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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 July 1, 2006
 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
 þ
  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 SHAREHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIESITEM 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 AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-10.12 EMPLOYMENT AGREEMENT/DEBORAH H. MERRILLEX-21 SUBSIDIARIES OF THE COMPANYEX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO    Table of Contents  FORWARD LOOKING STATEMENTS
    
 PART I
 
 ITEM 1. BUSINESS
   OVERVIEW
    STOCK SPLIT
  2




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BUSINESS DEVELOPMENTS
        3




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BUSINESS SEGMENTS
     PRODUCTS
   release release
 4




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MARKETING
    MANUFACTURING
   RAW MATERIALS
   5




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COMPETITION
  TRADEMARKS
  LICENSES
  EMPLOYEES
  AVAILABLE INFORMATION
 www.deltaapparel.com
  6




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ENVIRONMENTAL AND REGULATORY MATTERS
   
 ITEM 1A. RISK FACTORS
  ACQUISITION.
 PRICING PRESSURES.
 COMPETITION.
 FASHION TRENDS.
 YARN
PRICING AND AVAILABILITY.
 7




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DISRUPTION IN DISTRIBUTION OPERATIONS.
 INFORMATION SYSTEMS.
 CREDIT RISK.
 TRANSPORTATION COSTS.
 ENERGY CONSUMPTION AND PRICES.
 GOODWILL AND INTANGIBLE ASSETS.
 AVAILABILITY OF CASH.
 8




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##### Table of Contents



MARKET PRICE OF DELTA APPAREL SHARES.
  PRINCIPAL SHAREHOLDERS EXERT SUBSTANTIAL INFLUENCE.
 POLITICAL AND ECONOMIC UNCERTAINTY IN HONDURAS AND MEXICO.
 U.S. TRADE REGULATIONS.
    9




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##### Table of Contents



ENVIRONMENTAL RULES.
 OUTSIDE PRODUCTION.
 TRADEMARKS. TM
 LICENSE AGREEMENTS.
 KEY MANAGEMENT.
 
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  10




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##### Table of Contents



Location
    
    Utilization
    
    SegmentMaiden 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
    
    ActivewearMexico Plant, Campeche, Mexico
    
    Sew
    
    ActivewearShannon Drive Warehouse, Fayetteville, NC
    
    Warehouse
    
    Retail-ReadyWarehouse Center, Knoxville, TN
    
    Warehouse
    
    ActivewearDistribution 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-ReadyNew York Office, New York, NY
    
    Sales
    
    Activewear and
Retail-ReadyNew York Office, New York, NY
    
    Sales
    
    Retail-ReadyGreenville Executive Office, Greenville, SC
    
    Administration
    
    Activewear and
Retail-ReadyGreenville Executive Office, Greenville, SC
    
    Administration
    
    Activewear and
Retail-ReadyLos Angeles Office, Los Angeles, CA
    
    Administration and Distribution
    
    Retail-Ready
   
 ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  11




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES.
 Market Information for Common Stock:
  Fiscal Year 2006
    
    
    Fiscal Year 2005High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    16.11
    
    
    $
    12.49
    
    
    $
    12.95
    
    
    $
    10.60Second Quarter
    
    
    15.99
    
    
    
    14.23
    
    
    
    12.13
    
    
    
    10.52Third Quarter
    
    
    20.25
    
    
    
    15.41
    
    
    
    15.65
    
    
    
    11.83Fourth Quarter
    
    
    19.10
    
    
    
    15.77
    
    
    
    15.89
    
    
    
    11.93
 Dividends:
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterFiscal Year 2006
    
    $
    0.040
    
    
    $
    0.040
    
    
    $
    0.040
    
    
    $
    0.050Fiscal Year 2005
    
    $
    0.035
    
    
    $
    0.035
    
    
    $
    0.035
    
    
    $
    0.040
    Purchases of our Own Shares of Common Stock:
 12




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##### Table of Contents



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 Period
(April 1, 2006 to May 6, 2006)
    
    
    20,700
    
    
    $
    17.53
    
    
    
    20,700
    
    
    $5.8 millionMay Period
(May 7, 2006 to June 3, 2006)
    
    
    9,570
    
    
    $
    17.70
    
    
    
    9,570
    
    
    $5.6 millionJune Period
(June 4, 2006 to July 1, 2006)
    
    
    18,107
    
    
    $
    17.24
    
    
    
    18,107
    
    
    $5.3 million
  Stock Split:
 Securities Authorized for Issuance Under Equity Compensation Plans:
 
 ITEM 6. SELECTED FINANCIAL DATA
  Fiscal Year EndedJuly 1,
    
    
    July 2,
    
    
    July 3,
    
    
    June 28,
    
    
    June 29,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands, except share amounts)Statement of Income Data:Net sales
    
    $
    270,108
    
    
    $
    228,065
    
    
    $
    208,113
    
    
    $
    129,521
    
    
    $
    131,601Cost of goods sold
    
    
    (190,222
    )
    
    
    (174,156
    )
    
    
    (159,852
    )
    
    
    (105,552
    )
    
    
    (110,273
    )Selling, general and administrative expenses
    
    
    (53,530
    )
    
    
    (37,881
    )
    
    
    (31,043
    )
    
    
    (13,220
    )
    
    
    (11,807
    )Operating income
    
    
    26,356
    
    
    
    16,028
    
    
    
    17,218
    
    
    
    10,749
    
    
    
    9,521Other income (loss)
    
    
    657
    
    
    
    4,117
    
    
    
    (192
    )
    
    
    (194
    )
    
    
    816Interest expense, net
    
    
    (3,819
    )
    
    
    (3,022
    )
    
    
    (2,622
    )
    
    
    (732
    )
    
    
    (677
    )Income before taxes
    
    
    23,194
    
    
    
    17,123
    
    
    
    14,404
    
    
    
    9,823
    
    
    
    9,660Provision for income taxes
    
    
    8,350
    
    
    
    5,880
    
    
    
    4,674
    
    
    
    3,760
    
    
    
    3,188Net income
    
    $
    14,844
    
    
    $
    11,243
    
    
    $
    9,730
    
    
    $
    6,063
    
    
    $
    6,472Net Income Per Common Share:Basic
    
    $
    1.73
    
    
    $
    1.35
    
    
    $
    1.19
    
    
    $
    0.75
    
    
    $
    0.74Diluted
    
    $
    1.71
    
    
    $
    1.33
    
    
    $
    1.16
    
    
    $
    0.73
    
    
    $
    0.71Dividends Declared per Common Share
    
    $
    0.170
    
    
    $
    0.145
    
    
    $
    0.125
    
    
    $
    0.105
    
    
    $
    0.025Balance Sheet Data (at year end):Working capital
    
    $
    103,210
    
    
    $
    86,910
    
    
    $
    94,408
    
    
    $
    54,283
    
    
    $
    43,773Total assets
    
    
    203,123
    
    
    
    159,514
    
    
    
    169,379
    
    
    
    94,447
    
    
    
    88,346Total long-term debt
    
    
    50,650
    
    
    
    17,236
    
    
    
    29,246
    
    
    
    7,865
    
    
    
    3,667Shareholders equity
    
    
    100,988
    
    
    
    86,464
    
    
    
    75,492
    
    
    
    65,969
    
    
    
    61,278
 13




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 BUSINESS OUTLOOK
       EARNINGS GUIDANCE
    14




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RESULTS OF OPERATIONS
 Overview
  Share-Based Payment
  Actual FY05 Basic Earnings Per Share
    
    $
    1.35Sale of Edgefield Plant
    
    
    (0.26
    )Reversal of Foreign Earnings Tax Liability
    
    
    (0.08
    )Adjusted FY05 Basic Earnings per Share
    
    $
    1.01
    Quarterly Financial Data
  Fiscal Year 2006 versus Fiscal Year 2005
  15




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Fiscal Year 2005 versus Fiscal Year 2004
   16




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LIQUIDITY AND CAPITAL RESOURCES
 Credit Facility
     17




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Operating Cash Flows
  Investing Cash Flows
  Financing Activities
   18




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Future Liquidity and Capital Resources
   Payments Due by Period (in thousands)Less than
    
    
    1 - 3
    
    
    3  5
    
    
    After 5Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsContractual ObligationsLong-term debt (a)
    
    $
    50,650
    
    
    $
    500
    
    
    $
    50,150
    
    
    $
    
    
    
    $
    Operating leases
    
    
    23,277
    
    
    
    4,200
    
    
    
    11,064
    
    
    
    4,324
    
    
    
    3,689Letters of credit
    
    
    921
    
    
    
    921
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    28,285
    
    
    
    28,285
    
    
    
    
    
    
    
    
    
    
    
    Contingent purchase price (b)
    
    
    13,596
    
    
    
    5,180
    
    
    
    8,416
    
    
    
    
    
    
    
    Total
    
    $
    116,729
    
    
    $
    39,086
    
    
    $
    69,630
    
    
    $
    4,324
    
    
    $
    3,689
 
 (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.(b)
    
    Represents the amount expected to be paid to the former shareholders of M. J. Soffe
Co., pursuant to the earn-out provisions of the Amended and Restated Stock Purchase
Agreement dated as of October 3, 2003 among Delta Apparel, Inc., MJS Acquisition Company,
M. J. Soffe Co., James F. Soffe, John D. Soffe, and Anthony M. Cimaglia. In addition,
represents the amount expected to be paid to the former shareholders of Liquid Blaino,
pursuant to the earn-out provisions of the Asset Purchase Agreement dated as of August 22,
2005 among Delta Apparel, Inc., Junkfood Clothing Company, Liquid Blaino Designs, Inc.,
Natalie Grof, and Blaine Halvorson. Dividends and Purchases of our Own Shares
    19




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Dividend Program
  Stock Split
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition and Accounts Receivable
  Inventories
  Self Insurance
  20




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Share-Based Compensation
 Share-Based Payment
 Income Taxes
 , Accounting for Income Taxes
 RECENT ACCOUNTING STANDARDS
 Inventory Costs Inventory Pricing
 Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees Statements of Cash Flows requires
 Transition Election Related
to Accounting for Tax Effects of Share-Based Payment Awards
 21




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Share-Based Payment
 Accounting for Conditional Asset
Retirement Obligations Accounting for Asset Retirement Obligations
 Accounting Changes and Error Corrections Accounting Changes,
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Risk Sensitivity
    22




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Interest Rate Sensitivity
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
   
 ITEM 9B. OTHER INFORMATION
  23




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  www.deltaapparel.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER 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
    
    
    931,500
    
    
    $
    11.41
    
    
    
    645,758Total
    
    
    931,500
    
    
    $
    11.41
    
    
    
    645,758
   24




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 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.
    
    Consolidated Balance Sheets as of July 1, 2006 and July 2, 2005.
    
    Consolidated Statements of Income for the years ended July 1, 2006, July 2, 2005 and July 3, 2004.
    
    Consolidated Statements of Shareholders Equity for the years ended July 1, 2006, July
2, 2005 and July 3, 2004.
    
    Consolidated Statements of Cash Flows for the years ended July 1, 2006, July 2, 2005 and July 3, 2004.
    
    Notes to Consolidated Financial Statements.
          25




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26




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*
 **
      27




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SIGNATURES
  DELTA APPAREL, INC.(Registrant)September 7, 2006
    
    By: /s/ Deborah H. MerrillDate
    
    Deborah H. MerrillVice President, Chief Financial Officer and Treasurer
  /s/ David S. Fraser
    
    9-1-06
    
    /s/ Philip J. Mazzilli, Jr.
    
    9-1-06David S. Fraser
    
    Date
    
    Philip J. Mazzilli, Jr.
    
    DateDirector
    
    
    
    Director/s/ William F. Garrett
    
    9-7-06
    
    /s/ Deborah H. Merrill
    
    9-6-06William F. Garrett
    
    Date
    
    Deborah H. Merrill
    
    DateDirector
    
    
    
    Vice President, Chief FinancialOfficer and Treasurer (principalfinancial officer and principalaccounting officer)/s/ Robert W. Humphreys
    
    9-5-06
    
    /s/ Buck A. Mickel
    
    9-1-06Robert W. Humphreys
    
    Date
    
    Buck A. Mickel
    
    DatePresident, Chief
    
    
    
    DirectorExecutive Officerand Director/s/ Max Lennon
    
    9-1-06
    
    /s/ David Peterson
    
    9-5-06Max Lennon
    
    Date
    
    David Peterson
    
    DateDirector
    
    
    
    Director/s/ E. Erwin Maddrey, II
    
    8-31-06E. Erwin Maddrey, II
    
    DateDirector
 28




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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 July 1, 2006 and July 2, 2005
    
    F-5Consolidated Statements of Income for the years ended July 1, 2006, July 2, 2005 and July 3, 2004
    
    F-6Consolidated Statements of Shareholders Equity for the years ended July 1, 2006, July 2, 2005 and
July 3, 2004
    
    F-7Consolidated Statements of Cash Flows for the years ended July 1, 2006, July 2, 2005 and July 3, 2004
    
    F-8Notes to Consolidated Financial Statements
    
    F-9
 F- 1




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Managements Annual Report on Internal Control Over Financial Reporting
  Internal Control  Integrated Framework
  /s/ Deborah H. MerrillVice President, Chief Financial
Officer and Treasurer/s/ Robert W. HumphreysPresident and Chief Executive
OfficerSeptember 6, 2006
 F- 2




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Report of Independent Registered Public Accounting Firm
      /s/ ERNST & YOUNG LLPAtlanta, GeorgiaSeptember 6, 2006
 F- 3




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##### Table of Contents



Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
  Internal Control  Integrated
Framework
       /s/ ERNST & YOUNG LLPAtlanta, GeorgiaSeptember 6, 2006
 F- 4




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Delta Apparel, Inc. and Subsidiaries
Consolidated Balance Sheets
 July 1, 2006
    
    
    July 2, 2005AssetsCurrent assets:Cash
    
    $
    642
    
    
    $
    298Accounts receivable, less allowances of $2,169 in 2006
and $1,894 in 2005
    
    
    45,777
    
    
    
    35,295Other receivables
    
    
    1,748
    
    
    
    1,316Inventories
    
    
    103,660
    
    
    
    99,026Prepaid expenses and other current assets
    
    
    2,708
    
    
    
    1,968Deferred income taxes
    
    
    2,710
    
    
    
    1,252Total current assets
    
    
    157,245
    
    
    
    139,155Property, plant and equipment, net
    
    
    21,164
    
    
    
    19,950Goodwill
    
    
    13,888
    
    
    
    Intangibles, net (see Note 6)
    
    
    8,579
    
    
    
    Other assets
    
    
    2,247
    
    
    
    409$
    203,123
    
    
    $
    159,514Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    27,862
    
    
    $
    19,868Accrued expenses
    
    
    21,504
    
    
    
    16,832Current portion of long-term debt
    
    
    3,683
    
    
    
    15,065Income taxes payable
    
    
    986
    
    
    
    480Total current liabilities
    
    
    54,035
    
    
    
    52,245Long-term debt, less current maturities
    
    
    46,967
    
    
    
    17,236Deferred income taxes
    
    
    1,123
    
    
    
    171Other liabilities
    
    
    10
    
    
    
    3,398Total liabilities
    
    
    102,135
    
    
    
    73,050Commitments 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 8,562,821 and 8,522,052 shares
outstanding as of July 1, 2006 and July 2, 2005, respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    54,672
    
    
    
    53,867Retained earnings
    
    
    53,412
    
    
    
    39,106Treasury stock 1,084,151 and 1,124,920 shares as of July 1, 2006
and July 2, 2005, respectively
    
    
    (7,192
    )
    
    
    (6,605
    )Total shareholders equity
    
    
    100,988
    
    
    
    86,464$
    203,123
    
    
    $
    159,514
  F- 5




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Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Income
 Year EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 3, 2004Net sales
    
    $
    270,108
    
    
    $
    228,065
    
    
    $
    208,113Cost of goods sold
    
    
    190,222
    
    
    
    174,156
    
    
    
    159,852Gross profit
    
    
    79,886
    
    
    
    53,909
    
    
    
    48,261Selling, general and administrative expenses
    
    
    53,530
    
    
    
    37,881
    
    
    
    31,043Operating income
    
    
    26,356
    
    
    
    16,028
    
    
    
    17,218Other (income) expense, net
    
    
    (657
    )
    
    
    (4,117
    )
    
    
    192Interest expense, net
    
    
    3,819
    
    
    
    3,022
    
    
    
    2,622Income before provision for income taxes
    
    
    23,194
    
    
    
    17,123
    
    
    
    14,404Provision for income taxes
    
    
    8,350
    
    
    
    5,880
    
    
    
    4,674Net income
    
    $
    14,844
    
    
    $
    11,243
    
    
    $
    9,730Earnings per shareBasic
    
    $
    1.73
    
    
    $
    1.35
    
    
    $
    1.19Diluted
    
    $
    1.71
    
    
    $
    1.33
    
    
    $
    1.16Weighted average number of shares outstanding
    
    
    8,590
    
    
    
    8,355
    
    
    
    8,156Dilutive effect of stock options
    
    
    75
    
    
    
    108
    
    
    
    220Weighted average number of shares assuming dilution
    
    
    8,665
    
    
    
    8,463
    
    
    
    8,376Cash dividends declared per common share
    
    $
    0.170
    
    
    $
    0.145
    
    
    $
    0.125
  F- 6




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    TotalBalance at June 28, 2003
    
    
    4,823,486
    
    
    $
    48
    
    
    $
    53,889
    
    
    $
    21,007
    
    
    
    786,406
    
    
    $
    (8,975
    )
    
    $
    65,969Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,730
    
    
    
    
    
    
    
    
    
    
    
    9,730Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,853
    
    
    
    (148
    )
    
    
    (148
    )Stock grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    (2,422
    )
    
    
    27
    
    
    
    37Stock options exercised under Awards Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294
    
    
    
    (24,360
    )
    
    
    280
    
    
    
    574Stock options exercised under Option Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (547
    )
    
    
    (80,250
    )
    
    
    920
    
    
    
    373Stock exchange share listing fees
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )Cash dividend ($.125 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,021
    )
    
    
    
    
    
    
    
    
    
    
    (1,021
    )Balance 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 (See Note 18)
    
    
    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
    )
    
    $
    100,988
  F- 7




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Year EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 3, 2004Operating activities:Net income
    
    $
    14,844
    
    
    $
    11,243
    
    
    $
    9,730Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation
    
    
    4,329
    
    
    
    4,289
    
    
    
    4,561Amortization
    
    
    421
    
    
    
    
    
    
    
    (Benefit from) provision for deferred income taxes
    
    
    (506
    )
    
    
    1,685
    
    
    
    (1,224
    )(Benefit from) provision for allowances on accounts
receivable, net
    
    
    (711
    )
    
    
    728
    
    
    
    (1,104
    )Noncash stock compensation
    
    
    2,959
    
    
    
    1,864
    
    
    
    1,835(Gain) loss on sale of property and equipment
    
    
    (73
    )
    
    
    (4,036
    )
    
    
    192Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    480
    
    
    
    1,271
    
    
    
    (2,258
    )Inventories
    
    
    (807
    )
    
    
    6,862
    
    
    
    (6,850
    )Prepaid expenses and other current assets
    
    
    (549
    )
    
    
    (352
    )
    
    
    291Other noncurrent assets
    
    
    360
    
    
    
    1,741
    
    
    
    1,992Accounts payable
    
    
    3,581
    
    
    
    3,832
    
    
    
    2,153Accrued expenses
    
    
    (1,262
    )
    
    
    1,175
    
    
    
    1,724Income taxes
    
    
    506
    
    
    
    (2,826
    )
    
    
    2,722Other liabilities
    
    
    (3,389
    )
    
    
    (8,129
    )
    
    
    (447
    )Net cash provided by operating activities
    
    
    20,183
    
    
    
    19,347
    
    
    
    13,317Investing activities:Purchases of property, plant and equipment
    
    
    (5,381
    )
    
    
    (10,968
    )
    
    
    (2,209
    )Proceeds from sale of property, plant and equipment
    
    
    182
    
    
    
    10,294
    
    
    
    4Cash paid for business, net of cash received
    
    
    (28,237
    )
    
    
    
    
    
    
    (51,520
    )Cash invested in joint venture
    
    
    (2,248
    )
    
    
    
    
    
    
    Proceeds from sale of joint venture
    
    
    50
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (35,634
    )
    
    
    (674
    )
    
    
    (53,725
    )Financing activities:(Repayment of) proceeds from Soffe revolving credit facility, net
    
    
    (11,781
    )
    
    
    (5,428
    )
    
    
    18,374Proceeds from long-term debt
    
    
    156,372
    
    
    
    41,302
    
    
    
    44,164Repayment of long-term debt
    
    
    (126,242
    )
    
    
    (53,629
    )
    
    
    (21,183
    )Dividends paid
    
    
    (1,460
    )
    
    
    (1,214
    )
    
    
    (1,021
    )Stock exchange listing fees
    
    
    
    
    
    
    
    
    
    
    (22
    )Treasury stock acquired
    
    
    (1,252
    )
    
    
    (261
    )
    
    
    (148
    )Proceeds from exercise of stock options
    
    
    158
    
    
    
    522
    
    
    
    374Net cash provided by (used in) financing activities
    
    
    15,795
    
    
    
    (18,708
    )
    
    
    40,538Increase (decrease) in cash
    
    
    344
    
    
    
    (35
    )
    
    
    130Cash at beginning of year
    
    
    298
    
    
    
    333
    
    
    
    203Cash at end of year
    
    $
    642
    
    
    $
    298
    
    
    $
    333Supplemental cash flow information:Cash paid during the year for interest
    
    $
    3,475
    
    
    $
    2,811
    
    
    $
    2,133Cash paid during the year for income taxes
    
    $
    8,350
    
    
    $
    8,192
    
    
    $
    3,177Noncash financing activityissuance of common stock
    
    $
    1,428
    
    
    $
    682
    
    
    $
    610
  F- 8




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##### Table of Contents



Delta Apparel, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts in thousands, unless otherwise noted and excluding share and per share amounts)
 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:
 F- 9




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##### Table of Contents



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




---



##### Table of Contents



(n) Costs of Goods Sold:
 (o) Selling, General and Administrative Expense:
 (p) Advertising Costs:
 (q) Foreign Currency Translation:
 (r) Earnings Per Share:
 (s) Yarn and Cotton Procurements:
  (t) Stock Option and Incentive Award Plans:  Share-Based Payment
 F- 11




---



##### Table of Contents



Year EndedJuly 2,
    
    
    July 3,2005
    
    
    2004Net income, as reported
    
    $
    11,243
    
    
    $
    9,730Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects
    
    
    705
    
    
    
    702Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all options and awards, net of related tax effects
    
    
    (1,146
    )
    
    
    (825
    )Pro forma net income
    
    $
    10,802
    
    
    $
    9,607Earnings per share:Basicas reported
    
    $
    1.35
    
    
    $
    1.19Basicpro forma
    
    $
    1.29
    
    
    $
    1.18Dilutedas reported
    
    $
    1.33
    
    
    $
    1.16Dilutedpro forma
    
    $
    1.28
    
    
    $
    1.15
 (u) Comprehensive Income:
 (v) Fair Value of Financial Instruments:
 (w) Derivatives:
 (x) Reclassifications:
 (y) Recent Accounting Pronouncements: Inventory Costs Inventory Pricing
 F- 12




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##### Table of Contents



Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statements of Cash Flows requires
 Transition Election Related
to Accounting for Tax Effects of Share-Based Payment Awards
 Share-Based Payment
 Accounting for Conditional Asset
Retirement Obligations Accounting for Asset Retirement Obligations
 Accounting Changes and Error Corrections Accounting Changes,
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 F- 13




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##### Table of Contents



NOTE 3ACQUISITIONS
 Intensity Athletics, Inc .
    Junkfood Clothing Company
     EconomicLifeGoodwill
    
    $
    13,888
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    $
    22,888
   F- 14




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##### Table of Contents



Cash consideration paid
    
    $
    24,353Promissory note issued
    
    
    2,500Direct merger costs
    
    
    582Total purchase price
    
    $
    27,435Accounts receivable
    
    $
    10,514Inventories
    
    
    2,982Other current assets
    
    
    125Other assets
    
    
    26Property, plant and equipment
    
    
    268Goodwill and other intangible assets
    
    
    19,932Current liabilities
    
    
    (6,412
    )Fair value of net assets acquired
    
    $
    27,435
  July 1,
    
    
    July 2,2006
    
    
    2005Net sales
    
    $
    281,474
    
    
    $
    255,429Net income
    
    
    15,748
    
    
    
    13,720Net income per shareBasic
    
    $
    1.83
    
    
    $
    1.65Diluted
    
    $
    1.82
    
    
    $
    1.62
 NOTE 4INVENTORIES
  July 1,
    
    
    July 2,2006
    
    
    2005Raw materials
    
    $
    5,537
    
    
    $
    4,496Work in process
    
    
    27,534
    
    
    
    21,231Finished goods
    
    
    70,589
    
    
    
    73,299$
    103,660
    
    
    $
    99,026
  F- 15




---



##### Table of Contents



NOTE 5PROPERTY, PLANT AND EQUIPMENT
  Estimated
    
    July 1,
    
    
    July 2,Useful Life
    
    2006
    
    
    2005Land and land improvements
    
    N/A
    
    $
    1,354
    
    
    $
    1,354Buildings
    
    10-20 years
    
    
    8,840
    
    
    
    8,701Machinery and equipment
    
    5-15 years
    
    
    36,905
    
    
    
    35,912Computers and software
    
    3 years
    
    
    6,011
    
    
    
    5,138Furniture and fixtures
    
    7 years
    
    
    3,346
    
    
    
    2,540Leasehold improvements
    
    3-10 years
    
    
    1,492
    
    
    
    987Automobiles
    
    5 years
    
    
    232
    
    
    
    205Construction in progress
    
    N/A
    
    
    1,850
    
    
    
    89960,030
    
    
    
    55,736Less accumulated depreciation and amortization
    
    
    
    
    (38,866
    )
    
    
    (35,786
    )$
    21,164
    
    
    $
    19,950
 NOTE 6GOODWILL AND INTANGIBLE ASSETS
  July 1,
    
    
    Economic2006
    
    
    LifeGoodwill
    
    $
    13,888
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Less accumulated amortization
    
    
    (421
    )$
    8,579
  Goodwill and Other Intangible Assets,
 NOTE 7ACCRUED EXPENSES
  July 1,
    
    
    July 2,2006
    
    
    2005Accrued employee compensation and benefits
    
    $
    8,829
    
    
    $
    9,832Taxes accrued and withheld
    
    
    269
    
    
    
    992Accrued insurance
    
    
    973
    
    
    
    1,347Accrued advertising
    
    
    744
    
    
    
    470Accrued contingent earnout payments
    
    
    6,409
    
    
    
    1,533Accrued royalties
    
    
    764
    
    
    
    Other
    
    
    3,516
    
    
    
    2,658$
    21,504
    
    
    $
    16,832
 F- 16




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##### Table of Contents



NOTE 8LONG-TERM DEBT
  July 1,
    
    
    July 2,2006
    
    
    2005Revolving credit facilities secured by
receivables, inventory and property and
equipment, interest at prime rate or LIBOR
rate plus an applicable margin (6.502% at
July 1, 2006) due August 2008
    
    $
    48,150
    
    
    $
    27,101Soffe Seller note, interest at 8% payable
monthly, principal amounts due in quarterly
installments of $400; final payment made on
August 23, 2005
    
    
    
    
    
    
    5,200Junkfood Seller note, interest at 9% with
interest payable quarterly, principal amounts
due in annual installments of $500, $750, and
with final payment of $1,250 due August 2008
    
    
    2,500
    
    
    
    50,650
    
    
    
    32,301Less current installments
    
    
    3,683
    
    
    
    15,065Long-term debt, excluding current installments
    
    $
    46,967
    
    
    $
    17,236
       F- 17




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##### Table of Contents



Fiscal Year2007
    
    $
    5002008
    
    
    48,9002009
    
    
    1,250$
    50,650
 NOTE 9SALE OF YARN MANUFACTURING PLANT
   NOTE 10INCOME TAXES
  Year endedJuly 1,
    
    
    July 2,
    
    
    July 3,2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    7,471
    
    
    $
    3,458
    
    
    $
    5,049State
    
    
    1,308
    
    
    
    681
    
    
    
    658Foreign
    
    
    77
    
    
    
    56
    
    
    
    191Total current
    
    
    8,856
    
    
    
    4,195
    
    
    
    5,898Deferred:Federal
    
    
    (433
    )
    
    
    1,270
    
    
    
    (1,221
    )State
    
    
    (73
    )
    
    
    415
    
    
    
    (3
    )Total deferred
    
    
    (506
    )
    
    
    1,685
    
    
    
    (1,224
    )Provision for income taxes
    
    $
    8,350
    
    
    $
    5,880
    
    
    $
    4,674
 F- 18




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##### Table of Contents



Year endedJuly 1,
    
    
    July 2,
    
    
    July 3,2006
    
    
    2005
    
    
    2004Income tax expense at the statutory rate
    
    $
    8,118
    
    
    $
    5,993
    
    
    $
    5,041State income tax expense net of federal income tax effect
    
    
    803
    
    
    
    712
    
    
    
    426Nondeductible items in foreign jurisdictions
    
    
    8
    
    
    
    6
    
    
    
    139Reversal of liability associated with tax sharing agreement
    
    
    
    
    
    
    
    
    
    
    (940
    )Permanent reinvestment of foreign earnings
    
    
    (297
    )
    
    
    (909
    )
    
    
    Section 199 deduction under the American Jobs Creation Act of 2004
    
    
    (237
    )
    
    
    
    
    
    
    Valuation allowance adjustments
    
    
    
    
    
    
    88
    
    
    
    Nondeductible amortization and other permanent differences
    
    
    42
    
    
    
    43
    
    
    
    79Other
    
    
    (87
    )
    
    
    (53
    )
    
    
    (71
    )Income tax expense
    
    $
    8,350
    
    
    $
    5,880
    
    
    $
    4,674
  July 1,
    
    
    July 2,2006
    
    
    2005Deferred tax assets:State net operating loss carryforward
    
    $
    445
    
    
    $
    475Earnout provision
    
    
    1,329
    
    
    
    1,898Currently nondeductible accruals
    
    
    2,036
    
    
    
    1,030Gross deferred tax assets
    
    
    3,810
    
    
    
    3,403Less valuation allowance
    
    
    (146
    )
    
    
    (146
    )Net deferred tax assets
    
    
    3,664
    
    
    
    3,257Deferred tax liabilities:Depreciation
    
    
    (1,274
    )
    
    
    (1,574
    )Goodwill and intangibles
    
    
    (451
    )
    
    
    Other
    
    
    (352
    )
    
    
    (602
    )Gross deferred tax liabilities
    
    
    (2,077
    )
    
    
    (2,176
    )Net deferred tax asset
    
    $
    1,587
    
    
    $
    1,081
   NOTE 11LEASES
  F- 19




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##### Table of Contents



Fiscal Year2007
    
    $
    4,2002008
    
    
    4,0662009
    
    
    3,6612010
    
    
    3,3372011
    
    
    2,429Thereafter
    
    
    5,584$
    23,277
  NOTE 12EMPLOYEE BENEFIT PLANS
    July 1,
    
    
    July 2,
    
    
    July 3,2006
    
    
    2005
    
    
    2004Change in benefit obligations:Balance at beginning of year
    
    $
    962
    
    
    $
    939
    
    
    $
    956Interest cost
    
    
    82
    
    
    
    80
    
    
    
    74Benefits paid
    
    
    (91
    )
    
    
    (77
    )
    
    
    (97
    )Actuarial adjustment
    
    
    (14
    )
    
    
    20
    
    
    
    6Balance at end of year
    
    $
    939
    
    
    $
    962
    
    
    $
    939
 NOTE 13STOCK OPTIONS AND INCENTIVE STOCK AWARDS
  F- 20




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##### Table of Contents



Option Plan
    2006
    
    
    2005Risk-free interest rate
    
    
    4.00
    %
    
    
    3.46
    %Expected life
    
    7 yrs
    
    10 yrsExpected volatility
    
    
    35.8
    %
    
    
    35.0
    %Expected dividend yield
    
    
    1.30
    %
    
    
    1.30
    %Weighted-average fair value of options granted
    
    $
    5.182
    
    
    $
    4.234
   Fiscal Year EndedJuly 1, 2006WeightedAverageExerciseShares
    
    
    PriceOutstanding at July 2, 2005
    
    
    158,500
    
    
    $
    11.28Granted
    
    
    734,000
    
    
    $
    13.35Exercised
    
    
    (14,000
    )
    
    $
    11.28Forfeited
    
    
    (60,000
    )
    
    $
    13.35Expired
    
    
    
    
    
    
    Outstanding at July 1, 2006
    
    
    818,500
    
    
    $
    12.98Exercisable at July 1, 2006
    
    
    144,500
 F- 21




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##### Table of Contents



July 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
  Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    158,500
    
    
    $
    4.23Granted
    
    
    734,000
    
    
    $
    5.18Vested
    
    
    (158,500
    )
    
    $
    4.23Forfeited
    
    
    (60,000
    )
    
    $
    5.18Expired
    
    
    
    
    
    
    Nonvested at July 1, 2006
    
    
    674,000
    
    
    $
    5.18
  Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards
  F- 22




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##### Table of Contents



Award Plan
   WeightedAverageExerciseShares
    
    
    PriceNonvested at July 2, 2005
    
    
    94,402
    
    
    $
    0.01Granted
    
    
    125,000
    
    
    $
    0.01Vested
    
    
    (94,402
    )
    
    $
    0.01Forfeited
    
    
    (12,000
    )
    
    $
    0.01Expired
    
    
    
    
    
    
    Nonvested at July 1, 2006
    
    
    113,000
    
    
    $
    0.01
  NOTE 14BUSINESS SEGMENTS
    F- 23




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##### Table of Contents



CorporateActivewear
    
    
    Retail-Ready
    
    
    andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal 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
    
    
    10,013
    
    
    
    10,421
    
    
    
    (289
    )
    
    
    20,145Segment assets
    
    
    91,382
    
    
    
    68,132
    
    
    
    
    
    
    
    159,514Purchases of property, plant and equipment
    
    
    10,308
    
    
    
    660
    
    
    
    
    
    
    
    10,968Fiscal Year 2004:Net sales
    
    $
    137,419
    
    
    $
    70,694
    
    
    $
    
    
    
    $
    208,113Segment operating income
    
    
    7,638
    
    
    
    9,631
    
    
    
    (243
    )
    
    
    17,026Segment assets
    
    
    95,691
    
    
    
    73,688
    
    
    
    
    
    
    
    169,379Purchases of property, plant and equipment
    
    
    1,968
    
    
    
    241
    
    
    
    
    
    
    
    2,209
  Year EndedJuly 1,
    
    
    July 2,
    
    
    July 3,2006
    
    
    2005
    
    
    2004Segment operating income
    
    $
    27,013
    
    
    $
    20,145
    
    
    $
    17,026Unallocated interest expense
    
    
    3,819
    
    
    
    3,022
    
    
    
    2,622Consolidated income before taxes
    
    $
    23,194
    
    
    $
    17,123
    
    
    $
    14,404
 NOTE 15COMMITMENTS AND CONTINGENCIES
 (a) Litigation
   F- 24




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##### Table of Contents



(b) Purchase Contracts
  Natural gas
    
    
    614Yarn
    
    
    24,800Finished fabric
    
    
    298Finished apparel products
    
    
    2,573$
    28,285
 (c) Letters of Credit
  NOTE 16RELATED PARTY TRANSACTIONS
  NOTE 17QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  2006 Quarter Ended
    
    
    2005 Quarter EndedOctober 1
    
    
    December 31
    
    
    April 1
    
    
    July 1
    
    
    October 2
    
    
    January 1
    
    
    April 2*
    
    
    July 2Net sales
    
    $
    60,573
    
    
    $
    57,702
    
    
    $
    69,365
    
    
    $
    82,468
    
    
    $
    54,300
    
    
    $
    49,195
    
    
    $
    58,272
    
    
    $
    66,297Gross profit
    
    
    18,694
    
    
    
    18,269
    
    
    
    19,216
    
    
    
    23,707
    
    
    
    11,577
    
    
    
    10,816
    
    
    
    14,744
    
    
    
    16,773Operating income
    
    
    5,994
    
    
    
    4,501
    
    
    
    5,263
    
    
    
    10,598
    
    
    
    3,131
    
    
    
    2,722
    
    
    
    4,352
    
    
    
    5,823Net income
    
    
    3,377
    
    
    
    2,376
    
    
    
    2,744
    
    
    
    6,347
    
    
    
    1,444
    
    
    
    1,154
    
    
    
    5,445
    
    
    
    3,200Basic EPS
    
    $
    0.40
    
    
    $
    0.28
    
    
    $
    0.32
    
    
    $
    0.74
    
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.65
    
    
    $
    0.38Diluted EPS
    
    $
    0.39
    
    
    $
    0.27
    
    
    $
    0.31
    
    
    $
    0.73
    
    
    $
    0.17
    
    
    $
    0.13
    
    
    $
    0.64
    
    
    $
    0.37
 
 *
    
    On January 5, 2005, we completed the sale of our yarn manufacturing plant in Edgefield, South Carolina to Parkdale America,
LLC for $10 million in cash. The sale of the Edgefield Plant resulted in a pre-tax financial gain of $3.6 million, or estimated
after-tax gain of $0.26 per diluted share and was recorded in the quarter ended April 2, 2005. NOTE 18STOCK SPLIT
  NOTE 19SUBSEQUENT EVENTS
  F- 25




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F- 26




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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
    
    
    Balance2006
    
    $
    1,290
    
    
    $
    
    
    
    $
    (123
    )
    
    $
    (116
    )
    
    $
    1,0512005
    
    
    529
    
    
    
    
    
    
    
    793
    
    
    
    (32
    )
    
    
    1,2902004
    
    
    1,307
    
    
    
    378
    
    
    
    (153
    )
    
    
    (1,003
    )
    
    
    529
 RETURNS AND ALLOWANCES
 Beginning
    
    Purchase
    
    
    
    
    


    
    
    EndingBalance
    
    Accounting *
    
    Expense
    
    Credits Issued
    
    Balance2006
    
    $
    604
    
    
    $
    987
    
    
    $
    6,961
    
    
    $
    (7,434
    )
    
    $
    1,1182005
    
    
    637
    
    
    
    
    
    
    
    6,419
    
    
    
    (6,452
    )
    
    
    6042004
    
    
    216
    
    
    
    369
    
    
    
    3,942
    
    
    
    (3,890
    )
    
    
    637
 TOTAL
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    Write-Offs/
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense
    
    
    Credits Issued
    
    
    Balance2006
    
    $
    1,894
    
    
    $
    987
    
    
    $
    6,838
    
    
    $
    (7,550
    )
    
    $
    2,1692005
    
    
    1,166
    
    
    
    
    
    
    
    7,212
    
    
    
    (6,484
    )
    
    
    1,8942004
    
    
    1,523
    
    
    
    747
    
    
    
    3,789
    
    
    
    (4,893
    )
    
    
    1,166
 MARKET AND OBSOLESCENCE RESERVE
 Beginning
    
    
    Purchase
    
    
    
    
    
    
    
    
    
    
    EndingBalance
    
    
    Accounting *
    
    
    Expense **
    
    
    Deductions **
    
    
    Balance2006
    
    $
    2,371
    
    
    $
    220
    
    
    $
    (977
    )
    
    $
    
    
    
    $
    1,6142005
    
    
    2,820
    
    
    
    
    
    
    
    (449
    )
    
    
    
    
    
    
    2,3712004
    
    
    648
    
    
    
    2,762
    
    
    
    (590
    )
    
    
    
    
    
    
    2,820
 
 *
    
    Represents the allowance provided for as a result of the acquisition of M. J. Soffe Co. on
October 3, 2003 and the acquisition of Junkfood Clothing Company on August 22, 2005.**
    
    Net change in the market and obsolescence reserve is shown in the expense column. F- 27