##### 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 April 2, 2011
 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)322 South Main StreetGreenville, SC
    
    29601(Address of principal executive offices)
    
    (Zip Code)
 (864) 232-5200
 
  
   þ o
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    

Non-accelerated
filer   þ  (Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



INDEX
 PagePART I.
    
    Financial InformationItem 1.
    
    Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets 
April 2, 2011 and July 3, 2010 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations 
Three and nine months ended April 2, 2011 and March 27, 2010 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows 
Nine months ended April 2, 2011 and March 27, 2010 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    18PART II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 6.
    
    Exhibits
    
    
    18Signatures
    
    
    
    
    19Exhibits
    
    
    
    
    20EX-10.2.2EX-31.1EX-31.2EX-32.1EX-32.2
  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
 April 2,
    
    
    July 3,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    632
    
    
    $
    687Accounts receivable, net
    
    
    72,877
    
    
    
    60,991Inventories, net
    
    
    152,340
    
    
    
    116,599Prepaid expenses and other current assets
    
    
    4,530
    
    
    
    3,475Deferred income taxes
    
    
    3,247
    
    
    
    3,162Total current assets
    
    
    233,626
    
    
    
    184,914Property, plant and equipment, net
    
    
    39,516
    
    
    
    37,694Goodwill
    
    
    16,814
    
    
    
    17,426Intangibles, net
    
    
    7,555
    
    
    
    8,016Other assets
    
    
    3,015
    
    
    
    3,283Total assets
    
    $
    300,526
    
    
    $
    251,333Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    48,059
    
    
    $
    34,459Accrued expenses
    
    
    19,631
    
    
    
    18,862Income tax payable
    
    
    517
    
    
    
    712Current portion of long-term debt
    
    
    2,333
    
    
    
    5,718Total current liabilities
    
    
    70,540
    
    
    
    59,751Long-term debt, less current maturities
    
    
    93,426
    
    
    
    62,355Deferred income taxes
    
    
    2,504
    
    
    
    1,826Other liabilities
    
    
    29
    
    
    
    157Contingent consideration
    
    
    
    
    
    
    1,530Total liabilities
    
    
    166,499
    
    
    
    125,619Commitments and contingenciesShareholders equity:Preferred stock$0.01 par value, 2,000,000 shares authorized, none
issued and outstanding
    
    
    
    
    
    
    Common stock $0.01 par value, 15,000,000 shares authorized,
9,646,972 shares issued, and 8,456,736 and 8,516,293 shares
outstanding as of April 2, 2011 and July 3, 2010, respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    59,726
    
    
    
    59,111Retained earnings
    
    
    84,742
    
    
    
    75,950Accumulated other comprehensive loss
    
    
    (31
    )
    
    
    (105
    )Treasury stock 1,190,236 and 1,130,679 shares as of April 2, 2011
and July 3, 2010, respectively
    
    
    (10,506
    )
    
    
    (9,338
    )Total shareholders equity
    
    
    134,027
    
    
    
    125,714Total liabilities and shareholders equity
    
    $
    300,526
    
    
    $
    251,333
  3




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedApril 2,
    
    
    March 27,
    
    
    April 2,
    
    
    March 27,2011
    
    
    2010
    
    
    2011
    
    
    2010Net sales
    
    $
    124,954
    
    
    $
    107,942
    
    
    $
    337,592
    
    
    $
    298,224Cost of goods sold
    
    
    94,092
    
    
    
    82,739
    
    
    
    258,943
    
    
    
    227,600Gross profit
    
    
    30,862
    
    
    
    25,203
    
    
    
    78,649
    
    
    
    70,624Selling, general and administrative expenses
    
    
    22,706
    
    
    
    20,345
    
    
    
    65,676
    
    
    
    59,164Change in fair value of contingent consideration
    
    
    
    
    
    
    
    
    
    
    (1,530
    )
    
    
    Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    612
    
    
    
    Other expense (income), net
    
    
    29
    
    
    
    (56
    )
    
    
    180
    
    
    
    (189
    )Operating income
    
    
    8,127
    
    
    
    4,914
    
    
    
    13,711
    
    
    
    11,649Interest expense, net
    
    
    627
    
    
    
    948
    
    
    
    1,828
    
    
    
    2,805Income before provision for income taxes
    
    
    7,500
    
    
    
    3,966
    
    
    
    11,883
    
    
    
    8,844Provision for income taxes
    
    
    1,775
    
    
    
    1,008
    
    
    
    3,089
    
    
    
    2,324Net income
    
    $
    5,725
    
    
    $
    2,958
    
    
    $
    8,794
    
    
    $
    6,520Basic earnings per share
    
    $
    0.67
    
    
    $
    0.35
    
    
    $
    1.03
    
    
    $
    0.77Diluted earnings per share
    
    $
    0.65
    
    
    $
    0.34
    
    
    $
    1.00
    
    
    $
    0.76Weighted average number of shares outstanding
    
    
    8,490
    
    
    
    8,516
    
    
    
    8,505
    
    
    
    8,513Dilutive effect of stock options
    
    
    249
    
    
    
    215
    
    
    
    247
    
    
    
    65Weighted average number of shares assuming dilution
    
    
    8,739
    
    
    
    8,731
    
    
    
    8,752
    
    
    
    8,578
  4




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Delta Apparel, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
 Nine Months EndedApril 2,
    
    
    March 27,2011
    
    
    2010Operating activities:Net income
    
    $
    8,794
    
    
    $
    6,520Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization
    
    
    5,411
    
    
    
    5,172Provision for deferred income taxes
    
    
    593
    
    
    
    326Loss on disposal of property and equipment
    
    
    56
    
    
    
    56Non-cash stock compensation
    
    
    736
    
    
    
    759Change in the fair value of contingent consideration
    
    
    (1,530
    )
    
    
    Goodwill impairment charge
    
    
    612
    
    
    
    Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (8,083
    )
    
    
    (4,368
    )Inventories
    
    
    (29,572
    )
    
    
    52Prepaid expenses and other current assets
    
    
    (960
    )
    
    
    (87
    )Income taxes
    
    
    (196
    )
    
    
    1,966Other non-current assets
    
    
    267
    
    
    
    233Accounts payable
    
    
    12,991
    
    
    
    797Accrued expenses
    
    
    441
    
    
    
    3,842Other liabilities
    
    
    (54
    )
    
    
    (927
    )Net cash (used in) provided by operating activities
    
    
    (10,494
    )
    
    
    14,341Investing activities:Purchases of property and equipment, net
    
    
    (5,978
    )
    
    
    (3,849
    )Cash paid for business, net of cash acquired
    
    
    (9,884
    )
    
    
    (1,700
    )Net cash used in investing activities
    
    
    (15,862
    )
    
    
    (5,549
    )Financing activities:Proceeds from long-term debt
    
    
    379,260
    
    
    
    296,161Repayment of long-term debt
    
    
    (351,574
    )
    
    
    (305,052
    )Repurchase of common stock
    
    
    (1,702
    )
    
    
    Proceeds from stock options
    
    
    217
    
    
    
    Excess tax benefits from exercise of stock options
    
    
    100
    
    
    
    Net cash provided by (used in) financing activities
    
    
    26,301
    
    
    
    (8,891
    )Net decrease in cash and cash equivalents
    
    
    (55
    )
    
    
    (99
    )Cash and cash equivalents at beginning of period
    
    
    687
    
    
    
    654Cash and cash equivalents at end of period
    
    $
    632
    
    
    $
    555Supplemental cash flow information:Cash paid for interest
    
    $
    1,598
    
    
    $
    2,571Cash paid for income taxes
    
    $
    2,773
    
    
    $
    301Non-cash financing activityissuance of common stock
    
    $
    98
    
    
    $
    118
  5




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##### Table of Contents



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
 Consolidation of Variable Interest Entities Consolidations: Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities
 Intangibles Goodwill and Other (Topic 350): When
to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts
 Business Combinations (Topic 805)  Disclosure
of Supplementary Pro Forma Information for Business Combinations
 6




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##### Table of Contents



DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
  Note DInventories
  April 2,
    
    
    July 3,2011
    
    
    2010Raw materials
    
    $
    18,296
    
    
    $
    10,604Work in process
    
    
    25,301
    
    
    
    21,277Finished goods
    
    
    108,743
    
    
    
    84,718$
    152,340
    
    
    $
    116,599
  Note EDebt
     Debt
  7




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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
  Note FSelling, General and Administrative Expense
  Note GStock Options and Incentive Stock Awards
 Compensation  Stock Compensation
 Delta
Apparel, Inc. 2010 Stock Plan (2010 Stock Plan)
  Delta
Apparel Stock Option Plan (Option Plan)
 Delta
Apparel Incentive Stock Award Plan (Award Plan)
 8




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##### Table of Contents



DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
 Note HPurchase Contracts
  Yarn
    
    $
    34,343Natural gas
    
    
    342Finished fabric
    
    
    2,658Finished products
    
    
    20,395$
    57,738
 Note ISegment Reporting
  ® ® ® ® ®
 ® ® ® ® ®
   Basics
    
    
    Branded
    
    
    ConsolidatedThree months ended April 2, 2011:Net sales
    
    $
    70,632
    
    
    $
    54,322
    
    
    $
    124,954Segment operating income
    
    
    6,593
    
    
    
    1,534
    
    
    
    8,127Segment assets
    
    
    149,086
    
    
    
    151,440
    
    
    
    300,526Purchases of property and equipment
    
    
    1,106
    
    
    
    1,067
    
    
    
    2,173Three months ended March 27, 2010:Net sales
    
    $
    61,685
    
    
    $
    46,257
    
    
    $
    107,942Segment operating income
    
    
    1,368
    
    
    
    3,546
    
    
    
    4,914Segment assets
    
    
    140,291
    
    
    
    120,431
    
    
    
    260,722Purchases of property and equipment
    
    
    1,092
    
    
    
    577
    
    
    
    1,669
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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
 Basics
    
    
    Branded
    
    
    ConsolidatedNine months ended April 2, 2011:Net sales
    
    $
    176,400
    
    
    $
    161,192
    
    
    $
    337,592Segment operating income
    
    
    8,116
    
    
    
    5,595
    
    
    
    13,711Purchases of property and equipment
    
    
    3,345
    
    
    
    2,633
    
    
    
    5,978Nine months ended March 27, 2010:Net sales
    
    $
    154,209
    
    
    $
    144,015
    
    
    $
    298,224Segment operating (loss) income
    
    
    (355
    )
    
    
    12,004
    
    
    
    11,649Purchases of property and equipment
    
    
    2,503
    
    
    
    1,352
    
    
    
    3,855
  Three Months Ended
    
    
    Nine Months EndedApril 2,
    
    
    March 27,
    
    
    April 2,
    
    
    March 27,2011
    
    
    2010
    
    
    2011
    
    
    2010Segment operating income
    
    $
    8,127
    
    
    $
    4,914
    
    
    $
    13,711
    
    
    $
    11,649Unallocated interest expense
    
    
    627
    
    
    
    948
    
    
    
    1,828
    
    
    
    2,805Consolidated income before taxes
    
    $
    7,500
    
    
    $
    3,966
    
    
    $
    11,883
    
    
    $
    8,844
 Note JIncome Taxes
   Note KDerivatives
  Effective Date
    
    
    Notional Amount
    
    
    LIBOR Rate
    
    
    Maturity DateInterest Rate Swap
    
    March 1, 2010
    
    
    $15 million
    
    
    1.11
    %
    
    September 1, 2011
 Derivatives and Hedging
 Fair Value Measurements and Disclosures
 10




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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
  
    
    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 market that are less active.
    
    Level 3   Unobservable inputs for assets or liabilities reflecting the reporting entitys
own assumptions.
  Fair Value Measurements UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsPeriod Ended
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swapApril 2, 2011
    
    $
    50
    
    
    
    
    
    
    $
    50
    
    
    
    July 3, 2010
    
    $
    171
    
    
    
    
    
    
    $
    171
    
    
    
    Contingent considerationApril 2, 2011
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    July 3, 2010
    
    $
    1,530
    
    
    
    
    
    
    
    
    
    
    $
    1,530
    April 2,
    
    
    July 3,2011
    
    
    2010Accrued expenses
    
    $
    50
    
    
    $
    105Deferred tax liabilities
    
    
    (19
    )
    
    
    (66
    )Other liabilities
    
    
    
    
    
    
    66Accumulated other comprehensive loss
    
    $
    31
    
    
    $
    105
  11




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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
 Note LLegal Proceedings
  Note MThe Cotton Exchange Acquisition
  Business Combinations,
 Note NRepurchase of Common Stock
   Total
    
    
    
    
    
    
    Total Number of
    
    
    Dollar Value ofNumber
    
    
    Average
    
    
    Shares Purchased
    
    
    Shares that Mayof Shares
    
    
    Price Paid
    
    
    as Part of Publicly
    
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    
    per Share
    
    
    Announced Plans
    
    
    Under the PlansJanuary 2 to February 5, 2011
    
    
    11,528
    
    
    $
    12.75
    
    
    
    11,528
    
    
    $4.7 millionFebruary 6 to March 5, 2011
    
    
    9,352
    
    
    $
    13.03
    
    
    
    9,352
    
    
    $4.6 millionMarch 6 to April 2, 2011
    
    
    27,220
    
    
    $
    13.71
    
    
    
    27,220
    
    
    $4.2 millionTotal
    
    
    48,100
    
    
    $
    13.35
    
    
    
    48,100
    
    
    $4.2 million
 Note OLicense Agreements
   Fiscal Year2011
    
    $
    5582012
    
    
    2,1782013
    
    
    1,7632014
    
    
    1,7952015
    
    
    1,6152016
    
    
    638$
    8,547
 12




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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
(CONTINUED)
 Note PGoodwill and Contingent Consideration
 Business Combinations (ASC 805) Intangibles  Goodwill and
Other
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
   
    
    the uncertainty of raw material, transportation and energy prices;
    
    the general U.S. and international economic conditions, including market
conditions;
    
    the ability to grow, achieve synergies and realize the expected profitability
of recent acquisitions;
    
    changes in consumer confidence, consumer spending, and demand for apparel
products;
    
    the ability of our brands and products to meet consumer preferences within the
prevailing retail environment;
    
    the financial difficulties encountered by our customers and higher credit risk
exposure;
    
    the ability to obtain and renew our significant license agreements;
    
    the competitive conditions in the apparel and textile industries;
    
    changes in environmental, tax, trade, employment and other laws and
regulations;
    
    any restrictions on our ability to borrow capital or obtain financing;
    
    changes in our information systems related to our business operations;
    
    any significant interruptions with our distribution network;
    
    changes in the economic, political and social stability at our offshore
locations; and
    
    the relative strength of the United States dollar as against other currencies.
  13




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BUSINESS OUTLOOK
   www.saltlife.com
    EARNINGS GUIDANCE
   14




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##### Table of Contents



RESULTS OF OPERATIONS
 ® ® ®
  ®
        15




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Operating Cash Flows
  Investing Cash Flows
  Financing Activities
   PURCHASES BY DELTA APPAREL OF ITS OWN SHARES
  CRITICAL ACCOUNTING POLICIES
   16




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ENVIRONMENTAL AND REGULATORY MATTERS
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 COMMODITY RISK SENSITIVITY
     INTEREST RATE SENSITIVITY
  17




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Derivatives
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 6. Exhibits
  10.2.2
    
    Exhibits and Schedules to the Third Amended and Restated Loan and Security Agreement dated
as of September 21, 2007 among Delta Apparel, Inc., Junkfood Clothing Company, M. J. Soffe,
LLC, Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National
Association, as Agent, and the financial institutions named therein as 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.
 18




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SIGNATURES
  DELTA APPAREL, INC.
(Registrant)Date May 5, 2011
    By:
    /s/ Deborah H. MerrillDeborah H. MerrillVice President, Chief Financial Officer and Treasurer 19