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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 September 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.)2750 Premiere Parkway, Suite 100
Duluth, Georgia
    
    30097(Address of principal executive offices)
    
    (Zip Code)
 (678) 775-6900
 (Not Applicable)
  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 September 27, 2008 and June 28, 2008
    
    
    3Condensed
Consolidated Statements of Operations Three months ended September
27, 2008 and September 29, 2007
    
    
    4Condensed
Consolidated Statements of Cash Flows Three months ended
September 27, 2008 and September 29, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    18PART II.
    
    Other InformationItem 6.
    
    Exhibits
    
    
    19Signatures
    
    
    
    
    20Exhibits
    
    
    
    
    21EX-31.1EX-31.2EX-32.1EX-32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts and per share data)
(Unaudited)
 September 27,
    
    
    June 28,2008
    
    
    2008AssetsCurrent assets:Cash
    
    $
    595
    
    
    $
    586Accounts receivable, net
    
    
    46,556
    
    
    
    62,012Income taxes receivable
    
    
    1,689
    
    
    
    1,007Inventories, net
    
    
    128,514
    
    
    
    124,746Prepaid expenses and other current assets
    
    
    2,976
    
    
    
    2,916Deferred income taxes
    
    
    2,402
    
    
    
    2,542Total current assets
    
    
    182,732
    
    
    
    193,809Property, plant and equipment, net
    
    
    39,300
    
    
    
    40,042Goodwill
    
    
    16,814
    
    
    
    16,814Intangibles, net
    
    
    7,479
    
    
    
    7,603Other assets
    
    
    3,361
    
    
    
    3,355Total assets
    
    $
    249,686
    
    
    $
    261,623Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    36,725
    
    
    $
    35,423Accrued expenses
    
    
    15,938
    
    
    
    17,689Current portion of long-term debt
    
    
    5,451
    
    
    
    6,780Total current liabilities
    
    
    58,114
    
    
    
    59,892Long-term debt, less current maturities
    
    
    84,074
    
    
    
    95,542Deferred income taxes
    
    
    975
    
    
    
    578Other liabilities
    
    
    641
    
    
    
    718Total liabilities
    
    
    143,804
    
    
    
    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 September 27, 2008 and June 28, 2008,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    57,649
    
    
    
    57,431Retained earnings
    
    
    57,981
    
    
    
    57,307Accumulated other comprehensive loss
    
    
    (394
    )
    
    
    (441
    )Treasury stock1,144,273 and 1,150,223 shares as of September 27,
2008 and June 28, 2008, respectively
    
    
    (9,450
    )
    
    
    (9,500
    )Total stockholders equity
    
    
    105,882
    
    
    
    104,893Total liabilities and stockholders equity
    
    $
    249,686
    
    
    $
    261,623
  3




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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 EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Net sales
    
    $
    91,412
    
    
    $
    72,562Cost of goods sold
    
    
    72,106
    
    
    
    59,571Gross profit
    
    
    19,306
    
    
    
    12,991Selling, general and administrative expenses
    
    
    16,841
    
    
    
    14,203Other (expense) income, net
    
    
    (25
    )
    
    
    82Restructuring costs
    
    
    
    
    
    
    62Operating income (loss)
    
    
    2,440
    
    
    
    (1,192
    )Interest expense, net
    
    
    1,419
    
    
    
    1,470Income (loss) before provision
(benefit) for income taxes
    
    
    1,021
    
    
    
    (2,662
    )Provision (benefit) for income taxes
    
    
    347
    
    
    
    (1,114
    )Net income (loss)
    
    $
    674
    
    
    $
    (1,548
    )Basic earnings (loss) per share
    
    $
    0.08
    
    
    $
    (0.18
    )Diluted earnings (loss) per share
    
    $
    0.08
    
    
    $
    (0.18
    )Weighted average number of shares outstanding
    
    
    8,499
    
    
    
    8,430Dilutive effect of stock options
    
    
    9
    
    
    
    Weighted average number of shares assuming dilution
    
    
    8,508
    
    
    
    8,430Cash dividends declared per common share
    
    $
    
    
    
    $
    0.05
  4




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
 Three Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Operating activities:Net income (loss)
    
    $
    674
    
    
    $
    (1,548
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    1,862
    
    
    
    1,375Deferred income taxes
    
    
    537
    
    
    
    (2,260
    )Loss on disposal of property, plant and equipment
    
    
    41
    
    
    
    Non-cash stock compensation
    
    
    268
    
    
    
    507Changes in operating assets and liabilities:Accounts receivable
    
    
    15,456
    
    
    
    8,401Inventories
    
    
    (3,768
    )
    
    
    (5,011
    )Prepaid expenses and other current assets
    
    
    (60
    )
    
    
    (717
    )Other non-current assets
    
    
    (6
    )
    
    
    (190
    )Accounts payable and accrued expenses
    
    
    2,143
    
    
    
    (8,347
    )Income taxes
    
    
    (682
    )
    
    
    2,686Other liabilities
    
    
    (30
    )
    
    
    (32
    )Net cash provided by (used in) operating activities
    
    
    16,435
    
    
    
    (5,136
    )Investing activities:Purchases of property, plant and equipment
    
    
    (1,037
    )
    
    
    (4,771
    )Cash paid for business
    
    
    (2,592
    )
    
    
    Net cash used in investing activities
    
    
    (3,629
    )
    
    
    (4,771
    )Financing activities:Proceeds from long-term debt
    
    
    97,600
    
    
    
    99,608Repayment of long-term debt
    
    
    (110,397
    )
    
    
    (89,539
    )Dividends paid
    
    
    
    
    
    
    (420
    )Net cash (used in) provided by financing activities
    
    
    (12,797
    )
    
    
    9,649Net increase (decrease) in cash
    
    
    9
    
    
    
    (258
    )Cash at beginning of period
    
    
    586
    
    
    
    792Cash at end of period
    
    $
    595
    
    
    $
    534Supplemental cash flow information:Cash paid for interest
    
    $
    1,479
    
    
    $
    1,373Cash paid (refunded) for income taxes
    
    $
    521
    
    
    $
    (1,704
    )Non-cash financing activityissuance of common stock
    
    $
    41
    
    
    $
    1,704
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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
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Note DInventories
  September 27,
    
    
    June 28,2008
    
    
    2008Raw materials
    
    $
    12,617
    
    
    $
    10,881Work in process
    
    
    26,460
    
    
    
    23,198Finished goods
    
    
    89,437
    
    
    
    90,667$
    128,514
    
    
    $
    124,746
  Note EGoodwill and Intangible Assets
  September 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
    
    
    (1,521
    )$
    24,293
  Note FDebt
   7




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Note GSelling, General and Administrative Expense
  Note HStock Options and Incentive Stock Awards
 Share-Based Payment
 8




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Delta Apparel Stock Option Plan (Option Plan)
  Delta Apparel Incentive Stock Award Plan (Award Plan)
   Note IPurchase Contracts
  Natural gas
    
    $
    1,025Yarn
    
    
    43,579Finished fabric
    
    
    2,053Finished apparel products
    
    
    4,634$
    51,291
 Note JStockholders Equity
 Stock Repurchase Program
  Note KSegment Reporting
  ®
  9




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® ® ® ® ®
   Activewear
    
    Retail-ReadyApparel
    
    Apparel
    
    ConsolidatedThree months ended 9/27/08:Net sales
    
    $
    49,988
    
    
    $
    41,424
    
    
    $
    91,412Segment operating income (loss)
    
    
    (2,905
    )
    
    
    5,345
    
    
    
    2,440Segment assets
    
    
    141,802
    
    
    
    107,884
    
    
    
    249,686Three months ended 9/29/07:Net sales
    
    $
    42,232
    
    
    $
    30,330
    
    
    $
    72,562Segment operating (loss) income
    
    
    (3,929
    )
    
    
    2,737
    
    
    
    (1,192
    )Segment assets
    
    
    130,485
    
    
    
    102,591
    
    
    
    233,076
  Three Months EndedSeptember 27,
    
    
    September 29,2008
    
    
    2007Segment operating income (loss)
    
    $
    2,440
    
    
    $
    (1,192
    )Unallocated interest expense
    
    
    1,419
    
    
    
    1,470Consolidated income (loss) before taxes
    
    $
    1,021
    
    
    $
    (2,662
    )
 Note LIncome Taxes
   Note MFactored Receivables
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, a replacement of FASB Statement 125
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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
    11




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Derivative Instruments
    Operating Cash Flows
  14




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Investing Cash Flows
  Financing Activities
   Purchases by Delta Apparel of its Own Shares
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition and Accounts Receivable
  15




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Inventories
  Self Insurance
  Share-Based Compensation
 Share-Based Payment
 Income Taxes
 Accounting for Income Taxes
  ENVIRONMENTAL AND REGULATORY MATTERS
  16




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
       Derivatives
  17




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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 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.
 
 19




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SIGNATURES
  DELTA APPAREL, INC.

(Registrant)October 31, 2008
    By:
    /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer 20