##### 



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 December 31, 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
    
    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












---



##### 



INDEX
 PART I. Financial Information
    
    PageItem 1. Financial StatementsInterim Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance SheetsDecember 31, 2005 and July 2, 2005
    
    
    3Condensed Consolidated Statements of IncomeThree months and six months ended December 31, 2005 and January 1, 2005
    
    
    4Condensed Consolidated Statements of Cash FlowsSix months ended December 31, 2005 and January 1, 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
    
    
    20-21Item 4. Controls and Procedures
    
    
    21PART II. Other InformationItem 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 6. Exhibits and Reports on Form 8-K
    
    
    22Signatures
    
    
    23Exhibits
    
    
    24-27
 2




---



##### 



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)
 December 31,
    
    
    July 2,Assets
    
    2005
    
    
    2005Current assets:Cash
    
    $
    948
    
    
    $
    298Accounts receivable, net
    
    
    32,161
    
    
    
    36,611Income taxes receivable
    
    
    1,662
    
    
    
    Inventories
    
    
    114,779
    
    
    
    99,026Prepaid expenses and other current assets
    
    
    2,098
    
    
    
    1,968Deferred income taxes
    
    
    2,619
    
    
    
    1,252Total current assets
    
    
    154,267
    
    
    
    139,155Property, plant and equipment, net
    
    
    20,692
    
    
    
    19,950Goodwill and other intangibles, net
    
    
    19,717
    
    
    
    Other assets
    
    
    1,855
    
    
    
    409Total assets
    
    $
    196,531
    
    
    $
    159,514Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    39,588
    
    
    $
    36,700Income taxes payable
    
    
    
    
    
    
    480Current portion of long-term debt
    
    
    3,683
    
    
    
    15,065Total current liabilities
    
    
    43,271
    
    
    
    52,245Long-term debt
    
    
    58,689
    
    
    
    17,236Deferred income taxes
    
    
    1,111
    
    
    
    171Other liabilities
    
    
    19
    
    
    
    3,398Total liabilities
    
    
    103,090
    
    
    
    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 December 31, 2005 and July 2, 2005,
respectively
    
    
    96
    
    
    
    96Additional paid-in capital
    
    
    54,348
    
    
    
    53,867Retained earnings
    
    
    45,019
    
    
    
    39,106Treasury stock1,025,674 and 1,124,920 shares as of December 31,
2005 and July 2, 2005, respectively
    
    
    (6,022
    )
    
    
    (6,605
    )Total stockholders equity
    
    
    93,441
    
    
    
    86,464Total liabilities and stockholders equity
    
    $
    196,531
    
    
    $
    159,514
  3




---



##### 



DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Net sales
    
    $
    57,702
    
    
    $
    49,195
    
    
    $
    118,275
    
    
    $
    103,495Cost of goods sold
    
    
    39,433
    
    
    
    38,379
    
    
    
    81,312
    
    
    
    81,102Gross profit
    
    
    18,269
    
    
    
    10,816
    
    
    
    36,963
    
    
    
    22,393Selling, general and administrative expenses
    
    
    13,768
    
    
    
    8,094
    
    
    
    26,468
    
    
    
    16,540Other income (expense)
    
    
    433
    
    
    
    (15
    )
    
    
    404
    
    
    
    (5
    )Operating income
    
    
    4,934
    
    
    
    2,707
    
    
    
    10,899
    
    
    
    5,848Interest expense, net
    
    
    997
    
    
    
    835
    
    
    
    1,682
    
    
    
    1,538Income before income taxes
    
    
    3,937
    
    
    
    1,872
    
    
    
    9,217
    
    
    
    4,310Provision for income taxes
    
    
    1,561
    
    
    
    718
    
    
    
    3,464
    
    
    
    1,712Net income
    
    $
    2,376
    
    
    $
    1,154
    
    
    $
    5,753
    
    
    $
    2,598Earnings per shareBasic
    
    $
    0.28
    
    
    $
    0.14
    
    
    $
    0.67
    
    
    $
    0.31Diluted
    
    $
    0.27
    
    
    $
    0.13
    
    
    $
    0.67
    
    
    $
    0.30Weighted average number of shares outstanding
    
    
    8,621
    
    
    
    8,292
    
    
    
    8,577
    
    
    
    8,288Dilutive effect of stock options
    
    
    60
    
    
    
    270
    
    
    
    44
    
    
    
    271Weighted average number of shares assuming dilution
    
    
    8,681
    
    
    
    8,562
    
    
    
    8,621
    
    
    
    8,559Cash dividends declared per common share
    
    $
    0.04
    
    
    $
    0.35
    
    
    $
    0.08
    
    
    $
    0.07
  4




---



##### 



DELTA APPAREL, INC. AND SUBSIDIARIES
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 Six Months EndedDecember 31,
    
    
    January 1,2005
    
    
    2005Operating activities:Net income
    
    $
    5,753
    
    
    $
    2,598Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,392
    
    
    
    2,383Deferred income taxes
    
    
    (384
    )
    
    
    (101
    )(Gain) loss on sale of property and equipment
    
    
    (68
    )
    
    
    30Noncash compensation
    
    
    1,758
    
    
    
    828Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed in connection with business acquisitions:Accounts receivable
    
    
    15,133
    
    
    
    10,871Inventories
    
    
    (12,029
    )
    
    
    (1,014
    )Prepaid expenses and other current assets
    
    
    61
    
    
    
    159Other noncurrent assets
    
    
    (21
    )
    
    
    (253
    )Accounts payable and accrued expenses
    
    
    (3,579
    )
    
    
    (3,869
    )Income taxes
    
    
    (2,143
    )
    
    
    (2,623
    )Other liabilities
    
    
    (3,378
    )
    
    
    (2,994
    )Net cash provided by operating activities
    
    
    3,495
    
    
    
    6,015Investing activities:Purchases of property, plant and equipment
    
    
    (2,691
    )
    
    
    (5,439
    )Proceeds from sale of property, plant and equipment
    
    
    124
    
    
    
    92Acquisition of business
    
    
    (28,237
    )
    
    
    Cash invested in joint venture
    
    
    (1,425
    )
    
    
    Net cash used in investing activities
    
    
    (32,229
    )
    
    
    (5,347
    )Financing activities:Repayment of Soffe revolving credit facility, net
    
    
    (11,781
    )
    
    
    (3,969
    )Proceeds from long-term debt
    
    
    84,951
    
    
    
    24,476Repayment of long-term debt
    
    
    (43,100
    )
    
    
    (20,910
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    35Dividends paid
    
    
    (686
    )
    
    
    (580
    )Net cash provided by (used in) financing activities
    
    
    29,384
    
    
    
    (948
    )Increase (decrease) in cash
    
    
    650
    
    
    
    (280
    )Cash at beginning of period
    
    
    298
    
    
    
    333Cash at end of period
    
    $
    948
    
    
    $
    53Supplemental cash flow information:Cash paid during the period for interest
    
    $
    1,538
    
    
    $
    1,200Cash paid during the period for income taxes
    
    $
    5,974
    
    
    $
    4,804Noncash financing activitycommon stock issued under option plan
    
    $
    1,428
    
    
    $
    59
  5




---



##### 



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




---



##### 



Note DAcquisitions
 Intensity Athletics, Inc .
   Junkfood Clothing Company
     Useful LifeGoodwill
    
    $
    10,877
    
    
    
    N/AIntangiblesTradename/trademarks
    
    
    1,530
    
    
    20 yrsCustomer relationships
    
    
    7,220
    
    
    20 yrsNon-compete agreements
    
    
    250
    
    
    5 yrsTotal intangibles
    
    
    9,000Total goodwill and intangibles
    
    $
    19,877
   7




---



##### 



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
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Net sales
    
    $
    57,702
    
    
    $
    54,941
    
    
    $
    129,641
    
    
    $
    112,885Net income
    
    
    2,376
    
    
    
    1,556
    
    
    
    6,657
    
    
    
    3,185Net income per shareBasic
    
    $
    0.28
    
    
    $
    0.19
    
    
    $
    0.78
    
    
    $
    0.38Diluted
    
    $
    0.27
    
    
    $
    0.18
    
    
    $
    0.77
    
    
    $
    0.37
 Note EIntangible Assets
  December 31,2005
    
    
    Useful LifeGoodwill
    
    $
    10,877
    
    
    
    N/AIntangiblesTradename/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
    
    
    (160
    )$
    19,717
  8




---



##### 



Note
FInventories
  December 31,
    
    
    July 2,2005
    
    
    2005Raw materials
    
    $
    6,048
    
    
    $
    4,496Work in process
    
    
    27,251
    
    
    
    21,231Finished goods
    
    
    81,480
    
    
    
    73,299$
    114,779
    
    
    $
    99,026
 Note GDebt
       Note HSelling, General and Administrative Expense
  Note IStock Options and Incentive Stock Awards
  9




---



##### 



Option Plan
    Three Months
    
    
    Six MonthsEnded
    
    
    EndedJanuary 1,
    
    
    January 1,2005
    
    
    2005Net income, as reported
    
    $
    1,154
    
    
    $
    2,598Add: Stock-based employee compensation
expense included in reported net income, net of
related tax effects
    
    
    155
    
    
    
    290Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all options and awards,
net of related tax effects
    
    
    (323
    )
    
    
    (626
    )Pro forma net income
    
    $
    986
    
    
    $
    2,262Earnings per share:Basicas reported
    
    $
    0.14
    
    
    $
    0.31Basicpro forma
    
    $
    0.12
    
    
    $
    0.27Dilutedas reported
    
    $
    0.13
    
    
    $
    0.30Dilutedpro forma
    
    $
    0.12
    
    
    $
    0.26
 10




---



##### 



Six Months EndedDecember 31, 2005Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    158,500
    
    
    $
    4.23Granted
    
    
    734,000
    
    
    $
    5.18Vested
    
    
    (158,500
    )
    
    $
    4.23Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Nonvested at December 31, 2005
    
    
    734,000
    
    
    $
    5.18
  Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards
  Award Plan
     11




---



##### 



Six Months EndedDecember 31, 2005Weighted-AverageGrant-DateShares
    
    
    Fair ValueNonvested at July 2, 2005
    
    
    94,402
    
    
    $
    0.01Granted
    
    
    125,000
    
    
    $
    0.01Vested
    
    
    (94,402
    )
    
    $
    0.01Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Nonvested at December 31, 2005
    
    
    125,000
    
    
    $
    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
  Stock Repurchase Program
  12




---



##### 



Quarterly Dividend Program
  Note NSegment Reporting
  ®
 ® ® ®
    Retail-Activewear
    
    
    Ready
    
    
    Corporate andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2006:Net sales
    
    $
    28,501
    
    
    $
    29,201
    
    
    $
    
    
    
    $
    57,702Segment operating income
    
    
    2,191
    
    
    
    2,673
    
    
    
    70
    
    
    
    4,934Segment assets
    
    
    99,103
    
    
    
    97,428
    
    
    
    
    
    
    
    196,531Fiscal Year 2005:Net sales
    
    $
    33,872
    
    
    $
    15,323
    
    
    $
    
    
    
    $
    49,195Segment operating income
    
    
    1,935
    
    
    
    865
    
    
    
    (93
    )
    
    
    2,707Segment assets
    
    
    96,169
    
    
    
    67,032
    
    
    
    
    
    
    
    163,201
  13




---



##### 



Retail-Activewear
    
    
    Ready
    
    
    Corporate andApparel
    
    
    Apparel
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2006:Net sales
    
    $
    58,067
    
    
    $
    60,208
    
    
    $
    
    
    
    $
    118,275Segment operating income
    
    
    4,200
    
    
    
    6,569
    
    
    
    130
    
    
    
    10,899Fiscal Year 2005:Net sales
    
    $
    66,852
    
    
    $
    36,643
    
    
    $
    
    
    
    $
    103,495Segment operating income
    
    
    1,944
    
    
    
    3,998
    
    
    
    (94
    )
    
    
    5,848
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    January 1,
    
    
    December 31,
    
    
    January 1,2005
    
    
    2005
    
    
    2005
    
    
    2005Segment operating income
    
    $
    4,934
    
    
    $
    2,707
    
    
    $
    10,899
    
    
    $
    5,848Unallocated interest expense
    
    
    997
    
    
    
    835
    
    
    
    1,682
    
    
    
    1,538Consolidated income before taxes
    
    $
    3,937
    
    
    $
    1,872
    
    
    $
    9,217
    
    
    $
    4,310
 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
      14




---



##### 



15




---



##### 



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
          16




---



##### 



17




---



##### 



Operating Cash Flows
  Investing Cash Flows
  Financing Activities
  18




---



##### 



Purchases by Delta Apparel of its Own Shares
  Dividend Program
     Revenue Recognition and Accounts Receivable
  Inventories
  Self Insurance
  19




---



##### 



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




---



##### 



Item 4: Controls and Procedures
    21




---



##### 



PART II. OTHER INFORMATION
 Item 4. Submission of Matters to a Vote of Security Holders
  BrokerElection of Directors
    
    For
    
    Against
    
    Withheld
    
    Abstentions
    
    Non-votesDavid S. Fraser
    
    
    7,275,788
    
    
    
    N/A
    
    
    
    4,215
    
    
    
    N/A
    
    
    N/AWilliam F. Garrett
    
    
    7,267,440
    
    
    
    N/A
    
    
    
    12,563
    
    
    
    N/A
    
    
    N/ARobert W. Humphreys
    
    
    7,275,828
    
    
    
    N/A
    
    
    
    4,175
    
    
    
    N/A
    
    
    N/ADr. Max Lennon
    
    
    7,275,840
    
    
    
    N/A
    
    
    
    4,163
    
    
    
    N/A
    
    
    N/AE. Erwin Maddrey, II
    
    
    7,268,900
    
    
    
    N/A
    
    
    
    11,103
    
    
    
    N/A
    
    
    N/APhilip J. Mazzilli
    
    
    7,275,728
    
    
    
    N/A
    
    
    
    4,275
    
    
    
    N/A
    
    
    N/ABuck A. Mickel
    
    
    7,275,460
    
    
    
    N/A
    
    
    
    4,543
    
    
    
    N/A
    
    
    N/ADavid Peterson
    
    
    7,276,004
    
    
    
    N/A
    
    
    
    3,999
    
    
    
    N/A
    
    
    N/ARatification of the Appointment of
Ernst & Young LLP as Independent
Auditors for Fiscal Year 2006
    
    
    7,271,525
    
    
    
    5,692
    
    
    
    N/A
    
    
    
    2,786
    
    
    
 Item 6. Exhibits
  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.
 22




---



##### 



SIGNATURES
  DELTA APPAREL, INC.
(Registrant)February 10, 2006
    
    By: /s/ Herbert M. MuellerDate
    
    Herbert M. Mueller
Vice President, Chief Financial
Officer and Treasurer
 23