##### 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 October 2, 2010
 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




---



##### 



INDEX
 PagePART I. Financial InformationItem 1. Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets 
October 2, 2010 and July 3, 2010 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations 
Three months ended October 2, 2010 and September 26, 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows 
Three months ended October 2, 2010 and September 26, 2009 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16PART II. Other InformationItem 1. Legal Proceedings
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Delta Apparel, Inc. and Subsidiaries
 
 Condensed Consolidated Balance Sheets
 October 2,
    
    
    July 3,2010
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    616
    
    
    $
    687Accounts receivable, net
    
    
    54,522
    
    
    
    60,991Inventories, net
    
    
    136,887
    
    
    
    116,599Prepaid expenses and other current assets
    
    
    3,697
    
    
    
    3,475Deferred income taxes
    
    
    2,981
    
    
    
    3,162Total current assets
    
    
    198,703
    
    
    
    184,914Property, plant and equipment, net
    
    
    38,482
    
    
    
    37,694Goodwill
    
    
    17,426
    
    
    
    17,426Intangibles, net
    
    
    7,859
    
    
    
    8,016Other assets
    
    
    3,212
    
    
    
    3,283Total assets
    
    $
    265,682
    
    
    $
    251,333Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    40,713
    
    
    $
    34,459Accrued expenses
    
    
    17,592
    
    
    
    18,862Income tax payable
    
    
    179
    
    
    
    712Current portion of long-term debt
    
    
    5,718
    
    
    
    5,718Total current liabilities
    
    
    64,202
    
    
    
    59,751Long-term debt, less current maturities
    
    
    70,947
    
    
    
    62,355Deferred income taxes
    
    
    1,948
    
    
    
    1,826Other liabilities
    
    
    67
    
    
    
    157Contingent consideration
    
    
    1,530
    
    
    
    1,530Total liabilities
    
    
    138,694
    
    
    
    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 8,508,320 and 8,516,293 shares
outstanding as of October 2, 2010 and July 3, 2010, respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    59,124
    
    
    
    59,111Retained earnings
    
    
    77,598
    
    
    
    75,950Accumulated other comprehensive loss
    
    
    (118
    )
    
    
    (105
    )Treasury stock 1,138,652 and 1,130,679 shares as of October 2, 2010
and July 3, 2010, respectively
    
    
    (9,712
    )
    
    
    (9,338
    )Total shareholders equity
    
    
    126,988
    
    
    
    125,714Total liabilities and shareholders equity
    
    $
    265,682
    
    
    $
    251,333
  3




---



##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Operations
 Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009Net sales
    
    $
    107,916
    
    
    $
    99,122Cost of goods sold
    
    
    82,007
    
    
    
    75,477Gross profit
    
    
    25,909
    
    
    
    23,645Selling, general and administrative expenses
    
    
    22,896
    
    
    
    19,258Other (expense) income, net
    
    
    (57
    )
    
    
    105Operating income
    
    
    2,956
    
    
    
    4,492Interest expense, net
    
    
    601
    
    
    
    954Income before provision for income taxes
    
    
    2,355
    
    
    
    3,538Provision for income taxes
    
    
    707
    
    
    
    955Net income
    
    $
    1,648
    
    
    $
    2,583Basic earnings per share
    
    $
    0.19
    
    
    $
    0.30Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.30Weighted average number of shares outstanding
    
    
    8,523
    
    
    
    8,507Dilutive effect of stock options
    
    
    257
    
    
    
    21Weighted average number of shares assuming dilution
    
    
    8,780
    
    
    
    8,528
  4




---



##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows
 Three Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009Operating activities:Net income
    
    $
    1,648
    
    
    $
    2,583Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,767
    
    
    
    1,680Provision for deferred income taxes
    
    
    303
    
    
    
    491Loss on disposal of property and equipment
    
    
    24
    
    
    
    Non-cash stock compensation
    
    
    545
    
    
    
    363Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    10,272
    
    
    
    2,068Inventories
    
    
    (14,119
    )
    
    
    1,992Prepaid expenses and other current assets
    
    
    (128
    )
    
    
    29Income taxes
    
    
    (533
    )
    
    
    790Other non-current assets
    
    
    71
    
    
    
    103Accounts payable
    
    
    5,645
    
    
    
    1,713Accrued expenses
    
    
    (1,951
    )
    
    
    1,231Other liabilities
    
    
    (103
    )
    
    
    183Net cash provided by operating activities
    
    
    3,441
    
    
    
    13,226Investing activities:Purchases of property and equipment
    
    
    (1,537
    )
    
    
    (1,279
    )Cash paid for business, net of cash acquired
    
    
    (9,884
    )
    
    
    (700
    )Net cash used in investing activities
    
    
    (11,421
    )
    
    
    (1,979
    )Financing activities:Proceeds from long-term debt
    
    
    130,035
    
    
    
    91,400Repayment of long-term debt
    
    
    (121,443
    )
    
    
    (102,712
    )Repurchase of common stock
    
    
    (735
    )
    
    
    Proceeds from stock options
    
    
    52
    
    
    
    Net cash provided by (used in) financing activities
    
    
    7,909
    
    
    
    (11,312
    )Net decrease in cash and cash equivalents
    
    
    (71
    )
    
    
    (65
    )Cash and cash equivalents at beginning of period
    
    
    687
    
    
    
    654Cash and cash equivalents at end of period
    
    $
    616
    
    
    $
    589Supplemental cash flow information:Cash paid for interest
    
    $
    536
    
    
    $
    868Cash paid (refunded) for income taxes
    
    $
    928
    
    
    $
    (271
    )Non-cash financing activityissuance of common stock
    
    $
    98
    
    
    $
    118
  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
 Consolidation of Variable Interest Entities Consolidations: Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities
 Note DInventories
  October 2,
    
    
    July 3,2010
    
    
    2010Raw materials
    
    $
    16,572
    
    
    $
    10,604Work in process
    
    
    22,081
    
    
    
    21,277Finished goods
    
    
    98,234
    
    
    
    84,718$
    136,887
    
    
    $
    116,599
  6




---



##### Table of Contents



Note EDebt
     Debt
  Note FSelling, General and Administrative Expense
  Note GStock Options and Incentive Stock Awards
 Compensation  Stock Compensation
 7




---



##### Table of Contents



Delta Apparel Stock Option Plan (Option Plan)
   Delta Apparel Incentive Stock Award Plan (Award Plan)
  Note HPurchase Contracts
  Yarn
    
    $
    25,968Natural gas
    
    
    934Finished fabric
    
    
    3,034Finished products
    
    
    21,209$
    51,145
 Note ISegment Reporting
  ® ® ® ®
 ® ® ® ® ®
  8




---



##### Table of Contents



Activewear
    
    Retail-Ready
    
    ConsolidatedThree months ended October 2, 2010:Net sales
    
    $
    49,539
    
    
    $
    58,377
    
    
    $
    107,916Segment operating income
    
    
    150
    
    
    
    2,806
    
    
    
    2,956Segment assets
    
    
    130,471
    
    
    
    135,211
    
    
    
    265,682Purchases of property and equipment
    
    
    803
    
    
    
    734
    
    
    
    1,537Three months ended September 26, 2009:Net sales
    
    $
    47,145
    
    
    $
    51,977
    
    
    $
    99,122Segment operating (loss) income
    
    
    (1,085
    )
    
    
    5,577
    
    
    
    4,492Segment assets
    
    
    134,965
    
    
    
    116,180
    
    
    
    251,145Purchases of property and equipment
    
    
    878
    
    
    
    401
    
    
    
    1,279
  Three Months EndedOctober 2, 2010
    
    
    September 26, 2009Segment operating income
    
    $
    2,956
    
    
    $
    4,492Unallocated interest expense
    
    
    601
    
    
    
    954Consolidated income before taxes
    
    $
    2,355
    
    
    $
    3,538
 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
 9




---



##### 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 swapsOctober 2, 2010
    
    $
    192,185
    
    
    
    
    
    
    $
    192,185
    
    
    
    July 3, 2010
    
    $
    171,013
    
    
    
    
    
    
    $
    171,013
    
    
    
    Contingent considerationOctober 2, 2010
    
    $
    1,530,000
    
    
    
    
    
    
    
    
    
    
    $
    1,530,000July 3, 2010
    
    $
    1,530,000
    
    
    
    
    
    
    
    
    
    
    $
    1,530,000
    October 2,
    
    
    July 3,2010
    
    
    2010Accrued expenses
    
    $
    192
    
    
    $
    105Deferred tax liabilities
    
    
    (74
    )
    
    
    (66
    )Other liabilities
    
    
    
    
    
    
    66Accumulated other comprehensive loss
    
    $
    118
    
    
    $
    105
  10




---



##### 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 PlansJuly 4 to August 7, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $5.9 millionAugust 8 to September 4, 2010
    
    
    11,904
    
    
    $
    14.00
    
    
    
    11,904
    
    
    $5.7 millionSeptember 5 to October 2, 2010
    
    
    39,736
    
    
    $
    14.31
    
    
    
    39,736
    
    
    $5.2 millionTotal
    
    
    51,640
    
    
    $
    14.24
    
    
    
    51,640
    
    
    $5.2 million
 Note OLicense Agreements
   Fiscal Year2011
    
    $
    1,0452012
    
    
    1,4772013
    
    
    4822014
    
    
    5502015
    
    
    300$
    3,854
 11




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
   
    
    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;
    
    the uncertainty of raw material, transportation and energy prices;
    
    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
     12




---



##### Table of Contents



EARNINGS GUIDANCE
   RESULTS OF OPERATIONS
      13




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Operating Cash Flows
  Investing Cash Flows
  Financing Activities
   14




---



##### 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
    15




---



##### 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
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  16




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    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 PlansJuly 4 to August 7, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $5.9 millionAugust 8 to September 4, 2010
    
    
    11,904
    
    
    $
    14.00
    
    
    
    11,904
    
    
    $5.7 millionSeptember 5 to October 2, 2010
    
    
    39,736
    
    
    $
    14.31
    
    
    
    39,736
    
    
    $5.2 millionTotal
    
    
    51,640
    
    
    $
    14.24
    
    
    
    51,640
    
    
    $5.2 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.
 17




---



##### Table of Contents



SIGNATURES
  DELTA APPAREL, INC.
(Registrant)November 5, 2010

    By:
    /s/ Deborah H. MerrillDate

    

    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer 18