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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 27, 2008
 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
 
 2750 Premiere Parkway, Suite 100
Duluth, GA 30097
 
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)  o þ




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##### 



INDEX
 PagePART I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed
Consolidated Financial Statements:Condensed
Consolidated Balance Sheets December 27, 2008 and June 28,
2008
    
    
    1Condensed Consolidated Statements of Operations Three and six months ended December 27, 2008 and December 29, 2007
    
    
    2Condensed
Consolidated Statements of Cash Flows Six months ended December
27, 2008 and December 29, 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    15PART II.
    
    Other InformationItem 4.
    
    Submission of Matters to Vote of Security Holders
    
    
    16Item 6.
    
    Exhibits
    
    
    16Signatures
    
    
    
    
    17Exhibits
    
    
    
    
    18EX-31.1EX-31.2EX-32.1EX-32.2




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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 27,
    
    
    June 28,2008
    
    
    2008AssetsCurrent assets:Cash
    
    $
    354
    
    
    $
    586Accounts receivable, net
    
    
    34,168
    
    
    
    62,012Income taxes receivable
    
    
    2,396
    
    
    
    1,007Inventories, net
    
    
    140,706
    
    
    
    124,746Prepaid expenses and other current assets
    
    
    3,308
    
    
    
    2,916Deferred income taxes
    
    
    3,242
    
    
    
    2,542Total current assets
    
    
    184,174
    
    
    
    193,809Property, plant and equipment, net
    
    
    38,485
    
    
    
    40,042Goodwill
    
    
    16,814
    
    
    
    16,814Intangibles, net
    
    
    7,357
    
    
    
    7,603Other assets
    
    
    3,273
    
    
    
    3,355Total assets
    
    $
    250,103
    
    
    $
    261,623Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    36,500
    
    
    $
    35,423Accrued expenses
    
    
    14,243
    
    
    
    17,689Current portion of long-term debt
    
    
    5,718
    
    
    
    6,780Total current liabilities
    
    
    56,461
    
    
    
    59,892Long-term debt, less current maturities
    
    
    85,291
    
    
    
    95,542Deferred income taxes
    
    
    713
    
    
    
    578Other liabilities
    
    
    1,291
    
    
    
    718Total liabilities
    
    
    143,756
    
    
    
    156,730Stockholders equity:Preferred stock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 8,502,699 and 8,496,749
shares outstanding as of December 27, 2008 and June 28, 2008,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    57,919
    
    
    
    57,431Retained earnings
    
    
    58,576
    
    
    
    57,307Accumulated other comprehensive loss
    
    
    (794
    )
    
    
    (441
    )Treasury stock1,144,273 and 1,150,223 shares as of December 27,
2008 and June 28, 2008, respectively
    
    
    (9,450
    )
    
    
    (9,500
    )Total stockholders equity
    
    
    106,347
    
    
    
    104,893Total liabilities and stockholders equity
    
    $
    250,103
    
    
    $
    261,623
  1




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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 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    73,361
    
    
    $
    68,780
    
    
    $
    164,773
    
    
    $
    141,342Cost of goods sold
    
    
    57,306
    
    
    
    57,897
    
    
    
    129,412
    
    
    
    117,468Gross profit
    
    
    16,055
    
    
    
    10,883
    
    
    
    35,361
    
    
    
    23,874Selling, general and administrative expenses
    
    
    14,559
    
    
    
    13,447
    
    
    
    31,400
    
    
    
    27,650Other income (expense), net
    
    
    10
    
    
    
    (33
    )
    
    
    (15
    )
    
    
    49Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62Operating income (loss)
    
    
    1,506
    
    
    
    (2,597
    )
    
    
    3,946
    
    
    
    (3,789
    )Interest expense, net
    
    
    1,222
    
    
    
    1,585
    
    
    
    2,641
    
    
    
    3,055Income (loss) before (benefit)
provision for income taxes
    
    
    284
    
    
    
    (4,182
    )
    
    
    1,305
    
    
    
    (6,844
    )(Benefit) provision for income taxes
    
    
    (311
    )
    
    
    (1,348
    )
    
    
    36
    
    
    
    (2,462
    )Net income (loss)
    
    $
    595
    
    
    $
    (2,834
    )
    
    $
    1,269
    
    
    $
    (4,382
    )Basic earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.33
    )
    
    $
    0.15
    
    
    $
    (0.52
    )Diluted earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.33
    )
    
    $
    0.15
    
    
    $
    (0.52
    )Weighted average number of shares outstanding
    
    
    8,503
    
    
    
    8,497
    
    
    
    8,500
    
    
    
    8,463Dilutive effect of stock options
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    Weighted average number of shares assuming dilution
    
    
    8,514
    
    
    
    8,497
    
    
    
    8,511
    
    
    
    8,463Cash dividends declared per common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.05
  2




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 Six Months EndedDecember 27,
    
    
    December 29,2008
    
    
    2007Operating activities:Net income (loss)
    
    $
    1,269
    
    
    $
    (4,382
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    3,718
    
    
    
    2,875Deferred income taxes
    
    
    (565
    )
    
    
    (924
    )Loss on disposal of property, plant and equipment
    
    
    51
    
    
    
    16Non-cash stock compensation
    
    
    538
    
    
    
    637Changes in operating assets and liabilities:Accounts receivable
    
    
    27,844
    
    
    
    12,300Inventories
    
    
    (15,960
    )
    
    
    (7,629
    )Prepaid expenses and other current assets
    
    
    (392
    )
    
    
    (1,635
    )Other non-current assets
    
    
    82
    
    
    
    (150
    )Accounts payable and accrued expenses
    
    
    223
    
    
    
    (5,819
    )Income taxes
    
    
    (1,389
    )
    
    
    (199
    )Other liabilities
    
    
    220
    
    
    
    106Net cash provided by (used in) operating activities
    
    
    15,639
    
    
    
    (4,804
    )Investing activities:Purchases of property, plant and equipment
    
    
    (1,966
    )
    
    
    (9,834
    )Cash paid for business
    
    
    (2,592
    )
    
    
    Net cash used in investing activities
    
    
    (4,558
    )
    
    
    (9,834
    )Financing activities:Proceeds from long-term debt
    
    
    183,897
    
    
    
    182,417Repayment of long-term debt
    
    
    (195,210
    )
    
    
    (167,505
    )Dividends paid
    
    
    
    
    
    
    (420
    )Net cash (used in) provided by financing activities
    
    
    (11,313
    )
    
    
    14,492Net decrease in cash
    
    
    (232
    )
    
    
    (146
    )Cash at beginning of period
    
    
    586
    
    
    
    792Cash at end of period
    
    $
    354
    
    
    $
    646Supplemental cash flow information:Cash paid for interest
    
    $
    2,783
    
    
    $
    2,829Cash paid (refunded) for income taxes
    
    $
    1,766
    
    
    $
    (1,669
    )Non-cash financing activityissuance of common stock
    
    $
    41
    
    
    $
    1,704
  3




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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
 4




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Disclosures about Derivative Instruments and Hedging
Activities
 , Determination of the Useful Life of
Intangible Assets
 Note DInventories
  December 27,
    
    
    June 28,2008
    
    
    2008Raw materials
    
    $
    10,161
    
    
    $
    10,881Work in process
    
    
    27,731
    
    
    
    23,198Finished goods
    
    
    102,814
    
    
    
    90,667$
    140,706
    
    
    $
    124,746
  Note EGoodwill and Intangible Assets
  December 27,
    
    
    Economic2008
    
    
    LifeGoodwill
    
    $
    16,814
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    
    25,814Less accumulated amortization
    
    
    (1,643
    )$
    24,171
  Note FDebt
   5




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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)
  6




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Delta Apparel Incentive Stock Award Plan (Award Plan)
   Note IPurchase Contracts
  Natural gas
    
    $
    1,014Yarn
    
    
    33,017Finished fabric
    
    
    4,156Finished apparel products
    
    
    2,493$
    40,680
 Note JStockholders Equity
 Stock Repurchase Program
  Note KSegment Reporting
  ®
 ® ® ® ® ®
 7




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Activewear
    
    Retail-ReadyApparel
    
    Apparel
    
    ConsolidatedThree months ended 12/27/08:Net sales
    
    $
    40,970
    
    
    $
    32,391
    
    
    $
    73,361Segment operating (loss) income
    
    
    (1,471
    )
    
    
    2,977
    
    
    
    1,506Segment assets
    
    
    145,395
    
    
    
    104,708
    
    
    
    250,103Three months ended 12/29/07:Net sales
    
    $
    41,093
    
    
    $
    27,687
    
    
    $
    68,780Segment operating (loss) income
    
    
    (4,637
    )
    
    
    2,040
    
    
    
    (2,597
    )Segment assets
    
    
    135,413
    
    
    
    102,932
    
    
    
    238,345
  Activewear
    
    Retail-ReadyApparel
    
    Apparel
    
    ConsolidatedSix months ended 12/27/08:Net sales
    
    $
    90,958
    
    
    $
    73,815
    
    
    $
    164,773Segment operating (loss) income
    
    
    (4,376
    )
    
    
    8,322
    
    
    
    3,946Six months ended 12/29/07:Net sales
    
    $
    83,325
    
    
    $
    58,017
    
    
    $
    141,342Segment operating (loss) income
    
    
    (8,566
    )
    
    
    4,777
    
    
    
    (3,789
    )
  Three Months Ended
    
    
    Six Months EndedDecember 27,
    
    
    December 29,
    
    
    December 27,
    
    
    December 29,2008
    
    
    2007
    
    
    2008
    
    
    2007Segment operating income (loss)
    
    $
    1,506
    
    
    $
    (2,597
    )
    
    $
    3,946
    
    
    $
    (3,789
    )Unallocated interest expense
    
    
    1,222
    
    
    
    1,585
    
    
    
    2,641
    
    
    
    3,055Consolidated income (loss) before taxes
    
    $
    284
    
    
    $
    (4,182
    )
    
    $
    1,305
    
    
    $
    (6,844
    )
 Note LIncome Taxes
   8




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Note MFactored Receivables
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, a replacement of FASB Statement 125
 Note NRestructuring Plan
  FY 07 Qtr 4
    
    FY 08 Qtr 1
    
    FY 08 Qtr 2
    
    FY 08 Qtr 3
    
    TotalCost of Sales
    
    $5.4 million
    
    $1.9 million
    
    $2.0 million
    
    $0.9 million
    
    $10.2 millionRestructuring Charges
    
    1.5 million
    
    0.1 million
    
    
    
    
    
    
    
    
    
    1.6 millionTotal
    
    $6.9 million
    
    $2.0 million
    
    $2.0 million
    
    $0.9 million
    
    $11.8 millionDiluted EPS Impact
    
    $
    0.51
    
    
    $
    0.16
    
    
    $
    0.15
    
    
    $
    0.08
    
    
    $
    0.90
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
   9




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11




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12




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Derivative Instruments
    Operating Cash Flows
  Investing Cash Flows
  Financing Activities
   13




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Purchases by Delta Apparel of its Own Shares
  CRITICAL ACCOUNTING POLICIES
   ENVIRONMENTAL AND REGULATORY MATTERS
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   14




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Derivatives
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  15




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PART II. OTHER INFORMATION
 
 Item 4. Submission of Matters to Vote of Security Holders
  Election of Directors
    
    For
    
    AgainstDavid S. Fraser
    
    
    7,701,739
    
    
    
    35,312William F. Garrett
    
    
    7,695,191
    
    
    
    41,860Dr. Elizabeth J. Gatewood
    
    
    7,701,819
    
    
    
    35,232Robert W. Humphreys
    
    
    7,701,655
    
    
    
    35,396Dr. Max Lennon
    
    
    7,700,132
    
    
    
    36,919E. Erwin Maddrey, II
    
    
    7,695,399
    
    
    
    41,652Buck A. Mickel
    
    
    7,700,180
    
    
    
    36,871David Peterson
    
    
    7,701,619
    
    
    
    35,432
 BrokerFor
    
    Against
    
    Abstain
    
    Non-VoteRatification of the
Appointment of Ernst &
Young LLP as Independent
Registered Public
Accounting Firm for
Fiscal Year 2009
    
    
    7,706,164
    
    
    
    30,778
    
    
    
    109
    
    
    
    
 
 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)January 30, 2009
    By:
    /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer 17