UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Exact name of registrant as specified in its charter)



GEORGIA		58-2508794

(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

322 South Main Street
Greenville, SC		29601

(Address of principal executive offices)		(Zip Code)

~~PART I. FINANCIAL INFORMATION~~


Item 1.	Financial Statements

~~Item 1. Financial Statements~~

Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts and per share data)

(Unaudited)

April 2, July 3,
2011 2010
Assets

Current assets:
Cash and cash equivalents $ 632 $ 687
Accounts receivable, net 72,877 60,991
Inventories, net 152,340 116,599
Prepaid expenses and other current assets 4,530 3,475
Deferred income taxes 3,247 3,162

Total current assets 233,626 184,914

Property, plant and equipment, net 39,516 37,694
Goodwill 16,814 17,426
Intangibles, net 7,555 8,016
Other assets 3,015 3,283

Total assets $ 300,526 $ 251,333

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable $ 48,059 $ 34,459
Accrued expenses 19,631 18,862
Income tax payable 517 712
Current portion of long-term debt 2,333 5,718

Total current liabilities 70,540 59,751

Long-term debt, less current maturities 93,426 62,355
Deferred income taxes 2,504 1,826
Other liabilities 29 157
Contingent consideration — 1,530

Total liabilities 166,499 125,619

Commitments and contingencies

Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding — —
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 8,456,736 and 8,516,293 shares outstanding as of April 2, 2011 and July 3, 2010, respectively 96 96
Additional paid-in capital 59,726 59,111
Retained earnings 84,742 75,950
Accumulated other comprehensive loss (31 ) (105 )
Treasury stock —1,190,236 and 1,130,679 shares as of April 2, 2011 and July 3, 2010, respectively (10,506 ) (9,338 )

Total shareholders’ equity 134,027 125,714

Total liabilities and shareholders’ equity $ 300,526 $ 251,333



	October 1, 2011			July 2, 2011
Assets
Current assets:
Cash and cash equivalents	$	323		$	656
Accounts receivable, net	66,777			76,821
Inventories, net	186,326			159,209
Prepaid expenses and other current assets	4,392			4,059
Deferred income taxes	2,838			2,931
Total current assets	260,656			243,676

Property, plant and equipment, net	39,396			39,756
Goodwill	16,812			16,812
Intangibles, net	7,253			7,405
Other assets	3,994			4,216
Total assets	$	328,111		$	311,865
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	53,161		$	55,554
Accrued expenses	20,057			23,708
Income tax payable	55			969
Current portion of long-term debt	3,042			2,799
Total current liabilities	76,315			83,030

Long-term debt, less current maturities	102,291			83,974
Deferred income taxes	3,307			2,877
Other liabilities	235			19
Total liabilities	182,148			169,900

Commitments and contingencies	—			—

Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding	—			—
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 8,491,787 and 8,421,863 shares outstanding as of October 1, 2011 and July 2, 2011, respectively	96			96
Additional paid-in capital	59,408			59,750
Retained earnings	97,687			93,277
Accumulated other comprehensive loss	(134		)	(14		)
Treasury stock —1,155,185 and 1,225,109 shares as of October 1, 2011 and July 2, 2011, respectively	(11,094		)	(11,144		)
Total shareholders’ equity	145,963			141,965
Total liabilities and shareholders’ equity	$	328,111		$	311,865

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended
April 2, March 27, April 2, March 27,
2011 2010 2011 2010
Net sales $ 124,954 $ 107,942 $ 337,592 $ 298,224
Cost of goods sold 94,092 82,739 258,943 227,600

Gross profit 30,862 25,203 78,649 70,624

Selling, general and administrative expenses 22,706 20,345 65,676 59,164
Change in fair value of contingent consideration — — (1,530 ) —
Goodwill impairment charge — — 612 —
Other expense (income), net 29 (56 ) 180 (189 )

Operating income 8,127 4,914 13,711 11,649

Interest expense, net 627 948 1,828 2,805

Income before provision for income taxes 7,500 3,966 11,883 8,844

Provision for income taxes 1,775 1,008 3,089 2,324

Net income $ 5,725 $ 2,958 $ 8,794 $ 6,520

Basic earnings per share $ 0.67 $ 0.35 $ 1.03 $ 0.77

Diluted earnings per share $ 0.65 $ 0.34 $ 1.00 $ 0.76

Weighted average number of shares outstanding 8,490 8,516 8,505 8,513
Dilutive effect of stock options 249 215 247 65

Weighted average number of shares assuming dilution 8,739 8,731 8,752 8,578



	Three Months Ended
	October 1, 2011			October 2, 2010
Net sales	$	123,523		$	107,916
Cost of goods sold	92,270			82,007
Gross profit	31,253			25,909

Selling, general and administrative expenses	24,562			22,896
Other (income) expense, net	(7		)	57
Operating income	6,698			2,956

Interest expense, net	893			601
Income before provision for income taxes	5,805			2,355

Provision for income taxes	1,393			707
Net income	$	4,412		$	1,648

Basic earnings per share	$	0.52		$	0.19
Diluted earnings per share	$	0.50		$	0.19

Weighted average number of shares outstanding	8,450			8,523
Dilutive effect of stock options	310			257
Weighted average number of shares assuming dilution	8,760			8,780

See accompanying Notes to Condensed Consolidated Financial Statements.

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Delta Apparel, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

Nine Months Ended
April 2, March 27,
2011 2010
Operating activities:
Net income $ 8,794 $ 6,520
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,411 5,172
Provision for deferred income taxes 593 326
Loss on disposal of property and equipment 56 56
Non-cash stock compensation 736 759
Change in the fair value of contingent consideration (1,530 ) —
Goodwill impairment charge 612 —
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (8,083 ) (4,368 )
Inventories (29,572 ) 52
Prepaid expenses and other current assets (960 ) (87 )
Income taxes (196 ) 1,966
Other non-current assets 267 233
Accounts payable 12,991 797
Accrued expenses 441 3,842
Other liabilities (54 ) (927 )

Net cash (used in) provided by operating activities (10,494 ) 14,341

Investing activities:
Purchases of property and equipment, net (5,978 ) (3,849 )
Cash paid for business, net of cash acquired (9,884 ) (1,700 )

Net cash used in investing activities (15,862 ) (5,549 )

Financing activities:
Proceeds from long-term debt 379,260 296,161
Repayment of long-term debt (351,574 ) (305,052 )
Repurchase of common stock (1,702 ) —
Proceeds from stock options 217 —
Excess tax benefits from exercise of stock options 100 —

Net cash provided by (used in) financing activities 26,301 (8,891 )

Net decrease in cash and cash equivalents (55 ) (99 )

Cash and cash equivalents at beginning of period 687 654

Cash and cash equivalents at end of period $ 632 $ 555

Supplemental cash flow information:
Cash paid for interest $ 1,598 $ 2,571

Cash paid for income taxes $ 2,773 $ 301

Non-cash financing activity—issuance of common stock $ 98 $ 118



	Three Months Ended
	October 1, 2011			October 2, 2010
Operating activities:
Net income	$	4,412		$	1,648
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,795			1,767
Amortization of deferred financing fees	90			70
Excess tax benefits from exercise of stock options	(475		)	(90		)
Provision for deferred income taxes	523			303
Loss on disposal of property and equipment	33			24
Non-cash stock compensation	672			545
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	10,044			10,272
Inventories	(27,118		)	(14,119		)
Prepaid expenses and other current assets	(334		)	(128		)
Income taxes	(439		)	(533		)
Other non-current assets	132			1
Accounts payable	(2,393		)	5,645
Accrued expenses	(3,648		)	(1,951		)
Other liabilities	96			(103		)
Net cash (used in) provided by operating activities	(16,610		)	3,351

Investing activities:
Purchases of property and equipment, net	(1,319		)	(1,537		)
Cash paid for business, net of cash acquired	—			(9,884		)
Net cash used in investing activities	(1,319		)	(11,421		)

Financing activities:
Proceeds from long-term debt	164,581			130,035
Repayment of long-term debt	(146,021		)	(121,443		)
Repurchase of common stock	(1,459		)	(735		)
Proceeds from stock options	20			52
Excess tax benefits from exercise of stock options	475			90
Net cash provided by financing activities	17,596			7,999
Net decrease in cash and cash equivalents	(333		)	(71		)
Cash and cash equivalents at beginning of period	656			687
Cash and cash equivalents at end of period	$	323		$	616
Supplemental cash flow information:
Cash paid for interest	$	696		$	536
Cash paid for income taxes	$	1,235		$	928
Non-cash financing activity—issuance of common stock	$	142		$	98

See accompanying Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A—Basis of Presentation

Note B—Accounting Policies

Note C—New Accounting Standards

~~DELTA APPAREL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(CONTINUED)~~

is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010, with early adoption permitted. We

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adopted ASU 2010-29 ~~is therefore effective for acquisitions made after the beginning of our fiscal year ending June 30, 2012.~~on July 3, 2011. We expect that ASU 2010-29 may impact our disclosures for any future business ~~combinations, but~~combinations.

In May 2011, the ~~effect will depend on acquisitions that may be made~~FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"). The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the ~~future.~~United States (U.S. GAAP) and International Financial Reporting Standards (IFRS). Additional disclosure requirements in ASU 2011-04 include: (a) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (b) for the use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (c) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (d) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and applied on a prospective basis. ASU 2011-04 is therefore effective for our fiscal year ending June 29, 2013 and we are currently evaluating the impact on our financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) - Presentation of Comprehensive Income("ASU 2011-05"). This standard update requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and applied on a retrospective basis. ASU 2011-05 is therefore effective for our fiscal year ending June 29, 2013 and we do not expect the adoption to have a material effect on our financial position.

Note D—Inventories

Inventories, net of reserves, consist of the following (in thousands):

April 2, July 3,
2011 2010
Raw materials $ 18,296 $ 10,604
Work in process 25,301 21,277
Finished goods 108,743 84,718

$ 152,340 $ 116,599



	October 1, 2011		July 2, 2011
Raw materials	$	21,858	$	20,970
Work in process	37,779		34,599
Finished goods	126,689		103,640
	$	186,326	$	159,209

Raw materials include finished yarn and direct materials for the basics segment and include direct embellishment materials and undecorated garments and headwear for the branded segment.

Note E—Debt

On ~~September 21, 2007,~~May 27, 2011, Delta Apparel, Soffe, Junkfood, To The Game, Art Gun and ~~Soffe~~TCX entered into a ~~Third~~Fourth Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with ~~Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Agent, and~~ the financial institutions named in the Amended Loan Agreement as ~~Lenders. The Amended Loan Agreement provided us~~Lenders, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent, Wells Fargo Capital Finance, LLC, as Sole Lead Arranger, and Wells Fargo Capital Finance, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Joint Bookrunners. In connection with a $100 million credit line (subject to borrowing base limitations based on the value and type of collateral provided) that matures on September 12, 2012. To The Game, Art Gun and The Cotton Exchange have subsequently been added as co-borrowers under the Amended Loan Agreement. On March 30, 2009, we invoked the accordion feature in the Amended Loan Agreement, ~~increasing the maximum line~~Israel Discount Bank of ~~credit~~New York was removed from ~~$100 million to $110 million and adding PNC Bank, National Association to~~ the syndicate of lenders under the credit facility, ~~with a $10 million commitment. On December 1, 2010, The CIT Group/Commercial Services, Inc.~~and Bank of America, N.A. was ~~removed from our~~added to the syndicate of lenders. ~~The rights~~

Pursuant to the Amended Loan Agreement, the maturity of the loans under the previously existing credit facility was extended to May 26, 2016 and ~~obligations~~the line of ~~The CIT Group/Commercial Services, Inc.’s $20~~credit was increased to $145 million ~~commitment~~(subject to borrowing base limitations), which represents an increase of $35 million in the amount that was ~~assigned~~previously available under the credit facility. Under the Amended Loan Agreement, provided that no event of default exists, we have the option to ~~existing lenders with Wells Fargo Bank, National Association taking an~~increase the maximum credit available under the facility to $200 million (subject to borrowing base limitations), conditioned upon the Agent's ability to secure additional ~~$15 million commitment~~commitments and ~~PNC Bank, National Association taking an additional $5 million commitment.~~customary closing conditions.

The credit facility is secured by a first-priority lien on substantially all of the real and personal property of Delta Apparel, Junkfood, Soffe, To The Game, Art Gun, and ~~The Cotton Exchange.~~TCX. All loans ~~under the credit agreement~~ bear interest at rates, at the Company's option, based on either (a) an adjusted

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LIBOR rate plus an applicable margin or (b) a ~~bank’s prime~~base rate plus an applicable ~~margin.~~margin, with the base rate equal to the greatest of (i) the federal funds rate plus 0.5%, (ii) the LIBOR rate plus 1.0%, or (iii) the prime rate announced by Wells Fargo, National Association. The facility requires monthly installment payments of approximately $0.2 million in connection with fixed asset amortizations, and these amounts reduce the amount of availability under the facility. Annual facility fees are 0.25% or 0.375% (subject to average excess availability) of the amount by which ~~$110~~$145 million exceeds the average daily principal balance of the outstanding loans and letters of credit ~~accommodations and~~accommodations. The annual facility fees are charged monthly based on the principal balances during the immediately preceding month.

At ~~April 2,~~October 1, 2011, we had ~~$84.9~~$94.5 million outstanding under our credit facility at an average interest rate of ~~1.7%~~2.3% and had the ability to borrow an additional ~~$23.4~~$48.7 million. Our credit facility includes the financial covenant that if the amount of availability falls below ~~$10~~an amount equal to 12.5% of the lesser of the borrowing base or $145 million, our Fixed Charge Coverage Ratio (“FCCR”) (as defined in the Amended Loan Agreement) for the preceding 12 month period must not be less than 1.1 to ~~1.0, and otherwise~~1.0. In addition, the credit facility includes customary conditions to funding, representations and warranties, covenants, and events of default. The covenants include, among other things, limitations on asset sales, consolidations, mergers, liens, indebtedness, loans, investments, guaranties, acquisitions, dividends, stock repurchases, and transactions with affiliates.

Proceeds of the loans ~~under the Amended Loan Agreement~~ may be used for permitted acquisitions (as defined in the Amended Loan Agreement), general operating, working capital, or other corporate purposes, and to finance credit facility fees and ~~expenses under the facility. Our~~expenses. Under our credit ~~facility contains limitations on, or prohibitions of, cash dividends. We~~agreement, we are allowed to make cash dividends ~~in amounts such~~and stock repurchases if (i) as of the date of the payment or repurchase and after giving effect to the payment or repurchase, we have availability on that date of not less than $15 million and average availability for the 30 day period immediately preceding that date of not less than $15 million; and (ii) the aggregate amount ~~paid to shareholders since~~of dividends and stock repurchases after May ~~16, 2000~~27, 2011 does not exceed ~~twenty-five percent (25%)~~$19 million plus 50% of our cumulative net income ~~calculated~~(as defined in the Amended Loan Agreement) from ~~May 16, 2000~~the first day of fiscal year 2012 to the date of determination. At ~~April 2,~~October 1, 2011, there was ~~$16.9~~$19.5 million of retained earnings free of restrictions ~~for the payment of dividends.~~to make cash dividends or stock repurchases.

The credit facility contains a subjective acceleration clause and a “springing” lockbox arrangement (as defined in ASC 470,Debt), whereby remittances from customers will be forwarded to our general bank account and will not reduce the outstanding debt until and unless a specified event or an event of default occurs. Pursuant to ASC 470, we classify borrowings under the facility as non-current debt.

In ~~the third quarter of fiscal year~~March 2011, we ~~renegotiated~~extinguished our ~~loan agreement~~existing debt with Banco Ficohsa, a Honduran ~~bank.~~bank, and entered into a new credit facility with Banco Ficohsa. Proceeds from the new loan agreement were used to extinguish the existing loan indebtedness and resulted in no gain or loss being recorded upon extinguishment. The debt facility is secured by a first-priority lien on the assets of our Honduran operations and the loan is not guaranteed by ~~the~~a U.S. ~~Company.~~entity. The installment loan portion of the agreement carries a fixed interest rate of 7% for a term of seven

~~DELTA APPAREL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(CONTINUED)~~

years and is denominated in U.S. dollars. During the first 12 months of the term, the loan requires only monthly interest payments with no principal payments. Beginning in April 2012, ratable monthly principal ~~payments~~ and interest payments are due through the end of the term. As of ~~April 2,~~October 1, 2011, we had $5.8 million outstanding on the installment portion of this ~~loan which was classified as noncurrent.~~loan. The revolving ~~credit facility~~portion of the agreement has a 7% fixed interest rate with an ongoing 18-month term and is denominated in U.S. dollars. The revolving ~~credit~~ facility requires minimum payments of ~~$1.7 million during~~one-third of each drawdown every 6 ~~month period~~months for the remaining term of the ~~18-month term;~~loan; however, the agreement permits additional drawdowns to the extent payments are made, if certain objective covenants are met. The new revolving Honduran debt, by its nature, is not long-term as it requires scheduled payments each six months. However, as the agreement permits us to re-borrow funds up to the amount repaid, subject to certain objective covenants, and we intend to re-borrow funds, subject to the ~~Honduran operations remain in good financial condition.~~objective criteria, the amounts have been classified as long-term debt. As of ~~April 2,~~October 1, 2011, we had $5.0 million outstanding on the revolving portion of this ~~loan which was also classified as noncurrent.~~loan.

Note F—Selling, General and Administrative Expense

We include in selling, general and administrative expenses, costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking and packing, and shipping goods for delivery to our customers. Distribution costs included in selling, general and administrative expenses totaled ~~$3.5~~$3.8 million and $3.6 million for ~~both~~ the ~~third~~first quarter of fiscal years ~~2011~~2012 and ~~2010. Distribution costs included in selling, general and administrative expenses totaled $10.4 million and $10.0 million for the first nine months of fiscal years~~ 2011 ~~and 2010,~~, respectively. In addition, selling, general and administrative expenses include costs related to sales associates, administrative personnel cost, advertising and marketing expenses, royalty payments on licensed products and other general and administrative expenses.

Note G—Stock Options and Incentive Stock Awards

On November 11, 2010, the shareholders of the Company approved the Delta Apparel, Inc. 2010 Stock Plan (“2010 Stock Plan”). We will not be granting additional awards under either the Delta Apparel Stock Option Plan or the Delta Apparel Incentive Stock Award Plan. Instead, all future stock awards will be granted under the 2010 Stock Plan. The aggregate number of shares of

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common stock that may be delivered under the 2010 Stock Plan is 500,000 plus any shares of common stock subject to outstanding awards under the prior plans that are subsequently forfeited or terminated for any reason before being exercised. We ~~account for these plans pursuant to FASB Codification No. 718,~~~~Compensation — Stock Compensation~~~~(“ASC 718”), Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), and the Securities and Exchange Commission Staff Accounting Bulletin No. 110 (“SAB 110”).~~

~~Delta Apparel, Inc. 2010 Stock Plan (“2010 Stock Plan”)~~
~~During the quarter ended April 2, 2011, we granted options for the purchase of up to 50,000 shares of common~~expense stock ~~as authorized under the 2010 Stock Plan. These options vest 50% on July 2, 2011 and 50% on June 30, 2012.~~

~~For the three months ending April 2, 2011, we expensed $64 thousand in connection with our 2010 Stock Plan, $0.1 million of total unrecognized~~ compensation ~~cost related to non-vested stock options as of April 2, 2011 which is expected to be recognized over a period of 1.25 years. Stock compensation expense is included~~costs in the cost of sales and selling, general and administrative expense line items of our consolidated statements of operations over the vesting ~~periods.~~periods of each grant.

Delta Apparel, Inc. 2010 Stock Plan (“2010 Stock Plan”)

During the quarter ended October 1, 2011, we granted restricted stock units for 91,450 of our shares. These units will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 29, 2013. In addition, performance units for 143,450 shares were granted. Of these units, 52,000 will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 30, 2012 and are based on the achievement of performance criteria for the one year period ending June 30, 2012. The remaining 91,450 units will vest upon the filing of our Form 10-K with the SEC for the fiscal year ending June 29, 2013 and are based on the achievement of performance criteria for the two year period ending June 29, 2013.

For the three months ended October 1, 2011, we expensed $0.5 million in connection with outstanding awards made under the 2010 Stock Plan. As of October 1, 2011 there was $3.4 million of total unrecognized compensation cost related to non-vested awards granted under the 2010 Stock Plan. This cost is expected to be recognized over a period of 1.92 years.

Delta Apparel Stock Option Plan (“Option Plan”)

We expensed $43 thousand and ~~$0.1 million~~$44 thousand during the ~~third~~first quarter of fiscal years ~~2011~~2012 and ~~2010,~~2011, respectively, in connection with our Option Plan. ~~During the first nine months of fiscal years 2011 and 2010, we expensed $0.1 million and $0.2 million, respectively.~~ As of ~~April 2,~~October 1, 2011, there was ~~$0.2~~$0.1 million of total unrecognized compensation cost related to non-vested stock options under the Option Plan, which is expected to be recognized over a period of ~~1.25~~0.75 years. Stock compensation expense is included in the cost of sales and selling, general and administrative expense line items of our consolidated statements of operations on a straight-line basis over the vesting periods of each grant. During the quarter ended ~~April 2,~~October 1, 2011 no, vested options representing 2,000 shares of our common stock were ~~exercised.~~exercised, and the shares issued, in accordance with their respective agreements.

Delta Apparel Incentive Stock Award Plan (“Award Plan”)

For the ~~third~~first quarter of fiscal years ~~2011~~2012 and ~~2010,~~2011, we expensed ~~$0.5~~$0.1 million and ~~$0.6~~$0.5 million, respectively, in connection with our Award Plan. ~~In each of the periods during the first nine months of fiscal years 2011 and 2010, we expensed $1.2 million.~~ The compensation expense includes the cost associated with the tax-assistance component of the awards, which is included in accrued liabilities until payment of the taxes associated with the vesting of the awards. ~~Stock compensation expense is included~~On September 1, 2011, in conjunction with the ~~cost of sales and selling, general and administrative expense line items~~filing of our ~~consolidated statements~~Form 10-K with the SEC for the fiscal year ended July 2, 2011, service based awards for 100,200 shares of ~~operations over~~our common stock and performance based awards for 51,480 shares of our common stock vested, were exercised, and the ~~vesting periods.~~

~~DELTA APPAREL, INC. AND SUBSIDIARIES~~shares issued. All awards granted under the Award Plan have vested and been exercised, and no awards remain outstanding.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(CONTINUED)~~

Note H—Purchase Contracts

We have entered into agreements, and have fixed prices, to purchase yarn, natural gas, finished fabric, ~~and~~ finished apparel and headwear products. At ~~April 2,~~October 1, 2011, minimum payments under these contracts were as follows (in thousands):

Yarn $ 34,343
Natural gas 342
Finished fabric 2,658
Finished products 20,395

$ 57,738

Yarn $ 30,411
Natural gas 1,204
Finished fabric 1,817
Finished products 21,203
$ 54,635

Note I—Segment Reporting

We operate our business in two distinct segments: ~~basics~~branded and branded. Prior to the second quarter of fiscal year 2011, these segments were named activewear and retail-ready. When the names were changed, there was no change in terms of how the reporting units operate or are reviewed by our chief operating decision maker (“CODM”). basics.Although the two segments are similar in their production processes and regulatory environment, they are distinct in their economic characteristics, products and distribution methods.

The branded segment is comprised of our business units ~~primarily~~ focused on ~~more~~ specialized apparel garments and headwear to meet consumer preferences and fashion trends, and includes Soffe (which includes ~~the~~ The Cotton Exchange as the bookstore division of Soffe), Junkfood, To The Game and Art Gun. These branded embellished and unembellished products are sold through specialty and boutique shops, upscale and traditional department stores, mid-tier retailers, sporting goods stores, college bookstores and to the U.S. military. Products in this segment are marketed under our primary brands of ~~Soffe~~^®Soffe®, Intensity ~~Athletics~~^®Athletics®, The Cotton ~~Exchange~~^®Exchange®, Junk ~~Food~~^®Food®, and The ~~Game~~^®Game®, licensed brands of Salt Life® and Realtree Outfitters®, as well as other labels. The results of The Cotton Exchange ~~and Art Gun~~ have been included in the branded segment since ~~their~~its acquisition on July 12, ~~2010 and December 28, 2009, respectively.~~2010.

The basics segment is comprised of our business units primarily focused on garment styles that are characterized by low fashion risk, and includes our Delta Catalog and FunTees businesses. Within the Delta Catalog business, we market, distribute and manufacture unembellished knit apparel under the brands of Delta Pro ~~Weight~~^®Weight®, Delta Magnum ~~Weight~~^®Weight®, Quail ~~Hollow~~^®Hollow®, ~~Healthknit~~^®Healthknit® and ~~FunTees~~^®FunTees®. These products are primarily sold to screen printing and adadvertising specialty companies. We also

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manufacture private label products ~~under private labels~~ for major branded sportswear companies, retailers, corporate industry programs, and sports licensed apparel ~~marketers and major branded sportswear companies.~~marketers. Typically these products are sold ~~decorated~~with value-added services such as hangtags, ticketing, hangers, and embellishment so that they are fully ready for ~~the retail shelf.~~retail. The majority of the private label ~~goods~~products are sold through the FunTees business.

Our ~~CODM~~Chief Operating Decision Maker ("CODM"), Robert W. Humphreys, and management evaluate performance and allocate resources based on profit or loss from operations before interest, income taxes and special charges (“Segment Operating ~~Income (Loss)”~~Income”). Our Segment Operating Income ~~(Loss)~~ may not be comparable to similarly titled measures used by other companies. Intercompany transfers between operating segments are transacted at cost and have been eliminated within the segment amounts shown in the following ~~table .~~table.

Information about our operations as of and for the three ~~and nine~~ months ended ~~April~~October 1, 2011 and October 2, ~~2011 and March 27,~~ 2010, by operating segment, is as follows (in thousands):

Basics Branded Consolidated
Three months ended April 2, 2011:

Net sales $ 70,632 $ 54,322 $ 124,954
Segment operating income 6,593 1,534 8,127
Segment assets 149,086 151,440 300,526
Purchases of property and equipment 1,106 1,067 2,173

Three months ended March 27, 2010:

Net sales $ 61,685 $ 46,257 $ 107,942
Segment operating income 1,368 3,546 4,914
Segment assets 140,291 120,431 260,722
Purchases of property and equipment 1,092 577 1,669

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	Basics		Branded		Consolidated
Three months ended October 1, 2011:
Net sales	$	52,598	$	70,925	$	123,523
Segment operating income	1,584		5,114		6,698
Segment assets*	174,688		153,423		328,111

Three months ended October 2, 2010:
Net sales	$	49,539	$	58,377	$	107,916
Segment operating income	150		2,806		2,956
Segment assets*	130,471		135,211		265,682

* All goodwill and intangibles on our balance sheet are included in the branded segment.

Basics Branded Consolidated
Nine months ended April 2, 2011:

Net sales $ 176,400 $ 161,192 $ 337,592
Segment operating income 8,116 5,595 13,711
Purchases of property and equipment 3,345 2,633 5,978

Nine months ended March 27, 2010:

Net sales $ 154,209 $ 144,015 $ 298,224
Segment operating (loss) income (355 ) 12,004 11,649
Purchases of property and equipment 2,503 1,352 3,855

The following table reconciles the segment operating income to the consolidated income before provision for income taxes (in thousands):


	Three Months Ended				Nine Months Ended
	April 2,		March 27,		April 2,		March 27,		Three Months Ended
	2011		2010		2011		2010		October 1, 2011		October 2, 2010
Segment operating income	$	8,127	$	4,914	$	13,711	$	11,649	$	6,698	$	2,956
Unallocated interest expense		627		948		1,828		2,805	893		601

Consolidated income before taxes	$	7,500	$	3,966	$	11,883	$	8,844	$	5,805	$	2,355

Note J—Income Taxes

Our effective income tax rate for the three months ended ~~April 2,~~October 1, 2011 was ~~23.7%~~24.0%, compared to an effective tax rate of ~~25.4%~~30.0% for the same period in the prior ~~year.~~year and an effective tax rate of 23.6% for the fiscal year ended July 2, 2011. The decrease from the same period in the prior year is due to having a higher percentage of pre-tax earnings in foreign tax-free locations compared to earnings in the United States and foreign taxable locations. During the ~~current~~third quarter of fiscal year 2011, we further developed our tax planning strategies, allowing us to keep more profits in Honduras, a tax-free zone, thereby reducing our overall effective tax rate. Our effective income tax rate for the nine months ended April 2, 2011 was 26.0%, compared to an effective tax rate of 26.3% for the same period in the prior year. We now expect our fiscal year 2011effective tax rate to be 26.0%.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for our tax years before 2007. However, net operating loss carryforwards remain subject to examination to the extent they are carried forward and impact a year that is open to examination by tax authorities.

Note K—Derivatives and Fair Value Measurements

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes.

We include all derivative instruments at fair value in our Condensed Consolidated Balance Sheets. For derivatives designated as

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cash flow hedges, to the extent effective, we recognize the changes in fair value in accumulated other comprehensive income (loss) until the hedged item is recognized in income. Any ineffectiveness in the hedge is recognized immediately in income in the line item that is consistent with the nature of the hedged risk. We formally document all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions, at the inception of the transactions.

We are exposed to counterparty credit risks on all derivatives. Because these amounts are recorded at fair value, the full amount of our exposure is the carrying value of these instruments. We only enter into derivative transactions with well established institutions and therefore we believe the counterparty credit risk is minimal.

On ~~April 1,~~August 2, 2011, we entered into three separate interest rate swap agreements, effectively converting $30 million of floating rate debt under our credit facility to fixed obligations at available LIBOR rates. The $15 million interest rate swap agreement ~~at 1.57% matured.~~ that had been entered into on March 1, 2010 matured on September 1, 2011.

The outstanding financial instruments as of ~~April 2,~~October 1, 2011 are as follows:

Effective Date

Notional Amount

LIBOR Rate

Maturity Date

Interest Rate Swap

~~March~~September 1, ~~2010~~

2011

$1510 million

~~1.11~~0.7650

September 1, 2013

Interest Rate Swap

September 1, 2011

$10 million

0.9025

March 1, 2014

Interest Rate Swap

September 1, 2011

$10 million

1.0700

September 1, 2014

~~We account for derivatives under FASB Codification No. 815,~~~~Derivatives~~These agreements have been designated and ~~Hedging~~~~(“ASC 815”). ASC 815 establishes accounting~~qualify as cash flow hedging instruments and, ~~reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. It requires the recognition of all derivative instruments~~ as either assets or liabilities in the consolidated balance sheets and measurement of those instruments at fair value. We have assessed this agreement and concluded that the swap agreement matches the exact terms of the underlying debt to which it is related and therefore is considered a perfectly effective hedge. Therefore,such changes in the ~~derivative’s~~ fair ~~values is deferred and~~value are recorded ~~as a component of~~in accumulated other comprehensive ~~loss. As of April 2, 2011,~~income/loss to the ~~fair value of~~extent the ~~interest rate swap agreement resulted in an accumulated other comprehensive loss, net of taxes, of $31 thousand.~~agreements are effective hedges.

~~FASB Codification No. 820,~~~~Fair Value Measurements and Disclosures~~~~(“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are~~

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~~grouped in three levels. The levels prioritize the inputs based on reliability used to measure the fair value of the assets or liabilities. These levels are:~~

	•		~~Level 1~~ ~~— Quoted prices (unadjusted) in active markets for identical assets or liabilities.~~

	•		~~Level 2~~ — Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in market that are less active.

	•		~~Level 3~~ ~~— Unobservable inputs for assets or liabilities reflecting the reporting entity’s own assumptions.~~

~~The following financial liabilities are measured at fair value on a recurring basis (in thousands):~~

Fair Value Measurements Using
Quoted Prices in Significant
Active Markets for Significant Other Unobservable
Identical Assets Observable Inputs Inputs
Period Ended Total (Level 1) (Level 2) (Level 3)
Interest rate swap

April 2, 2011 $ 50 — $ 50 —
July 3, 2010 $ 171 — $ 171 —

Contingent consideration

April 2, 2011 $ — — — $ —
July 3, 2010 $ 1,530 — — $ 1,530

The fair value of the interest rate swaps were derived from discounted cash flow analyses based on the terms of the contract and the forward interest rate curve adjusted for our credit risk. We used the projected cash flows, discounted as necessary, to estimate the fair value of the contingent consideration for Art Gun, which was acquired on December 28, 2009. Accordingly, the fair value measurement for contingent consideration falls in level 3 of the fair value hierarchy and is remeasured at the end of each reporting period. Additionally, we remeasured the Art Gun goodwill to fair value in the period ended January 1, 2011. See Note P—Goodwill and Contingent Consideration for further discussion.

We adopted the provisions of the fair value measurement accounting and disclosure guidance related to nonfinancial assets and liabilities recognized at fair value on a nonrecurring basis for the acquisition of The Cotton Exchange on July 12, 2010. These assets and liabilities were measured at fair value upon acquisition and will be evaluated on a nonrecurring and as needed basis as part of our impairment assessments and as circumstances require. The fair value measurement was made using the income approach and falls in level 3 of the fair value hierarchy.

The following table summarizes the fair value and presentation in the consolidated balance sheets for derivatives as of ~~April~~October 1, 2011 and July 2, 2011 ~~and July 3, 2010~~ (in thousands).:

April 2, July 3,
2011 2010
Accrued expenses $ 50 $ 105
Deferred tax liabilities (19 ) (66 )
Other liabilities — 66

Accumulated other comprehensive loss $ 31 $ 105



	October 1, 2011			July 2, 2011
Accrued expenses	$	—		$	22
Deferred tax liabilities	(84		)	(8		)
Other liabilities	218			—
Accumulated other comprehensive loss	$	134		$	14

Changes in the derivative’s fair value is deferred and recorded as a component of accumulated other comprehensive loss (“AOCL”) until the underlying transaction is recorded. When the hedged item affects income, gains or losses are reclassified from AOCL to the Condensed Consolidated Statements of Operations as interest income/expense. Any ineffectiveness in our hedging relationships, of which ~~there~~ currently is ~~none,~~de minimis, would be recognized immediately in the Condensed Consolidated Statement of Operations. The change in fair value recognized in accumulated other comprehensive loss resulted in a ~~gain,~~loss, net of taxes, of ~~$74~~$0.1 million and $13 thousand ~~and $0.4 million~~ for the ~~nine~~three months ended ~~April~~October 1, 2011 and October 2, ~~2011~~2010, respectively.

Assets and ~~March 27, 2010, respectively.~~liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:


◦	Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.


◦	Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are less active.


◦	Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

The following financial liabilities are measured at fair value on a recurring basis (in thousands):

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Fair Value Measurements Using

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

Significant
Unobservable
Inputs
Period Ended Total (Level 1) (Level 2) (Level 3)
Interest Rate Swaps
October 1, 2011 $ 218
—
$ 218
—
July 2, 2011 $ 22
—
$ 22
—
The fair value of the interest rate swap agreements was derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curve adjusted for our credit risk, which fall in level 2 of the fair value hierarchy.
We use the projected cash flows, discounted as necessary, to remeasure the fair value of the contingent consideration for Art Gun at the end of each reporting period. Accordingly, the fair value measurement for contingent consideration falls in level 3 of the fair value hierarchy. The fair value of contingent consideration for Art Gun was determined to be de minimis as of October 1, 2011 and July 2, 2011.

Note L—Legal Proceedings

~~At times we~~We are party to various legal claims, actions and ~~complaints. We~~complaints arising from time to time in the normal course of business. While litigation is subject to inherent uncertainties, we currently believe that, ~~as a result of~~due to legal defenses, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions, individually and in the aggregate, should not have a material effect on our operations, financial condition, or liquidity.

Note M—The Cotton Exchange Acquisition

On June 11, 2010, we formed a new North Carolina limited liability company, TCX, LLC, ~~(“The Cotton Exchange”),~~ as a wholly-owned subsidiary of M.J. Soffe, LLC. Pursuant to an Asset Purchase Agreement dated July 5, 2010, on July 12, 2010, ~~The Cotton Exchange~~TCX acquired substantially all of the net assets of HPM Apparel, Inc. d/b/a The Cotton Exchange, including accounts receivable, inventory, and fixed assets, and assumed certain liabilities. The ~~results of The Cotton Exchange’s operations have been included in the consolidated financial statements since the acquisition date. The~~ total purchase price, which included a post-closing working capital adjustment, was $9.9 million. We ~~financed the cash purchase price under our existing revolving credit facility.~~

~~We accounted for the acquisition of The Cotton Exchange pursuant to ASC 805,~~~~Business Combinations,~~ ~~with the purchase price allocated based upon fair value. No goodwill was recorded on our financial statements in connection with this acquisition. We have~~ finalized the valuation for the assets acquired and liabilities assumed and have determined the final allocation of the purchase price. No goodwill or other intangible assets were recorded in conjunction with the acquisition of The Cotton Exchange.

Note N—Repurchase of Common Stock

~~Our~~On August 17, 2011, our Board of Directors ~~has authorized our management to use up to $15.0~~approved a $5 million ~~to repurchase Delta Apparel stock~~increase in ~~open market transactions under~~ our Stock Repurchase ~~Program.~~Program, bringing the total amount authorized to $20.0 million. During the three months ended ~~April 2,~~October 1, 2011, we purchased ~~48,100~~92,756 shares of our common stock for a total cost of ~~$0.6 million. During the nine months ended April 2, 2011, we purchased 123,224 shares of our common stock for a total cost of $1.7~~$1.5 million. Since the inception of the Stock Repurchase Program, we have purchased ~~1,147,995~~1,294,283 shares of our common stock for an aggregate of ~~$10.8~~$13.0 million. All purchases were made at the discretion of our management. As of ~~April 2,~~October 1, 2011 ~~$4.2~~, $7.0 million remained available for future purchases under our Stock Repurchase Program, which does not have an expiration date.

The following table summarizes the purchases of our common stock for the quarter ended ~~April 2, 2011:~~October 1, 2011:

Total Total Number of Dollar Value of
Number Average Shares Purchased Shares that May
of Shares Price Paid as Part of Publicly Yet Be Purchased
Period Purchased per Share Announced Plans Under the Plans

January 2 to February 5, 2011 11,528 $ 12.75 11,528 $4.7 million
February 6 to March 5, 2011 9,352 $ 13.03 9,352 $4.6 million
March 6 to April 2, 2011 27,220 $ 13.71 27,220 $4.2 million

Total 48,100 $ 13.35 48,100 $4.2 million

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Dollar Value of Shares that May Yet Be Purchased Under the Plans
July 3 to August 6, 2011 —
$ —
—
$8.4 million
August 7 to September 3, 2011 33,852
$ 15.82
33,852
$7.9 million
September 4 to October 1, 2011 58,904
$ 15.68
58,904
$7.0 million
Total 92,756
$ 15.73
92,756
$7.0 million

Note O—License Agreements

We have entered into license agreements that provide for royalty payments on net sales of licensed products as set forth in the

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agreements. These license agreements are within our branded segment. We have incurred royalty expense (included in selling, general and administrative expenses) of approximately ~~$2.2~~$5.5 million and $3.9 million for the ~~third~~first quarter of fiscal years ~~2011~~2012 and ~~2010. Royalty expense for the first nine months of fiscal years~~ 2011 ~~and 2010 was approximately $9.4 million for both years.~~, respectively.

Based on minimum sales requirements, future minimum royalty payments required under these existing license agreements are (in thousands):

Fiscal Year
2011 $ 558
2012 2,178
2013 1,763
2014 1,795
2015 1,615
2016 638

$ 8,547

~~DELTA APPAREL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(CONTINUED)~~



Fiscal Year	Amount
2012	$	1,329
2013	1,877
2014	1,827
2015	1,524
2016	629
	$	7,186

Note P—Goodwill and ~~Contingent Consideration~~Intangible Assets

~~At the end~~Components of ~~each reporting period, we are required to remeasure the fair value~~intangible assets consist of the ~~contingent consideration related to~~following (in thousands):



	October 1, 2011							July 2, 2011
	Cost		Accumulated Amortization			Net Value		Cost		Accumulated Amortization			Net Value		Economic Life

Goodwill	$	17,424	$	(612	)	$	16,812	$	17,424	$	(612	)	$	16,812	N/A

Intangibles:
Tradename/trademarks	1,530		(469		)	1,061		1,530		(450		)	1,080		20 yrs
Customer relationships	7,220		(2,215		)	5,005		7,220		(2,124		)	5,096		20 yrs
Technology	1,220		(215		)	1,005		1,220		(185		)	1,035		10 yrs
Non-compete agreements	517		(335		)	182		517		(323		)	194		4 – 8.5 yrs
Total intangibles	10,487		(3,234		)	7,253		10,487		(3,082		)	7,405

Amortization expense for intangible assets was $0.2 million for the ~~Art Gun acquisition in accordance with FASB Codification No. 805,~~~~Business Combinations (“ASC 805”)~~quarter ended October 1, 2011 and $0.6 million for the fiscal year ended July 2, 2011. ~~Based on the operating results and projections, the fair value of the contingent consideration was analyzed and considered~~Amortization expense is estimated to be de minimis, resulting in a $1.5 million favorable adjustment recorded in the fiscal quarter ended January 1, 2011. The change in fair value of the contingent consideration created an indicator of impairment of the goodwill associated with Art Gun. In accordance with FASB Codification No. 350,~~Intangibles — Goodwill and Other~~, we performed an interim impairment test of goodwill as of the end of the second quarter of fiscal year 2011. Under the first step of the impairment analysis for Art Gun, we considered both the income approach, which estimates the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices. The results of step one indicated that the carrying value of the Art Gun reporting unit exceeded its fair value. The second step required us to allocate the estimated fair value of the reporting unit to the estimated fair value of the reporting unit’s net assets, with any fair value in excess of amounts allocated to such net assets representing the implied fair value of goodwill for that reporting unit. If the carrying value of the goodwill exceeds its fair value, the carrying value is written down by an amount equal to such excess. The results of step two indicated that the goodwill at Art Gun was fully impaired, resulting in aapproximately $0.6 million ~~impairment charge recorded in the~~each for fiscal ~~quarter ended January 1, 2011, which is included in our branded segment. The change in contingent consideration~~years 2012, 2013, 2014, 2015 and goodwill impairment charge resulted in a net favorable adjustment of $0.9 million. During the third quarter ended April 2, 2011, the fair value of the contingent consideration was remeasured and still considered to be de minimis based on Art Gun’s current operating results and projections.2016.

We completed our annual test of goodwill on the first day of our third fiscal quarter using our actual results through the last day of our second fiscal quarter. Based our valuation, it does not appear that there is any impairment in the goodwill of Junkfood, the only remaining goodwill recorded on our financial statements.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~FORWARD LOOKING STATEMENTS~~Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the ~~Securities and Exchange Commission (the “SEC”),~~SEC in our press releases, in oral statements, and in other reports to our shareholders. All statements, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements. The words “estimate”, “project”, “forecast”, “anticipate”, “expect”, “intend”, “believe” and similar expressions, and discussions of strategy or intentions, are intended to identify forward-looking statements.

The forward-looking statements in this ~~Quarterly Report~~Form 10-Q are based on our expectations and are necessarily dependent upon assumptions, estimates and data that we believe are reasonable and accurate but may be incorrect, incomplete or imprecise. Forward-looking statements are also subject to a number of business risks and uncertainties, any of which could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. The risks and uncertainties include, among others:

	•		~~the uncertainty of raw material, transportation and energy prices;~~

	•		~~the general U.S. and international economic conditions, including market conditions;~~

	•		~~the ability to grow, achieve synergies and realize the expected profitability of recent acquisitions;~~

	•		~~changes in consumer confidence, consumer spending, and demand for apparel products;~~

	•		~~the ability of our brands and products to meet consumer preferences within the prevailing retail environment;~~

	•		~~the financial difficulties encountered by our customers and higher credit risk exposure;~~

	•		~~the ability to obtain and renew our significant license agreements;~~

	•		~~the competitive conditions in the apparel and textile industries;~~

	•		~~changes in environmental, tax, trade, employment and other laws and regulations;~~

	•		~~any restrictions on our ability to borrow capital or obtain financing;~~

	•		~~changes in our information systems related to our business operations;~~

	•		~~any significant interruptions with our distribution network;~~

	•		~~changes in the economic, political and social stability at our offshore locations; and~~

	•		~~the relative strength of the United States dollar as against other currencies.~~

the volatility and uncertainty of cotton, other raw materials, transportation and energy prices;

the general U.S. and international economic conditions;

changes in consumer confidence, discretionary consumer spending and demand for apparel products;

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the financial difficulties encountered by our customers and credit risk exposure;

the competitive conditions in the apparel and textile industries;

changes in environmental, tax, trade, employment and other laws and regulations;

any significant litigation in either domestic or international jurisdictions;

changes in the economic, political and social stability at our offshore locations;

the relative strength of the United States dollar as against other currencies;

any restrictions to our ability to borrow capital or obtain financing;

the ability to grow, achieve synergies and realize the expected profitability of recent acquisitions;

the impairment of acquired intangible assets;

changes in our information systems related to our business operations;

any significant interruptions with our distribution network;

the ability of our brands and products to meet consumer preferences within the prevailing retail environment;

the ability to obtain and renew our significant license agreements;

implementation of cost reduction strategies;

any negative publicity regarding domestic or international business practices; and

the illiquidity of our shares and volatility of the stock market.

A detailed discussion of significant risk factors that have the potential to cause actual results to differ materially from our expectations is described under the subheading “Risk Factors” in our Form 10-K for our fiscal year ended July ~~3, 2010~~2, 2011 filed with the SEC and are beyond our control. ~~Accordingly, any~~Any forward-looking statements in this Form 10-Q do not purport to be predictions of future events or circumstances and may not be realized.

We Any forward-looking statements are made only as of the date of this Form 10-Q and we do not undertake publicly to update or revise the forward-looking statements even if it becomes clear that any projected results will not be realized.

~~BUSINESS OUTLOOK~~The risks described in our Form 10-K for our fiscal year ended July 2, 2011 and in this Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect the our business, financial condition, and/or operating results.

Business Outlook

We achieved all-time record sales and earnings in fiscal year 2011. We continued this trend in our fiscal year 2012 first quarter, with year over year sales growth of 14.5%, bringing revenue to ~~experience strong~~an all-time first quarter high of $123.5 million. Earnings per diluted share increased 163.2% in the first quarter to $0.50 per share, also a record for first quarter.

We are encouraged with these results, although we recognize that we are facing several short-term challenges as we manage through the effects of high cotton prices and increased energy and transportation cost. The highest cost raw materials are expected to flow through our cost of sales in our second and third fiscal quarters of 2012, which will lower our gross margins and net profitability in those quarters. We anticipate this improving in our fourth fiscal quarter as the lower priced inventory is being sold. At this point, our forward commitment of cotton is low, which should allow us to take advantage of the current weakening in cotton prices.

The basics segment continued to build market share in the first quarter of fiscal year 2012, and we expect to maintain this growth trend as fiscal year 2012 continues. Demand for our private label programs is solid and we are gaining new customers who are looking for the high level of quality and service we can provide for these custom, decorated tees. The marketplace demand for undecorated tees is weak, and inventories at the distributor level increased significantly over the last several months. This has driven pricing on undecorated tees lower, despite the higher cost raw materials that are expected to flow through cost of sales in the upcoming quarters for much of the apparel industry. We anticipate the weakness in the market will continue at least until spring when the excess inventory levels are worked through the market.

We continue to drive improvements to lower our product costs as our manufacturing facilities achieve further efficiency gains and improvements in material utilization. We operated our manufacturing plants full during the first quarter of fiscal year 2012 and currently expect to continue operating these facilities full for the remainder of the fiscal year. However, we are monitoring the marketplace and may need to take downtime in the second half of the fiscal year to manage overall inventory levels to the market demand.

The branded segment also increased revenue during the first quarter of fiscal year 2012 and we expect the growth to continue throughout the fiscal year. Revenue growth is strong at To The Game, driven by sales of our new Salt Life® collection. Sales of our vintage tees through Junkfood were also strong as consumers enjoy the unique, creative style graphics and merchandise. We are seeing overall growth of our branded products in many of the retail channels and continue to expand the number of doors carrying our products.

Our creative talent at Delta Apparel, Inc. continues to develop merchandise that resonates well with our broad consumer base. The brands and licenses that we have acquired over the last several years continue to grow and give us a ~~difficult~~platform to ship higher

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value product to our retail ~~environment~~partners and directly to consumers through our e-commerce sites. This has led us to eight consecutive years of revenue growth and we expect fiscal year ~~2011 will be~~2012 to mark our ninth consecutive year of record revenues. Revenues during the first nine months of fiscal year 2011 increased nearly 13% as a result of our acquisition of The Cotton Exchange and organic sales growth of 7.6%. This organic sales growth was attributed to both our basics and branded business segments.growth.

Our basics business performed well during the third quarter as the market demand continues to be strong for our undecorated products and our private label programs. Average selling prices have increased in the marketplace driven by higher cotton costs, energy costs and wage inflation. We expect the demand to remain high for our basics products in the fourth quarter as we believe we are well positioned to service our customers’ needs. Based on the higher average selling prices and improved manufacturing performance, profitability has improved significantly in the basics business compared to the prior fiscal year.

Earnings Guidance

During the third quarter, demand for our branded products remained strong led by organic growth across all distribution channels in our Soffe business. We made considerable progress in our integration of The Cotton Exchange and expect to benefit from the cost savings from our vertical manufacturing platform and administrative synergies starting this fall. The new Salt Life collection has strong brand recognition in Florida and is receiving interest from retailers outside Florida as well. In March we launched a new Salt Life e-commerce website,~~www.saltlife.com~~, which we expect will continue to grow the brand recognition with consumers. Sales of our Junkfood branded product have been below our expectations. We have focused on building the brand and developing new sales programs, including being the official t-shirt supplier for Coca-Cola’s anniversary edition, gaining additional order placements with The Gap and negotiating new license agreements, all of which should help continue to build the Junkfood branded business in the future.

We continued to operate our manufacturing facilities at capacity during the third quarter. Our fabric production continues to increase at our Ceiba textiles facility with the new equipment added during the first quarter. We are ~~also currently installing additional dye equipment which should increase production by~~maintaining our fiscal year ~~end. The additional capacity should allow us to leverage our fixed costs~~2012 outlook for sales and ~~capitalize on productivity gains, while also giving us~~earnings. For the opportunity to increase sales between $15-$18 million on an annual basis. In addition, we are also evaluating current alternatives to further expand production capacity in our Ceiba textile facility in order to meet future anticipated demand.

~~As we begin our fourth quarter of~~ fiscal year ~~2011,~~ended June 30, 2012, we believe the overall demand for our products remains strong. While the unprecedented appreciation in cotton costs continues to add risk to our business, we have been successful in passing some of these costs along through price increases. We are also experiencing higher energy and wage costs, which will needexpect net sales to be considered as we plan our business for the upcoming year. We are strategically planning to minimize our inventories and expect to end the year with lower inventory units than in fiscal year 2010 in order to reduce our exposure to the current higher cotton costs. Our management teams will remain focused on these risk factors to help maintain our competitive edge in the ~~market.~~

Based on the strong operating results for the third quarter, we have raised our earnings expectations for fiscal year 2011. We are now developing our plans for fiscal year 2012 and anticipate continued sales growth for both our basics and branded segments, driven primarily from higher average selling prices rather than volume growth. We expect the higher cotton and other input costs in 2012 may lower our gross margins by approximately 200 basis points but we believe we can partially offset these higher costs with further leveraging of our general and administrative costs. In January of 2010, we introduced our three-year goalsrange of $500 to $520 million ~~in revenue~~ and earnings of $3.00 per share by fiscal year 2013 and based on our current outlook we expect to continue to make progress toward these goals in fiscal year 2012. We believe we are well positioned for the future and look forward to the further growth of our Company.

~~EARNINGS GUIDANCE~~

~~Based on the strong third quarter results and solid outlook for the fourth quarter, we raised our full year sales and earnings guidance for fiscal year 2011. We now expect~~ earnings to be in the range of ~~$1.85~~$2.00 to ~~$1.95~~$2.15 per diluted ~~share from~~share.

We had a strong start to fiscal 2012 with the first quarter, but are now in our ~~previous guidance~~historically lowest volume quarter. Based on the momentum we are seeing with our new products, we expect year over year sales to continue to grow in the upper single digit range for the upcoming quarters. Our highest cost cotton is expected to flow through cost of ~~$1.55 to $1.70 per diluted share. This~~sales in the December and March quarters. Based on stable selling prices, our gross margins would be ~~an increase of between 32% and 39% over earnings of $1.40 per diluted share in fiscal 2010. Full year 2011 sales are now~~ expected to ~~be $465 to $475 million, up $10 million from our previous guidance range and sales growth of 10% to 12%~~decline about 400 basis points from the prior year in these two quarters. After we sell through our inventory containing the higher priced cotton, we would then expect our fourth quarter margins to return to levels more in line with our first quarter. We believe we will offset some of the margin decline with lower selling, general and administrative costs. We expect our earnings will be less than prior year in our second and third fiscal quarters, but would anticipate our fourth quarter to return to earnings growth, resulting in full year earnings growth over the prior year. ~~The 2010~~Although we are facing these short-term challenges, we believe the strength of our brands and products will allow us to continue to grow sales and earnings for the full 2012 fiscal year ~~was~~and into the future.

We continue to operate in a ~~53-week year while fiscal year 2011 is a 52-week year. We further developed our tax planning during~~weak economy and face challenging conditions as we manage through the ~~quarter~~higher priced cotton and ~~now expect our effective tax rate to be 26%~~other inflationary pressures. Although we believe that we have taken these risks, as well as other factors, into consideration in determining the guidance for fiscal year ~~2011 compared to~~2012, the significance of the challenges, many of which are outside of our ~~previous expectation of 30%.~~

We remain concerned about the challenging economic conditions which, coupled with the higher prices driven from the volatile cotton market, could continue to impact consumer demand for apparel. In determining our expectations for fiscal year 2011, we believe we have taken into consideration thesecontrol, creates heightened risk ~~factors.~~

~~RESULTS OF OPERATIONS~~of earnings volatility during the fiscal year.

Results of Operations

Net sales for the quarter ended ~~April 2,~~October 1, 2011 were ~~$125.0~~$123.5 million, an increase of ~~15.8%~~14.5% compared to the quarter ended ~~March 27, 2010. Both segments contributed~~October 2, 2010, with each business unit contributing to the ~~increase with a 14.5% increase in our basics~~organic growth. Sales within the branded segment ~~and a 17.5% increase in our branded segment. Branded segment sales improved~~increased 21.5% to ~~$54.3~~$70.9 million for the ~~third~~first quarter of fiscal year ~~2011~~2012 compared to ~~$46.2~~$58.4 million for the same period of the prior ~~year due to organic growth~~year. Sales of ~~9.9% as well as revenue from The Cotton Exchange, which we acquired on July 12, 2010. Higher~~vintage tees through our Junkfood business, combined with the sales of our Salt Life® products were the primary drivers of the increase, with Soffe^® ~~apparel~~ and Art Gun also contributing. The ~~Game~~^® ~~headwear, coupled with the new Salt Life~~^® ~~collection, drove the organic sales growth during the quarter. Sales within the~~ basics segment ~~increased to $70.6 million for the quarter ended April 2, 2011 compared to $61.7~~had sales of $52.6 million in the ~~same period in~~first quarter of fiscal 2012, a 6.2% increase over the prior year ~~driven~~period. The revenue growth resulted from ana 17.3% increase in average selling prices, ~~of 19.6%~~ partially offset by a ~~slight decline~~9.5% decrease in ~~units sold.~~unit sales.

Our net sales for the first nine months of fiscal year 2011 grew 13.2% to $337.6 million, an increase of $39.4 million over the same period of fiscal year 2010. Both the basics and branded segments contributed to the growth with sales increases of $22.2 million and $17.2 million, respectively. The revenue growth in the basics segment was all organic, while the branded segment had organic sales growth along with the addition of The Cotton Exchange which we acquired during the first quarter of fiscal year 2011.

Gross margins improved 130 basis points during the ~~third~~first quarter of fiscal year ~~2011~~2012 compared to the same period of the prior year. The increase in gross profit as a percentage of sales was driven primarily from higher average selling prices within ~~our~~both the branded and basics ~~segment combined with efficiencies gained from our manufacturing platform. This was partially offset by a decline in~~segments as well as increased volume within our branded segment, ~~margins due to lower sales of our vintage licensed products and~~which carries higher ~~operational expenses associated with Salt Life~~^® ~~and the digital printing business. Gross margins for the first nine months of fiscal year 2011 were 23.3% compared to 23.7% in the same period in the prior year.~~gross margins. Our gross margins may not be comparable to other companies ~~since~~because some companies include costs related to their distribution network in cost of goods sold and we exclude a portion of those costs from gross margin and instead include them in selling, general and administrative expenses.

For the quarter ended ~~April 2,~~October 1, 2011, selling, general and administrative expenses ~~including the provision for bad debts,~~ were ~~$22.7~~$24.6 million, or ~~18.2%~~19.9% of sales, compared to ~~$20.3~~$22.9 million, or ~~18.8%~~21.2% of sales, for the quarter ended ~~March 27, 2010.~~October 2, 2010. Selling, general and administrative expenses as a percent of sales decreased as we leveraged our fixed costs on higher revenue. For the first nine months of fiscal year 2011 our selling, general and administrative expenses were $65.7 million, or 19.5% of sales, compared to $59.2 million, or 19.8% of sales, for the ~~first nine months~~prior year included costs associated with the acquisition of ~~fiscal~~The Cotton Exchange, expenses related to the start-up of Art Gun, and brand-marketing campaigns that were not repeated during the current year ~~2010.~~quarter.

Operating income for the ~~third~~first quarter of fiscal year ~~2011~~2012 was ~~$8.1~~$6.7 million, an increase of ~~$3.2~~$3.7 million from the ~~third~~first quarter of the prior year. For the first nine months of fiscal year 2011, operating income was $13.7 million, a $2.1 million increase compared to the same period of the prior year. Fiscal year 2011 included a non-cash net favorable adjustment of $0.9 million related to the valuation of the Art Gun contingent consideration and goodwill.

Net interest expense for the ~~third~~first quarter of fiscal year ~~2011~~2012 was ~~$0.6~~$0.9 million, ~~a reduction~~an increase of $0.3 million compared to the ~~third~~first quarter of fiscal year ~~2010.~~2011. The ~~decrease~~increase in net interest expense was primarily from increased credit facility borrowings due to higher working capital requirements resulting from the ~~lower~~significant rise in cotton prices as well as a slight increase in the average interest rates in fiscal year 2011 driven from the expiration of interest rate swap and collar agreements in fiscal year 2010. For the first nine months of fiscal year 2011, net interest expense declined by $1.0 million to $1.8 million compared to $2.8 million for the first nine months of fiscal year 2010.rate.

Our effective income tax rate for the three months ended ~~April 2,~~October 1, 2011 was ~~23.7%~~24.0%, compared to an effective tax rate of ~~25.4%~~30.0% for the same period in the prior ~~year. The decrease is due to having a higher percentage of pre-tax earnings in foreign tax-free locations compared to earnings in~~year, and consistent with the ~~United States and foreign taxable locations.~~23.6% effective rate for fiscal year 2011. During the ~~current~~third quarter of fiscal year 2011, we further developed our tax planning strategies, allowing us to keep more profits in Honduras, a tax-free zone, thereby reducing our overall effective tax ~~rate. Our effective income tax~~ rate for ~~the nine months ended April 2,~~fiscal year 2011 ~~was 26.0%, compared to an effective tax rate of 26.3%~~and for the ~~same period in the prior year.~~quarter ended October 1, 2011. We ~~now~~ expect our fiscal year ~~2011effective~~2012 effective tax rate to be ~~26.0%~~approximately 24%.

Accounts receivable as of ~~April~~October 1, 2011 was $66.8 million, a decrease of $10.0 million from July 2, 2011 ~~was $72.9 million, an increase of $11.9 million from July 3, 2010.~~. The ~~increase~~decrease in accounts receivable was primarily due to ~~higher~~lower sales during the ~~third~~first quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011 ~~slightly offset by~~.

Inventories totaled $186.3 million as of October 1, 2011, an ~~improvement in our days sales outstanding.~~

~~Inventories increased $35.7~~increase of $27.1 million from July ~~3, 2010 to $152.3 million on April~~ 2, 2011, primarily due to ~~the normal build~~higher

Table of ~~inventory associated with the seasonality of our business and the additional inventory associated with our recent acquisitions and licensed brands. In addition, higher~~ Contents

raw material costs ~~have also~~and additional production output from our manufacturing platform as we increased ~~our investment~~capacity in ~~inventory in fiscal year 2011. We anticipate our inventory units will be lower at fiscal 2011 year end compared to~~these facilities during the prior ~~year; however, the higher cotton costs will increase our investment in the inventory by approximately $20 million.~~fiscal year.

Capital expenditures for the first ~~nine~~three months of fiscal year ~~2011~~2012 were ~~$6.0~~$1.3 million compared to ~~$3.9~~$1.5 million in expenditures for the first ~~nine~~three months of fiscal year ~~2010.~~2011. Expenditures during the fiscal year ~~2011~~2012 first quarter were primarily ~~to increase capacity and lower costs~~ in our textile ~~facilities~~ and ~~adding new digital printing machines associated with the start-up of Art Gun.~~sewing facilities. Total capital expenditures are expected to be approximately ~~$8.0~~$10.0 million in fiscal year ~~2011.~~2012, which includes about $4 to $5 million to increase textile and sewing capacity.

~~LIQUIDITY AND CAPITAL RESOURCES~~Liquidity and Capital Resources

Our primary cash needs are for working capital and capital ~~expenditures. In addition, we may continue to use cash~~expenditures, as well as to fund share repurchases under our Stock Repurchase ~~Program or~~Program. In addition, we may use cash in the future to pay dividends. ~~Refer to Note E—Debt and Note K—Derivatives for additional discussion regarding our external liquidity resources.~~

Operating Cash Flows

Operating activities used ~~$10.5~~$16.6 million in cash for the first ~~nine~~three months of fiscal year ~~2011~~2012 compared to ~~$14.3~~$3.4 million in cash provided by operating activities in the first ~~nine~~three months of fiscal year ~~2010.~~2011. The decrease in operating cash flow during the fiscal year ~~2011~~2012 first quarter compared to the prior year period resulted primarily from higher working capital ~~driven from higher raw material costs in~~requirements necessitated by increased inventory ~~and increased sales. This increase was partially offset by higher accounts payable~~levels primarily due to ~~improved~~higher priced cotton. In addition, during the first quarter of fiscal year 2012, payments of employee incentive compensation associated with fiscal year 2011 were made that impacted operating cash ~~management and higher raw material costs.~~flow.

Investing Cash Flows

Capital expenditures for the first ~~nine~~three months of fiscal year ~~2011~~2012 were ~~$6.0~~$1.3 million compared to ~~$3.8~~$1.5 million for the first ~~nine~~three months of the prior year. Such capital expenditures were made primarily to increase capacity and reduce overall costs in both the textile and sewing facilities. Expenditures for the first ~~nine~~three months of ~~fiscal~~the prior year ~~2011~~ were primarily ~~from adding new~~related to the purchase of digital printing machines, ~~associated with the start-up of Art Gun and from continuing~~as well as to increase capacity and lower costs in our textile facilities. ~~During~~In addition, during the first quarter of fiscal year 2011, we acquired The Cotton Exchange for $9.9 million (See Note M—The Cotton Exchange Acquisition). ~~During~~

Financing Activities

For the first ~~nine~~three months of fiscal year ~~2010, we made the final payment of $0.7 million associated with the acquisition of To The Game, LLC and completed the acquisition of Art Gun for $1.0 million.~~

~~Financing Activities~~

~~For the first nine months of fiscal year 2011,~~2012, cash provided by financing activities was ~~$26.3~~$17.6 million compared to ~~$8.9~~$7.9 million for the first three months of fiscal year 2011. The cash ~~used~~provided by our financing activities during the first quarter funded the higher working capital needs and the repurchase of our common stock. The cash provided by financing activities during the first ~~nine~~three months of fiscal year ~~2010. During the first nine months of fiscal year~~ 2011 ~~the cash provided by our financing activities~~ was used to fund the acquisition of The Cotton Exchange, for capital expenditures and ~~higher working capital needs. During~~for the ~~first nine months of fiscal year 2010, we used the cash from our operating activities, net~~purchase of our ~~investing activities, to reduce our debt outstanding under our revolving credit facility and to make principal payments on our loan with Banco Ficohsa.~~common stock.

We believe ~~that our credit facility should be sufficient to satisfy our foreseeable working capital needs, and~~ that the cash flow generated by our operations and funds available under our credit ~~line~~facilities should be sufficient to service our debt payment requirements, to satisfy our ~~day-to-day~~foreseeable working capital needs, and to fund our planned capital ~~expenditures.~~expenditures and share repurchases. Any material deterioration in our results of operations, however, may result in our ~~losing the ability~~inability to borrow ~~under our revolving credit facility~~ and to issue letters of credit to suppliers under our revolving credit facility, or may cause the borrowing availability under our facility to be insufficient for our needs. We have started negotiations for a new U.S. revolving credit facility which we expect to complete before the end of the fiscal year. We expect the new credit facility will give us additional flexibility to continue our growth strategies into the future.

~~PURCHASES BY DELTA APPAREL OF ITS OWN SHARES~~

Purchases By Delta Apparel Of Its Own Shares

Our Board of Directors has authorized our management to use up to ~~$15.0~~$20.0 million to repurchase Delta Apparel stock in open market transactions under our Stock Repurchase Program. As of ~~April 2,~~October 1, 2011 ~~$4.2~~, $7.0 million remained available for future ~~purchases. See~~purchases (See Note N—Repurchase of Common ~~Stock.~~Stock).

~~CRITICAL ACCOUNTING POLICIES~~

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, accounts receivable and related reserves, inventory and related reserves, the carrying value of goodwill, stock-based compensation and the accounting for income taxes.

The detailed Significant Accounting Policies are included in Note 2 to the Audited Consolidated Financial Statements included

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in our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2010,~~2, 2011, and there have been no changes in those policies since the filing of that Annual Report.

~~ENVIRONMENTAL AND REGULATORY MATTERS~~Environmental and Regulatory Matters

We are subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, storm water flows, air emissions and solid waste disposal. Our plants generate very small quantities of hazardous waste, which are either recycled or disposed of off-site. Most of our plants are required to possess one or more environmental permits, and we believe that we are currently in compliance with the requirements of those permits.

The environmental rules applicable to our business are becoming increasingly stringent and we incur capital and other expenditures annually to achieve compliance with environmental standards. We currently do not expect that the amount of expenditures required to comply with environmental laws will have a material adverse affect on our operations, financial condition or liquidity. There can be no assurance, however, that future changes in federal, state, or local regulations, interpretations of existing regulations or the discovery of currently unknown problems or conditions will not require substantial additional expenditures. Similarly, while we are not currently aware of any violations, the extent of our liability, if any, for past failures to comply with laws, regulations or permits applicable to our operations cannot be determined and could have a material adverse effect on our operations, financial condition and liquidity.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

~~Item 3. Quantitative~~Commodity Risk Sensitivity

On October 21, 2011, we entered into a Second Amendment to Yarn Supply Agreement (the “Second Amendment”) with Parkdale Mills, Inc. and ~~Qualitative Disclosures About Market Risk~~

~~COMMODITY RISK SENSITIVITY~~

~~We have a~~Parkdale America, LLC (collectively "Parkdale"). The Second Amendment extended the original supply agreement with Parkdale ~~America, LLC (“Parkdale”~~(as previously amended, the "Supply Agreement") until March 31, 2013. In addition, certain waste factors and conversion prices used to ~~supply our~~calculate the price of yarn ~~requirements until December 31, 2011.~~ purchased pursuant to the Supply Agreement were amended, with the new waste factors and pricing effective on either January 1, 2012 or April 1, 2012, depending on the yarn type.

Under the ~~supply agreement,~~Supply Agreement, we purchase from Parkdale all ~~of our~~ yarn requirements for use in our manufacturing operations, excluding yarns that Parkdale ~~does~~did not manufacture as of the effective date of the Supply Agreement or cannot manufacture due to temporary capacity constraints. The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost.Thus, we are subject to the commodity risk of cotton prices and cotton price movements, which could result in unfavorable yarn pricing for us. We fix the cotton prices as a component of the purchase price of yarn, ~~with Parkdale,~~ pursuant to the ~~supply agreement,~~Supply Agreement, in advance of the shipment of finished yarn from Parkdale. Prices are set according to prevailing prices, as reported by the New York Cotton Exchange, at the time we elect to fix specific cotton prices.

Yarn with respect to which we had fixed cotton prices at ~~April 2,~~October 1, 2011 was valued at ~~$34.3~~$30.4 million, and was scheduled for delivery between ~~April~~October 2011 and December 2011. At ~~April 2,~~October 1, 2011, a 10% decline in our underlying fixed cotton price in yarn would have had a negative impact of approximately ~~$2.8~~$2.4 million on the value of the yarn. At July ~~3, 2010,~~2, 2011, a 10% decline in our underlying fixed cotton price in yarn would have had a negative impact of approximately ~~$2.4~~$5.1 million on the value of the yarn. The impact of a 10% decline in the market price of the cotton covered by our fixed price yarn would have been ~~greater~~lower at ~~April 2,~~October 1, 2011 compared to July ~~3, 2010~~2, 2011 due primarily to ~~the higher fixed cotton prices partially offset by significantly~~ lower ~~commitments.~~commitments at October 1, 2011 compared to July 2, 2011.

We may use derivatives, including cotton option contracts, to manage our exposure to movements in commodity prices. We do not designate our cotton option contracts as hedge instruments upon inception. Accordingly, we mark to market changes in the fair market value of the options in cost of sales in the statements of operations. We did not own any cotton option contracts on ~~April 2, 2011.~~October 1, 2011.

If Parkdale’s operations are disrupted and it is not able to provide us with our yarn requirements, we may need to obtain yarn from alternative sources. Although alternative sources are presently available, we may not be able to enter into short-term arrangements with substitute suppliers on terms as favorable as our current terms with Parkdale. ~~In addition, the cotton futures we have fixed with Parkdale may not be transferable to alternative yarn suppliers.~~ Because there can be no assurance that we would be able to pass along our higher cost of yarn to our customers, this could have a material adverse effect on our results of operations.

~~INTEREST RATE SENSITIVITY~~

Interest Rate Sensitivity

Our U.S. revolving credit ~~agreement~~facility provides that the outstanding amounts owed shall bear interest at variable rates. If the amount of outstanding indebtedness at ~~April 2,~~October 1, 2011 under the revolving credit facility had been outstanding during the entire three months ended ~~April 2,~~October 1, 2011, and the interest rate on this outstanding indebtedness were increased by 100 basis points, our interest expense would have increased by approximately $0.2 million, or ~~33.9%~~18.1% of actual interest expense, during the quarter. This compares to what would have been an increase of ~~$0.6~~$0.7 million, or ~~17.4%~~29.0% of actual interest expense, for fiscal year ~~2010,~~2011, or an average of $0.2 million per quarter, based on the outstanding indebtedness at July ~~3, 2010.~~2, 2011. Although the dollar amount of the

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increase is consistent between the ~~third~~first quarter of ~~2011~~fiscal year 2012 and the quarterly average during fiscal year ~~2010,~~2011, the ~~higher~~lower percentage increase in the ~~third~~first quarter of fiscal year ~~2011~~2012 is due to the actual interest expense in the quarter being ~~lower~~higher than the quarterly average interest expense in fiscal year ~~2010.~~2011. The actual change in interest expense resulting from a change in interest rates would depend on the magnitude of the increase in rates and the average principal balance outstanding.

Derivatives

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes as described in Note K—~~Derivatives.~~Derivatives and Fair Value Measurements.


Item 4.	Controls and Procedures

~~Item 4. Controls and Procedures~~

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are ~~our~~ controls and other procedures that are designed to ~~ensure~~reasonably assure that information required to be disclosed ~~by us~~ in the reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934 (the “Exchange Act”)~~ is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~April 2,~~October 1, 2011 and, based on ~~the~~their evaluation, ~~of these controls and procedures,~~ our Chief Executive Officer and Chief Financial Officer have concluded that ~~our disclosure~~these controls and procedures were effective at the evaluation date.

Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in our internal control over financial reporting occurred during the third quarter of fiscal year 2011. Based on that evaluation, we have concluded that there has beenThere was no change in our internal control over financial reporting during the ~~third~~first quarter of fiscal year ~~2011~~2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are currently evaluating the internal control over financial reporting at TCX, LLC and are taking action to strengthen the internal control over financial reporting at TCX, LLC during the current fiscal year.


PART II.	OTHER INFORMATION

~~PART II. OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~


Item 1.	Legal Proceedings

See Note L—Legal Proceedings in Item 1, which is incorporated herein by reference.

Item 1A. Risk Factors

As of October 1, 2011, there have been no material changes to the risk factors set forth in our Form 10-K for our fiscal year ended July 2, 2011.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

See Note N—Repurchase of Common Stock and Note E—Debt, in Item 1, which is incorporated herein by reference.

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Item 6.	Exhibits

~~Item 6.~~ Exhibits

~~Exhibits~~


	~~10.2.2~~
10.1	~~Exhibits~~	Form of Restricted Stock Unit and ~~Schedules to~~Performance Unit Award Agreement Under the ~~Third Amended and Restated Loan and Security Agreement dated as of September 21, 2007 among~~ Delta Apparel, Inc., Junkfood Clothing Company, M. J. Soffe, LLC, Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Agent, and the financial institutions named therein as Lenders.
2010 Stock Plan

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	DELTA APPAREL, INC. (Registrant)
Date ~~May 5,~~	November 2, 2011	By:	/s/ Deborah H. Merrill

		Deborah H. Merrill
		Vice President, Chief Financial Officer and Treasurer



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



		Page
PART I.		Financial Information

Item 1.		Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets — October 1, 2011 and July 2, 2011 (unaudited)	3

		Condensed Consolidated ~~Balance Sheets~~Statements of Operations — ~~April 2,~~Three months ended October 1, 2011 and ~~July 3,~~October 2, 2010 (unaudited)		3	4

		Condensed Consolidated Statements of ~~Operations~~Cash Flows — Three ~~and nine~~ months ended ~~April 2,~~October 1, 2011 and ~~March 27,~~October 2, 2010 (unaudited)		4	5

		~~Condensed Consolidated Statements of Cash Flows — Nine months ended April 2, 2011 and March 27, 2010 (unaudited)~~		5

		Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		17

Item 4.		Controls and Procedures		18

PART II.		Other Information

Item 1.		Legal Proceedings		18

Item 1A.	Risk Factors	18

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 6.		Exhibits		18	19

Signatures				19	20

Exhibits
			20EX-10.1
~~EX-10.2.2~~ EX-31.1
~~EX-31.1~~ EX-31.2
~~EX-31.2~~EX-32.1
~~EX-32.1~~EX-32.2


	April 2,			July 3,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	632		$	687
Accounts receivable, net		72,877			60,991
Inventories, net		152,340			116,599
Prepaid expenses and other current assets		4,530			3,475
Deferred income taxes		3,247			3,162

Total current assets		233,626			184,914

Property, plant and equipment, net		39,516			37,694
Goodwill		16,814			17,426
Intangibles, net		7,555			8,016
Other assets		3,015			3,283

Total assets	$	300,526		$	251,333


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	48,059		$	34,459
Accrued expenses		19,631			18,862
Income tax payable		517			712
Current portion of long-term debt		2,333			5,718

Total current liabilities		70,540			59,751

Long-term debt, less current maturities		93,426			62,355
Deferred income taxes		2,504			1,826
Other liabilities		29			157
Contingent consideration		—			1,530

Total liabilities		166,499			125,619

Commitments and contingencies

Shareholders’ equity:
Preferred stock—$0.01 par value, 2,000,000 shares authorized, none issued and outstanding		—			—
Common stock —$0.01 par value, 15,000,000 shares authorized, 9,646,972 shares issued, and 8,456,736 and 8,516,293 shares outstanding as of April 2, 2011 and July 3, 2010, respectively		96			96
Additional paid-in capital		59,726			59,111
Retained earnings		84,742			75,950
Accumulated other comprehensive loss		(31	)		(105	)
Treasury stock —1,190,236 and 1,130,679 shares as of April 2, 2011 and July 3, 2010, respectively		(10,506	)		(9,338	)

Total shareholders’ equity		134,027			125,714

Total liabilities and shareholders’ equity	$	300,526		$	251,333


Yarn	$	34,343
Natural gas		342
Finished fabric		2,658
Finished products		20,395

	$	57,738



Yarn	$	30,411
Natural gas	1,204
Finished fabric	1,817
Finished products	21,203
	$	54,635


	Fair Value Measurements Using
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
Period Ended	Total		(Level 1)		(Level 2)		(Level 3)
Interest rate swap
April 2, 2011	$	50		—	$	50		—
July 3, 2010	$	171		—	$	171		—

Contingent consideration
April 2, 2011	$	—		—		—	$	—
July 3, 2010	$	1,530		—		—	$	1,530



	Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
Period Ended	Total		(Level 1)	(Level 2)		(Level 3)
Interest Rate Swaps
October 1, 2011	$	218	—	$	218	—
July 2, 2011	$	22	—	$	22	—


	Total				Total Number of		Dollar Value of
	Number		Average		Shares Purchased		Shares that May
	of Shares		Price Paid		as Part of Publicly		Yet Be Purchased
Period	Purchased		per Share		Announced Plans		Under the Plans

January 2 to February 5, 2011		11,528	$	12.75		11,528	$4.7 million
February 6 to March 5, 2011		9,352	$	13.03		9,352	$4.6 million
March 6 to April 2, 2011		27,220	$	13.71		27,220	$4.2 million

Total		48,100	$	13.35		48,100	$4.2 million



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Dollar Value of Shares that May Yet Be Purchased Under the Plans
July 3 to August 6, 2011	—	$	—	—	$8.4 million
August 7 to September 3, 2011	33,852	$	15.82	33,852	$7.9 million
September 4 to October 1, 2011	58,904	$	15.68	58,904	$7.0 million
Total	92,756	$	15.73	92,756	$7.0 million

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o

~~Large accelerated filer~~o

~~Accelerated filer~~o

~~Non-accelerated filer~~þ
(Do not check if a smaller reporting company)

~~Smaller reporting company~~o