##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 29, 2007
 OR
 o
    
    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.
 
 GEORGIA
    
    58-2508794(State or other jurisdiction of 
Incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2750 Premiere Parkway, Suite 100
Duluth, Georgia
    
    30097(Address of principal executive offices)
    
    (Zip Code)
 (678) 775-6900
 
 (Not Applicable)
 
  þ o
  o þ o o
  o þ




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##### 



INDEX
 PagePART I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Financial Statements:Condensed
Consolidated Balance Sheets December 29, 2007 and June 30, 2007
    
    
    3Condensed
Consolidated Statements of Operations Three and six months
ended December 29, 2007 and December 30, 2006
    
    
    4Condensed
Consolidated Statements of Cash Flows Six months ended December
29, 2007 and December 30, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    20PART II.
    
    Other InformationItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 6.
    
    Exhibits
    
    
    21Signatures
    
    
    
    
    22Exhibits
    
    
    
    
    23EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
 December 29,
    
    
    June 30,2007
    
    
    2007AssetsCurrent assets:Cash
    
    $
    646
    
    
    $
    792Accounts receivable, net
    
    
    34,144
    
    
    
    46,444Income taxes receivable
    
    
    2,391
    
    
    
    2,192Inventories, net
    
    
    132,233
    
    
    
    124,604Prepaid expenses and other current assets
    
    
    4,232
    
    
    
    2,597Deferred income taxes
    
    
    3,337
    
    
    
    1,891Total current assets
    
    
    176,983
    
    
    
    178,520Property, plant and equipment, net
    
    
    36,592
    
    
    
    29,407Goodwill
    
    
    14,222
    
    
    
    14,222Intangibles, net
    
    
    7,848
    
    
    
    8,091Other assets
    
    
    2,700
    
    
    
    2,550Total assets
    
    $
    238,345
    
    
    $
    232,790Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    34,469
    
    
    $
    35,906Accrued expenses
    
    
    13,131
    
    
    
    19,042Current portion of long-term debt
    
    
    6,273
    
    
    
    2,927Total current liabilities
    
    
    53,873
    
    
    
    57,875Long-term debt, less current maturities
    
    
    82,057
    
    
    
    70,491Deferred income taxes
    
    
    1,271
    
    
    
    749Other liabilities
    
    
    648
    
    
    
    6Total liabilities
    
    
    137,849
    
    
    
    129,121Stockholders equity:Preferred stock2,000,000 shares authorized; none issued
and outstanding
    
    
    
    
    
    
    Common stockpar value $0.01 a share, 15,000,000 shares authorized,
9,646,972 shares issued, and 8,496,749 and 8,398,395
shares outstanding as of December 29, 2007 and June 30, 2007,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    56,867
    
    
    
    55,510Retained earnings
    
    
    53,429
    
    
    
    58,235Accumulated other comprehensive (loss) income
    
    
    (396
    )
    
    
    140Treasury stock1,150,223 and 1,248,577 shares as of December 29,
2007 and June 30, 2007, respectively
    
    
    (9,500
    )
    
    
    (10,312
    )Total stockholders equity
    
    
    100,496
    
    
    
    103,669Total liabilities and stockholders equity
    
    $
    238,345
    
    
    $
    232,790
  3




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DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Operations
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 29,
    
    
    December 30,
    
    
    December 29,
    
    
    December 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    68,780
    
    
    $
    72,949
    
    
    $
    141,342
    
    
    $
    135,629Cost of goods sold
    
    
    57,897
    
    
    
    56,855
    
    
    
    117,468
    
    
    
    102,199Gross profit
    
    
    10,883
    
    
    
    16,094
    
    
    
    23,874
    
    
    
    33,430Selling, general and administrative expenses
    
    
    13,447
    
    
    
    13,615
    
    
    
    27,650
    
    
    
    27,513Other (expense) income, net
    
    
    (33
    )
    
    
    42
    
    
    
    49
    
    
    
    92Restructuring costs
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    Operating (loss) income
    
    
    (2,597
    )
    
    
    2,521
    
    
    
    (3,789
    )
    
    
    6,009Interest expense, net
    
    
    1,585
    
    
    
    1,482
    
    
    
    3,055
    
    
    
    2,429(Loss) income before (benefit)
provision for income taxes and
extraordinary gain
    
    
    (4,182
    )
    
    
    1,039
    
    
    
    (6,844
    )
    
    
    3,580(Benefit) provision for income taxes
    
    
    (1,348
    )
    
    
    406
    
    
    
    (2,462
    )
    
    
    1,373(Loss) income before extraordinary gain
    
    
    (2,834
    )
    
    
    633
    
    
    
    (4,382
    )
    
    
    2,207Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    672Net (loss) income
    
    $
    (2,834
    )
    
    $
    633
    
    
    $
    (4,382
    )
    
    $
    2,879Basic (loss) earnings per share(Loss) income before extraordinary gain
    
    $
    (0.33
    )
    
    $
    0.07
    
    
    $
    (0.52
    )
    
    $
    0.26Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.08Net (loss) income
    
    $
    (0.33
    )
    
    $
    0.07
    
    
    $
    (0.52
    )
    
    $
    0.34Diluted (loss) earnings per share(Loss) income before extraordinary gain
    
    $
    (0.33
    )
    
    $
    0.07
    
    
    $
    (0.52
    )
    
    $
    0.25Extraordinary gain, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.08Net (loss) income
    
    $
    (0.33
    )
    
    $
    0.07
    
    
    $
    (0.52
    )
    
    $
    0.33Weighted average number of shares outstanding
    
    
    8,497
    
    
    
    8,539
    
    
    
    8,463
    
    
    
    8,543Dilutive effect of stock options
    
    
    
    
    
    
    180
    
    
    
    
    
    
    
    164Weighted average number of shares assuming dilution
    
    
    8,497
    
    
    
    8,719
    
    
    
    8,463
    
    
    
    8,707Cash dividends declared per common share
    
    
    
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.10
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DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 Six Months EndedDecember 29,
    
    
    December 30,2007
    
    
    2006Operating activities:Net (loss) income
    
    $
    (4,382
    )
    
    $
    2,879Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    2,875
    
    
    
    2,607Benefit from deferred income taxes
    
    
    (924
    )
    
    
    (198
    )Benefit from allowances on accounts receivable, net
    
    
    (292
    )
    
    
    (606
    )Loss on disposal
    
    
    16
    
    
    
    33Extraordinary gain on earn-out payment
    
    
    
    
    
    
    (672
    )Non-cash stock compensation
    
    
    637
    
    
    
    1,183Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable
    
    
    12,592
    
    
    
    21,012Inventories
    
    
    (7,629
    )
    
    
    (6,824
    )Prepaid expenses and other current assets
    
    
    (1,635
    )
    
    
    158Other non-current assets
    
    
    (150
    )
    
    
    (59
    )Accounts payable and accrued expenses
    
    
    (5,819
    )
    
    
    (14,661
    )Income taxes
    
    
    (199
    )
    
    
    (2,755
    )Other liabilities
    
    
    106
    
    
    
    (2
    )Net cash (used in) provided by operating activities
    
    
    (4,804
    )
    
    
    2,095Investing activities:Purchases of property, plant and equipment
    
    
    (9,834
    )
    
    
    (2,874
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    6Cash paid for business, net of cash acquired
    
    
    
    
    
    
    (25,703
    )Net cash used in investing activities
    
    
    (9,834
    )
    
    
    (28,571
    )Financing activities:Proceeds from long-term debt
    
    
    182,417
    
    
    
    152,225Repayment of long-term debt
    
    
    (167,505
    )
    
    
    (124,483
    )Treasury stock acquired
    
    
    
    
    
    
    (506
    )Dividends paid
    
    
    (420
    )
    
    
    (854
    )Net cash provided by financing activities
    
    
    14,492
    
    
    
    26,382Net decrease in cash
    
    
    (146
    )
    
    
    (94
    )Cash at beginning of period
    
    
    792
    
    
    
    642Cash at end of period
    
    $
    646
    
    
    $
    548Supplemental cash flow information:Cash paid during the period for interest
    
    $
    2,829
    
    
    $
    2,050Cash (refunded) paid during the period for income taxes
    
    $
    (1,669
    )
    
    $
    4,316Non-cash financing activityissuance of common stock
    
    $
    1,704
    
    
    $
    90
  5




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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note ABasis of Presentation
   Note BAccounting Policies
  Note CNew Accounting Standards
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Non-controlling Interests in Consolidated
Financial Statements
 Business Combinations
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Note DInventories
  December 29,
    
    
    June 30,2007
    
    
    2007Raw materials
    
    $
    10,902
    
    
    $
    11,922Work in process
    
    
    24,369
    
    
    
    27,723Finished goods
    
    
    96,962
    
    
    
    84,959$
    132,233
    
    
    $
    124,604
  Note EGoodwill and Intangible Assets
  December 29,
    
    
    Economic2007
    
    
    LifeGoodwill
    
    $
    14,222
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    
    23,222Less accumulated amortization
    
    
    (1,152
    )$
    22,070
  Note FDebt
    7




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Note GSelling, General and Administrative Expense
  Note HStock Options and Incentive Stock Awards
 Share-Based
Payment
 Delta Apparel Stock Option Plan (Option Plan)
  8




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Delta Apparel Incentive Stock Award Plan (Award Plan)
  Note IPurchase Contracts
  Natural gas
    
    $
    768Yarn
    
    
    21,122Finished fabric
    
    
    2,420Finished apparel products
    
    
    2,976$
    27,286
 Note JComputation of Basic and Diluted Earnings per Share (EPS)
  Note KStockholders Equity
 Stock Repurchase Program
  Quarterly Dividend Program
  Note LSegment Reporting
  ®
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® ® ® ® ®
    Activewear
    
    Retail-Ready
    
    Corporate andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2008:Net sales
    
    $
    41,093
    
    
    $
    27,687
    
    
    $
    
    
    
    $
    68,780Segment operating (loss) income
    
    
    (4,637
    )
    
    
    2,040
    
    
    
    
    
    
    
    (2,597
    )Segment assets
    
    
    135,413
    
    
    
    102,932
    
    
    
    
    
    
    
    238,345Fiscal Year 2007:Net sales
    
    $
    47,093
    
    
    $
    25,856
    
    
    $
    
    
    
    $
    72,949Segment operating income
    
    
    1,330
    
    
    
    1,143
    
    
    
    48
    
    
    
    2,521Segment assets
    
    
    132,366
    
    
    
    93,460
    
    
    
    
    
    
    
    225,826Information about our operations as of and for the six months ended December 29, 2007 and December
30, 2006, by operating segment, is as follows:Activewear
    
    Retail-Ready
    
    Corporate andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2008:Net sales
    
    $
    83,325
    
    
    $
    58,017
    
    
    $
    
    
    
    $
    141,342Segment operating (loss) income
    
    
    (8,566
    )
    
    
    4,777
    
    
    
    
    
    
    
    (3,789
    )Fiscal Year 2007:Net sales
    
    $
    77,415
    
    
    $
    58,214
    
    
    $
    
    
    
    $
    135,629Segment operating income
    
    
    1,546
    
    
    
    4,420
    
    
    
    43
    
    
    
    6,009
  Three Months Ended
    
    
    Six Months EndedDecember 29,
    
    
    December 30,
    
    
    December 29,
    
    
    December 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Segment operating (loss) income
    
    $
    (2,597
    )
    
    $
    2,521
    
    
    $
    (3,789
    )
    
    $
    6,009Unallocated interest expense
    
    
    1,585
    
    
    
    1,482
    
    
    
    3,055
    
    
    
    2,429Consolidated (loss) income before taxes
    
    $
    (4,182
    )
    
    $
    1,039
    
    
    $
    (6,844
    )
    
    $
    3,580
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Note MIncome Taxes
  Accounting for Uncertainty in
Income Taxes
  Note NExtraordinary Gain
  Note OFactored Receivables
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a replacement of FASB Statement 125
 Note PRestructuring Plan
  11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
        12




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13




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14




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15




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Derivative Instruments
    Operating Cash Flows
  Investing Cash Flows
  Financing Activities
  16




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Purchases by Delta Apparel of its Own Shares
  Dividend Program
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition and Accounts Receivable
  17




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Inventories
  Self Insurance
  Share-Based Compensation
 Share-Based Payment
 Income Taxes
 Accounting for Income Taxes
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   18




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Derivatives
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  19




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Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    Dollar Value ofShares Purchased as
    
    Shares that May YetAverage
    
    Part of Publicly
    
    Be Purchased UnderTotal Number of
    
    Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased
    
    per Share
    
    Programs
    
    ProgramsOctober Period
(September 30, 2007 to November 3,
2007)
    
    
    
    
    
    
    
    $5.9millionNovember Period
(November 4, 2007 to December 1, 2007)
    
    
    
    
    
    
    
    $5.9millionDecember Period
(December 2, 2007 to December 29, 2007)
    
    
    
    
    
    
    
    $5.9million
   
 Item 4. Submission of Matters to a Vote of Security Holders
  Election of Directors
    
    For
    
    
    AgainstDavid S. Fraser
    
    
    7,258,726
    
    
    
    95,406William F. Garrett
    
    
    7,226,263
    
    
    
    127,869Dr. Elizabeth J. Gatewood
    
    
    7,258,770
    
    
    
    95,362Robert W. Humphreys
    
    
    7,259,098
    
    
    
    95,034Dr. Max Lennon
    
    
    7,227,901
    
    
    
    126,231E. Erwin Maddrey, II
    
    
    7,225,875
    
    
    
    128,257Buck A. Mickel
    
    
    7,225,875
    
    
    
    128,257David Peterson
    
    
    7,228,346
    
    
    
    125,786
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BrokerFor
    
    Against
    
    Abstain
    
    Non-VoteRe-Approve the
Short-Term Incentive
Compensation Plan
    
    
    7,218,750
    
    
    
    129,786
    
    
    
    5,594
    
    
    
    Approve Amendment to
Articles of
Incorporation to Provide
for Majority Voting of
Directors in Uncontested
Elections
    
    
    6,889,583
    
    
    
    67,736
    
    
    
    5,082
    
    
    
    391,731Ratification of the
Appointment of Ernst &
Young LLP as Independent
Registered Public
Accounting Firm for
Fiscal Year 2008
    
    
    7,155,457
    
    
    
    197,305
    
    
    
    1,370
    
    
    
    
 
 Item 6. Exhibits
 Exhibits31.1
    
    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.
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SIGNATURES
  DELTA APPAREL, INC.
(Registrant)February 6, 2008
    By:
    /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial
Officer and Treasurer 22