##### Table of Contents



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 April 1, 2006
 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
    
    58-2508794(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097
 
 (Address of principal executive offices)
(Zip Code)
 (678) 775-6900
 
  (Not Applicable)
 
   þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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##### 



INDEX
 PagePART I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance SheetsApril 1, 2006 and July 2, 2005
    
    3Condensed Consolidated Statements of IncomeThree months and nine months ended April 1, 2006 and April 2, 2005
    
    4Condensed Consolidated Statements of Cash FlowsNine months ended April 1, 2006 and April 2, 2005
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-14Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    14-20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    20Item 4. Controls and Procedures
    
    21PART II. Other InformationItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    21Item 6. Exhibits and Reports on Form 8-K
    
    22Signatures
    
    23Exhibits
    
    24-29EX-10.31 AMENDMENT OF EMPLOYMENT AGREEMENT BETWEEN DELTA APPAREL, INC AND HERBERT M. MUELLEREX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CAOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CAO
  2




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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)
 April 1,
    
    
    July 2,Assets
    
    2006
    
    
    2005Current assets:Cash
    
    $
    524
    
    
    $
    298Accounts receivable, net
    
    
    40,434
    
    
    
    36,611Income taxes receivable
    
    
    737
    
    
    
    Inventories
    
    
    112,710
    
    
    
    99,026Prepaid expenses and other current assets
    
    
    2,683
    
    
    
    1,968Deferred income taxes
    
    
    3,002
    
    
    
    1,252Total current assets
    
    
    160,090
    
    
    
    139,155Property, plant and equipment, net
    
    
    20,959
    
    
    
    19,950Goodwill and intangibles, net
    
    
    19,577
    
    
    
    Other assets
    
    
    2,170
    
    
    
    409Total assets
    
    $
    202,796
    
    
    $
    159,514Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    41,760
    
    
    $
    36,700Income taxes payable
    
    
    
    
    
    
    480Current portion of long-term debt
    
    
    3,683
    
    
    
    15,065Total current liabilities
    
    
    45,443
    
    
    
    52,245Long-term debt
    
    
    60,582
    
    
    
    17,236Deferred income taxes
    
    
    789
    
    
    
    171Other liabilities
    
    
    15
    
    
    
    3,398Total liabilities
    
    
    106,829
    
    
    
    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 8,611,198 and 8,522,052
shares outstanding as of April 1, 2006 and July 2, 2005,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    54,724
    
    
    
    53,867Retained earnings
    
    
    47,495
    
    
    
    39,106Treasury stock1,035,774 and 1,124,920 shares as of April 1,
2006 and July 2, 2005, respectively
    
    
    (6,348
    )
    
    
    (6,605
    )Total stockholders equity
    
    
    95,967
    
    
    
    86,464Total liabilities and stockholders equity
    
    $
    202,796
    
    
    $
    159,514
  3




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income
 (in thousands, except per share amounts)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedApril 1,
    
    
    April 2,
    
    
    April 1,
    
    
    April 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    69,365
    
    
    $
    58,272
    
    
    $
    187,640
    
    
    $
    161,767Cost of goods sold
    
    
    50,149
    
    
    
    43,528
    
    
    
    131,461
    
    
    
    124,631Gross profit
    
    
    19,216
    
    
    
    14,744
    
    
    
    56,179
    
    
    
    37,136Selling, general and administrative expenses
    
    
    13,953
    
    
    
    10,392
    
    
    
    40,421
    
    
    
    26,932Operating income
    
    
    5,263
    
    
    
    4,352
    
    
    
    15,758
    
    
    
    10,204Other (expense) income
    
    
    (128
    )
    
    
    3,616
    
    
    
    276
    
    
    
    3,612Interest expense, net
    
    
    1,056
    
    
    
    679
    
    
    
    2,738
    
    
    
    2,217Income before income taxes
    
    
    4,079
    
    
    
    7,289
    
    
    
    13,296
    
    
    
    11,599Provision for income taxes
    
    
    1,335
    
    
    
    1,844
    
    
    
    4,799
    
    
    
    3,556Net income
    
    $
    2,744
    
    
    $
    5,445
    
    
    $
    8,497
    
    
    $
    8,043Earnings per shareBasic
    
    $
    0.32
    
    
    $
    0.65
    
    
    $
    0.99
    
    
    $
    0.97Diluted
    
    $
    0.31
    
    
    $
    0.64
    
    
    $
    0.98
    
    
    $
    0.95Weighted average number of shares outstanding
    
    
    8,622
    
    
    
    8,376
    
    
    
    8,591
    
    
    
    8,316Dilutive effect of stock options
    
    
    108
    
    
    
    182
    
    
    
    54
    
    
    
    164Weighted average number of shares assuming dilution
    
    
    8,730
    
    
    
    8,558
    
    
    
    8,645
    
    
    
    8,480Cash dividends declared per common share
    
    $
    0.04
    
    
    $
    0.035
    
    
    $
    0.12
    
    
    $
    0.105
  4




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DELTA APPAREL, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (Unaudited)
 Nine Months EndedApril 1,
    
    
    April 2,2006
    
    
    2005Operating activities:Net income
    
    $
    8,497
    
    
    $
    8,043Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,544
    
    
    
    3,285Deferred income taxes
    
    
    (879
    )
    
    
    (3,125
    )Gain on sale of property and equipment
    
    
    (35
    )
    
    
    (3,538
    )Noncash compensation
    
    
    2,447
    
    
    
    1,742Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed in connection with business acquisitions:Accounts receivable
    
    
    6,860
    
    
    
    3,224Inventories
    
    
    (9,857
    )
    
    
    684Prepaid expenses and other current assets
    
    
    (524
    )
    
    
    (2,784
    )Other noncurrent assets
    
    
    53
    
    
    
    1,732Accounts payable and accrued expenses
    
    
    (1,962
    )
    
    
    9,865Income taxes
    
    
    (1,217
    )
    
    
    2,936Other liabilities
    
    
    (3,382
    )
    
    
    (8,597
    )Net cash provided by operating activities
    
    
    3,545
    
    
    
    13,467Investing activities:Purchases of property, plant and equipment
    
    
    (4,093
    )
    
    
    (8,979
    )Proceeds from sale of property, plant and equipment
    
    
    142
    
    
    
    9,796Acquisition of business
    
    
    (28,237
    )
    
    
    Cash invested in joint venture
    
    
    (1,814
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (34,002
    )
    
    
    817Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    (11,781
    )
    
    
    (2,190
    )Proceeds from long-term debt
    
    
    121,852
    
    
    
    41,302Repayment of long-term debt
    
    
    (78,107
    )
    
    
    (53,077
    )Cash paid for common stock
    
    
    (408
    )
    
    
    Proceeds from exercise of stock options
    
    
    158
    
    
    
    447Dividends paid
    
    
    (1,031
    )
    
    
    (874
    )Net cash provided by (used in) financing activities
    
    
    30,683
    
    
    
    (14,392
    )Increase (decrease) in cash
    
    
    226
    
    
    
    (108
    )Cash at beginning of period
    
    
    298
    
    
    
    333Cash at end of period
    
    $
    524
    
    
    $
    225Supplemental cash flow information:Cash paid during the period for interest
    
    $
    2,478
    
    
    $
    1,829Cash paid during the period for income taxes
    
    $
    6,844
    
    
    $
    4,917Noncash financing activitycommon stock issued under option plan
    
    $
    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
 Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees Statements of Cash Flows requires
 Transition Election Related
to Accounting for Tax Effects of Share-Based Payment Awards
 6




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Accounting Changes and Error Corrections Accounting Changes,
 Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No. 143 conditional asset retirement obligation Accounting for Asset
Retirement Obligations
 Note DAcquisitions
 Intensity Athletics, Inc .
   Junkfood Clothing Company
    7




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Economic LifeGoodwill
    
    $
    10,877
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    $
    19,877
   Cash consideration paid
    
    $
    24,353Promissory note issued
    
    
    2,500Direct merger costs
    
    
    582Total purchase price
    
    $
    27,435Accounts receivable
    
    $
    10,514Inventories
    
    
    2,982Other current assets
    
    
    125Other assets
    
    
    26Property, plant and equipment
    
    
    268Goodwill and other intangible assets
    
    
    19,877Current liabilities
    
    
    (6,357
    )Fair value of net assets acquired
    
    $
    27,435
  Three Months Ended
    
    
    Nine Months EndedApril 1,
    
    
    April 2,
    
    
    April 1,
    
    
    April 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    69,365
    
    
    $
    65,422
    
    
    $
    199,006
    
    
    $
    178,327Net income
    
    
    2,744
    
    
    
    5,955
    
    
    
    9,401
    
    
    
    9,141Net income per shareBasic
    
    $
    0.32
    
    
    $
    0.71
    
    
    $
    1.09
    
    
    $
    1.10Diluted
    
    $
    0.31
    
    
    $
    0.70
    
    
    $
    1.09
    
    
    $
    1.08
 8




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Note EGoodwill and Intangible Assets
  April 1,2006
    
    

Economic LifeGoodwill
    
    $
    10,877
    
    
    
    N/AIntangibles:Tradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    
    19,877Less accumulated amortization
    
    
    (300
    )$
    19,577
  Note FInventories
  April 1,
    
    
    July 2,2006
    
    
    2005Raw materials
    
    $
    6,173
    
    
    $
    4,496Work in process
    
    
    28,514
    
    
    
    21,231Finished goods
    
    
    78,023
    
    
    
    73,299$
    112,710
    
    
    $
    99,026
 Note GDebt
     9




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Note HSelling, General and Administrative Expense
  Note IStock Options and Incentive Stock Awards
   Option Plan
    10




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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedApril 2,
    
    
    April 2,2005
    
    
    2005Net income, as reported
    
    $
    5,445
    
    
    $
    8,043Add: Stock-based employee
compensation expense
included in reported net
income, net of related tax
effects
    
    
    341
    
    
    
    631Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all options and awards, net
of related tax effects
    
    
    (509
    )
    
    
    (1,135
    )Pro forma net income
    
    $
    5,277
    
    
    $
    7,539Earnings per share:Basicas reported
    
    $
    0.65
    
    
    $
    0.97Basicpro forma
    
    $
    0.63
    
    
    $
    0.91Dilutedas reported
    
    $
    0.64
    
    
    $
    0.95Dilutedpro forma
    
    $
    0.62
    
    
    $
    0.89
  Weighted-
AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    158,500
    
    
    $
    4.23Granted
    
    
    734,000
    
    
    $
    5.18Vested
    
    
    (158,500
    )
    
    $
    4.23Forfeited
    
    
    (60,000
    )
    
    $
    5.18Expired
    
    
    
    
    
    
    Nonvested at April 1, 2006
    
    
    674,000
    
    
    $
    5.18
  Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards
  Award Plan
  11




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WeightedAverageExerciseShares
    
    
    PriceNonvested at July 2, 2005
    
    
    94,402
    
    
    $
    0.01Granted
    
    
    125,000
    
    
    $
    0.01Vested
    
    
    (94,402
    )
    
    $
    0.01Forfeited
    
    
    (12,000
    )
    
    $
    0.01Expired
    
    
    
    
    
    
    Nonvested at April 1, 2006
    
    
    113,000
    
    
    $
    0.01
  Note JIncome Taxes
  Note KPurchase Contracts
  Note LComputation of Basic and Diluted Net Earnings per Share (EPS)
  Note MStockholders Equity
 Stock Split
  12




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Stock Repurchase Program
  Quarterly Dividend Program
  Note NSegment Reporting
  ®
 ® ® ®
    Retail-Activewear
    
    
    Ready
    
    
    Corporate andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2006:Net sales
    
    $
    36,550
    
    
    $
    32,815
    
    
    $
    
    
    
    $
    69,365Segment operating income
    
    
    1,282
    
    
    
    3,935
    
    
    
    46
    
    
    
    5,263Segment assets
    
    
    102,471
    
    
    
    100,325
    
    
    
    
    
    
    
    202,796Fiscal Year 2005:Net sales
    
    $
    35,863
    
    
    $
    22,409
    
    
    $
    
    
    
    $
    58,272Segment operating income
    
    
    2,499
    
    
    
    1,993
    
    
    
    (140
    )
    
    
    4,352Segment assets
    
    
    96,570
    
    
    
    70,508
    
    
    
    
    
    
    
    167,078
 13




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Retail-Activewear
    
    
    Ready
    
    
    Corporate andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2006:Net sales
    
    $
    94,617
    
    
    $
    93,023
    
    
    $
    
    
    
    $
    187,640Segment operating income
    
    
    5,139
    
    
    
    10,443
    
    
    
    176
    
    
    
    15,758Fiscal Year 2005:Net sales
    
    $
    102,715
    
    
    $
    59,052
    
    
    $
    
    
    
    $
    161,767Segment operating income
    
    
    4,496
    
    
    
    5,943
    
    
    
    (235
    )
    
    
    10,204
  Three Months Ended
    
    
    Nine Months EndedApril 1,
    
    
    April 2,
    
    
    April 1,
    
    
    April 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment operating income
    
    $
    5,263
    
    
    $
    4,352
    
    
    $
    15,758
    
    
    $
    10,204Other (expense) income
    
    
    (128
    )
    
    
    3,616
    
    
    
    276
    
    
    
    3,612Unallocated interest expense
    
    
    1,056
    
    
    
    679
    
    
    
    2,738
    
    
    
    2,217Consolidated income before taxes
    
    $
    4,079
    
    
    $
    7,289
    
    
    $
    13,296
    
    
    $
    11,599
 Note OOther Items
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD LOOKING STATEMENTS
    14




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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
  15




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16




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17




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Operating Cash Flows
  Investing Cash Flows
  18




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Financing Activities
   Purchases by Delta Apparel of its Own Shares
  Dividend Program
     Revenue Recognition and Accounts Receivable
  19




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Inventories
  Self Insurance
  Income Taxes
 Accounting for Income Taxes
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
       20




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Item 4: Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Numberof Shares
    
    
    ApproximateTotal
    
    
    
    
    
    
    Purchased as
    
    
    Dollar Value ofNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Shares that MayShares (or
    
    
    Price Paid
    
    
    Announced
    
    
    Yet Be PurchasedUnits)
    
    
    per Share
    
    
    Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    Programs
    
    
    ProgramsJanuary 1, 2006 - February 4, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $1.5 millionFebruary 5, 2006 - March 4, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $1.5 millionMarch 4, 2006 - April 1, 2006
    
    
    24,100
    
    
    $
    16.91
    
    
    
    24,100
    
    
    $1.1 millionTotal
    
    
    24,100
    
    
    $
    16.91
    
    
    
    24,100
    
    
    $1.1 million
   21




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Item 6. Exhibits
  10.31
    
    Amendment of Employment Agreement between Delta Apparel, Inc. and Herbert M. Mueller
dated March 10, 2006.31.1
    
    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 Accounting 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 Accounting 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)May 12, 2006

Date
    
    
    
    By: /s/ Deborah H. Merrill

Deborah H. MerrillVice President, Chief
Accounting
 Officer and
Treasurer
 23