##### 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 March 31, 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 100Duluth, Georgia
    
    30097(Address of principal executive offices)
    
    (Zip Code)
 (678) 775-6900
 
  (Not Applicable)
   o þ
  o þ o
  o þ




---



##### 



INDEX
 PagePART I.
    
    Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Financial Statements:Condensed Consolidated Balance SheetsMarch 31, 2007 and July 1, 2006
    
    
    3Condensed Consolidated Statements of IncomeThree months and nine months ended March 31, 2007 and April 1, 2006
    
    
    4Condensed Consolidated Statements of Cash FlowsNine months ended March 31, 2007 and April 1, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 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
    
    
    21Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    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




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(Unaudited)
 March 31,
    
    
    July 1,2007
    
    
    2006AssetsCurrent assets:Cash
    
    $
    465
    
    
    $
    642Accounts receivable, net
    
    
    49,046
    
    
    
    47,525Income taxes receivable
    
    
    1,023
    
    
    
    Inventories, net
    
    
    132,534
    
    
    
    103,660Prepaid expenses and other current assets
    
    
    3,253
    
    
    
    2,708Deferred income taxes
    
    
    2,217
    
    
    
    2,710Total current assets
    
    
    188,538
    
    
    
    157,245Property, plant and equipment, net
    
    
    26,584
    
    
    
    21,164Goodwill
    
    
    14,223
    
    
    
    13,888Other intangibles, net
    
    
    8,212
    
    
    
    8,579Other assets
    
    
    2,317
    
    
    
    2,247Total assets
    
    $
    239,874
    
    
    $
    203,123Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    36,167
    
    
    $
    27,862Accrued expenses
    
    
    19,712
    
    
    
    21,504Income taxes payable
    
    
    
    
    
    
    986Current portion of long-term debt
    
    
    2,938
    
    
    
    3,683Total current liabilities
    
    
    58,817
    
    
    
    54,035Long-term debt
    
    
    75,464
    
    
    
    46,967Deferred income taxes
    
    
    942
    
    
    
    1,123Other liabilities
    
    
    7
    
    
    
    10Total liabilities
    
    
    135,230
    
    
    
    102,135Stockholders equity:Preferred stock2,000,000 shares authorized; none issued
and outstanding
    
    
    
    
    
    
    Common stockpar value $.01 a share, 15,000,000 shares authorized,
9,646,972 shares issued, and 8,485,695 and 8,562,821
shares outstanding as of March 31, 2007 and July 1, 2006,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    55,285
    
    
    
    54,672Retained earnings
    
    
    57,855
    
    
    
    53,412Treasury stock1,161,277 and 1,084,151 shares as of March 31, 2007
and July 1, 2006, respectively
    
    
    (8,592
    )
    
    
    (7,192
    )Total stockholders equity
    
    
    104,644
    
    
    
    100,988Total liabilities and stockholders equity
    
    $
    239,874
    
    
    $
    203,123
  3




---



##### Table of Contents



DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    April 1,
    
    
    March 31,
    
    
    April 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    85,013
    
    
    $
    69,365
    
    
    $
    220,642
    
    
    $
    187,640Cost of goods sold
    
    
    64,294
    
    
    
    50,149
    
    
    
    166,494
    
    
    
    131,461Gross profit
    
    
    20,719
    
    
    
    19,216
    
    
    
    54,148
    
    
    
    56,179Selling, general and administrative expenses
    
    
    15,471
    
    
    
    13,953
    
    
    
    42,984
    
    
    
    40,421Operating income
    
    
    5,248
    
    
    
    5,263
    
    
    
    11,164
    
    
    
    15,758Other (expense) income, net
    
    
    (18
    )
    
    
    (128
    )
    
    
    74
    
    
    
    276Interest expense, net
    
    
    1,384
    
    
    
    1,056
    
    
    
    3,813
    
    
    
    2,738Income before provision for income taxes and
extraordinary gain
    
    
    3,846
    
    
    
    4,079
    
    
    
    7,425
    
    
    
    13,296Provision for income taxes
    
    
    1,068
    
    
    
    1,335
    
    
    
    2,440
    
    
    
    4,799Income before extraordinary gain
    
    
    2,778
    
    
    
    2,744
    
    
    
    4,985
    
    
    
    8,497Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    672
    
    
    
    Net income
    
    $
    2,778
    
    
    $
    2,744
    
    
    $
    5,657
    
    
    $
    8,497Basic earnings per shareIncome before extraordinary gain
    
    $
    0.33
    
    
    $
    0.32
    
    
    $
    0.58
    
    
    $
    0.99Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    Net income
    
    $
    0.33
    
    
    $
    0.32
    
    
    $
    0.66
    
    
    $
    0.99Diluted earnings per shareIncome before extraordinary gain
    
    $
    0.32
    
    
    $
    0.31
    
    
    $
    0.57
    
    
    $
    0.98Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    Net income
    
    $
    0.32
    
    
    $
    0.31
    
    
    $
    0.65
    
    
    $
    0.98Weighted average number of shares outstanding
    
    
    8,524
    
    
    
    8,622
    
    
    
    8,536
    
    
    
    8,591Dilutive effect of stock options
    
    
    162
    
    
    
    108
    
    
    
    165
    
    
    
    54Weighted average number of shares assuming dilution
    
    
    8,686
    
    
    
    8,730
    
    
    
    8,701
    
    
    
    8,645Cash dividends declared per common share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.15
    
    
    $
    0.12
  4




---



##### Table of Contents



DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Nine Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Operating activities:Net income
    
    $
    5,657
    
    
    $
    8,497Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,838
    
    
    
    3,544Deferred income taxes
    
    
    (109
    )
    
    
    (879
    )Loss (gain) on sale of property and equipment
    
    
    33
    
    
    
    (35
    )Extraordinary gain on earn-out payment
    
    
    (672
    )
    
    
    Non-cash stock compensation
    
    
    1,429
    
    
    
    2,447Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed in connection with business acquisitions:Accounts receivable
    
    
    7,956
    
    
    
    6,860Inventories
    
    
    (9,366
    )
    
    
    (9,857
    )Prepaid expenses and other current assets
    
    
    (419
    )
    
    
    (524
    )Other non-current assets
    
    
    143
    
    
    
    53Accounts payable and accrued expenses
    
    
    (190
    )
    
    
    (1,962
    )Income taxes
    
    
    (2,009
    )
    
    
    (1,217
    )Other liabilities
    
    
    (321
    )
    
    
    (3,382
    )Net cash provided by operating activities
    
    
    5,970
    
    
    
    3,545Investing activities:Purchases of property, plant and equipment
    
    
    (5,402
    )
    
    
    (4,093
    )Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    142Acquisition of business
    
    
    (25,798
    )
    
    
    (28,237
    )Cash invested in joint venture
    
    
    
    
    
    
    (1,814
    )Net cash used in investing activities
    
    
    (31,194
    )
    
    
    (34,002
    )Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    
    
    
    
    (11,781
    )Proceeds from borrowings of long-term debt
    
    
    227,214
    
    
    
    121,852Repayment of long-term debt
    
    
    (199,462
    )
    
    
    (78,107
    )Cash paid for common stock
    
    
    (1,447
    )
    
    
    (408
    )Proceeds from exercise of stock options
    
    
    23
    
    
    
    158Dividends paid
    
    
    (1,281
    )
    
    
    (1,031
    )Net cash provided by financing activities
    
    
    25,047
    
    
    
    30,683Net (decrease) increase in cash
    
    
    (177
    )
    
    
    226Cash at beginning of period
    
    
    642
    
    
    
    298Cash at end of period
    
    $
    465
    
    
    $
    524Supplemental cash flow information:Cash paid for interest
    
    $
    3,410
    
    
    $
    2,478Cash paid for income taxes
    
    $
    4,585
    
    
    $
    6,844Non-cash financing activitycommon stock issued under option plan
    
    $
    90
    
    
    $
    1,428
  5




---



##### 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
 Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and
140
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 6




---



##### Table of Contents



Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) Employers Accounting for Pensions Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits Employers Accounting for Postretirement Benefits Other
Than Pensions Employers Disclosures about Pensions and
Other Postretirement Benefits
 Note DAcquisitions
     7




---



##### Table of Contents



Cash consideration
    
    $
    21,784Direct merger costs
    
    
    246$
    22,030Accounts receivable
    
    $
    9,477Inventories
    
    
    19,508Other current assets
    
    
    126Other assets
    
    
    213Property, plant and equipment
    
    
    3,778Current liabilities
    
    
    (10,755
    )Other liabilities
    
    
    (317
    )Fair value of net assets acquired
    
    $
    22,030
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    April 1,
    
    March 31,
    
    April 1,2007
    
    2006
    
    2007
    
    2006Net sales
    
    $
    85,013
    
    
    $
    88,127
    
    
    $
    239,554
    
    
    $
    239,458Net income, before extraordinary gain
    
    
    2,320
    
    
    
    2,584
    
    
    
    4,378
    
    
    
    8,696Net income per share, before
extraordinary gainBasic
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.51
    
    
    $
    1.01Diluted
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.50
    
    
    $
    1.01
 Note EInventories
  March 31,
    
    
    July 1,2007
    
    
    2006Raw materials
    
    $
    11,515
    
    
    $
    5,537Work in process
    
    
    29,175
    
    
    
    27,534Finished goods
    
    
    91,844
    
    
    
    70,589$
    132,534
    
    
    $
    103,660
 8




---



##### Table of Contents



Note FGoodwill and Intangible Assets
  March 31,
    
    
    Economic2007
    
    
    LifeGoodwill
    
    $
    14,223
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    
    23,223Less accumulated amortization
    
    
    (788
    )$
    22,435
  Note GDebt
       9




---



##### Table of Contents



Note HSelling, General and Administrative Expense
  Note IStock Options and Incentive Stock Awards
  Option Plan
  Award Plan
  Note JPurchase Contracts
  Natural gas
    
    $
    256Yarn
    
    
    22,084Finished fabric
    
    
    376Finished apparel products
    
    
    2,659$
    25,375
 10




---



##### Table of Contents



Note KComputation of Basic and Diluted Earnings per Share (EPS)
  Note LStockholders Equity
 Stock Repurchase Program
  Quarterly Dividend Program
  Note MSegment Reporting
  ®
 ® ® ® ®
   11




---



##### Table of Contents



Activewear
    
    Retail-Ready
    
    Corporate andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2007:Net sales
    
    $
    52,328
    
    
    $
    32,685
    
    
    $
    
    
    
    $
    85,013Segment operating income
    
    
    1,140
    
    
    
    4,090
    
    
    
    
    
    
    
    5,230Segment assets
    
    
    133,220
    
    
    
    106,654
    
    
    
    
    
    
    
    239,874Fiscal Year 2006:Net sales
    
    $
    36,550
    
    
    $
    32,815
    
    
    $
    
    
    
    $
    69,365Segment operating income
    
    
    1,207
    
    
    
    3,882
    
    
    
    46
    
    
    
    5,135Segment assets
    
    
    102,471
    
    
    
    100,325
    
    
    
    
    
    
    
    202,796
  Activewear
    
    Retail-Ready
    
    Corporate andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2007:Net sales
    
    $
    129,744
    
    
    $
    90,898
    
    
    $
    
    
    
    $
    220,642Segment operating income
    
    
    2,687
    
    
    
    8,508
    
    
    
    43
    
    
    
    11,238Fiscal Year 2006:Net sales
    
    $
    94,617
    
    
    $
    93,023
    
    
    $
    
    
    
    $
    187,640Segment operating income
    
    
    5,407
    
    
    
    10,451
    
    
    
    176
    
    
    
    16,034
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    April 1,
    
    
    March 31,
    
    
    April 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Segment operating income
    
    $
    5,230
    
    
    $
    5,135
    
    
    $
    11,238
    
    
    $
    16,034Unallocated interest expense
    
    
    1,384
    
    
    
    1,056
    
    
    
    3,813
    
    
    
    2,738Consolidated income before taxes
    
    $
    3,846
    
    
    $
    4,079
    
    
    $
    7,425
    
    
    $
    13,296
 Note OExtraordinary Gain
  Note POther Items
  12




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
        13
    Table of Contents            14




---



##### Table of Contents



15




---



##### Table of Contents



Derivative Instruments
 16




---



##### Table of Contents



Operating Cash Flows
  Investing Cash Flows
    17




---



##### Table of Contents



Financing Activities
   Purchases by Delta Apparel of its Own Shares
  Dividend Program
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition and Accounts Receivable
  18




---



##### Table of Contents



Inventories
  Self Insurance
  Share-Based Compensation
 Share-Based Payment
 Income Taxes
 Accounting for Income Taxes
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  19




---



##### Table of Contents



Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   20




---



##### Table of Contents



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
    
    ProgramsJanuary Period
(December 31, 2006 to February 3, 2007)
    
    
    9,100
    
    
    $
    16.07
    
    
    
    9,100
    
    
    $4.7 millionFebruary Period
(February 4, 2007 to March 3, 2007)
    
    
    9,700
    
    
    $
    16.82
    
    
    
    9,700
    
    
    $4.5 millionMarch Period
(March 4, 2007 to March 31, 2007)
    
    
    36,300
    
    
    $
    17.39
    
    
    
    36,300
    
    
    $3.8 million
   
 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.
 21




---



##### Table of Contents



SIGNATURES
  DELTA APPAREL, INC.
(Registrant)May 4, 2007
    By:
    /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer 22