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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 1, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ______________ to ____________
 Commission File Number 1-15583
 DELTA APPAREL, INC.
 
 (Exact name of registrant as specified in its charter)
 GEORGIA(State or other jurisdiction of
Incorporation or organization)
    
    58-2508794(I.R.S. EmployerIdentification No.)
 2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
 
 (Address of principal executive offices) (Zip Code)
 (678) 775-6900
 
 (Registrants telephone number, including area code)
 (Not Applicable)
 
 (Former name, former address and former fiscal year, if changed since last report.)
  þ o
  o þ
  o þ




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INDEX
 PagePART I. Financial InformationItem 1. Financial StatementsInterim Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets October 1, 2005 and July 2, 2005
    
    
    3Condensed Consolidated Statements of Income Three months ended October 1, 2005 and October 2, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows Three months ended October 1, 2005 and October 2, 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6-13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19-20Item 4. Controls and Procedures
    
    
    20PART II. Other InformationItem 6. Exhibits and Reports on Form 8-K
    
    
    20Signatures
    
    
    21Exhibits
    
    
    22-25EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 
 DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
 (Unaudited)October 1,
    
    
    July 2,2005
    
    
    2005AssetsCurrent assets:Cash
    
    $
    363
    
    
    $
    298Accounts receivable, net
    
    
    42,074
    
    
    
    36,611Inventories
    
    
    105,015
    
    
    
    99,026Prepaid expenses and other current assets
    
    
    1,967
    
    
    
    1,968Deferred income taxes
    
    
    1,491
    
    
    
    1,252Total current assets
    
    
    150,910
    
    
    
    139,155Property, plant and equipment, net
    
    
    20,231
    
    
    
    19,950Goodwill and other intangibles, net
    
    
    19,692
    
    
    
    Deferred income taxes
    
    
    141
    
    
    
    Other assets
    
    
    1,452
    
    
    
    409Total assets
    
    $
    192,426
    
    
    $
    159,514Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    44,111
    
    
    $
    36,700Income taxes payable
    
    
    1,859
    
    
    
    480Current portion of long-term debt
    
    
    3,683
    
    
    
    15,065Total current liabilities
    
    
    49,653
    
    
    
    52,245Long-term debt
    
    
    48,143
    
    
    
    17,236Deferred income taxes
    
    
    
    
    
    
    171Other liabilities
    
    
    3,451
    
    
    
    3,398Total liabilities
    
    
    101,247
    
    
    
    73,050Stockholders equity:Preferred stock2,000,000 shares authorized; none issued
and outstanding
    
    
    
    
    
    
    Common stockpar value $.01 a share, 15,000,000 shares authorized,
9,646,972 shares issued, and 8,621,298 and 8,522,052
shares outstanding as of October 1, 2005 and July 2, 2005,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    54,117
    
    
    
    53,867Retained earnings
    
    
    42,988
    
    
    
    39,106Treasury stock1,025,674 and 1,124,920 shares as of October 1,
2005 and July 2, 2005, respectively
    
    
    (6,022
    )
    
    
    (6,605
    )Total stockholders equity
    
    
    91,179
    
    
    
    86,464Total liabilities and stockholders equity
    
    $
    192,426
    
    
    $
    159,514
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DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
 Three Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Net sales
    
    $
    60,573
    
    
    $
    54,300Cost of goods sold
    
    
    41,879
    
    
    
    42,723Gross profit
    
    
    18,694
    
    
    
    11,577Selling, general and administrative expenses
    
    
    12,700
    
    
    
    8,446Other expense (income)
    
    
    29
    
    
    
    (10
    )Operating income
    
    
    5,965
    
    
    
    3,141Interest expense, net
    
    
    685
    
    
    
    703Income before income taxes
    
    
    5,280
    
    
    
    2,438Provision for income taxes
    
    
    1,903
    
    
    
    994Net income
    
    $
    3,377
    
    
    $
    1,444Earnings per shareBasic
    
    $
    0.40
    
    
    $
    0.17Diluted
    
    $
    0.39
    
    
    $
    0.17Weighted average number of shares outstanding
    
    
    8,532
    
    
    
    8,282Dilutive effect of stock options
    
    
    27
    
    
    
    266Weighted average number of shares assuming dilution
    
    
    8,559
    
    
    
    8,548Cash dividends declared per common share
    
    $
    0.04
    
    
    $
    0.03
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DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Three Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Operating activities:Net income
    
    $
    3,377
    
    
    $
    1,444Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,094
    
    
    
    1,170Deferred income taxes
    
    
    (551
    )
    
    
    (268
    )(Gain) loss on sale of property and equipment
    
    
    (47
    )
    
    
    2Noncash compensation
    
    
    1,031
    
    
    
    400Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed in connection with the business acquisition:Accounts receivable
    
    
    5,052
    
    
    
    9,213Inventories
    
    
    (2,983
    )
    
    
    (13
    )Prepaid expenses and other current assets
    
    
    152
    
    
    
    288Other noncurrent assets
    
    
    (6
    )
    
    
    (75
    )Accounts payable and accrued expenses
    
    
    1,813
    
    
    
    (3,651
    )Income taxes
    
    
    1,379
    
    
    
    (1,209
    )Other liabilities
    
    
    53
    
    
    
    30Net cash provided by operating activities
    
    
    10,364
    
    
    
    7,331Investing activities:Purchases of property, plant and equipment
    
    
    (1,142
    )
    
    
    (2,269
    )Proceeds from sale of property, plant and equipment
    
    
    82
    
    
    
    Acquisition of business
    
    
    (27,386
    )
    
    
    Cash invested in joint venture
    
    
    (1,037
    )
    
    
    Net cash used in investing activities
    
    
    (29,483
    )
    
    
    (2,269
    )Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    (11,781
    )
    
    
    (5,313
    )Proceeds from long-term debt
    
    
    32,120
    
    
    
    11,635Repayment of long-term debt
    
    
    (814
    )
    
    
    (400
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    35Dividends paid
    
    
    (341
    )
    
    
    (290
    )Net cash provided by (used in) financing activities
    
    
    19,184
    
    
    
    (5,187
    )Increase (decrease) in cash
    
    
    65
    
    
    
    (125
    )Cash at beginning of period
    
    
    298
    
    
    
    333Cash at end of period
    
    $
    363
    
    
    $
    208Supplemental cash flow information:Cash paid during the period for interest
    
    $
    642
    
    
    $
    583Cash paid during the period for income taxes
    
    $
    1,074
    
    
    $
    2,840Noncash financing activityissuance of common stock
    
    $
    1,428
    
    
    $
    59
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DELTA APPAREL, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note ABasis of Presentation
   Note BAccounting Policies
  Note CNew Accounting Standards
 Inventory Costs
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees Statements of Cash Flows requires
 Accounting Changes and Error Corrections Accounting Changes,
 Note DAcquisition
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Three Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Net sales
    
    $
    71,939
    
    
    $
    57,944Net income
    
    
    4,281
    
    
    
    1,630Net income per shareBasic
    
    $
    0.50
    
    
    $
    0.20Diluted
    
    $
    0.50
    
    
    $
    0.19
 Note EInventories
  October 1,
    
    
    July 2,2005
    
    
    2005Raw materials
    
    $
    5,084
    
    
    $
    4,496Work in process
    
    
    25,287
    
    
    
    21,231Finished goods
    
    
    74,644
    
    
    
    73,299$
    105,015
    
    
    $
    99,026
 Note FDebt
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Note GSelling, General and Administrative Expense
  Note HStock Options and Incentive Stock Awards
   Option Plan
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2006
    
    
    2005Risk-free interest rate
    
    
    4.00
    %
    
    
    3.46
    %Expected life
    
    7
    yrs
    
    10
    yrsExpected volatility
    
    
    35.8
    %
    
    
    35.0
    %Expected dividend yield
    
    
    1.30
    %
    
    
    1.30
    %Weighted-average fair value of options granted
    
    $
    5.182
    
    
    $
    4.234
 
  Three Months EndedOctober 1, 2005WeightedAverageExerciseShares
    
    
    PriceOutstanding at July 2, 2005
    
    
    158,500
    
    
    $
    11.28Granted
    
    
    734,000
    
    
    $
    13.35Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at October 1, 2005
    
    
    892,500
    
    
    $
    12.98Exercisable at October 1, 2005
    
    
    158,500
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Three MonthsEndedOctober 2,2004Net income, as reported
    
    $
    1,444Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects
    
    
    135Deduct: Total stock-based employee compensation expense
determined under fair value based method for all options
and awards, net of related tax effects
    
    
    (234
    )Pro forma net income
    
    $
    1,345Earnings per share:Basicas reported
    
    $
    0.17Basicpro forma
    
    $
    0.16Dilutedas reported
    
    $
    0.17Dilutedpro forma
    
    $
    0.16
  Three Months EndedOctober 1, 2005Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    158,500
    
    
    $
    4.23Granted
    
    
    734,000
    
    
    $
    5.18Vested
    
    
    (158,500
    )
    
    $
    4.23Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Nonvested at October 1, 2005
    
    
    734,000
    
    
    $
    5.18
  Award Plan
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Three Months EndedOctober 1, 2005WeightedAverageExerciseShares
    
    
    PriceOutstanding at July 2, 2005
    
    
    94,402
    
    
    $
    0.01Granted
    
    
    125,000
    
    
    $
    0.01Exercised
    
    
    (94,402
    )
    
    $
    0.01Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at October 1, 2005
    
    
    125,000
    
    
    $
    0.01Exercisable at October 1, 2005
    
    
    
   Three Months EndedOctober 1, 2005Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    94,402
    
    
    $
    0.01Granted
    
    
    125,000
    
    
    $
    0.01Vested
    
    
    (94,402
    )
    
    $
    0.01Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Nonvested at October 1, 2005
    
    
    125,000
    
    
    $
    0.01
  Note IIncome Taxes
  Note JPurchase Contracts
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Note KComputation of Basic and Diluted Net Earnings per Share (EPS)
  Note LStockholders Equity
 Stock Split
  Stock Repurchase Program
  Quarterly Dividend Program
  Note MSegment Reporting
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Retail-Activewear
    
    
    Ready
    
    
    Corporate andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2006:Net sales
    
    $
    29,566
    
    
    $
    31,007
    
    
    $
    
    
    
    $
    60,573Segment operating income
    
    
    2,009
    
    
    
    3,896
    
    
    
    60
    
    
    
    5,965Segment assets
    
    
    117,190
    
    
    
    99,794
    
    
    
    (24,558
    )
    
    
    192,426Fiscal Year 2005:Net sales
    
    $
    32,980
    
    
    $
    21,320
    
    
    $
    
    
    
    $
    54,300Segment operating income
    
    
    9
    
    
    
    3,133
    
    
    
    (1
    )
    
    
    3,141Segment assets
    
    
    93,769
    
    
    
    67,437
    
    
    
    
    
    
    
    161,206
  Three Months EndedOctober 2,
    
    
    October 1,2005
    
    
    2004Segment operating income
    
    $
    5,965
    
    
    $
    3,141Unallocated interest expense
    
    
    685
    
    
    
    703Consolidated income before taxes
    
    $
    5,280
    
    
    $
    2,438
 Note NSubsequent Event
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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Actual FY05 Basic Earnings Per Share
    
    $
    1.35Sale of Edgefield Plant
    
    
    (0.26
    )Reversal of Foreign Earnings Tax Liability
    
    
    (0.08
    )Adjusted FY05 Basic Earnings per Share
    
    $
    1.01
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Operating Cash Flows
  Investing Cash Flows
  Financing Activities
   Purchases by Delta Apparel of its Own Shares
  Dividend Program
  17




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Revenue Recognition and Accounts Receivable
  Inventories
  Self Insurance
  Income Taxes
 Accounting for Income Taxes
  18




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NEW ACCOUNTING STANDARDS
 Inventory Costs
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees Statements of Cash Flows requires
 Accounting Changes and Error Corrections Accounting Changes,
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
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Item 4: Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 Item 6. Exhibits and Reports on Form 8-K
  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
  DELTA APPAREL, INC.
(Registrant)November 8, 2005
    
    By:
    
    /s/ Herbert M. MuellerDate
    
    Herbert M. Mueller
Vice President, Chief Financial Officer and Treasurer
 21