in inventory~~expect to ~~support the then-anticipated growth in these categories. Inventory~~be producing at record levels ~~at March 28, 2020 were higher than planned from the lower March 2020 sales, and we anticipate will remain higher due to lower anticipated sales~~ in the ~~second~~back half of ~~fiscal 2020, partially offset by~~ the ~~temporary closures of certain manufacturing operations and initiatives to manage inventory levels through the COVID-19 pandemic.~~

Capital spending was $4.1 million and $6.7 million for the three-months and six month periods ending March 28, 2020, respectively. The spending primarily related to investments in our distribution expansion as well as investments in our retail stores. Depreciation and amortization expense, including non-cash compensation, was $7.6 million for the first six months of fiscal year 2020.year.

Total net debt, including capital lease financing ~~as of the end of the fiscal~~and cash on hand, increased $7.6 million from September 2020 ~~second quarter was $167.9 million compared~~ to ~~$135.1~~$129.8 million at ~~fiscal 2019 year-end~~December 2020. Cash on hand and availability under our U.S. revolving credit facility totaled $43.7 million at December 2020, a $3.4 million decrease from September 2020 due primarily to seasonal ~~higher~~ working capital ~~share repurchases, and investments in distribution facilities.~~build.

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

Operating activities used ~~$10.2~~$2.5 million and ~~$8.3~~$4.9 million in cash in the ~~first six months of fiscal year~~December 2020 and 2019 quarters, respectively. The ~~additional use of~~improved operating cash flows in the current year ~~is primarily~~are due to ~~additional~~lower inventory levels ~~driven~~as manufacturing production was hampered by ~~broader product offerings within Activewear, partially~~disruptions from hurricanes during the December 2020 quarter. This was offset by ~~improved operating income and higher~~slower customer collections ~~from customers.~~than the prior year.

Total capital expenditures for the December 2020 quarter were $6.9 million and primarily related to investments in digital printing capacity and our new Phoenix, Arizona distribution center. Cash outflows for capital expenditures were ~~$3.9~~$0.4 million during the ~~first six months of fiscal year~~December 2020 quarter compared to ~~$2.1~~$3.7 million in the same period ~~last~~in the prior year. ~~Capital~~As of December 2020, there were $4.0 million in current year expenditures financed under a capital lease arrangement and $7.6 million in ~~both periods~~unpaid expenditures. In addition, we received proceeds of $2.3 million during the December 2020 quarter upon entering into finance leases for prior capital expenditure cash outflows. In the December 2019 quarter, total capital expenditures were $2.5 million and primarily related to investments in our distribution expansion, improvements to facilities, and investments in our retail stores, in addition to machinery and equipment. There was an additional $3.1 million in expenditures financed under capital lease arrangements and $1.5 million in unpaid expenditures as of March 28, 2020.

On October 8, 2018, our DTG2Go, LLC subsidiary purchased substantially all of the assets of Silk Screen Ink, Ltd. d/b/a SSI Digital Print Services ("SSI"), a premium provider of direct-to-garment digital printed products. The SSI acquisition purchase price consisted of $2.0 million in cash, a promissory note for $7.0 million and $3.0 million in capital lease funding secured by the acquired fixed assets. The cash portion of the purchase price included: (i) a payment at closing of $2.0 million, and (ii) a post-closing net working capital adjustment of $0.7 million. In the first six months of fiscal year 2020, we repaid approximately $1.7 million under the promissory note and capital lease funding.manufacturing initiatives.

We ~~now~~ anticipate our fiscal ~~year 2020~~2021 capital expenditures, including those financed under capital leases, to be approximately ~~$13~~$20 million and to $15 million, compared to our previous estimates of $25 million to $28 million for the year. In March 2020, we took action to significantly reduce or delay capital projects that were not critical to the business in the near-term, which resulted in a nearly 65% reduction in capital spending for the second half of fiscal year 2020. We have also temporarily delayed the expansion of our Clinton, Tennessee distribution center. The remaining capital expenditures for fiscal year 2020 will be focused primarily on ~~completing capital projects that were in process during March 2020, such as~~our distribution expansion, digital print equipment, manufacturing equipment, information technology, and direct-to-consumer ~~initiatives.~~investments including additional Salt Life retail store openings.

During the ~~six months ended March 28,~~December 2020 quarter, cash used by financing activities was $5.0 million and primarily related to the annual payment of the DTG2Go contingent consideration related to the fiscal year 2020 period. During the December 2019 quarter, cash provided by financing activities was ~~$24.7~~$9.3 million ~~compared to $15.4 million provided by financing activities for the six months ended March 29, 2019. The cash provided by our financing activities during the first six months of fiscal years 2020~~ and ~~2019~~ was used to fund our operating activities and capital ~~expenditures as well as the SSI acquisition in fiscal year 2019.~~expenditures.

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

Prior to the ~~Condensed Consolidated Financial Statements for a discussion of the Fifth Amendment to the Fifth Amended and Restated Credit Agreement entered into~~amendments executed on April 27, 2020 ~~(the “Fifth Amendment”~~and August 28, 2020 (collectively, the "Bridge Amendments")., our U.S. revolving credit facility included 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. The Bridge Amendments amend the financial covenant provisions from the amendment dates through July 3, 2021, including effectively lowering the minimum availability thresholds and removing the requirement that our FCCR for the preceding 12-month period must not be less than 1.1 to 1.0. Our availability at December 2020 was above both the minimum availability threshold per the Bridge Amendments as well as the higher thresholds in the U.S. credit agreement that would trigger an FCCR covenant requirement. Had we been subject to the FCCR requirements at December 2020, we would have been in compliance with this covenant.

Our credit facility, as amended on ~~April 27,~~August 28, 2020, as well as cash flows from operations, are intended to fund our day-to-day working capital needs, and along with ~~capital~~finance lease ~~financing~~ arrangements, to fund our planned capital expenditures. However, any material deterioration in our results of operations, such as those that could occur ~~with~~due to the COVID-19 pandemic, may result in the loss of our ability to borrow or issue letters of credit to suppliers under our U.S. revolving credit facility, ~~and to issue letters of credit to suppliers,~~ or may cause the borrowing availability under that facility to be insufficient for our needs. Availability under our credit facility is primarily a function of the levels of our accounts receivable and inventory. A significant deterioration in our accounts receivable or inventory levels could restrict our ability to borrow additional funds or service our indebtedness.

Prior to the Fifth Amendment executed on April 27, 2020, our credit facility included 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. We were not subject to the FCCR covenant at March 28, 2020, because our availability was above the minimum required under the Amended Credit Agreement, but we would have satisfied our financial covenant had we been subject to it. The Fifth Amendment amends the financial covenant provisions from the amendment date through October 3, 2020, including effectively lowering the minimum availability thresholds and removing the requirement that our FCCR for the preceding 12-month period must not be less than 1.1 to 1.0. Following the expiration of these Fifth Amendment terms on October 3, 2020, Additionally, a significant deterioration in our business results could cause our availability to fall below minimum thresholds, thereby requiring us to maintain the minimum FCCR specified in our credit ~~agreement.~~agreement, which we may not be able to maintain.

During the ~~six months ended March 28,~~December 2020 quarter, we ~~purchased 99,971~~did not purchase any shares of our common stock ~~for an aggregate $2.0 million the quarter ended March 28, 2020~~ (see Note O—N—Repurchase of Common Stock). As of ~~March 28,~~December 2020, there was $7.5 million of repurchase authorization remaining under our Stock Repurchase Program. ~~During March 2020, we temporarily suspended share repurchases in an effort to preserve liquidity during the COVID-19 pandemic.~~

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 28, 2019,~~2020, and there have been no changes in those policies since the filing of that Annual Report on Form 10-K with the SEC, except as disclosed in Note C—New Accounting Standards related to the adoption of the ~~new revenue recognition standard, since the filing of that Annual Report on Form 10-K with the SEC.~~cloud computing standard.

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. ~~Some~~The labeling, distribution, importation, marketing, and sale of our ~~facilities generate small quantities of hazardous waste that~~products are ~~either recycled or disposed of off-site.~~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 compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) and other anti-bribery laws applicable to our operations.

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

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

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~March 28, 2020~~,the end of period covered by this quarterly report ("the Evaluation Date") and, based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective as of ~~March 28, 2020~~.the Evaluation Date.

There ~~was~~were no ~~change~~changes during the ~~second~~December 2020 quarter ~~of fiscal year 2020~~ that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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

We operate in a rapidly changing, highly competitive business environment that involves substantial risks and uncertainties. The risk factors described in Part 1, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 28, 2019, as revised below, as well as risks described elsewhere in this report or in our other filings with the SEC, could materially affect our business, financial condition or operating results and the value of Company securities held by investors and should be carefully considered in evaluating our Company and the forward-looking statements contained in this report or future reports. The risks described below are not the only risks facing Delta Apparel. Additional risks not presently known to us or that we currently do not view as material may become material and may impair our business operations. Any of these risks could cause, or contribute to causing, our actual results to differ materially from expectations.

The risk factor described below updates the risk factors disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 28, 2019, to include additional information.

~~The COVID-19 pandemic could have a material adverse effect our ability to operate, results of operations, financial condition, liquidity, and capital investments.~~ The World Health Organization has declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products. The COVID-19 pandemic and similar pandemics or disruptions in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments. Several public health organizations have recommended, and some local and foreign governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shutdown of certain locations, decreased employee availability, potential border closures, and others. Since mid-March 2020, all of our branded retail locations have been closed in compliance with guidelines for retail store operations. Our facilities in El Salvador and Honduras have been temporarily closed since mid-March due to the government-mandated country shutdowns. Uncertainty remains as to when these locations will be permitted to resume operations.

Many of our customers and suppliers also face these and other challenges, which could lead to reduced demand for our products and services and a disruption in our supply chain. These challenges could impair our customers' ability to pay all or a portion of amounts owed to us per the sales agreements, resulting in reduced cash flows and charges incurred for bad debt. These issues may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity of COVID-19, and public and private actions to contain COVID-19 or treat its impact. The COVID-19 pandemic has and will likely continue to result in social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, possible impairment, restructuring, and other charges, as well as overall impact on our business, results of operations, financial condition, liquidity, or capital resources and investments, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

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

On April 27, 2020, Delta Apparel, Inc. and its subsidiaries, M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life, LLC, and DTG2Go, LLC (f/k/a Art Gun, LLC) entered into a Fifth Amendment to the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank (the “Agent”) and the other lenders set forth therein (the “Fifth Amendment”). The Fifth Amended and Restated Credit Agreement, dated as of May 10, 2016, was filed as Exhibit 10.1 to Delta Apparel’s Quarterly Report on Form 10-Q filed with the SEC on May 12, 2016. The First Amendment to the Amended Credit Agreement was filed as Exhibit 10.2.5 to Delta Apparel’s Annual Report on Form 10-K filed with the SEC on November 28, 2017. The Consent and Second Amendment to the Amended Credit Agreement was filed as Exhibit 10.1 to Delta Apparel’s Form 8-K filed with the SEC on March 13, 2018. The Consent and Third Amendment to the Amended Credit Agreement was filed as Exhibit 10.1 to Delta Apparel’s Form 8-K filed with the SEC on October 9, 2018. The Consent and Fourth Amendment to the Amended Credit Agreement was filed as Exhibit 10.2.8 to Delta Apparel's Annual Report on Form 10-K filed with the SEC on November 21, 2019.

The Fifth Amendment amends the financial covenant provisions from the amendment date through October 3, 2020, including lowering the minimum availability thresholds and removing the requirement that our Fixed Charge Coverage Ratio (“FCCR”) for the preceding 12-month period must not be less than 1.1 to 1.0. The Fifth Amendment also, among other things, (i) allows for an additional 30 days of aged receivables from customers in the borrowing base through August 1, 2020, (ii) ceases amortization of real estate and machinery and equipment assets in the borrowing base through August 1, 2020, (iii) postpones amortization of trademark assets in the borrowing base until October 4, 2020; (iv) amends the definition of Fixed Charge Coverage Ratio to reference the monthly amortization of the borrowing bases that were amended as part of the Fourth Amendment to the Fifth Amended and Restated Credit Agreement on November 19, 2019, (v) amends the LIBOR rate definition to include a floor rate of 1.0%, and (vi) requires weekly reporting of accounts receivable to the Agent through October 3, 2020.

We expect the Fifth Amendment will enhance our borrowing base and allow us to access more of our availability under the Amended Credit Agreement while easing the financial covenant restrictions for the remainder of fiscal 2020.

The foregoing summary of the Fifth Amendment and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the text of the Fifth Amendment, which is filed herewith as Exhibit 10.1 to this Quarterly Report on Form 10-Q and which is incorporated herein by reference.

Separate from the relationship related to the Amended Credit Agreement, as amended, certain lenders thereunder have engaged in, or may in the future engage in, transactions with, and perform services for, Delta Apparel, Inc. and/or its subsidiaries in the ordinary course of business.

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.

		Page
PART I.	Financial Information

Item 1.	Financial ~~Statements:~~Statements (unaudited):

	Condensed Consolidated Balance Sheets — ~~March 28,~~December 2020 and September ~~28, 2019 (unaudited)~~2020	3

	Condensed Consolidated Statements of Operations — Three ~~and six~~ months ended ~~March 28,~~December 2020 and ~~March 30,~~December 2019 ~~(unaudited)~~	4

	Condensed Consolidated Statements of Comprehensive Income — Three ~~and six~~ months ended ~~March 28,~~December 2020 and ~~March 30,~~December 2019 ~~(unaudited)~~	5

	Condensed Consolidated Statements of Shareholders' Equity — ~~Six~~Three months ended ~~March 28,~~December 2020 and ~~March 30,~~December 2019 ~~(unaudited)~~	6

	Condensed Consolidated Statements of Cash Flows — ~~Six~~Three months ended ~~March 28,~~December 2020 and ~~March 30,~~December 2019 ~~(unaudited)~~	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—~~Leases~~Selling, General and Administrative Expense	10
	Note H—~~Selling, General and Administrative Expense~~Stock-Based Compensation	1110
	Note I—~~Stock-Based Compensation~~Purchase Contracts	1110
	Note J—~~Purchase Contracts~~Business Segments	11
	Note K—~~Business Segments~~Income Taxes	1211
	Note L—~~Income Taxes~~Derivatives and Fair Value Measurements	12
	Note M—~~Derivatives and Fair Value Measurements~~Legal Proceedings	1312
	Note N—~~Legal Proceedings~~Repurchase of Common Stock	13
	Note O—~~Repurchase of Common Stock~~Goodwill and Intangible Assets	1413
	Note P—~~Goodwill and Intangible Assets~~	14
	~~Note Q—~~Subsequent Events	1413

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

Item 4.	Controls and Procedures	1815

PART II.	Other Information

Item 1.	Legal Proceedings	1815

Item 1A.	Risk Factors	1815

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1815

Item 5.	Other Information	1815

Item 6.	Exhibits	1815

Signatures		1916

Exhibits
~~EX-10.1~~ EX-31.1
~~EX-31.1~~EX-31.2
~~EX-31.2~~EX-32.1
~~EX-32.1~~EX-32.2
~~EX-32.2~~

	Three Months Ended						Six Months Ended						Three Months Ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019			December 2020		December 2019

Net sales	$	96,660		$	102,838		$	192,550		$	204,513		$	94,723	$	95,889
Cost of goods sold		76,079			83,930			152,075			167,036			74,434		75,996
Gross profit		20,581			18,908			40,475			37,477			20,289		19,893

Selling, general and administrative expenses		17,941			17,056			36,147			33,841			16,030		18,073
Other (income) loss, net		(914	)		(843	)		(1,863	)		902
Other loss (income), net														1,190		(817	)
Operating income		3,554			2,695			6,191			2,734			3,069		2,637

Interest expense, net		1,808			1,985			3,610			3,750			1,654		1,802
Earnings (loss) before provision for (benefit from) income taxes		1,746			710			2,581			(1,016	)
Provision for (benefit from) income taxes		526			(115	)		570			(614	)
Consolidated net earnings (loss)		1,220			825			2,011			(402	)
Earnings before provision for income taxes														1,415		835
Provision for income taxes														572		44
Consolidated net earnings														843		791
Net loss attributable to non-controlling interest		91			117			223			193			40		132
Net earnings (loss) attributable to shareholders	$	1,311		$	942		$	2,234		$	(209	)
Net earnings attributable to shareholders													$	883	$	923

Basic earnings (loss) per share	$	0.19		$	0.14		$	0.32		$	(0.03	)
Diluted earnings (loss) per share	$	0.19		$	0.13		$	0.32		$	(0.03	)
Basic earnings per share													$	0.13	$	0.13
Diluted earnings per share													$	0.13	$	0.13

Weighted average number of shares outstanding		6,957			6,943			6,953			6,933			6,920		6,950
Dilutive effect of stock awards		98			160			110			-			80		122
Weighted average number of shares assuming dilution		7,055			7,103			7,063			6,933			7,000		7,072

	Three Months Ended						Six Months Ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019

Net earnings (loss) attributable to shareholders	$	1,311		$	942		$	2,234		$	(209	)
Other comprehensive loss related to unrealized loss on derivatives, net of income tax		(595	)		(257	)		(464	)		(629	)
Consolidated comprehensive income (loss)	$	716		$	685		$	1,770		$	(838	)

	Three Months Ended
	December 2020		December 2019

Net earnings attributable to shareholders	$	883	$	923
Other comprehensive income related to unrealized gain on derivatives, net of income tax		125		131
Consolidated comprehensive income	$	1,008	$	1,054

											Accumulated																								*Accumulated*
					Additional						Other									Non-										*Additional*					*Other*									*Non-*
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock						Controlling						*Common Stock*				*Paid-In*			*Retained*		*Comprehensive*			*Treasury Stock*						*Controlling*
	Shares		Amount		Capital			Earnings			Income (Loss)			Shares			Amount			Interest			Total			*Shares*		*Amount*		*Capital*			*Earnings*		*Income (Loss)*			*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 29, 2018		9,646,972	$	96	$	61,979		$	128,695		$	136			2,737,526		$	(40,881	)	$	93		$	150,118
Balance as of September 2019																											9,646,972	$	96	$	59,855		$	136,937	$	(969	)		2,725,555		$	(41,750	)	$	(281	)	$	153,888

Net loss		-		-		-			(1,151	)		-			-			-			-			(1,151	)
Other comprehensive loss		-		-		-			-			(372	)		-			-			-			(372	)
Net earnings																											-		0		0			923		0			-			0			0			923
Other comprehensive income																											-		0		0			0		131			-			0			0			131
Net loss attributable to non-controlling interest		-		-		-			-			-			-			-			(76	)		(76	)		-		0		0			0		0			-			0			(132	)		(132	)
Vested stock awards		-		-		(3,981	)		-			-			(153,472	)		1,867			-			(2,114	)		0		0		(1,615	)		0		0			(67,406	)		631			0			(984	)
Purchase of common stock		-		-		-			-			-			92,148			(1,711	)		-			(1,711	)
Stock based compensation		-		-		660			-			-			-			-			-			660			-		0		585			0		0			-			0			0			585
Balance as of December 29, 2018		9,646,972		96		58,658			127,544			(236	)		2,676,202			(40,725	)		17			145,354

Net earnings		-		-		-			942			-			-			-			-			942
Other comprehensive loss		-		-		-			-			(257	)		-			-			-			(257	)
Net loss attributable to non-controlling interest		-		-		-			-			-			-			-			(117	)		(117	)
Purchase of common stock		-		-		-			-			-			35,353			(718	)		-			(718	)
Stock based compensation		-		-		463			-			-			-			-			-			463
Balance as of March 30, 2019		9,646,972	$	96	$	59,121		$	128,486		$	(493	)		2,711,555		$	(41,443	)	$	(100	)	$	145,667
Balance as of December 2019																											9,646,972	$	96	$	58,825		$	137,860	$	(838	)		2,658,149		$	(41,119	)	$	(413	)	$	154,411

											Accumulated																								*Accumulated*
					Additional						Other									Non-										*Additional*					*Other*									*Non-*
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock						Controlling						*Common Stock*				*Paid-In*			*Retained*		*Comprehensive*			*Treasury Stock*						*Controlling*
	Shares		Amount		Capital			Earnings			Income (Loss)			Shares			Amount			Interest			Total			*Shares*		*Amount*		*Capital*			*Earnings*		*Income (Loss)*			*Shares*			*Amount*			*Interest*			*Total*
Balance as of September 28, 2019		9,646,972	$	96	$	59,855		$	136,937		$	(969	)		2,725,555		$	(41,750	)	$	(281	)	$	153,888
Balance as of September 2020																											9,646,972	$	96	$	61,005		$	126,564	$	(1,322	)		2,756,854		$	(43,133	)	$	(524	)	$	142,686

Net earnings		-		-		-			923			-			-			-			-			923			-		0		0			883		0			-			0			0			883
Other comprehensive loss		-		-		-			-			131			-			-			-			131
Other comprehensive income																											-		0		0			0		125			-			0			0			125
Net loss attributable to non-controlling interest		-		-		-			-			-			-			-			(132	)		(132	)		-		0		0			0		0			-			0			(40	)		(40	)
Vested stock awards		-		-		(1,615	)		-			-			(67,406	)		631			-			(984	)		0		0		(2,117	)		0		0			(84,542	)		984			0			(1,133	)
Stock based compensation		-		-		585			-			-			-			-			-			585			-		0		676			0		0			-			0			0			676
Balance as of December 28, 2019		9,646,972		96		58,825			137,860			(838	)		2,658,149			(41,119	)		(413	)		154,411

Net earnings		-		-		-			1,311			-			-			-			-			1,311
Other comprehensive loss		-		-		-			-			(595	)		-			-			-			(595	)
Net loss attributable to non-controlling interest		-		-		-			-			-			-			-			(91	)		(91	)
Vested stock awards		-		-		4			-			-			(1,266	)		15			-			19
Purchase of common stock		-		-		-			-			-			99,971			(2,029	)		-			(2,029	)
Stock based compensation		-		-		611			-			-			-			-			-			611
Balance as of March 28, 2020		9,646,972	$	96	$	59,440		$	139,171		$	(1,433	)		2,756,854		$	(43,133	)	$	(504	)	$	153,637
Balance as of December 2020																											9,646,972	$	96	$	59,564		$	127,447	$	(1,197	)		2,672,312		$	(42,149	)	$	(564	)	$	143,197

	*December 2020 Quarter*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	87,624		0.2	%		0.4	%		99.4	%
Salt Life Group		7,099		31.4	%		21.1	%		47.5	%
Total	$	94,723

	*December 2019 Quarter*
	*Net Sales*		*Retail*			*Direct-to-consumer ecommerce*			*Wholesale*
Delta Group	$	88,950		0.3	%		0.3	%		99.4	%
Salt Life Group		6,939		13.5	%		20.7	%		65.8	%
Total	$	95,889

	Second Quarter Fiscal Year 2020
	Net Sales		Retail			ecommerce			Wholesale
Delta Group	$	84,191		0.2	%		0.2	%		99.6	%
Salt Life Group		12,469		6.4	%		7.1	%		86.5	%
Total	$	96,660

	Second Quarter Fiscal Year 2019
	Net Sales		Retail			ecommerce			Wholesale
Delta Group	$	89,526		0.3	%		0.3	%		99.4	%
Salt Life Group		13,312		4.4	%		5.7	%		89.9	%
Total	$	102,838

	Year To Date Fiscal Year 2020
	Net Sales		Retail			ecommerce			Wholesale
Delta Group	$	173,143		0.3	%		0.3	%		99.4	%
Salt Life Group		19,407		8.9	%		11.9	%		79.2	%
Total	$	192,550

	Year To Date Fiscal Year 2019
	Net Sales		Retail			ecommerce			Wholesale
Delta Group	$	183,916		0.3	%		0.3	%		99.4	%
Salt Life Group		20,597		6.1	%		9.7	%		84.2	%
Total	$	204,513

	March 28,
	2020
Revolving credit facility established March 2011, weighted average interest at 6.6% expiring August 2025	$	6,267
Term loan established November 2014, interest at 6.0%, payable monthly with a six-year term		500
Term loan established June 2016, interest at 6.0%, payable monthly with a six-year term		631
Term loan established October 2017, interest at 6.0%, payable monthly with a six-year term		1,420


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

	Operating			Finance
	Leases			Leases
2020	$	5,509		$	3,989
2021		9,488			6,684
2022		8,116			4,475
2023		6,119			3,464
2024		4,675			1,965
Thereafter		17,635			295
Undiscounted fixed lease payments	$	51,542		$	20,872
Discount due to interest		(7,406	)		(1,668)
Total lease liabilities	$	44,136		$	19,204
Less current maturities		(8,525	)		(6,965	)
Lease liabilities, excluding current maturities	$	35,611		$	12,239

Operating lease fixed expense	$	5,513
Operating lease variable cost expense		879
Finance lease amortization of ROU assets expense		1,630
Finance lease interest expense		486
Total lease expense	$	8,508

Yarn	$	32,073	$	12,878
Finished fabric		2,276		2,955
Finished products		7,166		16,420
	$	41,515	$	32,253

	Fair Value Measurements Using
				Quoted Prices in		Significant Other			Significant
				Active Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
Period Ended	Total			(Level 1)		(Level 2)			(Level 3)
Interest Rate Swaps
March 28, 2020	$	(1,914	)		—	$	(1,914	)		—
September 28, 2019	$	(1,293	)		—	$	(1,293	)		—

Contingent Consideration
March 28, 2020	$	(5,580	)		—		—		$	(5,580	)
September 28, 2019	$	(9,094	)		—		—		$	(9,094	)

	*Fair Value Measurements Using*
				*Quoted Prices in*		*Significant Other*			*Significant*
				*Active Markets for*		*Observable*			*Unobservable*
				*Identical Assets*		*Inputs*			*Inputs*
Period Ended	*Total*			*(Level 1)*		*(Level 2)*			*(Level 3)*
Interest Rate Swaps
December 2020	$	(1,598	)		0	$	(1,598	)		0
September 2020	$	(1,764	)		0	$	(1,764	)		0

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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Dollar Value of Shares that May Yet Be Purchased Under the Plans
December 29, 2019 to February 1, 2020		—		—		—	$9.5 million
February 2, 2020 to February 29, 2020		53,761	$	22.21		53,761	8.3 million
March 1, 2020 to March 28, 2020		46,210		18.08		46,210	7.5 million
Total		99,971	$	20.30		99,971	$7.5 million

	• ●	~~the volatility and uncertainty of cotton and other raw material prices and availability;~~
	•	the general U.S. and international economic ~~conditions;~~ conditions:
	• ●	the COVID-19 pandemic impact on our operations, financial condition, liquidity, and capital investments:

	•	~~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;

	•	~~changes in economic, political or social stability at our offshore locations;~~
	•	~~significant interruptions or disruptions within our manufacturing, distribution or other operations;~~
	•	~~our ability to attract and retain key management;~~
	•	~~significant changes in our effective tax rate;~~
	•	~~interest rate fluctuations increasing our obligations under our variable rate indebtedness;~~
	•	~~the ability to raise additional capital;~~
	•●	the ability to grow, achieve synergies and realize the expected profitability of acquisitions;

	•	~~the impairment of acquired intangible assets;~~
	•●	changes in international trade regulations;

	•	~~foreign currency exchange rate fluctuations;~~
	•●	negative publicity resulting from violations of manufacturing standards or labor laws or unethical business practices by our suppliers and independent contractors;

~~10.1~~		Fifth Amendment to Fifth Amended and Restated Credit Agreement, dated April 27, 2020, among Delta Apparel, Inc., M.J. Soffe, LLC, Culver City Clothing Company, Salt Life, LLC, and DTG2Go, LLC, and the financial institutions named therein as Lenders, and Wells Fargo Bank, National Association, as agent for Lenders.

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

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

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

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

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

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101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

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

			DELTA APPAREL, INC. (Registrant)

Date	~~April 30, 2020~~February 8, 2021	By:	/s/ Deborah H. Merrill
			Deborah H. Merrill Chief Financial Officer and President, Delta Group