Note K—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 Delta Activewear (encompassing our Delta Catalog and FunTees businesses), Soffe, and DTG2Go business units. We market, distribute and manufacture unembellished knit apparel under the main brands of Soffe^®, Delta Platinum, Delta Pro Weight^®, and Delta Magnum Weight^® for sale to a diversified audience ranging from large licensed screen printers to small independent businesses. Through our FunTees business, we serve our customers as their supply chain partner, from product development to shipment of their branded products, with the majority of products sold with value-added services including embellishment, hangers, hangtags and ticketing, so that they are ready for retail sale to the end consumers. 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.

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, 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  may not be comparable to similarly titled measures used by other companies. The accounting policies of our reportable segments are the same as those described in Note 2 in our Annual Report on Form 10-K for the fiscal year ended September 28, 2019, 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).

⁽¹⁾For the three-months and nine-months ended June 27, 2020, the Delta Group operating (loss) income included $23.1 million and $25.0 million, respectively, of expenses related to the COVID-19 pandemic. For the first three months of fiscal 2020, these costs primarily related to the curtailment of manufacturing operations ($9.8 million), incremental costs to right size production to new forecasted demand ($2.6 million), increased accounts receivable and inventory reserves related to the heightened risks in the market as the U.S. continues its recovery ($6.6 million), and other expenses ($4.1 million). These costs are included within net sales ($0.5 million), cost of goods sold ($12.1 million), SG&A expenses ($2.4 million), and other loss (income), net ($8.1 million). The first nine months of fiscal 2020 includes an additional $1.9 million of costs related to the curtailment of manufacturing operations in cost of goods sold. In the quarter ended December 29, 2018, the Delta Group operating income included $2.5 million of expense incurred in connection with the settlement of litigation related to the 2016 bankruptcy filing of a customer.

⁽²⁾In the quarter ended June 29, 2019, the Salt Life Group operating income included $1.3 million in other income as the result of a litigation settlement.

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

The Delta Group segment assets have increased by $17.2 million since September 28, 2019, to $332.9 million as of June 27, 2020, primarily as a result of the adoption of ASU 2016-02 which were partially offset by decreases in working capital due to the seasonality of the business and lower production due to the COVID-19 pandemic. The Salt Life Group segment assets have increased by $9.0 million since September 28, 2019, to $66.5 million as of June 27, 2020, primarily due the adoption of ASU 2016-02.