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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Fiscal Year Ended June 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 1-15583
 DELTA APPAREL, INC.
 (Exact name of registrant as specified in its charter)
 Georgia
    
    58-2508794(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
(Address of principal executive offices) (zip code)
 Registrants telephone number, including area code: (678) 775-6900
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01
    
    American Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.ITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-10.2.2 FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENTEX-10.2.3 SECOND AMENDMENT TO THE SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENTEX-10.18 EMPLOYMENT AGREEMENT - DAVID R. PALMEREX-10.19 EMPLOYMENT AGREEMENT - KENNETH D. SPIRESEX-21 SUBSIDIARIES OF THE COMPANYEX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-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    Table of Contents  FORWARD LOOKING STATEMENTS
    
 PART I
 
 ITEM 1. BUSINESS
  www.deltaapparelinc.com
 OVERVIEW
    ACQUISITIONS AND BUSINESS DEVELOPMENTS
 FunTees Acquisition
  2




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Junkfood Acquisition
  Soffe Acquisition
  Offshore Textiles
  3




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Closing of Fayette, Alabama Operations
  BUSINESS SEGMENTS
  ®
 ® ® ® ® ®
  PRODUCTS
  ®
 ®
 4




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® ® ® ® release release
 MARKETING
    MANUFACTURING
  RAW MATERIALS
  5




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COMPETITION
  TRADEMARKS
 ® ® ® ® ® ® ® ® ®
 LICENSES
  EMPLOYEES
  AVAILABLE INFORMATION
 www.deltaapparelinc.com
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##### Table of Contents



ENVIRONMENTAL AND REGULATORY MATTERS
   
 ITEM 1A. RISK FACTORS
  OUR INDUSTRY IS SUBJECT TO PRICING PRESSURES.
 OUR INDUSTRY IS COMPETITIVE.
 WE MUST IMPLEMENT OUR COST REDUCTION BUSINESS STRATEGIES AND PLANS TO BE SUCCESSFUL.
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##### Table of Contents



OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO ANTICIPATE EVOLVING CONSUMER PREFERENCES AND
TRENDS.
 THE PRICE OF OUR PURCHASED RAW MATERIALS IS PRONE TO SIGNIFICANT FLUCTUATIONS AND VOLATILITY.
 WE RELY ON OUR DISTRIBUTION OPERATIONS TO DELIVER PRODUCT TO CUSTOMERS.
 OUR BUSINESS OPERATIONS RELY ON OUR INFORMATION SYSTEMS.
 WE ARE EXPOSED TO THE RISK OF FINANCIAL NON-PERFORMANCE BY OUR CUSTOMERS ON A SIGNIFICANT AMOUNT OF
OUR SALES.
 OUR BUSINESS INCURS SIGNIFICANT FREIGHT AND TRANSPORTATION COSTS.
 THE PRICE OF ENERGY IS PRONE TO SIGNIFICANT FLUCTUATIONS AND VOLATILITY.
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WE MAY BE SUBJECT TO THE IMPAIRMENT OF ACQUIRED INTANGIBLE ASSETS.
 WE MAY BE RESTRICTED IN OUR ABILITY TO BORROW UNDER OUR CREDIT AGREEMENT.
 THE COST TO BORROW UNDER OUR CREDIT AGREEMENT MAY IMPACT OUR RESULTS OF OPERATIONS.
 THE MARKET PRICE OF DELTA APPAREL SHARES IS AFFECTED BY ITS ILLIQUIDITY.
  OUR PRINCIPAL SHAREHOLDERS MAY EXERT SUBSTANTIAL INFLUENCE.
 OUR OPERATIONS ARE SUBJECT TO POLITICAL AND ECONOMIC RISKS IN MEXICO, HONDURAS AND EL SALVADOR.
 WE ARE SUBJECT TO INTERNATIONAL TRADE REGULATIONS.
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##### Table of Contents



OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATION.
 WE HAVE A SIGNIFICANT AMOUNT OF INDEPENDENT CONTRACT PRODUCTION.
 WE RELY ON THE STRENGTH OF OUR TRADEMARKS. ® ® ® TM ® ® ®
 A SIGNIFICANT PORTION OF OUR BUSINESS RELIES UPON LICENSE AGREEMENTS.
 WE DEPEND ON KEY MANAGEMENT.
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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Location
    
    Utilization
    
    SegmentDuluth, Georgia*
    
    Principal executive offices
    
    Activewear and Retail-ReadyMaiden Plant, Maiden, NC
    
    Knit/dye/finish/cut
    
    ActivewearFayette Plant, Fayette, AL
    
    Knit/dye/finish
    
    ActivewearFayetteville Plant 1, Fayetteville, NC
    
    Cut/sew/decoration/distribution/administration
    
    Retail-ReadyFayetteville Plant 2, Fayetteville, NC
    
    Knit/dye/finish/cut
    
    Retail-ReadyRowland Plant, Rowland, NC
    
    Sew
    
    Retail-ReadyHonduras Plant, San Pedro Sula, Honduras*
    
    Sew
    
    ActivewearCortes Plant, San Pedro Sula, Honduras*
    
    Sew
    
    ActivewearLa Paz Plant, La Paz, El Salvador*
    
    Sew
    
    ActivewearCampeche Sportswear Plant, Campeche, Mexico*
    
    Sew
    
    ActivewearMexico Plant, Campeche, Mexico*
    
    Sew
    
    ActivewearFunTees Design, Concord, NC*
    
    Research/development
    
    ActivewearFunTees Samples, Concord, NC*
    
    Research/development
    
    ActivewearShannon Drive Warehouse, Fayetteville, NC
    
    Warehouse
    
    Retail-ReadyDistribution Center, Clinton, TN*
    
    Distribution
    
    ActivewearDistribution Center, Santa Fe Springs, CA*
    
    Distribution
    
    Activewear and Retail-ReadyDistribution Center, Miami, FL*
    
    Distribution
    
    Activewear and Retail-ReadyDistribution Center, Cranbury NJ*
    
    Distribution
    
    Activewear and Retail-ReadyDC Annex, Fayetteville, NC*
    
    Distribution
    
    Retail-ReadyDistribution Center, Lansing, MI*
    
    Distribution
    
    Retail-ReadyDistribution Center, Andalusia, AL*
    
    Distribution
    
    ActivewearSoffe Outlet Store, Smithfield, NC*
    
    Retail sales
    
    Retail-ReadyNew York Office, New York, NY*
(two office locations)
    
    Sales
    
    Activewear and Retail-ReadyFunTees Executive Office, Concord, NC*
    
    Administration/sales
    
    ActivewearGreenville Executive Office, Greenville, SC*
(two office locations)
    
    Administration
    
    Activewear and Retail-ReadyLos Angeles Office, Los Angeles, CA*
    
    Administration/sales
    
    Retail-Ready
 
 *
    
    - Denotes leased location  
 ITEM 3. LEGAL PROCEEDINGS
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
 Market Information for Common Stock:
  Fiscal Year 2007
    
    Fiscal Year 2006High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    19.85
    
    
    $
    16.48
    
    
    $
    16.11
    
    
    $
    12.49Second Quarter
    
    
    20.50
    
    
    
    16.45
    
    
    
    15.99
    
    
    
    14.23Third Quarter
    
    
    18.50
    
    
    
    14.91
    
    
    
    20.25
    
    
    
    15.41Fourth Quarter
    
    
    18.50
    
    
    
    14.97
    
    
    
    19.10
    
    
    
    15.77
 Dividends:
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterFiscal Year 2007
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    0.050
    
    
    $
    0.050Fiscal Year 2006
    
    $
    0.040
    
    
    $
    0.040
    
    
    $
    0.040
    
    
    $
    0.050
    Purchases of our Own Shares of Common Stock:
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Total
    
    
    
    
    
    Total Number of
    
    Dollar Value ofNumber of
    
    Average
    
    Shares Purchased
    
    Shares that May YetShares
    
    Price Paid
    
    as Part of Publicly
    
    Be PurchasedPeriod
    
    Purchased
    
    per Share
    
    Announced Plans
    
    Under the PlansApril 1, 2007 to May 5, 2007
    
    
    52,500
    
    
    $
    17.29
    
    
    
    52,500
    
    
    $2.9 millionMay 6, 2007 to June 2, 2007
    
    
    60,300
    
    
    $
    16.86
    
    
    
    60,300
    
    
    $1.9 millionJune 3, 2007 to June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $1.9 millionTotal
    
    
    112,800
    
    
    $
    17.12
    
    
    
    112,800
    
    
    $1.9 million
  Securities Authorized for Issuance Under Equity Compensation Plans:
 COMPARISON OF TOTAL RETURN AMONG DELTA APPAREL, INC., AMEX US MARKET INDEX, AND AMEX WHOLESALE &
RETAIL TRADE INDEX
  
 2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Delta Apparel, Inc.
    
    
    
    100.00
    
    
    
    
    196.00
    
    
    
    
    308.07
    
    
    
    
    369.96
    
    
    
    
    555.53
    
    
    
    
    624.53
    
    
    
    
    826.10
    
    
    
    
    884.66AMEX US Market Index
    
    
    
    100.00
    
    
    
    
    91.22
    
    
    
    
    79.31
    
    
    
    
    79.59
    
    
    
    
    96.44
    
    
    
    
    107.52
    
    
    
    
    120.62
    
    
    
    
    143.15AMEX Wholesale & Retail Trade Index
    
    
    
    100.00
    
    
    
    
    74.84
    
    
    
    
    86.86
    
    
    
    
    81.39
    
    
    
    
    100.10
    
    
    
    
    124.60
    
    
    
    
    164.44
    
    
    
    
    213.08
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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Fiscal Year EndedJune 30,
    
    
    July 1,
    
    
    July 2,
    
    
    July 3,
    
    
    June 28,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except share amounts)Statement of Income Data:Net sales
    
    $
    312,438
    
    
    $
    270,108
    
    
    $
    228,065
    
    
    $
    208,113
    
    
    $
    129,521Cost of goods sold
    
    
    (239,365
    )
    
    
    (190,222
    )
    
    
    (174,156
    )
    
    
    (159,852
    )
    
    
    (105,552
    )Selling, general and administrative expenses
    
    
    (59,187
    )
    
    
    (53,530
    )
    
    
    (37,881
    )
    
    
    (31,043
    )
    
    
    (13,220
    )Restructuring costs
    
    
    (1,498
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income
    
    
    12,388
    
    
    
    26,356
    
    
    
    16,028
    
    
    
    17,218
    
    
    
    10,749Other (loss) income
    
    
    (89
    )
    
    
    657
    
    
    
    4,117
    
    
    
    (192
    )
    
    
    (194
    )Interest expense, net
    
    
    (5,157
    )
    
    
    (3,819
    )
    
    
    (3,022
    )
    
    
    (2,622
    )
    
    
    (732
    )Income before income taxes
    
    
    7,142
    
    
    
    23,194
    
    
    
    17,123
    
    
    
    14,404
    
    
    
    9,823Provision for income taxes
    
    
    1,471
    
    
    
    8,350
    
    
    
    5,880
    
    
    
    4,674
    
    
    
    3,760Extraordinary gain, net of taxes
    
    
    672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    6,343
    
    
    $
    14,844
    
    
    $
    11,243
    
    
    $
    9,730
    
    
    $
    6,063Basic earnings per common share:Income before extraordinary gain
    
    $
    0.67
    
    
    $
    1.73
    
    
    $
    1.35
    
    
    $
    1.19
    
    
    $
    0.75Extraordinary gain, net of income taxes
    
    
    0.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.75
    
    
    $
    1.73
    
    
    $
    1.35
    
    
    $
    1.19
    
    
    $
    0.75Diluted earnings per common share:Income before extraordinary gain
    
    $
    0.65
    
    
    $
    1.71
    
    
    $
    1.33
    
    
    $
    1.16
    
    
    $
    0.73Extraordinary gain, net of income taxes
    
    
    0.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.73
    
    
    $
    1.71
    
    
    $
    1.33
    
    
    $
    1.16
    
    
    $
    0.73Dividends Declared per Common Share
    
    $
    0.200
    
    
    $
    0.170
    
    
    $
    0.145
    
    
    $
    0.125
    
    
    $
    0.105Balance Sheet Data (at year end):Working capital
    
    $
    120,645
    
    
    $
    103,210
    
    
    $
    86,910
    
    
    $
    94,408
    
    
    $
    54,283Total assets
    
    
    232,790
    
    
    
    203,123
    
    
    
    159,514
    
    
    
    169,379
    
    
    
    94,447Total long-term debt, less current maturities
    
    
    70,491
    
    
    
    46,967
    
    
    
    17,236
    
    
    
    29,246
    
    
    
    7,865Shareholders equity
    
    
    103,669
    
    
    
    100,988
    
    
    
    86,464
    
    
    
    75,492
    
    
    
    65,969
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 BUSINESS OUTLOOK
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FY 07 Qtr 4
    
    FY 08 Qtr 1
    
    FY 08 Qtr 2
    
    TotalCost of Sales
    
    $5.4 million
    
    $1.7 million
    
    $1.4 million
    
    $8.4 millionRestructuring Charges
    
    $1.5 million
    
    $0.1 million
    
    
    
    
    
    $1.6 millionTotal
    
    $6.9 million
    
    $1.8 million
    
    $1.4 million
    
    $10.0 millionDiluted EPS Impact
    
    $
    0.51
    
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.75
  EARNINGS GUIDANCE
   RESULTS OF OPERATIONS
 Overview
  15




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Quarterly Financial Data
  Fiscal Year 2007 versus Fiscal Year 2006
       16




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Fiscal Year 2006 versus Fiscal Year 2005
       17




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LIQUIDITY AND CAPITAL RESOURCES
 Credit Facility and Other Financial Obligations
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Operating Cash Flows
  Investing Cash Flows
   Financing Activities
  19




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Future Liquidity and Capital Resources
   Payments Due by Period (in thousands)Total
    
    
    Less than 1
 year
    
    
    1 - 3
 years
    
    
    3  5
 years
    
    
    After 5
 yearsContractual Obligations:Long-term debt (a)
    
    $
    73,418
    
    
    $
    2,927
    
    
    $
    69,157
    
    
    $
    1,334
    
    
    $
    Operating leases
    
    
    44,333
    
    
    
    7,536
    
    
    
    13,168
    
    
    
    9,109
    
    
    
    14,520Letters of credit
    
    
    2,147
    
    
    
    2,147
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    27,226
    
    
    
    27,226
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    147,124
    
    
    $
    39,836
    
    
    $
    82,325
    
    
    $
    10,443
    
    
    $
    14,520
 
 (a)
    
    We exclude interest payments from these amounts as the cash outlay for the interest is
unknown and could not be reliably estimated as the majority of the debt is under a
revolving credit facility. Interest payments will be determined based upon the daily
outstanding balance of the revolving credit facility and the prevailing interest rate
during that time. The interest on the Junkfood Seller Note is immaterial and therefore was
excluded. Off-Balance Sheet Arrangements
  Dividends and Purchases of our Own Shares
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Dividend Program
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition and Accounts Receivable
  Inventories
  Self Insurance
  Share-Based Compensation
 Share-Based Payment
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Income Taxes
 , Accounting for Income Taxes
 RECENT 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
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 The Fair Value Option for Financial
Assets and Financial Liabilities
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Risk Sensitivity
  22




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Interest Rate Sensitivity
  Derivatives
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
   
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.deltaapparelinc.com
 
 ITEM 11. EXECUTIVE COMPENSATION
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   Number of securitiesWeighted-average
    
    
    remaining available forNumber of securities to
    
    
    exercise price of
    
    
    future issuance under equitybe issued upon exercise
    
    
    outstanding
    
    
    compensation plansof outstanding options,
    
    
    options, warrants
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Equity compensation
plans not approved
by security holders
    
    
    903,416
    
    
    $
    12.06
    
    
    
    749,562Total
    
    
    903,416
    
    
    $
    12.06
    
    
    
    749,562
   
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  
    
    Managements Annual Report on Internal Control over Financial Reporting.
    
    Report of Independent Registered Public Accounting Firm.
    
    Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
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
    
    Consolidated Balance Sheets as of June 30, 2007 and July 1, 2006
    
    Consolidated Statements of Income for the years ended June 30, 2007, July 1, 2006 and July 2, 2005.
    
    Consolidated Statements of Shareholders Equity for the years ended June 30, 2007, July
1, 2006 and July 2, 2005.
    
    Consolidated Statements of Cash Flows for the years ended June 30, 2007, July 1, 2006 and July 2, 2005.
    
    Notes to Consolidated Financial Statements.
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**
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SIGNATURES
  DELTA APPAREL, INC.(Registrant)August 30, 2007
    
    By: /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial
 Officer and Treasurer (principalfinancial and accounting officer)
  /s/ David S. Fraser
    
    8-27-07
    
    /s/ E. Erwin Maddrey, II
    
    8-25-07David S. Fraser
    
    Date
    
    E. Erwin Maddrey, II
    
    DateDirector
    
    
    
    Director/s/ William F. Garrett
    
    8-25-07
    
    /s/ Deborah H. Merrill
    
    8-30-07William F. Garrett
    
    Date
    
    Deborah H. Merrill
    
    DateDirector
    
    
    
    Vice President, Chief Financial 
Officer and Treasurer (principal
financial and accounting
officer)/s/ Elizabeth J. Gatewood
    
    8-26-07
    
    /s/ Buck A. Mickel
    
    8-28-07Elizabeth J. Gatewood, Ph.D.
    
    Date
    
    Buck A. Mickel
    
    DateDirector
    
    
    
    Director/s/ Robert W. Humphreys
    
    8-30-07
    
    /s/ David Peterson
    
    8-27-07Robert W. Humphreys
    
    Date
    
    David Peterson
    
    DatePresident, Chief Executive Officer
    
    
    
    Directorand Director/s/ Max Lennon
    
    8-27-07Max Lennon
    
    DateDirector
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Delta Apparel, Inc and Subsidiaries
 Index to Consolidated Financial Statements
 Managements Annual Report on Internal Control over Financial Reporting
    
    
    F-2Reports of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets as of June 30, 2007 and July 1, 2006
    
    
    F-5Consolidated Statements of Income for the years ended June 30, 2007, July 1, 2006 and July 2, 2005
    
    
    F-6Consolidated Statements of Shareholders Equity and Comprehensive Income for the years ended
June 30, 2007, July 1, 2006 and July 2, 2005
    
    
    F-7Consolidated Statements of Cash Flows for the years ended June 30, 2007, July 1, 2006 and July 2, 2005
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-9
 F- 1




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##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting
  Internal Control  Integrated Framework
  /s/ Deborah H. MerrillVice President, Chief FinancialOfficer and Treasurer /s/ Robert W. HumphreysPresident and Chief ExecutiveOfficer  F- 2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      /s/ ERNST & YOUNG LLP 
 F- 3




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##### Table of Contents



Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
       .
  /s/ ERNST & YOUNG LLP 
 F- 4




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Balance Sheets
 June 30, 2007
    
    
    July 1, 2006AssetsCurrent assets:Cash
    
    $
    792
    
    
    $
    642Accounts receivable, less allowances of $1,943 in 2007
and $2,169 in 2006
    
    
    45,326
    
    
    
    45,777Other receivables
    
    
    1,118
    
    
    
    1,748Income tax receivable
    
    
    2,192
    
    
    
    Inventories, net
    
    
    124,604
    
    
    
    103,660Prepaid expenses and other current assets
    
    
    2,597
    
    
    
    2,708Deferred income taxes
    
    
    1,891
    
    
    
    2,710Total current assets
    
    
    178,520
    
    
    
    157,245Property, plant and equipment, net
    
    
    29,407
    
    
    
    21,164Goodwill
    
    
    14,222
    
    
    
    13,888Intangibles, net
    
    
    8,091
    
    
    
    8,579Other assets
    
    
    2,550
    
    
    
    2,247$
    232,790
    
    
    $
    203,123Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    35,906
    
    
    $
    27,862Accrued expenses
    
    
    19,042
    
    
    
    21,504Current portion of long-term debt
    
    
    2,927
    
    
    
    3,683Income taxes payable
    
    
    
    
    
    
    986Total current liabilities
    
    
    57,875
    
    
    
    54,035Long-term debt, less current maturities
    
    
    70,491
    
    
    
    46,967Deferred income taxes
    
    
    749
    
    
    
    1,123Other liabilities
    
    
    6
    
    
    
    10Total liabilities
    
    
    129,121
    
    
    
    102,135Commitments and contingenciesShareholders equity:Preferred stock2,000,000 shares authorized, none issued
and outstanding.
    
    
    
    
    
    
    Common stock $.01 par value, 15,000,000 shares authorized,
9,646,972 shares issued, and 8,398,395 and 8,562,821 shares
outstanding as of June 30, 2007 and July 1, 2006, respectively.
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    55,510
    
    
    
    54,672Retained earnings
    
    
    58,235
    
    
    
    53,412Accumulated other comprehensive income
    
    
    140
    
    
    
    Treasury stock 1,248,577 and 1,084,151 shares as of June 30, 2007
and July 1, 2006, respectively.
    
    
    (10,312
    )
    
    
    (7,192
    )Total shareholders equity
    
    
    103,669
    
    
    
    100,988$
    232,790
    
    
    $
    203,123
  F- 5




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Income
 Year EndedJune 30, 2007
    
    
    July 1, 2006
    
    
    July 2, 2005Net sales
    
    $
    312,438
    
    
    $
    270,108
    
    
    $
    228,065Cost of goods sold
    
    
    239,365
    
    
    
    190,222
    
    
    
    174,156Gross profit
    
    
    73,073
    
    
    
    79,886
    
    
    
    53,909Selling, general and administrative expenses
    
    
    59,187
    
    
    
    53,530
    
    
    
    37,881Restructuring costs
    
    
    1,498
    
    
    
    
    
    
    
    Operating income
    
    
    12,388
    
    
    
    26,356
    
    
    
    16,028Other expense (income), net
    
    
    89
    
    
    
    (657
    )
    
    
    (4,117
    )Interest expense, net
    
    
    5,157
    
    
    
    3,819
    
    
    
    3,022Income before provision for income taxes and
extraordinary gain
    
    
    7,142
    
    
    
    23,194
    
    
    
    17,123Provision for income taxes
    
    
    1,471
    
    
    
    8,350
    
    
    
    5,880Income before extraordinary gain
    
    
    5,671
    
    
    
    14,844
    
    
    
    11,243Extraordinary gain, net of income taxes
    
    
    672
    
    
    
    
    
    
    
    Net income
    
    $
    6,343
    
    
    $
    14,844
    
    
    $
    11,243Basic earnings per shareIncome before extraordinary gain
    
    $
    0.67
    
    
    $
    1.73
    
    
    $
    1.35Extraordinary gain, net of income taxes
    
    
    0.08
    
    
    
    
    
    
    
    Net income
    
    $
    0.75
    
    
    $
    1.73
    
    
    $
    1.35Diluted earnings per shareIncome before extraordinary gain
    
    $
    0.65
    
    
    $
    1.71
    
    
    $
    1.33Extraordinary gain, net of income taxes
    
    
    0.08
    
    
    
    
    
    
    
    Net income
    
    $
    0.73
    
    
    $
    1.71
    
    
    $
    1.33Weighted average number of shares outstanding
    
    
    8,506
    
    
    
    8,590
    
    
    
    8,355Dilutive effect of stock options
    
    
    169
    
    
    
    75
    
    
    
    108Weighted average number of shares assuming dilution
    
    
    8,675
    
    
    
    8,665
    
    
    
    8,463Cash dividends declared per common share
    
    $
    0.200
    
    
    $
    0.170
    
    
    $
    0.145
  F- 6




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity and Comprehensive Income
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance at July 3, 2004
    
    
    4,823,486
    
    
    $
    48
    
    
    $
    53,867
    
    
    $
    29,473
    
    
    $
    
    
    
    
    687,227
    
    
    $
    (7,896
    )
    
    $
    75,492Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,243Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,705
    
    
    
    (261
    )
    
    
    (261
    )Stock grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    (2,422
    )
    
    
    28
    
    
    
    59Stock
options exercised under Awards Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    
    
    
    
    (23,800
    )
    
    
    279
    
    
    
    623Stock options exercised under Option Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )
    
    
    
    
    
    
    (108,250
    )
    
    
    1,245
    
    
    
    522Cash dividend ($.145 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,214
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,214
    )2-for-1 stock split
    
    
    4,823,486
    
    
    
    48
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    562,460
    
    
    
    
    
    
    
    Balance at July 2, 2005
    
    
    9,646,972
    
    
    
    96
    
    
    
    53,867
    
    
    
    39,106
    
    
    
    
    
    
    
    1,124,920
    
    
    
    (6,605
    )
    
    
    86,464Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,844Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,477
    
    
    
    (1,252
    )
    
    
    (1,252
    )Stock grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    (4,844
    )
    
    
    29
    
    
    
    70Employee
stock based compensation
    
    
    
    
    
    
    
    
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805Stock options exercised under Awards Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805
    
    
    
    
    
    
    
    (94,402
    )
    
    
    554
    
    
    
    1,359Stock options exercised under Option Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    (14,000
    )
    
    
    82
    
    
    
    158Cash dividend ($.17 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,460
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,460
    )Balance at July 1, 2006
    
    
    9,646,972
    
    
    
    96
    
    
    
    54,672
    
    
    
    53,412
    
    
    
    
    
    
    
    1,084,151
    
    
    
    (7,192
    )
    
    
    100,988Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,343Unrealized gain on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    
    
    
    
    140Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,483Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,770
    
    
    
    (3,378
    )
    
    
    (3,378
    )Stock grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    (4,844
    )
    
    
    33
    
    
    
    89Employee
stock based compensation
    
    
    
    
    
    
    
    
    
    
    838
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838Stock options exercised under
Option Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    (27,500
    )
    
    
    225
    
    
    
    348Cash dividend ($.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,699
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,699
    )Balance at June 30, 2007
    
    
    9,646,972
    
    
    $
    96
    
    
    $
    55,510
    
    
    $
    58,235
    
    
    $
    140
    
    
    
    1,248,577
    
    
    $
    (10,312
    )
    
    $
    103,669
  F- 7




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Year EndedJune 30, 2007
    
    
    July 1, 2006
    
    
    July 2, 2005Operating activities:Net income
    
    $
    6,343
    
    
    $
    14,844
    
    
    $
    11,243Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation
    
    
    4,785
    
    
    
    4,329
    
    
    
    4,289Amortization
    
    
    488
    
    
    
    421
    
    
    
    Provision for (benefit from) deferred income taxes
    
    
    24
    
    
    
    (506
    )
    
    
    1,685(Benefit from) provision for allowances on accounts
receivable, net
    
    
    (226
    )
    
    
    (711
    )
    
    
    728Non-cash stock compensation
    
    
    1,778
    
    
    
    2,959
    
    
    
    1,864Extraordinary gain on earn-out payment
    
    
    (672
    )
    
    
    
    
    
    
    Loss (gain) on disposal and impairment of property
    
    
    1,758
    
    
    
    (73
    )
    
    
    (4,036
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    10,784
    
    
    
    480
    
    
    
    1,271Inventories
    
    
    (1,541
    )
    
    
    (807
    )
    
    
    6,862Prepaid expenses and other current assets
    
    
    237
    
    
    
    (549
    )
    
    
    (352
    )Other non-current assets
    
    
    50
    
    
    
    360
    
    
    
    1,741Accounts payable
    
    
    (1,147
    )
    
    
    3,581
    
    
    
    3,832Accrued expenses
    
    
    1,288
    
    
    
    (1,262
    )
    
    
    1,175Income taxes
    
    
    (3,178
    )
    
    
    506
    
    
    
    (2,826
    )Other liabilities
    
    
    (321
    )
    
    
    (3,389
    )
    
    
    (8,129
    )Net cash provided by operating activities
    
    
    20,450
    
    
    
    20,183
    
    
    
    19,347Investing activities:Purchases of property, plant and equipment
    
    
    (10,915
    )
    
    
    (5,381
    )
    
    
    (10,968
    )Proceeds from sale of property, plant and equipment
    
    
    6
    
    
    
    182
    
    
    
    10,294Cash paid for businesses, net of cash acquired
    
    
    (27,430
    )
    
    
    (28,237
    )
    
    
    Cash invested in joint venture
    
    
    
    
    
    
    (2,248
    )
    
    
    Proceeds from sale of joint venture
    
    
    
    
    
    
    50
    
    
    
    Net cash used in investing activities
    
    
    (38,339
    )
    
    
    (35,634
    )
    
    
    (674
    )Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    
    
    
    
    (11,781
    )
    
    
    (5,428
    )Proceeds from long-term debt
    
    
    317,634
    
    
    
    156,372
    
    
    
    41,302Repayment of long-term debt
    
    
    (294,864
    )
    
    
    (126,242
    )
    
    
    (53,629
    )Dividends paid
    
    
    (1,699
    )
    
    
    (1,460
    )
    
    
    (1,214
    )Treasury stock acquired
    
    
    (3,378
    )
    
    
    (1,252
    )
    
    
    (261
    )Proceeds from exercise of stock options
    
    
    346
    
    
    
    158
    
    
    
    522Net cash provided by (used in) financing activities
    
    
    18,039
    
    
    
    15,795
    
    
    
    (18,708
    )Increase (decrease) in cash
    
    
    150
    
    
    
    344
    
    
    
    (35
    )Cash at beginning of year
    
    
    642
    
    
    
    298
    
    
    
    333Cash at end of year
    
    $
    792
    
    
    $
    642
    
    
    $
    298Supplemental cash flow information:Cash paid during the year for interest
    
    $
    5,292
    
    
    $
    3,475
    
    
    $
    2,811Cash paid during the year for income taxes
    
    $
    4,781
    
    
    $
    8,350
    
    
    $
    8,192Non-cash financing activityissuance of common stock
    
    $
    89
    
    
    $
    1,428
    
    
    $
    682
  F- 8




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 NOTE 1THE COMPANY
  NOTE 2SIGNIFICANT ACCOUNTING POLICIES
 (a) Basis of Presentation:
  (b) Fiscal Year:
 (c) Use of Estimates:
 (d) Revenue Recognition:
 (e) Cash:
 (f) Accounts Receivable: Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
 F- 9




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##### Table of Contents



(g) Inventories:
 (h) Property, Plant and Equipment:
 (i) Impairment of Long-Lived Assets: Accounting for the Impairment or Disposal of Long-Lived Assets
 (j) Goodwill and Intangibles:
 (k) Impairment of Goodwill:
 (l) Self Insurance Reserves:
 (m) Internally Developed Software Costs. Accounting for Computer Software Developed for or obtained for Internal
Use
 (n) Income Taxes:
 F- 10




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##### Table of Contents



(o) Costs of Goods Sold:
 (p) Selling, General and Administrative Expense:
 (q) Advertising Costs: Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendors Products)
 (r) Foreign Currency Translation:
 (s) Earnings per Share:
 (t) Yarn and Cotton Procurements:
  (u) Stock Option and Incentive Award Plans: Share-Based Payment Share-Based
Payment
 F- 11




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##### Table of Contents



Year EndedJuly 2, 2005Net income, as reported
    
    $
    11,243Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
    
    
    705Deduct: Total stock-based employee compensation expense
determined under fair value based method for all options and
awards, net of related tax effects
    
    
    (1,146
    )Pro forma net income
    
    $
    10,802Earnings per share:Basicas reported
    
    $
    1.35Basicpro forma
    
    $
    1.29Dilutedas reported
    
    $
    1.33Dilutedpro forma
    
    $
    1.28
 (v) Comprehensive Income:
 (w) Fair Value of Financial Instruments:
 (x) Derivatives:
 Accounting for Derivative Instruments and Hedging Activities
  F- 12




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##### Table of Contents



(y) Recent Accounting Pronouncements: 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
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 The Fair Value Option for Financial
Assets and Financial Liabilities
 NOTE 3ACQUISITIONS
 FunTees Acquisition
    F- 13




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##### 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
  Year EndedJune 30,
    
    
    July 1,2007


    2006Net sales
    
    $
    331,350
    
    
    $
    342,357Income before extraordinary gain
    
    
    5,144
    
    
    
    14,032Net Income
    
    
    5,816
    
    
    
    14,032Net income per share, before extraordinary gainBasic
    
    $
    0.60
    
    
    $
    1.63Diluted
    
    $
    0.59
    
    
    $
    1.62Net income per shareBasic
    
    $
    0.68
    
    
    $
    1.63Diluted
    
    $
    0.67
    
    
    $
    1.62
 Junkfood Acquisition
  F- 14




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##### Table of Contents



NOTE 4INVENTORIES
  June 30,
    
    
    July 1,2007
    
    
    2006Raw materials
    
    $
    10,626
    
    
    $
    5,537Work in process
    
    
    27,723
    
    
    
    27,534Finished goods
    
    
    86,255
    
    
    
    70,589$
    124,604
    
    
    $
    103,660
  NOTE 5PROPERTY, PLANT AND EQUIPMENT
  Estimated
    
    
    June 30,
    
    
    July 1,Useful Life
    
    
    2007
    
    
    2006Land and land improvements
    
    
    N/A
    
    
    $
    1,243
    
    
    $
    1,354Buildings
    
    10-20 years
    
    
    8,144
    
    
    
    8,840Machinery and equipment
    
    5-15 years
    
    
    40,490
    
    
    
    36,905Computers and software
    
    3-5 years
    
    
    8,065
    
    
    
    6,011Furniture and fixtures
    
    7 years
    
    
    3,665
    
    
    
    3,346Leasehold improvements
    
    3-10 years
    
    
    1,720
    
    
    
    1,492Automobiles
    
    5 years
    
    
    361
    
    
    
    232Construction in progress
    
    
    N/A
    
    
    
    8,827
    
    
    
    1,85072,515
    
    
    
    60,030Less accumulated depreciation and amortization
    
    
    
    
    
    
    (43,108
    )
    
    
    (38,866
    )$
    29,407
    
    
    $
    21,164
 NOTE 6GOODWILL AND INTANGIBLE ASSETS
  June 30,
    
    
    July 1,
    
    
    Economic2007
    

    2006
    

    LifeGoodwill
    
    $
    14,222
    
    
    $
    13,888
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000
    
    
    
    9,000Less accumulated amortization
    
    
    (909
    )
    
    
    (421
    )$
    8,091
    
    
    $
    8,579
  F- 15




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##### Table of Contents



NOTE 7ACCRUED EXPENSES
  June 30,
    
    
    July 1,2007
    
    
    2006Accrued employee compensation and benefits
    
    $
    11,936
    
    
    $
    8,829Taxes accrued and withheld
    
    
    496
    
    
    
    269Accrued insurance
    
    
    659
    
    
    
    973Accrued advertising
    
    
    862
    
    
    
    744Accrued contingent earnout payments
    
    
    
    
    
    
    6,409Accrued royalties
    
    
    973
    
    
    
    764Other
    
    
    4,116
    
    
    
    3,516$
    19,042
    
    
    $
    21,504
 NOTE 8LONG-TERM DEBT
  June 30,
    
    
    July 1,2007
    
    
    2006Revolving credit facilities secured by receivables,
inventory, property and equipment, interest at
prime rate or LIBOR rate plus an applicable margin
(6.59% at June 30, 2007) due August 2008
    
    $
    68,418
    
    
    $
    48,150Capital expansion loan agreement with Banco
Ficohsa, a Honduran bank, interest at LIBOR plus
2%, payable monthly, with a five year term
(denominated in U. S. dollars)
    
    
    3,000
    
    
    
    Junkfood Seller note, interest at 9% with interest
payable quarterly, principal amounts of $750 and
$1,250 due August 2007 and 2008, respectively
    
    
    2,000
    
    
    
    2,50073,418
    
    
    
    50,650Less current installments
    
    
    2,927
    
    
    
    3,683Long-term debt, excluding current installments
    
    $
    70,491
    
    
    $
    49,967
      F- 16




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##### Table of Contents



Fiscal Year2008
    
    $
    2,9272009
    
    
    68,4902010
    
    
    6672011
    
    
    6672012
    
    
    667$
    73,418
 NOTE 9SALE OF YARN MANUFACTURING PLANT
   F- 17




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##### Table of Contents



NOTE 10INCOME TAXES
  Year endedJune 30,
    
    
    July 1,
    
    
    July 2,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    (10
    )
    
    $
    7,471
    
    
    $
    3,458State
    
    
    140
    
    
    
    1,308
    
    
    
    681Foreign
    
    
    216
    
    
    
    77
    
    
    
    56Total current
    
    
    346
    
    
    
    8,856
    
    
    
    4,195Deferred:Federal
    
    
    869
    
    
    
    (433
    )
    
    
    1,270State
    
    
    256
    
    
    
    (73
    )
    
    
    415Total deferred
    
    
    1,125
    
    
    
    (506
    )
    
    
    1,685Provision for income taxes
    
    $
    1,471
    
    
    $
    8,350
    
    
    $
    5,880
  Year endedJune 30,
    
    
    July 1,
    
    
    July 2,2007
    
    
    2006
    
    
    2005Income tax expense at the statutory rate
    
    $
    2,428
    
    
    $
    8,118
    
    
    $
    5,993State income tax expense net of federal income tax effect
    
    
    257
    
    
    
    803
    
    
    
    712Nondeductible items in foreign jurisdictions
    
    
    (72
    )
    
    
    8
    
    
    
    6Permanent reinvestment of foreign earnings
    
    
    (271
    )
    
    
    (297
    )
    
    
    (909
    )Section 199 deduction under the American Jobs Creation Act of 2004
    
    
    14
    
    
    
    (237
    )
    
    
    Valuation allowance adjustments
    
    
    109
    
    
    
    
    
    
    
    88Nondeductible amortization and other permanent differences
    
    
    (643
    )
    
    
    42
    
    
    
    43Amended return adjustments
    
    
    (348
    )
    
    
    
    
    
    
    Other
    
    
    (3
    )
    
    
    (87
    )
    
    
    (53
    )Income tax expense
    
    $
    1,471
    
    
    $
    8,350
    
    
    $
    5,880
  June 30,
    
    
    July 1,2007
    
    
    2006Deferred tax assets:State net operating loss carryforward
    
    $
    840
    
    
    $
    445Charitable donation carryforward
    
    
    507
    
    
    
    Earnout provision
    
    
    
    
    
    
    1,329Currently nondeductible accruals
    
    
    2,133
    
    
    
    2,036Gross deferred tax assets
    
    
    3,480
    
    
    
    3,810Less valuation allowance
    
    
    (255
    )
    
    
    (146
    )Net deferred tax assets
    
    
    3,225
    
    
    
    3,664Deferred tax liabilities:Depreciation
    
    
    (1,067
    )
    
    
    (1,274
    )Goodwill and intangibles
    
    
    (693
    )
    
    
    (451
    )Other
    
    
    (323
    )
    
    
    (352
    )Gross deferred tax liabilities
    
    
    (2,083
    )
    
    
    (2,077
    )Net deferred tax asset
    
    $
    1,142
    
    
    $
    1,587
  F- 18




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##### Table of Contents



NOTE 11LEASES
   Fiscal Year2008
    
    $
    7,5362009
    
    
    7,3422010
    
    
    5,8262011
    
    
    4,9782012
    
    
    4,131Thereafter
    
    
    14,520$
    44,333
  NOTE 12EMPLOYEE BENEFIT PLANS
    F- 19




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##### Table of Contents



June 30,
    
    
    July 1,2007
    
    
    2006Change in benefit obligations:Balance at beginning of year
    
    $
    939
    
    
    $
    962Interest cost
    
    
    82
    
    
    
    82Benefits paid
    
    
    (58
    )
    
    
    (91
    )Actuarial adjustment
    
    
    1
    
    
    
    (14
    )Balance at end of year
    
    $
    964
    
    
    $
    939
 NOTE 13STOCK OPTIONS AND INCENTIVE STOCK AWARDS
  Option Plan
    2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.84
    %
    
    
    4.00
    %
    
    
    3.46
    %Expected life
    
    6 yrs
    
    7 yrs
    
    10 yrsExpected volatility
    
    
    31.7
    %
    
    
    35.8
    %
    
    
    35.0
    %Expected dividend yield
    
    
    1.13
    %
    
    
    1.30
    %
    
    
    1.30
    %Weighted-average per share fair value
of options granted
    
    $
    5.29
    
    
    $
    5.18
    
    
    $
    4.23
  F- 20




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##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    Intrinsic ValueShares
    

    Exercise Price
    

    Term
    

    (thousands)Outstanding at July 1, 2006
    
    
    818,500
    
    
    $
    12.98Granted
    
    
    88,000
    
    
    $
    17.31Exercised
    
    
    (27,500
    )
    
    $
    12.60Forfeited
    
    
    (68,500
    )
    
    $
    13.35Expired
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    810,500
    
    
    $
    13.44
    
    
    
    7.8
    
    
    $
    3,821Exercisable at June 30, 2007
    
    
    444,500
    
    
    $
    12.86
    
    
    
    7.7
    
    
    $
    2,351
   Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 1, 2006
    
    
    674,000
    
    
    $
    5.18Granted
    
    
    88,000
    
    
    $
    5.29Vested
    
    
    (327,500
    )
    
    $
    5.23Forfeited
    
    
    (68,500
    )
    
    $
    5.18Expired
    
    
    
    
    
    
    Nonvested at June 30, 2007
    
    
    366,000
    
    
    $
    5.16
  Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards
  F- 21




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##### Table of Contents



Award Plan
   WeightedAverageExerciseShares
    
    
    PriceNonvested at July 1, 2006
    
    
    113,000
    
    
    $
    0.01Granted
    
    
    10,200
    
    
    $
    0.01Vested
    
    
    0
    
    
    $
    0.01Forfeited
    
    
    (30,284
    )
    
    $
    0.01Expired
    
    
    
    
    
    
    Nonvested at June 30, 2007
    
    
    92,916
    
    
    $
    0.01
  NOTE 14BUSINESS SEGMENTS
  ®
 ® ® ® ® ®
   F- 22




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##### Table of Contents



CorporateActivewear
    
    
    Retail-Ready
    
    
    andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2007:Net sales
    
    $
    178,249
    
    
    $
    134,189
    
    
    $
    
    
    
    $
    312,438Segment operating (loss) income
    
    
    (4,826
    )
    
    
    17,082
    
    
    
    43
    
    
    
    12,299Segment assets
    
    
    126,086
    
    
    
    106,704
    
    
    
    
    
    
    
    232,790Purchases of property, plant and equipment
    
    
    8,422
    
    
    
    2,493
    
    
    
    
    
    
    
    10,915Fiscal Year 2006:Net sales
    
    $
    136,666
    
    
    $
    133,442
    
    
    $
    
    
    
    $
    270,108Segment operating income
    
    
    7,556
    
    
    
    19,111
    
    
    
    346
    
    
    
    27,013Segment assets
    
    
    99,786
    
    
    
    103,337
    
    
    
    
    
    
    
    203,123Purchases of property, plant and equipment
    
    
    3,711
    
    
    
    1,670
    
    
    
    
    
    
    
    5,381Fiscal Year 2005:Net sales
    
    $
    143,434
    
    
    $
    84,631
    
    
    $
    
    
    
    $
    228,065Segment operating income (loss)
    
    
    10,013
    
    
    
    10,421
    
    
    
    (289
    )
    
    
    20,145Segment assets
    
    
    91,382
    
    
    
    68,132
    
    
    
    
    
    
    
    159,514Purchases of property, plant and equipment
    
    
    10,308
    
    
    
    660
    
    
    
    
    
    
    
    10,968
  Year EndedJune 30,
    
    
    July 1,
    
    
    July 2,2007
    
    
    2006
    
    
    2005Segment operating income
    
    $
    12,299
    
    
    $
    27,013
    
    
    $
    20,145Unallocated interest expense
    
    
    5,157
    
    
    
    3,819
    
    
    
    3,022Consolidated income before taxes
    
    $
    7,142
    
    
    $
    23,194
    
    
    $
    17,123
  Long Lived Assets:
 June 30, 2007
    
    July 1,
 2006United States
    
    $
    21,392
    
    
    $
    20,073Honduras
    
    
    5,568
    
    
    
    514El Salvador
    
    
    1,212
    
    
    
    Mexico
    
    
    1,235
    
    
    
    577All Foreign Countries
    
    
    8,015
    
    
    
    1,091Total Long-lived Assets
    
    $
    29,407
    
    
    $
    21,164
 NOTE 15COMMITMENTS AND CONTINGENCIES
 (a) Litigation
  F- 23




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##### Table of Contents



(b) Purchase Contracts
  Natural gas
    
    
    1,404Yarn
    
    
    19,717Finished fabric
    
    
    602Finished apparel products
    
    
    5,503$
    27,226
 (c) Letters of Credit
  NOTE 16RESTRUCTURING PLAN
  NOTE 17RELATED PARTY TRANSACTIONS
  F- 24




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##### Table of Contents



NOTE 18QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  2007 Quarter Ended
    
    
    2006 Quarter EndedSeptember 30
    
    
    December 30
    
    
    March 31
    
    
    June 30 (a)
    
    
    October 1
    
    
    December 31
    
    
    April 1
    
    
    July 1Net sales
    
    $
    62,680
    
    
    $
    72,949
    
    
    $
    85,013
    
    
    $
    91,796
    
    
    $
    60,573
    
    
    $
    57,702
    
    
    $
    69,365
    
    
    $
    82,468Gross profit
    
    
    17,336
    
    
    
    16,094
    
    
    
    20,719
    
    
    
    18,924
    
    
    
    18,694
    
    
    
    18,269
    
    
    
    19,216
    
    
    
    23,707Operating income
    
    
    3,438
    
    
    
    2,479
    
    
    
    5,248
    
    
    
    1,223
    
    
    
    5,994
    
    
    
    4,501
    
    
    
    5,263
    
    
    
    10,598Income before
extraordinary gain
    
    
    1,575
    
    
    
    633
    
    
    
    2,778
    
    
    
    685
    
    
    
    3,377
    
    
    
    2,376
    
    
    
    2,744
    
    
    
    6,347Net income
    
    
    2,247
    
    
    
    633
    
    
    
    2,778
    
    
    
    685
    
    
    
    3,377
    
    
    
    2,376
    
    
    
    2,744
    
    
    
    6,347Basic EPS
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.33
    
    
    $
    0.08
    
    
    $
    0.40
    
    
    $
    0.28
    
    
    $
    0.32
    
    
    $
    0.74Diluted EPS
    
    $
    0.26
    
    
    $
    0.07
    
    
    $
    0.32
    
    
    $
    0.08
    
    
    $
    0.39
    
    
    $
    0.27
    
    
    $
    0.31
    
    
    $
    0.73
 
 (a)
    
    The quarter ended June 30, 2007 includes excess manufacturing costs and
restructuring costs of $5.4 million and $1.5 million in gross profit and operating income,
respectively. NOTE 19STOCK SPLIT
  NOTE 20EXTRAORDINARY GAIN
  F- 25




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##### Table of Contents



SCHEDULE II  CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
 DELTA APPAREL, INC. AND SUBSIDIARIES
 ALLOWANCE FOR DOUBTFUL ACCOUNTS
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense
    
    
    Write-Offs
    
    
    Balance2007
    
    $
    1,051
    
    
    $
    
    
    
    $
    467
    
    
    $
    (1,177
    )
    
    $
    3412006
    
    
    1,290
    
    
    
    
    
    
    
    (123
    )
    
    
    (116
    )
    
    
    1,0512005
    
    
    529
    
    
    
    
    
    
    
    793
    
    
    
    (32
    )
    
    
    1,290
 RETURNS AND ALLOWANCES
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense
    
    
    Credits Issued
    
    
    Balance2007
    
    $
    1,118
    
    
    $
    300
    
    
    $
    9,894
    
    
    $
    (9,710
    )
    
    $
    1,6022006
    
    
    604
    
    
    
    987
    
    
    
    6,961
    
    
    
    (7,434
    )
    
    
    1,1182005
    
    
    637
    
    
    
    
    
    
    
    6,419
    
    
    
    (6,452
    )
    
    
    604
 TOTAL RESERVES FOR ALLOWANCES
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    Write-Offs/
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense
    
    
    Credits Issued
    
    
    Balance2007
    
    $
    2,169
    
    
    $
    300
    
    
    $
    10,361
    
    
    $
    (10,887
    )
    
    $
    1,9432006
    
    
    1,894
    
    
    
    987
    
    
    
    6,838
    
    
    
    (7,550
    )
    
    
    2,1692005
    
    
    1,166
    
    
    
    
    
    
    
    7,212
    
    
    
    (6,484
    )
    
    
    1,894
 MARKET AND OBSOLESCENCE RESERVE
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense **
    
    
    Deductions **
    
    
    Balance2007
    
    $
    1,614
    
    
    $
    
    
    
    $
    425
    
    
    $
    
    
    
    $
    2,0392006
    
    
    2,371
    
    
    
    220
    
    
    
    (977
    )
    
    
    
    
    
    
    1,6142005
    
    
    2,820
    
    
    
    
    
    
    
    (449
    )
    
    
    
    
    
    
    2,371
 SELF INSURANCE RESERVE
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense **
    
    
    Deductions **
    
    
    Balance2007
    
    $
    478
    
    
    $
    
    
    
    $
    (33
    )
    
    $
    
    
    
    $
    4452006
    
    
    720
    
    
    
    
    
    
    
    (242
    )
    
    
    
    
    
    
    4782005
    
    
    1,216
    
    
    
    
    
    
    
    (496
    )
    
    
    
    
    
    
    720
 
 *
    
    Represents the allowance provided for as a result of the acquisition of Fun-Tees, Inc. on
October 2, 2006 and the acquisition of Junkfood Clothing Company on August 22, 2005.**
    
    Net change in the market and obsolescence and self insurance reserves are shown in the expense
column.