##### 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 January 1, 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 
Incorporation or Organization)
    
    (I.R.S. Employer
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.)
  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  January 1, 2011 and July 3, 2010 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations  Three and six months ended January 1, 2011 and December 26, 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows  Six months ended January 1, 2011 and December 26, 2009 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    18PART II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 6.
    
    Exhibits
    
    
    19Signatures
    
    
    
    
    20Exhibits
    
    
    
    
    21EX-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
 January 1,
    
    
    July 3,2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    270
    
    
    $
    687Accounts receivable, net
    
    
    53,179
    
    
    
    60,991Income tax receivable
    
    
    1,362
    
    
    
    Inventories, net
    
    
    144,373
    
    
    
    116,599Prepaid expenses and other current assets
    
    
    4,733
    
    
    
    3,475Deferred income taxes
    
    
    2,959
    
    
    
    3,162Total current assets
    
    
    206,876
    
    
    
    184,914Property, plant and equipment, net
    
    
    39,021
    
    
    
    37,694Goodwill
    
    
    16,814
    
    
    
    17,426Intangibles, net
    
    
    7,706
    
    
    
    8,016Other assets
    
    
    3,142
    
    
    
    3,283Total assets
    
    $
    273,559
    
    
    $
    251,333Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    41,767
    
    
    $
    34,459Accrued expenses
    
    
    16,414
    
    
    
    18,862Income tax payable
    
    
    
    
    
    
    712Current portion of long-term debt
    
    
    5,718
    
    
    
    5,718Total current liabilities
    
    
    63,899
    
    
    
    59,751Long-term debt, less current maturities
    
    
    78,675
    
    
    
    62,355Deferred income taxes
    
    
    2,417
    
    
    
    1,826Other liabilities
    
    
    48
    
    
    
    157Contingent consideration
    
    
    
    
    
    
    1,530Total liabilities
    
    
    145,039
    
    
    
    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 8,504,836 and 8,516,293 shares
outstanding as of January 1, 2011 and July 3, 2010, respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    59,348
    
    
    
    59,111Retained earnings
    
    
    79,016
    
    
    
    75,950Accumulated other comprehensive loss
    
    
    (76
    )
    
    
    (105
    )Treasury stock 1,142,136 and 1,130,679 shares as of January 1, 2011
and July 3, 2010, respectively
    
    
    (9,864
    )
    
    
    (9,338
    )Total shareholders equity
    
    
    128,520
    
    
    
    125,714Total liabilities and shareholders equity
    
    $
    273,559
    
    
    $
    251,333
  3




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJanuary 1,
    
    
    December 26,
    
    
    January 1,
    
    
    December 26,2011
    
    
    2009
    
    
    2011
    
    
    2009Net sales
    
    $
    104,722
    
    
    $
    91,160
    
    
    $
    212,639
    
    
    $
    190,282Cost of goods sold
    
    
    82,844
    
    
    
    69,384
    
    
    
    164,851
    
    
    
    144,861Gross profit
    
    
    21,878
    
    
    
    21,776
    
    
    
    47,788
    
    
    
    45,421Selling, general and administrative expenses
    
    
    20,076
    
    
    
    19,561
    
    
    
    42,971
    
    
    
    38,819Change in fair value of contingent consideration
    
    
    (1,530
    )
    
    
    
    
    
    
    (1,530
    )
    
    
    Goodwill impairment charge
    
    
    612
    
    
    
    
    
    
    
    612
    
    
    
    Other expense (income), net
    
    
    95
    
    
    
    (28
    )
    
    
    152
    
    
    
    (133
    )Operating income
    
    
    2,625
    
    
    
    2,243
    
    
    
    5,583
    
    
    
    6,735Interest expense, net
    
    
    601
    
    
    
    903
    
    
    
    1,202
    
    
    
    1,857Income before provision for income taxes
    
    
    2,024
    
    
    
    1,340
    
    
    
    4,381
    
    
    
    4,878Provision for income taxes
    
    
    608
    
    
    
    361
    
    
    
    1,315
    
    
    
    1,316Net income
    
    $
    1,416
    
    
    $
    979
    
    
    $
    3,066
    
    
    $
    3,562Basic earnings per share
    
    $
    0.17
    
    
    $
    0.11
    
    
    $
    0.36
    
    
    $
    0.42Diluted earnings per share
    
    $
    0.16
    
    
    $
    0.11
    
    
    $
    0.35
    
    
    $
    0.42Weighted average number of shares outstanding
    
    
    8,500
    
    
    
    8,516
    
    
    
    8,512
    
    
    
    8,512Dilutive effect of stock options
    
    
    256
    
    
    
    51
    
    
    
    257
    
    
    
    37Weighted average number of shares assuming dilution
    
    
    8,756
    
    
    
    8,567
    
    
    
    8,769
    
    
    
    8,549
  4




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Delta Apparel, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 Six Months EndedJanuary 1,
    
    
    December 26,2011
    
    
    2009Operating activities:Net income
    
    $
    3,066
    
    
    $
    3,562Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,573
    
    
    
    3,357Provision for deferred income taxes
    
    
    794
    
    
    
    433Loss on disposal of property and equipment
    
    
    65
    
    
    
    56Non-cash stock compensation
    
    
    456
    
    
    
    534Change 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
    
    
    11,615
    
    
    
    11,964Inventories
    
    
    (21,605
    )
    
    
    (4,123
    )Prepaid expenses and other current assets
    
    
    (1,164
    )
    
    
    (189
    )Income taxes receivable
    
    
    (2,074
    )
    
    
    868Other non-current assets
    
    
    141
    
    
    
    166Accounts payable
    
    
    6,699
    
    
    
    (3,538
    )Accrued expenses
    
    
    (2,774
    )
    
    
    876Other liabilities
    
    
    (80
    )
    
    
    390Net cash (used in) provided by operating activities
    
    
    (2,206
    )
    
    
    14,356Investing activities:Purchases of property and equipment, net
    
    
    (3,804
    )
    
    
    (2,180
    )Cash paid for business, net of cash acquired
    
    
    (9,884
    )
    
    
    (700
    )Net cash used in investing activities
    
    
    (13,688
    )
    
    
    (2,880
    )Financing activities:Proceeds from long-term debt
    
    
    246,401
    
    
    
    197,247Repayment of long-term debt
    
    
    (230,081
    )
    
    
    (208,954
    )Repurchase of common stock
    
    
    (1,060
    )
    
    
    Proceeds from stock options
    
    
    217
    
    
    
    Net cash provided by (used in) financing activities
    
    
    15,477
    
    
    
    (11,707
    )Net decrease in cash and cash equivalents
    
    
    (417
    )
    
    
    (231
    )Cash and cash equivalents at beginning of period
    
    
    687
    
    
    
    654Cash and cash equivalents at end of period
    
    $
    270
    
    
    $
    423Supplemental cash flow information:Cash paid for interest
    
    $
    1,017
    
    
    $
    1,709Cash paid for income taxes
    
    $
    2,611
    
    
    $
    209Non-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
 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



Note DInventories
  January 1,
    
    
    July 3,2011
    
    
    2010Raw materials
    
    $
    17,190
    
    
    $
    10,604Work in process
    
    
    22,714
    
    
    
    21,277Finished goods
    
    
    104,469
    
    
    
    84,718$
    144,373
    
    
    $
    116,599
  Note EDebt
     Debt
  7




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##### Table of Contents



Note FSelling, General and Administrative Expense
  Note GStock Options and Incentive Stock Awards
  Delta Apparel Stock Option Plan (Option Plan)
   Delta Apparel Incentive Stock Award Plan (Award Plan)
    Delta Apparel, Inc. 2010 Stock Plan (Stock Plan)
  8




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##### Table of Contents



Note HPurchase Contracts
  Yarn
    
    $
    26,792Natural gas
    
    
    810Finished fabric
    
    
    1,816Finished products
    
    
    18,764$
    48,182
 Note ISegment Reporting
  ® ® ® ® ®
 ® ® ® ® ®
   Basics
    
    Branded
    
    ConsolidatedThree months ended January 1, 2011:Net sales
    
    $
    56,228
    
    
    $
    48,494
    
    
    $
    104,722Segment operating income
    
    
    1,370
    
    
    
    1,255
    
    
    
    2,625Segment assets
    
    
    138,121
    
    
    
    135,438
    
    
    
    273,559Purchases of property and equipment
    
    
    1,436
    
    
    
    832
    
    
    
    2,268Three months ended December 26,
2009:Net sales
    
    $
    45,379
    
    
    $
    45,781
    
    
    $
    91,160Segment operating (loss) income
    
    
    (638
    )
    
    
    2,881
    
    
    
    2,243Segment assets
    
    
    136,759
    
    
    
    109,899
    
    
    
    246,658Purchases of property and equipment
    
    
    533
    
    
    
    374
    
    
    
    907
 9




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##### Table of Contents



Basics
    
    Branded
    
    ConsolidatedSix months ended January 1, 2011:Net sales
    
    $
    105,769
    
    
    $
    106,870
    
    
    $
    212,639Segment operating income
    
    
    1,521
    
    
    
    4,062
    
    
    
    5,583Purchases of property and equipment
    
    
    2,239
    
    
    
    1,566
    
    
    
    3,805Six months ended December 26, 2009:Net sales
    
    $
    92,524
    
    
    $
    97,758
    
    
    $
    190,282Segment operating (loss) income
    
    
    (1,723
    )
    
    
    8,458
    
    
    
    6,735Purchases of property and equipment
    
    
    1,411
    
    
    
    775
    
    
    
    2,186
  Three Months Ended
    
    
    Six Months EndedJanuary 1,
    
    
    December 26,
    
    
    January 1,
    
    
    December 26,2011
    
    
    2009
    
    
    2011
    
    
    2009Segment operating income
    
    $
    2,625
    
    
    $
    2,243
    
    
    $
    5,583
    
    
    $
    6,735Unallocated interest expense
    
    
    601
    
    
    
    903
    
    
    
    1,202
    
    
    
    1,857Consolidated income before taxes
    
    $
    2,024
    
    
    $
    1,340
    
    
    $
    4,381
    
    
    $
    4,878
 Note JIncome Taxes
   Note KDerivatives
  NotionalEffective Date
    
    Amount
    
    LIBOR Rate
    
    Maturity DateInterest Rate Swap
    
    April 1, 2009
    
    $15 million
    
    
    1.57
    %
    
    April 1, 2011Interest Rate Swap
    
    March 1, 2010
    
    $15 million
    
    
    1.11
    %
    
    September 1, 2011
 Derivatives and Hedging
 10




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##### Table of Contents



Fair Value Measurements and Disclosures
 
    
    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 swapsJanuary 1, 2011
    
    $
    124
    
    
    
    
    
    
    $
    124
    
    
    
    July 3, 2010
    
    $
    171
    
    
    
    
    
    
    $
    171
    
    
    
    GoodwillJanuary 1, 2011
    
    $
    16,814
    
    
    
    
    
    
    
    
    
    
    $
    16,814July 3, 2010
    
    $
    17,426
    
    
    
    
    
    
    
    
    
    
    $
    17,426Contingent considerationJanuary 1, 2011
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    July 3, 2010
    
    $
    1,530
    
    
    
    
    
    
    
    
    
    
    $
    1,530
     January 1,
    
    
    July 3,2011
    
    
    2010Accrued expenses
    
    $
    124
    
    
    $
    105Deferred tax liabilities
    
    
    (48
    )
    
    
    (66
    )Other liabilities
    
    
    
    
    
    
    66Accumulated other comprehensive loss
    
    $
    76
    
    
    $
    105
  11




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##### Table of Contents



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 PlansOctober 3 to November 6, 2010
    
    
    11,300
    
    
    $
    15.21
    
    
    
    11,300
    
    
    $5.0 millionNovember 7 to December 2, 2010
    
    
    12,184
    
    
    $
    12.52
    
    
    
    12,184
    
    
    $4.9 millionDecember 3 to January 1, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    $4.9 millionTotal
    
    
    23,484
    
    
    $
    13.81
    
    
    
    23,484
    
    
    $4.9 million
 Note OLicense Agreements
  12




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Fiscal Year2011
    
    $
    1,4032012
    
    
    2,2392013
    
    
    1,5162014
    
    
    1,7762015
    
    
    1,6032016
    
    
    625$
    9,162
 Note PGoodwill and Contingent Consideration
  Art Gun
 October 3,
    
    
    
    
    
    
    
    
    
    
    January 1,Goodwill
    
    2010
    
    
    Additions
    
    
    Impairment
    
    
    2011Goodwill
    
    $
    612
    
    
    $
    
    
    
    $
    (612
    )
    
    $
    Total
    
    
    612
    
    
    
    
    
    
    
    (612
    )
    
    
    
 October 3,
    
    
    
    
    
    
    Change in
    
    
    January 1,Contingent Consideration
    
    2010
    
    
    Additions
    
    
    Fair Value
    
    
    2011Contingent Consideration
    
    $
    1,530
    
    
    $
    
    
    
    $
    (1,530
    )
    
    $
    Total
    
    
    1,530
    
    
    
    
    
    
    
    (1,530
    )
    
    
    
 Business Combinations (ASC 805)
 Intangibles 
Goodwill and Other
  13




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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.
   BUSINESS OUTLOOK
    14




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EARNINGS GUIDANCE
   RESULTS OF OPERATIONS
     15




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LIQUIDITY AND CAPITAL RESOURCES
  Operating Cash Flows
  Investing Cash Flows
  Financing Activities
  16




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##### Table of Contents



PURCHASES BY DELTA APPAREL OF ITS OWN SHARES
  CRITICAL ACCOUNTING POLICIES
   ENVIRONMENTAL AND REGULATORY MATTERS
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 COMMODITY RISK SENSITIVITY
   17




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##### Table of Contents



INTEREST RATE SENSITIVITY
  Derivatives
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  18




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 6. Exhibits
  31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




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##### Table of Contents



SIGNATURES
  DELTA APPAREL, INC.
(Registrant)February 4, 2011
    By:
    /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer 20