##### 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 30, 2006
 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  (Registrants telephone number, including area code)
 (Not Applicable)  (Former name, former address and former fiscal year, if changed since last report.)
  o þ
  o þ o
 o þ




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##### 



INDEX
 PagePART I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets
December 30, 2006 and July 1, 2006
    
    
    3Condensed Consolidated Statements of Income
Three months and six months ended December 30, 2006 and December 31, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows
Six months ended December 30, 2006 and December 31, 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-12Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12-18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18-19Item 4. Controls and Procedures
    
    
    19PART II. Other InformationItem 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 6. Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    21Exhibits
    
    
    22-25EX-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




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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)
 December 30,
    
    
    July 1,2006
    
    
    2006AssetsCurrent assets:Cash
    
    $
    548
    
    
    $
    642Accounts receivable, net
    
    
    36,741
    
    
    
    47,525Income taxes receivable
    
    
    1,769
    
    
    
    Inventories, net
    
    
    131,905
    
    
    
    103,660Prepaid expenses and other current assets
    
    
    2,697
    
    
    
    2,708Deferred income taxes
    
    
    2,254
    
    
    
    2,710Total current assets
    
    
    175,914
    
    
    
    157,245Property, plant and equipment, net
    
    
    25,048
    
    
    
    21,164Goodwill
    
    
    14,223
    
    
    
    13,888Other intangibles, net
    
    
    8,334
    
    
    
    8,579Other assets
    
    
    2,306
    
    
    
    2,247Total assets
    
    $
    225,825
    
    
    $
    203,123Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    24,582
    
    
    $
    27,862Accrued expenses
    
    
    18,918
    
    
    
    21,504Income taxes payable
    
    
    
    
    
    
    986Current portion of long-term debt
    
    
    2,948
    
    
    
    3,683Total current liabilities
    
    
    46,448
    
    
    
    54,035Long-term debt
    
    
    75,444
    
    
    
    46,967Deferred income taxes
    
    
    890
    
    
    
    1,123Other liabilities
    
    
    8
    
    
    
    10Total liabilities
    
    
    122,790
    
    
    
    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 8,538,795 and 8,562,821
shares outstanding as of December 30, 2006 and July 1, 2006,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    55,110
    
    
    
    54,672Retained earnings
    
    
    55,494
    
    
    
    53,412Treasury stock1,108,177 and 1,084,151 shares as of December 30,
2006 and July 1, 2006, respectively
    
    
    (7,665
    )
    
    
    (7,192
    )Total stockholders equity
    
    
    103,035
    
    
    
    100,988Total liabilities and stockholders equity
    
    $
    225,825
    
    
    $
    203,123
  3




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income
 (in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December 31,
    
    
    December 30,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    72,949
    
    
    $
    57,702
    
    
    $
    135,629
    
    
    $
    118,275Cost of goods sold
    
    
    56,855
    
    
    
    39,433
    
    
    
    102,199
    
    
    
    81,312Gross profit
    
    
    16,094
    
    
    
    18,269
    
    
    
    33,430
    
    
    
    36,963Selling, general and administrative expenses
    
    
    13,615
    
    
    
    13,768
    
    
    
    27,513
    
    
    
    26,468Operating income
    
    
    2,479
    
    
    
    4,501
    
    
    
    5,917
    
    
    
    10,495Other income, net
    
    
    42
    
    
    
    433
    
    
    
    92
    
    
    
    404Interest expense, net
    
    
    1,482
    
    
    
    997
    
    
    
    2,429
    
    
    
    1,682Income before provision for income taxes and
extraordinary gain
    
    
    1,039
    
    
    
    3,937
    
    
    
    3,580
    
    
    
    9,217Provision for income taxes
    
    
    406
    
    
    
    1,561
    
    
    
    1,373
    
    
    
    3,464Income before extraordinary gain
    
    
    633
    
    
    
    2,376
    
    
    
    2,207
    
    
    
    5,753Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    672
    
    
    
    Net income
    
    $
    633
    
    
    $
    2,376
    
    
    $
    2,879
    
    
    $
    5,753Basic earnings per shareIncome before extraordinary gain
    
    $
    0.07
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.67Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    Net income
    
    $
    0.07
    
    
    $
    0.28
    
    
    $
    0.34
    
    
    $
    0.67Diluted earnings per shareIncome before extraordinary gain
    
    $
    0.07
    
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.67Extraordinary gain, net of taxes
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    Net income
    
    $
    0.07
    
    
    $
    0.27
    
    
    $
    0.33
    
    
    $
    0.67Weighted average number of shares outstanding
    
    
    8,539
    
    
    
    8,621
    
    
    
    8,543
    
    
    
    8,577Dilutive effect of stock options
    
    
    180
    
    
    
    60
    
    
    
    164
    
    
    
    44Weighted average number of shares assuming dilution
    
    
    8,719
    
    
    
    8,681
    
    
    
    8,707
    
    
    
    8,621Cash dividends declared per common share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.08
  4




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Six Months EndedDecember 30,
    
    
    December 31,2006
    
    
    2005Operating activities:Net income
    
    $
    2,879
    
    
    $
    5,753Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,607
    
    
    
    2,392Deferred income taxes
    
    
    (198
    )
    
    
    (384
    )Loss (gain) on sale of property and equipment
    
    
    33
    
    
    
    (68
    )Extraordinary gain on earn-out payment
    
    
    (672
    )
    
    
    Non-cash stock compensation
    
    
    1,183
    
    
    
    1,758Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed in connection with business acquisitions:Accounts receivable
    
    
    20,406
    
    
    
    15,133Inventories
    
    
    (6,824
    )
    
    
    (12,029
    )Prepaid expenses and other current assets
    
    
    158
    
    
    
    61Other non-current assets
    
    
    (59
    )
    
    
    (21
    )Accounts payable and accrued expenses
    
    
    (14,661
    )
    
    
    (3,579
    )Income taxes
    
    
    (2,755
    )
    
    
    (2,143
    )Other liabilities
    
    
    (2
    )
    
    
    (3,378
    )Net cash provided by operating activities
    
    
    2,095
    
    
    
    3,495Investing activities:Purchases of property, plant and equipment
    
    
    (2,874
    )
    
    
    (2,691
    )Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    124Acquisition of business
    
    
    (25,703
    )
    
    
    (28,237
    )Cash invested in joint venture
    
    
    
    
    
    
    (1,425
    )Net cash used in investing activities
    
    
    (28,571
    )
    
    
    (32,229
    )Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    
    
    
    
    (11,781
    )Proceeds from borrowings of long-term debt
    
    
    152,225
    
    
    
    84,951Repayment of long-term debt
    
    
    (124,483
    )
    
    
    (43,100
    )Cash paid for common stock
    
    
    (506
    )
    
    
    Dividends paid
    
    
    (854
    )
    
    
    (686
    )Net cash provided by financing activities
    
    
    26,382
    
    
    
    29,384Net (decrease) increase in cash
    
    
    (94
    )
    
    
    650Cash at beginning of period
    
    
    642
    
    
    
    298Cash at end of period
    
    $
    548
    
    
    $
    948Supplemental cash flow information:Cash paid during the period for interest
    
    $
    2,050
    
    
    $
    1,538Cash paid during the period for income taxes
    
    $
    4,316
    
    
    $
    5,974Non-cash financing activitycommon stock issued under option plan
    
    $
    90
    
    
    $
    1,428
  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
 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
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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




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Three Months Ended
    
    Six Months EndedDecember 30,
    
    December 31,
    
    December 30,
    
    December 31,2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    72,949
    
    
    $
    73,909
    
    
    $
    154,541
    
    
    $
    151,331Net income, before extraordinary gain
    
    
    453
    
    
    
    2,538
    
    
    
    2,058
    
    
    
    6,111Net income per share, before
extraordinary gainBasic
    
    $
    0.05
    
    
    $
    0.29
    
    
    $
    0.24
    
    
    $
    0.71Diluted
    
    $
    0.05
    
    
    $
    0.29
    
    
    $
    0.24
    
    
    $
    0.71
 Note EInventories
  December 30,
    
    
    July 1,2006
    
    
    2006Raw materials
    
    $
    9,875
    
    
    $
    5,537Work in process
    
    
    31,477
    
    
    
    27,534Finished goods
    
    
    90,553
    
    
    
    70,589$
    131,905
    
    
    $
    103,660
 Note FGoodwill and Intangible Assets
  December 30,
    
    
    Economic2006
    
    
    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
    
    
    (666
    )$
    22,557
  Goodwill and Other
Intangible Assets
 Note GDebt
  8




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Note HSelling, General and Administrative Expense
  Note IStock Options and Incentive Stock Awards
  Option Plan
  Award Plan
  9




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Note JPurchase Contracts
  Natural gas
    
    $
    551Yarn
    
    
    20,042Finished fabric
    
    
    588Finished apparel products
    
    
    622$
    21,803
 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
  ®
 ® ® ® ®
 10




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Retail-
    
    CorporateActivewear
    
    Ready
    
    andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2007:Net sales
    
    $
    47,093
    
    
    $
    25,856
    
    
    $
    
    
    
    $
    72,949Segment operating income
    
    
    1,330
    
    
    
    1,143
    
    
    
    48
    
    
    
    2,521Segment assets
    
    
    132,366
    
    
    
    93,460
    
    
    
    
    
    
    
    225,826Fiscal Year 2006:Net sales
    
    $
    28,501
    
    
    $
    29,201
    
    
    $
    
    
    
    $
    57,702Segment operating income
    
    
    2,191
    
    
    
    2,673
    
    
    
    70
    
    
    
    4,934Segment assets
    
    
    99,103
    
    
    
    97,428
    
    
    
    
    
    
    
    196,531
  Retail-
    
    CorporateActivewear
    
    Ready
    
    andApparel
    
    Apparel
    
    Unallocated
    
    ConsolidatedFiscal Year 2007:Net sales
    
    $
    77,415
    
    
    $
    58,214
    
    
    $
    
    
    
    $
    135,629Segment operating income
    
    
    1,546
    
    
    
    4,420
    
    
    
    43
    
    
    
    6,009Fiscal Year 2006:Net sales
    
    $
    58,067
    
    
    $
    60,208
    
    
    $
    
    
    
    $
    118,275Segment operating income
    
    
    4,200
    
    
    
    6,569
    
    
    
    130
    
    
    
    10,899
  Three Months Ended
    
    
    Six Months EndedDecember 30,
    
    
    December
    
    
    December 30,
    
    
    December 31,2006
    
    
    31, 2005
    
    
    2006
    
    
    2005Segment operating income
    
    $
    2,521
    
    
    $
    4,934
    
    
    $
    6,009
    
    
    $
    10,899Unallocated interest expense
    
    
    1,482
    
    
    
    997
    
    
    
    2,429
    
    
    
    1,682Consolidated income before taxes
    
    $
    1,039
    
    
    $
    3,937
    
    
    $
    3,580
    
    
    $
    9,217
 Note OExtraordinary Gain
 11




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Note POther Items
  
 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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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
  Inventories
  17




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Self Insurance
  Share-Based Compensation
 Share-Based Payment
 Income Taxes
 Accounting for Income Taxes
  
     18




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Item 4: Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  19




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PART II. OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
  BrokerElection of Directors
    
    For
    
    Against
    
    Withheld
    
    Abstentions
    
    Non-votesDavid S. Fraser
    
    
    8,033,913
    
    
    
    N/A
    
    
    
    42,690
    
    
    
    N/A
    
    
    
    N/AWilliam F. Garrett
    
    
    7,992,811
    
    
    
    N/A
    
    
    
    83,792
    
    
    
    N/A
    
    
    
    N/ARobert W. Humphreys
    
    
    8,033,461
    
    
    
    N/A
    
    
    
    43,142
    
    
    
    N/A
    
    
    
    N/ADr. Max Lennon
    
    
    7,993,143
    
    
    
    N/A
    
    
    
    83,460
    
    
    
    N/A
    
    
    
    N/AE. Erwin Maddrey, II
    
    
    7,993,539
    
    
    
    N/A
    
    
    
    83,064
    
    
    
    N/A
    
    
    
    N/APhilip J. Mazzilli
    
    
    8,033,749
    
    
    
    N/A
    
    
    
    42,854
    
    
    
    N/A
    
    
    
    N/ABuck A. Mickel
    
    
    7,992,519
    
    
    
    N/A
    
    
    
    84,084
    
    
    
    N/A
    
    
    
    N/ADavid Peterson
    
    
    7,994,611
    
    
    
    N/A
    
    
    
    81,992
    
    
    
    N/A
    
    
    
    N/ARatification of the Appointment of
Ernst & Young LLP as Independent
Auditors for Fiscal Year 2007
    
    
    8,056,702
    
    
    
    18,265
    
    
    
    N/A
    
    
    
    1,636
    
    
    
    
 
 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.
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SIGNATURES
  DELTA APPAREL, INC.(Registrant)February 5, 2007
    
    By: /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief FinancialOfficer and Treasurer
 21