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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 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
    
    58-2508794(State or other jurisdiction of
Incorporation or organization)
    
    (I.R.S. Employer
Identification 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.)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x      No o. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o      No x. As of January 31, 2005, there were outstanding 4,150,181 shares of the registrants common stock,
par value of $0.01, which is the only class of the outstanding common or voting stock of the
registrant.




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INDEX PagePART I.
    
    Financial InformationItem 1.
    
    Financial StatementsInterim Condensed Consolidated Financial Statements (Unaudited):Condensed
Consolidated Balance Sheets  January 1, 2005 and July 3, 2004
    
    3Condensed
Consolidated Statements of Income  Three months and six months
ended January 1, 2005 andDecember 27, 2003
    
    4Condensed
Consolidated Statements of Cash Flows  Six months ended January 1, 2005 and December 27, 2003
    
    5Notes to Condensed Consolidated Financial Statements
    
    6-10Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    10-15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    15Item 4.
    
    Controls and Procedures
    
    16PART II.
    
    Other InformationItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    16Item 5.
    
    Other Information
    
    16Item 6.
    
    Exhibits and Reports on Form 8-K
    
    16-17Signatures
    
    
    
    18Exhibits
    
    
    
    19-86EX-2.2.1 FIRST AMENDMENT TO AMENDED AND RESTATED STOCK PURCHASE AGREEMENTEX-2.3 ASSET PURCHASE AGREEMENTEX-2.3.1 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENTEX-10.2.2 THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENTEX-10.29 YARN SUPPPLY AGREEMENTEX-10.30 2004 NON-EMPLOYEE DIRECTOR STOCK PLANEX-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
 2




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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)
 (Unaudited)January 1,
    
    July 3,2005
    

2004AssetsCurrent assets:Cash
    
    $
    53
    
    
    $
    333Accounts receivable, net
    
    
    27,739
    
    
    
    38,610Income taxes receivable
    
    
    830
    
    
    
    Inventories
    
    
    106,655
    
    
    
    105,888Assets held for sale
    
    
    6,384
    
    
    
    Prepaid expenses and other current assets
    
    
    1,457
    
    
    
    1,616Deferred income taxes
    
    
    1,071
    
    
    
    1,075Total current assets
    
    
    144,189
    
    
    
    147,522Property, plant and equipment, net
    
    
    16,326
    
    
    
    19,529Deferred income taxes
    
    
    283
    
    
    
    178Other assets
    
    
    2,403
    
    
    
    2,150Total assets
    
    $
    163,201
    
    
    $
    169,379Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    27,411
    
    
    $
    30,511Income taxes payable
    
    
    
    
    
    
    1,793Current portion of long-term debt
    
    
    17,025
    
    
    
    20,810Total current liabilities
    
    
    44,436
    
    
    
    53,114Long-term debt
    
    
    32,628
    
    
    
    29,246Other liabilities
    
    
    8,533
    
    
    
    11,527Total liabilities
    
    
    85,597
    
    
    
    93,887Stockholders equity:Preferred stock2,000,000 shares authorized; none issued
and outstanding.
    
    
    
    
    
    
    Common stockpar value $.01 a share, 7,500,000 shares authorized,
4,823,486 shares issued, and 4,146,181 and 4,136,259
shares outstanding as of January 1, 2005 and July 3, 2004,
respectively.
    
    
    48
    
    
    
    48Additional paid-in capital
    
    
    53,867
    
    
    
    53,867Retained earnings
    
    
    31,471
    
    
    
    29,473Treasury stock677,305 and 687,227 shares as of January 1, 2005
and July 3, 2004, respectively.
    
    
    (7,782
    )
    
    
    (7,896
    )Total stockholders equity
    
    
    77,604
    
    
    
    75,492Total liabilities and stockholders equity
    
    $
    163,201
    
    
    $
    169,379
 See accompanying notes to condensed consolidated financial statements. 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
    
    Six Months EndedJanuary 1,
    
    December 27,
    
    January 1,
    
    December 27,2005
    
    2003
    
    2005
    
    2003Net sales
    
    $
    49,195
    
    
    $
    45,623
    
    
    $
    103,495
    
    
    $
    76,425Cost of goods sold
    
    
    38,379
    
    
    
    36,714
    
    
    
    81,102
    
    
    
    63,434Gross profit
    
    
    10,816
    
    
    
    8,909
    
    
    
    22,393
    
    
    
    12,991Selling, general and administrative expenses
    
    
    8,094
    
    
    
    8,148
    
    
    
    16,540
    
    
    
    11,207Other expense (income)
    
    
    15
    
    
    
    31
    
    
    
    5
    
    
    
    (50
    )Operating income
    
    
    2,707
    
    
    
    730
    
    
    
    5,848
    
    
    
    1,834Interest expense, net
    
    
    835
    
    
    
    892
    
    
    
    1,538
    
    
    
    1,046Income (loss) before income taxes
    
    
    1,872
    
    
    
    (162
    )
    
    
    4,310
    
    
    
    788Income tax expense (benefit)
    
    
    718
    
    
    
    (71
    )
    
    
    1,712
    
    
    
    290Net income (loss)
    
    $
    1,154
    
    
    $
    (91
    )
    
    $
    2,598
    
    
    $
    498Earnings (loss) per shareBasic
    
    $
    0.28
    
    
    
    ($0.02
    )
    
    $
    0.63
    
    
    $
    0.12Diluted
    
    $
    0.27
    
    
    
    ($0.02
    )
    
    $
    0.61
    
    
    $
    0.12Weighted average number of shares outstanding
    
    
    4,146
    
    
    
    4,064
    
    
    
    4,144
    
    
    
    4,054Dilutive effect of stock options
    
    
    135
    
    
    
    
    
    
    
    136
    
    
    
    122Weighted average number of shares assuming dilution
    
    
    4,281
    
    
    
    4,064
    
    
    
    4,280
    
    
    
    4,176Cash dividends declared per common share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.14
    
    
    $
    0.12
 See accompanying notes to condensed consolidated financial statements. 4




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DELTA APPAREL, INC. AND SUBSIDIARIES 
 Condensed Consolidated Statements of Cash Flows (in thousands)
 (Unaudited)
 Six Months EndedJanuary 1,
    
    December 27,2005
    
    2003Operating activities:Net income
    
    $
    2,598
    
    
    $
    498Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    2,383
    
    
    
    2,263Deferred income taxes
    
    
    (101
    )
    
    
    (318
    )Loss on sale of property and equipment
    
    
    30
    
    
    
    4Noncash compensation
    
    
    828
    
    
    
    670Changes in operating assets and liabilities:Accounts receivable
    
    
    10,871
    
    
    
    11,867Inventories
    
    
    (1,014
    )
    
    
    (12,121
    )Prepaid expenses and other current assets
    
    
    159
    
    
    
    882Other noncurrent assets
    
    
    (253
    )
    
    
    1,990Accounts payable and accrued expenses
    
    
    (3,869
    )
    
    
    (2,002
    )Income taxes
    
    
    (2,623
    )
    
    
    (235
    )Other liabilities
    
    
    (2,994
    )
    
    
    535Net cash provided by operating activities
    
    
    6,015
    
    
    
    4,033Investing activities:Purchases of property, plant and equipment
    
    
    (5,439
    )
    
    
    (1,084
    )Proceeds from sale of property, plant and equipment
    
    
    92
    
    
    
    4Cash paid for business, net of cash received
    
    
    
    
    
    
    (51,250
    )Net cash used in investing activities
    
    
    (5,347
    )
    
    
    (52,330
    )Financing activities:(Repayment of) proceeds from Soffe revolving credit facility, net
    
    
    (3,969
    )
    
    
    19,755Proceeds from long-term debt
    
    
    24,476
    
    
    
    34,419Repayment of long-term debt
    
    
    (20,910
    )
    
    
    (5,224
    )Repurchase of common stock
    
    
    
    
    
    
    (148
    )Proceeds from exercise of stock options
    
    
    35
    
    
    
    144Dividends paid
    
    
    (580
    )
    
    
    (487
    )Net cash (used in) provided by financing activities
    
    
    (948
    )
    
    
    48,459(Decrease) increase in cash
    
    
    (280
    )
    
    
    162Cash at beginning of period
    
    
    333
    
    
    
    203Cash at end of period
    
    $
    53
    
    
    $
    365Supplemental cash flow information:Cash paid during the period for interest
    
    $
    1,200
    
    
    $
    621Cash paid during the period for income taxes
    
    $
    4,804
    
    
    $
    843Noncash financing activityissuance of common stock
    
    $
    59
    
    
    $
    37
 See accompanying notes to condensed consolidated financial statements. 5




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DELTA APPAREL, INC. AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note ABasis of Presentation We prepared the accompanying interim condensed consolidated financial statements in accordance with
the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. We believe these condensed consolidated financial statements
reflect all adjustments (consisting of only normal recurring accruals) considered necessary for a
fair presentation. Operating results for the three and six months ended January 1, 2005 are not
necessarily indicative of the results that may be expected for the year ending July 2, 2005. For
more information regarding our results of operations and financial position refer to the
consolidated financial statements and footnotes included in our Form 10-K for the year ended July
3, 2004, filed with the Securities and Exchange Commission. Delta Apparel, the Company, and we, us and our are used interchangeably to refer to Delta
Apparel, Inc. together with our wholly-owned subsidiary, M. J. Soffe Co. (M. J. Soffe, or
Soffe), and our other subsidiaries, as appropriate to the context. Note BAccounting Policies Our accounting policies are consistent with those described in our Summary of Significant
Accounting Policies in our Form 10-K for the year ended July 3, 2004 filed with the Securities and
Exchange Commission. Note CNew Accounting Standards On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statements of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requiresall share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma disclosure
is no longer an alternative. Statement 123(R) must be adopted for annual periods beginning after June 15, 2005. Early adoption
will be permitted in periods in which financial statements have not yet been issued. We expect to
adopt Statement 123(R) on July 3, 2005. We are currently evaluating the effect that the adoption
of Statement 123(R) will have on our financial position and results of operations. Note D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. For the second
quarter of fiscal years 2005 and 2004, distribution costs included in selling, general and
administrative expenses totaled $1.9 million and $2.1 million, respectively. For the first six
months of fiscal years 2005 and 2004, distribution costs included in selling, general and
administrative expenses totaled $3.8 million and $3.2 million, respectively. The Soffe segment was
included in our results beginning October 3, 2004. In addition, selling, general and
administrative expenses include costs related to sales associates, administrative personnel cost,
advertising and marketing expenses and general and administrative expenses. 6




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Note EInventories Inventories consist of the following: January 1,
    
    July 3,2005
    
    2004Raw materials
    
    $
    4,784
    
    
    $
    5,406Work in process
    
    
    24,980
    
    
    
    26,540Finished goods
    
    
    76,891
    
    
    
    73,942$
    106,655
    
    
    $
    105,888
 Raw materials at July 3, 2004 included raw cotton for the Delta segment and finished yarn for the
Soffe segment. In addition, it included direct materials for both segments. On December 27, 2004,
we sold our entire inventory located at our yarn manufacturing facility in Edgefield, South
Carolina to Parkdale (see Note M). Prior to the sale, raw cotton was the primary raw material in
the Delta segment. Subsequent to the sale, finished yarn becomes our primary raw material in both
the Delta and Soffe segments. Therefore, raw materials at January 1, 2005 included finished yarn
and direct materials for both the Delta and Soffe segments. Note FDebt The Soffe Facility contains both a subjective acceleration clause and a lockbox arrangement,
whereby remittances from the customers reduce the current outstanding borrowings. Pursuant to
Emerging Issues Task Force (EITF) 95-22, we are classifying borrowings under the Soffe Facility
as current debt. Borrowings under the Soffe Facility classified as current debt at January 1, 2005
and July 3, 2004 were $13.2 million and $17.2 million, respectively. The Delta Facility contains a subjective acceleration clause and a springing lockbox arrangement
(as defined in EITF 95-22), whereby remittances from customers are forwarded to our general bank
account and do not reduce the outstanding debt until and unless a specified event or an event of
default occurs. Pursuant to EITF 95-22, we are classifying borrowings under the Delta Facility as
noncurrent debt. On November 8, 2004, we amended the Delta Facility to increase our line of credit by an additional
$2.75 million to $42.75 million. In conjunction with the sale of the yarn manufacturing plant, on January 6, 2005, we amended our
Delta Facility to lower the Fixed Asset Loan Limit Amount from $10.0 million to $5.0 million. Note GIncome Taxes Our effective income tax rate for the six months ended January 1, 2005 was 39.7%, compared to 32.4%
for the fiscal year ended July 3, 2004. During the fiscal year ended June 30, 2001, we recorded a
tax liability in the amount of approximately $0.9 million with respect to our tax sharing agreement
between Delta Woodside Industries, Inc. (our former parent company) and the Company. During the
fiscal year ended July 3, 2004, we determined that it was no longer probable that a tax liability
might occur as a result of this tax sharing agreement. Therefore, we reversed the $0.9 million tax
liability that had been created, resulting in the lower effective tax rate during fiscal year 2004. Note HStock Options and Incentive Stock Awards We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees and related Interpretations in accounting for our employee stock options because the
alternative fair value accounting provided for under Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires use of option valuation
models that were not developed for use in valuing employee stock options. Pro forma information regarding net income and earnings per share is required by SFAS 123 to be
determined as if we had accounted for our employee stock options under the fair value method of
that Statement. For purposes of pro forma disclosures, the estimated fair value of the options
under the Option Plan and the Award Plan are amortized to expense over the options vesting period.
Our pro forma information follows (in thousands, except per share amounts): 7




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Three Months Ended
    
    Six Months EndedJanuary 1,
    
    December 27,
    
    January 1,
    
    December 27,2005
    
    2003
    
    2005
    
    2003Net income (loss), as reported
    
    $
    1,154
    
    
    $
    (91
    )
    
    $
    2,598
    
    
    $
    498Add: Stock-based employee
compensation expense included
in reported net income, net
of related tax effects
    
    
    155
    
    
    
    131
    
    
    
    289
    
    
    
    236Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all options
and awards, net of related
tax effects
    
    
    (219
    )
    
    
    (78
    )
    
    
    (307
    )
    
    
    (18
    )Pro forma net income (loss)
    
    $
    1,090
    
    
    $
    (38
    )
    
    $
    2,580
    
    
    $
    554Earnings (loss) per share:Basicas reported
    
    $
    0.28
    
    
    ($
    0.02
    )
    
    $
    0.63
    
    
    $
    0.12Basicpro forma
    
    $
    0.26
    
    
    ($
    0.01
    )
    
    $
    0.62
    
    
    $
    0.14Dilutedas reported
    
    $
    0.27
    
    
    ($
    0.02
    )
    
    $
    0.61
    
    
    $
    0.12Dilutedpro forma
    
    $
    0.25
    
    
    ($
    0.01
    )
    
    $
    0.60
    
    
    $
    0.13
 Note IPurchase Contracts We have entered into agreements, and have fixed prices, to purchase yarn and finished apparel
products for use in our manufacturing operations. At January 1, 2005, minimum payments under these
contracts to purchase yarn and finished apparel products with non-cancelable contract terms were
$16.3 million and $1.0 million, respectively. Note JComputation of Basic and Diluted Net Earnings per Share (EPS) We compute basic net earnings per share by dividing net income by the weighted average number of
common shares outstanding during the period. The computation of diluted earnings per share
includes the dilutive effect of stock options and non-vested stock awards granted under our Stock
Option Plan and our Incentive Stock Award Plan. The weighted average shares do not include securities that would be anti-dilutive for each of the
periods presented. Note KStockholders Equity Stock Repurchase Program
We have authorization from our Board of Directors to spend up to an aggregate of $6.0 million for
share repurchases under the Stock Repurchase Program. All purchases are made at the discretion of
our management. We did not purchase shares of our common stock during the three months ended
January 1, 2005. Since the inception of the Stock Repurchase Program, weve purchased 368,057
shares of our common stock pursuant to the program for an aggregate of $4.2 million. Quarterly Dividend Program
On October 28, 2004, our Board of Directors declared a cash dividend of seven cents per share of
common stock pursuant to our quarterly dividend program. We paid the dividend on November 29, 2004
to shareholders of record as of the close of business on November 17, 2004. On January 20, 2005,
our Board declared a cash dividend of seven cents per share of common stock payable on February 28,
2005 to shareholders of record as of the close of business on February 16, 2005. Although the
Board may terminate or amend the program at any time, we currently expect to continue the quarterly
dividend program. Note LSegment Reporting We operate our business in two distinct segments: Delta and Soffe. Although the two segments are
similar in their production processes and regulatory environment, they are distinct in their
economic characteristics, products and distribution methods. 8




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The Delta segment manufactures, markets and distributes unembellished knit apparel under the brands
of Delta Pro Weight®, Delta Magnum Weight and Quail Hollow. The products are primarily
sold to screen printing companies. In addition, products are manufactured under private labels for
retailers, corporate industry programs and sports licensed apparel marketers. The Soffe segment manufactures, markets and distributes embellished and unembellished knit apparel
under the Soffe® label. The products are sold through specialty sporting goods stores and
department stores. In addition to these retail channels, Soffe also supplies college bookstores
and produces activewear products for the U.S. Military. Corporate and Unallocated is a reconciling category for reporting purposes and includes
intercompany eliminations and other costs that are not allocated to the operating segments. Our management evaluates performance and allocates resources based on profit or loss from
operations before interest, income taxes and special charges (Segment Operating Income). Our
Segment Operating Income may not be comparable to similarly titled measures used by other
companies. The accounting policies of our reportable segments are the same as those described in
Note A. Intercompany transfers between operating segments are transacted at cost and eliminated in
consolidation. Information about our operations as of and for the three months ended January 1, 2005 and December
27, 2003, by operating segment, is as follows (in thousands): Corporate andDelta
    
    
    Soffe
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2005:Net sales
    
    $
    34,034
    
    
    $
    15,706
    
    
    $
    (545
    )
    
    $
    49,195Segment operating income
    
    
    1,935
    
    
    
    865
    
    
    
    (93
    )
    
    
    2,707Segment assets
    
    
    96,169
    
    
    
    67,032
    
    
    
    
    
    
    
    163,201Fiscal Year 2004:Net sales
    
    $
    28,574
    
    
    $
    17,065
    
    
    $
    (16
    )
    
    $
    45,623Segment operating income
    
    
    5
    
    
    
    694
    
    
    
    31
    
    
    
    730Segment assets
    
    
    94,202
    
    
    
    66,468
    
    
    
    
    
    
    
    160,670
 Information about our operations as of and for the six months ended January 1, 2005 and December
27, 2003, by operating segment, is as follows (in thousands): Corporate andDelta
    
    
    Soffe
    
    
    Unallocated
    
    
    ConsolidatedFiscal Year 2005:Net sales
    
    $
    67,451
    
    
    $
    37,675
    
    
    $
    (1,631
    )
    
    $
    103,495Segment operating income
    
    
    1,944
    
    
    
    3,998
    
    
    
    (94
    )
    
    
    5,848Fiscal Year 2004:Net sales
    
    $
    59,376
    
    
    $
    17,065
    
    
    $
    (16
    )
    
    $
    76,425Segment operating income
    
    
    1,115
    
    
    
    694
    
    
    
    25
    
    
    
    1,834
 The following reconciles the Segment Operating Income to the consolidated income before income
taxes for the three and six months ended January 1, 2005 and December 27, 2003. Three Months Ended
    
    Six Months EndedJanuary 1,
    
    December 27,
    
    January 1,
    
    December 27,2005
    
    2003
    
    2005
    
    2003Segment operating income
    
    $
    2,707
    
    
    $
    730
    
    
    $
    5,848
    
    
    $
    1,834Unallocated interest expense
    
    
    835
    
    
    
    892
    
    
    
    1,538
    
    
    
    1,046Consolidated (loss) income
before taxes
    
    $
    1,872
    
    
    $
    (162
    )
    
    $
    4,310
    
    
    $
    788
 Note MAssets Held for Sale On November 18, 2004 we signed an agreement with Parkdale America, LLC (Parkdale) to sell our
yarn manufacturing plant in Edgefield, South Carolina. The sale of all inventory was completed on December 27,2004. The sale of all real
and personal property (excluding 9




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inventory), including supply parts, was completed on January 5,
2005. We reclassified the assets to be sold to assets held for sale, which includes $6.1 million
of property, plant and equipment and $0.2 million of supply parts. Note NSubsequent Event On January 5, 2005, we completed the sale of our yarn manufacturing plant in Edgefield, South
Carolina to Parkdale America, LLC for $10 million in cash. In conjunction with the sale
transaction, we entered into a five-year agreement with Parkdale to supply our yarn requirements.
During this five-year period, we will purchase exclusively from Parkdale all yarn required by Delta
Apparel and our wholly owned subsidiary, M. J. Soffe Co., for use in our manufacturing operations
(excluding yarns that Parkdale does not manufacture as of the date of the agreement in the ordinary
course of its business). The purchase price of yarn will be based upon the cost of cotton plus a
fixed conversion cost. The sale of the Edgefield Plant resulted in a pre-tax financial gain of $3.6 million, or estimated
after-tax gain of $0.51 per diluted share. This gain will be recorded in the fiscal quarter ending
April 2, 2005. In conjunction with the sale of the yarn manufacturing plant, on January 6, 2005, we amended our
Delta Facility to lower the Fixed Asset Loan Limit Amount from $10.0 million to $5.0 million. 
 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
The following discussion contains various forward-looking statements. All statements, other than
statements of historical fact, that address activities, events or developments that we expect or
anticipate will or may occur in the future are forward-looking statements. Examples are statements
that concern future revenues, future costs, future capital expenditures, business strategy,
competitive strengths, competitive weaknesses, goals, plans, references to future success or
difficulties and other similar information. 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 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, changes in the retail demand for apparel products, the
cost of raw materials, competitive conditions in the apparel and textile industries, the relative
strength of the United States dollar as against other currencies, changes in United States trade
regulations and the discovery of unknown conditions (such as with respect to environmental matters
and similar items) and other risks described from time to time in our reports filed with the
Securities and Exchange Commission. Accordingly, any forward-looking statements do not purport to
be predictions of future events or circumstances and may not be realized. 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 Our sales for the second quarter of fiscal year 2005 increased over the prior quarter by 7.8% to
record revenue of $49.2 million. The increase was primarily due to organic growth in the core
Delta business. While the apparel business remains competitive, overall demand for our products
appears strong. Revenue in the Delta business grew 19.1% compared to the prior years quarter,
resulting from increased unit sales and higher average selling prices. We continued to grow the
customer base in the Delta segment during the quarter, shipping to approximately 18% more accounts
year to date than in the prior year, now servicing over 3,400 accounts. Our average selling price
was $18.30 per dozen versus $18.08 per dozen in the first quarter and up $1.64, or 9.8% from the
second quarter of the prior year. The percentage of basic white tee shirts decreased in the second
quarter to 27% of total sales compared to 42% in the same quarter of the last year and our first
quarter level of 31%. We have adjusted our manufacturing mix in an effort to maintain this lower
percentage level of white shirts. We continue to have success selling higher-margin, higher
quality goods in the Delta business. In the Soffe business, our revenue decreased 8% to $15.7
million for the second quarter of fiscal year 2005 compared to the prior year. Our sales were
impacted by a conservative inventory position in fashion fleece. We recently introduced our
expanded product offerings for spring and fall of 2005. Our core products and additional ladies
styles in our Soffe business are booking well and we expect sales growth during the second half of
fiscal year 2005. In response to increased demand for our products, we are increasing the output of our manufacturing
locations to support the demand. We are going into the spring selling season with lean tee shirt
inventories and expect to run our Delta facilities at high levels of capacity utilization into next
fall as we service our customer demand and rebuild inventories for next year. We have recently
started producing tee shirt fabric in the Soffe textile facility to supplement our needs. We expect that this will allow us to continue to
grow our business vertically without 10




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significant capital investment and will drive down costs at Soffe with improved fixed overhead absorption. In addition, we plan to reduce our domestic sewing
operations in the Soffe segment and are currently evaluating the extent of these reductions. We
believe we must stay focused on our low-cost global manufacturing and sourcing strategy in order to
be competitive in the marketplace. We continue our focus on our distribution capabilities in anticipation of our growth. During the
second quarter, we closed on the purchase of our new distribution center in Clinton, Tennessee to
replace the Knoxville, Tennessee distribution facility. This new facility will allow us to
continue to expand our pick and pack operations, and lower our maintenance and labor cost. We are
almost complete with our renovations and will be moving into this building in February. We expect
to have our New Jersey distribution center ready to service the Northeast starting with our spring
selling season. We believe this new distribution center will help us continue to expand our
customer base in that region, driving additional sales for our Company. This will also allow us to
consolidate distribution operations with Soffe, which will lead to efficiencies in the Northeast.
We also added the Soffe product line in our Florida DC to allow for a higher service level in the
Florida region. During the first week in January, we completed the sale of our yarn manufacturing assets in
Edgefield, South Carolina to Parkdale America, LLC. In connection with the sale, we entered into a
yarn supply agreement with Parkdale. We are looking forward to our relationship with Parkdale as
our supplier of yarn. As a result of these transactions, we will be assured of an adequate supply
of high quality yarn at competitive cost while eliminating the prospect of a major capital
investment in yarn manufacturing equipment. We will continue our strategy with our capital
investments of equipment to ensure we have the flexibility to move production as necessary to lower
cost manufacturing regions. In the near term we will continue to invest in marketing and
distribution as a key strategy to grow our overall business. We believe business conditions will remain positive for the remainder of our 2005 fiscal year.
Increased output in our manufacturing facilities for the remainder of the year should improve our
absorption of fixed cost. We also anticipate that lower raw material cost and cost reduction
efforts will improve margins in the upcoming quarters if pricing on tee shirts remains consistent
with current levels. RESULTS OF OPERATIONS Net sales for the second quarter of fiscal year 2005 increased 7.8% to $49.2 million compared to
$45.6 million for the second quarter of the prior year. The sales increase primarily resulted from
a 19.1% increase in the Delta business, resulting from increased unit sales and higher average
selling prices. Although pricing is still competitive in the marketplace, pricing on most styles
was higher than in the prior year quarter reflecting increased raw material cost. In addition,
increased sales of dyed tee shirts and specialty products drove an improved product mix, which also
contributed to higher average selling prices. The Soffe business contributed $15.7 million in
sales, an 8.0% decrease from sales in the prior years quarter. Sales in the Soffe business were
impacted by a conservative inventory position in fashion fleece. For the six months ended January
1, 2005, net sales increased 35.4% to $103.5 million compared to $76.4 million in the prior year.
The increase in sales was primarily the result of the Soffe sales in the first quarter of fiscal
2005, which accounted for $22.0 million, as the acquisition of Soffe was completed on October 3,
2003. Gross profit as a percentage of net sales increased to 22.0% in the second quarter of fiscal year
2005 from 19.5% in the second quarter of the prior year. Gross margins in both business segments
improved as compared to the prior year. The 250 basis point improvement in gross margin was
primarily driven by increased sales of higher margin products, including our Quail Hollow line and
our magnum weight styles. Lower textile and sewing manufacturing costs also contributed to the
improved gross margins in the second quarter of fiscal year 2005 compared to the prior year. These
improvements were partially offset by unfavorable absorption of fixed costs from reduced production
levels, and higher raw material costs. Gross profit as a percentage of net sales increased to
21.6% in the first six months of fiscal year 2005 from 17.0% in the same period of the prior year,
resulting primarily from the higher gross profits associated with M. J. Soffe Co., which were
included for three months in the first six months of fiscal year 2004. Gross margins as a
percentage of sales are higher in the Soffe segment than the Delta segment due to the higher
average selling prices achieved on the branded products, partially offset by higher manufacturing
costs. Assuming no material decline in pricing, we expect margins in both the Delta and the Soffe
segments to improve for fiscal year 2005 as compared to fiscal year 2004. Our gross margins may
not be comparable to other companies, since some entities include costs related to their
distribution network in cost of goods sold and we exclude a portion of them from gross margin,
including them in selling, general and administrative expenses. Selling, general and administrative expenses, including the provision for bad debts, for the second
quarter of fiscal year 2005 were $8.1 million, or 16.5% of sales, compared to $8.2 million, or
17.9% of sales for the same period in the prior year. Selling costs decreased as a percentage of
sales primarily as a result of the higher sales during the quarter in the Delta segment. Selling,
general and administrative expenses, including the provision for bad debts, for the first six
months of fiscal year 2005 were $16.5 million, or 16.0% of sales, compared to $11.2 million, or
14.7% of sales for the same period in the prior year. The increase as a percentage of sales
primarily relates to the inclusion of the Soffe operations in our results for the full six month
period during fiscal year 2005. Selling costs as a percentage of net sales are higher in the
Soffe segment primarily due to the additional staffing, higher commissions and increased
advertising expenses associated with selling branded apparel products. We expect selling, general
and administrative expenses as a percentage of net sales for fiscal year 2005 to remain relatively
consistent with fiscal year 2004 in both business segments. Other expense for the first six months of fiscal year 2005 was $5 thousand, a decrease of $55
thousand compared with other income of $50 thousand for the first six months of the prior year.
Other income in the six months ended December 27, 2003 primarily related to a net gain on
the sale of cotton options. 11




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Operating income for the second quarter of fiscal year 2005 increased to $2.7 million, an increase
of $2.0 million, or 270.8%, from $0.7 million for the second quarter of the prior year. The
increase in operating income was primarily the result of higher gross profit. Operating income for
the first six months of fiscal year 2004 was $5.8 million, an increase of $4.0 million, or 218.9%,
from $1.8 million for the first six months of the prior year. The increase in operating income for
the six months ended January 1, 2005 was primarily the result having the operations of Soffe
included in the operating results for the full six months. Net interest expense for the second quarter of fiscal year 2005 was $0.8 million, consistent with
the second quarter of the prior year. Higher interest rates in the quarter ended January 1, 2005
were offset by lower debt levels compared to the quarter ended December 27, 2003. Our effective income tax rate for the six months ended January 1, 2005 was 39.7%, compared to 32.4%
for the fiscal year ended July 3, 2004. During the fiscal year ended June 30, 2001, we recorded a
tax liability in the amount of approximately $0.9 million with respect to our tax sharing agreement
between Delta Woodside Industries, Inc. (our former parent company) and the Company. During the
fiscal year ended July 3, 2004, we determined that it was no longer probable that a tax liability
might occur as a result of this tax sharing agreement. Therefore, we reversed the $0.9 million tax
liability that had been created, resulting in the lower effective tax rate during fiscal year 2004. Net income for the second quarter of fiscal year 2005 was $1.2 million compared to a net loss of
$0.1 million in the prior year second fiscal quarter. Net income for the first six months of
fiscal year 2005 was $2.6 million, an increase of $2.1 million, or 421.7%, from net income of $0.5
million for the first six months of the prior year. The prior year results included the operations
of Soffe for three months, as M. J. Soffe Co. was acquired on October 3, 2003. Accounts receivable decreased $10.9 million from July 3, 2004 to $27.7 million on January 1, 2005.
The decrease was primarily the result of lower sales during the quarter ended January 1, 2005
compared to the quarter ended July 3, 2004, partially offset by higher days sales outstanding. In
addition, as of January 1, 2005 we had a $1.3 million receivable from the sale of inventory to
Parkdale in December. Inventories at January 1, 2005 were $106.7 million, consistent with the inventory at July 3, 2004.
During the first six months of fiscal 2005, we adjusted production schedules to manage our overall
inventory levels. Although we expect to increase production over the next several quarters, we
expect to further reduce our inventory levels through sales in excess of our increased production. Capital expenditures in the second quarter of fiscal year 2005 were $3.1 million compared to $0.6
million in the second quarter of the prior year. Capital expenditures in the first six months of
fiscal year 2005 totaled $5.4 million compared to $1.1 million in the first six months of the prior
year. The expenditures during fiscal year 2005 primarily related to the acquisition of the
distribution center in Tennessee, and upgrading the air filtration system and adding an additional
spinning frame at our Edgefield yarn plant. The expenditures during fiscal year 2004 primarily
related to increasing capacity and lowering costs in our existing textile facilities. Capital
expenditures for fiscal year 2005 are expected to total approximately $10 million, which includes
the capital expenditure of approximately $4 million related to the acquisition of the distribution
center in Tennessee and $1.8 million related to the Edgefield yarn spinning facility. In order to
continue to increase capacity and lower costs in our existing facilities, we expect our future
capital expenditure needs to be approximately $4 million per year. LIQUIDITY AND CAPITAL RESOURCES Our primary cash needs are for working capital and capital expenditures. In addition, we use cash
to fund our dividend payments and share repurchases under our Stock Repurchase Program. On October 3, 2003, we entered into an Amended and Restated Loan and Security Agreement with
Wachovia Bank, N. A. (successor by merger to Congress Financial Corporation (Southern)), as lender
and as agent for the financial institutions named as lenders, pursuant to which our existing line
of credit (the Delta Facility) was increased to $40 million, which represented a $5 million
increase in our predecessor credit facility. On November 8, 2004, we amended the Delta Facility to
increase our line of credit by an additional $2.75 million to $42.75 million. The purpose of the
amendment was to provide funds for our acquisition of a more modern distribution center in
Tennessee. In conjunction with the sale of the yarn manufacturing plant, on January 6, 2005, we amended our
Delta Facility to lower the Fixed Asset Loan Limit Amount from $10.0 million to $5.0 million. Also on October 3, 2003, M. J. Soffe Co. entered into a Loan and Security Agreement with Wachovia
Bank, N. A. (successor by merger to Congress Financial Corporation (Southern)), which provides M.
J. Soffe Co. with a $38.5 million line of credit (the Soffe Facility). Together, the Delta
Facility and the Soffe Facility provide for lines of credit in an aggregate amount of $81.25
million. The Delta Facility and the Soffe Facility are secured by a first priority lien on all of
the assets of Delta Apparel and M. J. Soffe Co. Delta Apparel is a guarantor of the Soffe
Facility, and M. J. Soffe Co. is a guarantor of the Delta Facility. M. J. Soffe Co. has the option
to increase the Soffe Facility from $38.5 million to $41.0 million, provided that no event of
default exists under the facility. The restricted net assets of M. J. Soffe Co. do not exceed 25%
of the consolidated net assets as of July 3, 2004. The Soffe Facility contains both a subjective acceleration clause and a lockbox arrangement,
whereby remittances from customers reduce the current outstanding borrowings. Pursuant to Emerging
Issues Task Force (EITF) 95-22, we are classifying borrowings under the Soffe 12




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Facility as current debt. The Delta Facility contains a subjective acceleration clause and a springing lockbox
arrangement (as defined in EITF 95-22), whereby remittances from customers are forwarded to our
general bank account and do not reduce the outstanding debt until and unless a specified event or
an event of default occurs. Pursuant to EITF 95-22, we are classifying borrowings under the Delta
Facility as noncurrent debt. All loans under the credit agreements bear interest at rates based on an adjusted LIBOR rate plus
an applicable margin or a banks prime rate plus an applicable margin. At January 1, 2005, we had
$43.7 million outstanding under our credit facilities at an average interest rate of 4.9%. In addition to the credit facilities with Wachovia Bank, N. A., we have a seller note payable to
the former Soffe shareholders pursuant to the Stock Purchase Agreement dated as of October 3, 2003.
At January 1, 2005, we had $6.0 million outstanding under the note at an interest rate of 8.0%. During the quarter ended January 1, 2005, we paid the former Soffe shareholders $1.0 million
pursuant to the First Amendment to Amended and Restated Stock Purchase Agreement and Agreement
regarding Earnout Amounts for Bonus Year 2004. Additional amounts are payable to the prior
shareholders of M. J. Soffe if specified financial performance targets are met by M. J. Soffe Co.
during annual periods beginning on September 28, 2004 and ending on September 30, 2006 (the
Earnout Amounts.) The Earnout Amounts are capped at a maximum aggregate amount of $4.0 million
per year and are payable five business days subsequent to the filing of the Form 10-Q for the first
fiscal quarter of fiscal years 2006 and 2007. Based on current projections, we anticipate paying
approximately $3.3 million in Earnout Amount in November 2005. Operating Cash Flows Net cash provided by operating activities was $6.0 million and $4.0 million for the first six
months of fiscal year 2005 and 2004, respectively. Our cash flow from operating activities is
primarily due to net income plus depreciation and changes in working capital. We monitor changes
in working capital by analyzing our investment in accounts receivable and inventories and by the
amount of accounts payable. During fiscal year 2005, our cash flow provided by operating
activities was primarily from net income and a reduction in accounts receivable. The cash provided
by operating activities in fiscal year 2004 was primarily the result of a reduction in accounts
receivable and net income plus depreciation, offset partially by increases in inventory. In
December 2003, we received a net $7.7 million cash refund of federal taxes, resulting from a tax
loss generated as a result of no value being allocated in the purchase price allocation to the
property, plant and equipment of M. J. Soffe Co. Investing Cash Flows During the six months ended January 1, 2005, investing activities used $5.4 million in cash for
capital expenditures. The expenditures during fiscal year 2005 primarily related to the purchase
of a distribution center in Tennessee, and upgrading the air filtration system and adding an
additional spinning frame at our Edgefield yarn plant. During the six months ended December 27,
2003, investing activities used $52.3 million in cash and principally represented the acquisition
of M. J. Soffe Co. We spent $1.1 million in capital expenditures during the first six months of
fiscal 2004, primarily related to increasing capacity and lowering costs in our textile facilities.
Capital expenditures for fiscal year 2005 are expected to total approximately $10 million, which
includes the capital expenditure of approximately $4 million related to the acquisition of the
distribution center in Tennessee and $1.8 million related to the Edgefield yarn spinning facility. Financing Activities For the first six months of fiscal 2005 we used $0.9 million in cash in financing activities,
primarily related to the payment of dividends and repayment of long-term debt. For the first six
months of fiscal 2004, financing activities provided $48.5 million principally from our credit
facilities and primarily related to the acquisition of M. J. Soffe Co. We paid dividends to our
shareholders totaling $0.6 million and $0.5 million in the first six months of fiscal years 2005
and 2004, respectively. Based on our expectations, we believe that our $81.25 million credit facilities 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 facilities should be sufficient to service our
debt payment requirements, to satisfy our day-to-day working capital needs, to fund our planned
capital expenditures, to fund purchases of our stock as described below and to fund the payment of
dividends as described below. Any material deterioration in our results of operations, however,
may result in the Company losing its ability to borrow under its credit facilities and to issue
letters of credit to suppliers or may cause the borrowing availability under the facilities to be
insufficient for our needs. Purchases by Delta Apparel of its Own Shares We have authorization from our Board of Directors to spend up to an aggregate of $6.0 million for
share repurchases under the Stock Repurchase Program. All purchases are made at the discretion of
our management. We did not purchase shares of our common stock during the three months ended
January 1, 2005. Since the inception of the Stock Repurchase Program, weve purchased 368,057
shares of our common stock pursuant to the program for an aggregate of $4.2 million. 13




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Dividend Program On October 28, 2004, our Board of Directors declared a cash dividend of seven cents per share of
common stock pursuant to our quarterly dividend program. We paid the dividend on November 29, 2004
to shareholders of record as of the close of business on November 17, 2004. On January 20, 2005,
our Board declared a cash dividend of seven cents per share of common stock payable on February 28,
2005 to shareholders of record as of the close of business on February 16, 2005. Although the
Board may terminate or amend the program at any time, we currently expect to continue the quarterly
dividend program. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. 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 the adequacy of receivable and inventory reserves,
self-insurance accruals and the accounting for income taxes. The detailed Summary of Significant Accounting Policies is included in Note B to the Condensed
Consolidated Financial Statements. Revenue Recognition and Accounts Receivable We consider revenue realized or realizable and earned when the following criteria are met:
persuasive evidence of an agreement exists, shipment has occurred, the price is fixed and
determinable and the collectibility is reasonably assured. Sales are recorded net of discounts and
provisions for estimated returns and allowances. We estimate returns and allowances on an ongoing
basis by considering historical and current trends. We record these costs as a reduction to net
sales and cost of sales. We estimate the net collectibility of our accounts receivable and
establish an allowance for doubtful accounts based upon this assessment. Specifically, we analyze
the aging of accounts receivable balances, historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in customer payment terms. Significant
changes in customer concentration or payment terms, deterioration of customer credit-worthiness or
weakening in economic trends could have a significant impact on the collectibility of receivables
and our operating results. Inventories Our inventory is carried at the lower of FIFO cost or market. We regularly review inventory
quantities on hand and record a provision for damaged, excess and out of style or otherwise
obsolete inventory based primarily on our historical selling prices for these products and our
estimated forecast of product demand for the next twelve months. If actual market conditions are
less favorable than those projected, or if liquidation of the inventory is more difficult than
anticipated, additional inventory write-downs may be required. Self Insurance Our medical, prescription and dental care benefits are self-insured. Our self-insurance accruals
are based on claims filed and estimates of claims incurred but not reported. We develop estimates
of claims incurred but not reported based upon the historical time it takes for a claim to be
reported and historical claim amounts. While the time it takes for a claim to be reported has been
declining, if claims are greater than we originally estimate, or if costs increase beyond what we
have anticipated, our recorded reserves may not be sufficient, and it could have a significant
impact on our operating results. Income Taxes We use the liability method of accounting for income taxes, which requires recognition of temporary
differences between financial statement and income tax basis of assets and liabilities measured by
enacted tax rates. We have recorded deferred tax assets for certain state operating loss
carryforwards and nondeductible accruals. We established a valuation allowance related to certain
of the state operating loss carryforward amounts in accordance with the provisions of FASB
Statement No. 109, Accounting for Income Taxes. We continually review the adequacy of the
valuation allowance and recognize the benefits of deferred tax assets if reassessment indicates
that it is more likely than not that the deferred tax assets will be realized based on earnings
forecasts in the respective tax locations. There have been no changes in our critical accounting policies since the filing of our Annual
Report on Form 10-K for the year ended July 3, 2004. 14




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NEW ACCOUNTING STANDARDS On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment,
which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statements of Cash Flows. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requiresall share-based
payments to employees, including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) must be adopted for annual periods beginning after June 15, 2005. Early adoption
will be permitted in periods in which financial statements have not yet been issued. We expect to
adopt Statement 123(R) on July 3, 2005. We are currently evaluating the effect that the adoption
of Statement 123(R) will have on our financial position and results of operations. ENVIRONMENTAL AND REGULATORY MATTERS On May 27, 2002, we received a renewal of our National Pollution Discharge Elimination System
(NPDES) permit from the North Carolina Department of Environment and Natural Resources, Division
of Water Quality (DWQ) for our Maiden, North Carolina textile plant. Among other things, the new
permit required us to reduce our effluent (waste discharge) color to specified color concentration
limits. We believed that the DWQ exceeded its authority and acted arbitrarily in imposing the
specific color concentration limitations within the new permit and, on July 23, 2002 contested the
permit by filing a petition with the North Carolina Office of Administrative Hearings. We have
reached a settlement with the DWQ and have negotiated a permit modification. The permit
modification became effective February 1, 2005. The modified permit, as agreed by DWQ and us, provides that we will have approximately one year to
research and test alternative color removal technologies and thereafter must select and implement a
technology by October 2005 if we continue to require our NPDES discharge permit. In addition, we
must continue to monitor our color removal and will be subject to a gradual lowering of our
effluent color standard. Our NPDES permit will be subject to renewal in the spring of 2006. We are currently evaluating the future cost to comply with the modified permit. Although we do not
believe that the cost to comply with the modified permit will be material, there can be no
assurance that the cost of compliance will not be material to the financial condition of the
Company. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk COMMODITY RISK SENSITIVITY On January 5, 2005, in conjunction with the sale of our yarn spinning facility in Edgefield, South
Carolina, we entered into a five-year agreement with Parkdale to supply our yarn requirements.
During this five-year period, we will purchase exclusively from Parkdale all yarn required by Delta
Apparel and our wholly owned subsidiary, M. J. Soffe Co., for use in our manufacturing operations
(excluding yarns that Parkdale does not manufacture as of the date of the agreement in the ordinary
course of its business). The purchase price of yarn will be based upon the cost of cotton plus a
fixed conversion cost. Thus, we are still subject to the commodity risk of cotton prices and
cotton price movements which could result in unfavorable yarn pricing for us. We will fix our
cotton prices in advance of the shipment of finished yarn from Parkdale, pursuant to our supply
agreement. 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 have fixed cotton prices at January 1, 2005 was valued at $16.3
million, and is scheduled for delivery between January 2005 and June 2005. At January 1, 2005, a
10% decline in the market price of the cotton covered by our fixed price yarn would have had a
negative impact of approximately $1.1 million on the value of the yarn. We may use derivatives, including cotton option contracts, to manage our exposure to movements in
commodity prices. We do not designate our options as hedge instruments upon inception.
Accordingly, we mark to market changes in the fair market value of the options as other expense
(income) in the statements of income. We did not own any cotton options contracts on January 1,
2005. INTEREST RATE SENSITIVITY Our credit agreements provide that outstanding amounts bear interest at variable rates. If the
amount of outstanding indebtedness at January 1, 2005 under the revolving credit facilities had
been outstanding during the entire three months ended January 1, 2005 and the interest rate on this
outstanding indebtedness were increased by 100 basis points, our interest expense would have
increased by approximately $109,000, or 13.1%, during the quarter. This compares to an increase of
$433,000, or 9.3%, for the 2004 fiscal year, or an average of $108,250 per quarter, based on the
outstanding indebtedness at July 3, 2004. The actual increase 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. 15




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Item 4: Controls and Procedures Under the supervision and with the participation of our management, including the Chief Executive
Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of January 1, 2005, and, based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these
controls and procedures are effective. There were no significant changes in our internal controls
or in other factors that could significantly affect these controls subsequent to the date of their
evaluation. Our disclosure controls and procedures are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under 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 required to be disclosed by
us 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. 
 PART II. OTHER INFORMATION 
 Item 4. Submission of Matters to a Vote of Security Holders The following summarizes the votes at the Annual Meeting of the Companys shareholders held on
November 11, 2004: BrokerElection of Directors
    
    For
    
    
    Against
    
    Withheld
    
    Abstentions
    
    Non-votesDavid S. Fraser
    
    
    4,028,553
    
    
    N/A
    
    2,341
    
    N/A
    
    N/AWilliam F. Garrett
    
    
    3,456,494
    
    
    N/A
    
    574,400
    
    N/A
    
    N/ARobert W. Humphreys
    
    
    4,028,243
    
    
    N/A
    
    2,651
    
    N/A
    
    N/ADr. Max Lennon
    
    
    4,004,760
    
    
    N/A
    
    26,134
    
    N/A
    
    N/AE. Erwin Maddrey, II
    
    
    3,456,674
    
    
    N/A
    
    574,220
    
    N/A
    
    N/APhilip J. Mazzilli
    
    
    4,027,226
    
    
    N/A
    
    3,668
    
    N/A
    
    N/ABuck A. Mickel
    
    
    4,004,760
    
    
    N/A
    
    26,134
    
    N/A
    
    N/ADavid Peterson
    
    
    4,004,842
    
    
    N/A
    
    26,052
    
    N/A
    
    N/AApprove the Delta Apparel, Inc.
2004 Non-employee Director Stock
Plan
    
    
    3,206,059
    
    

319,554
    
    N/A
    
    2,016
    

503,265Ratification of the Appointment of
Ernst & Young LLP as Independent
Auditors for Fiscal Year 2005
    
    
    4,028,006
    
    
    2,390
    
    N/A
    
    498
    
    0
 
 Item 5. Other Information On November 11, 2004, the Companys shareholders approved the 2004 Non-Employee Director Stock Plan
(the Plan). The Plan is described in Item 2 of the Companys Proxy Statement, filed with the
Securities and Exchange Commission on October 1, 2004, which description is hereby incorporated by
reference herein. 
 Item 6. Exhibits and Reports on Form 8-K (a)
    
    Exhibits.2.2.1
    
    
    First Amendment to Amended and Restated Stock Purchase Agreement and Agreement
regarding Earnout Amounts for Bonus Year 2004 and Indemnification dated November 11, 2004
among Delta Apparel, Inc., M. J. Soffe Co., and James F. Soffe, John D. Soffe, and Anthony M. Cimaglia.
 16




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##### Table of Contents



2.3
    
    
    Asset Purchase Agreement dated as of November 18, 2004 between Delta Apparel, Inc. and
Parkdale America, LLC. **Certain exhibits and schedules to Exhibit 2.3 have been omitted in accordance with Item
601(b)(2) of Regulation S-K. Delta Apparel, Inc. will furnish supplementally a copy of
any omitted exhibit or schedule to the Commission upon request.2.3.1
    
    
    First Amendment to the Asset Purchase Agreement dated as of December 31, 2004 between
Delta Apparel, Inc. and Parkdale America, LLC.10.2.2
    
    
    Third Amendment to Amended and Restated Loan and Security Agreement dated as of January
6, 2005 among Delta Apparel, Inc., Wachovia Bank, N. A., as Agent, and certain financial
institutions named therein, as Lenders.10.29
    
    
    Yarn Supply Agreement dated as of January 5, 2005 between Delta Apparel, Inc. and
Parkdale Mills, LLC and Parkdale America, LLC. ****Portions of this exhibit have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Securities and Exchange Commission.10.30
    
    
    Delta Apparel, Inc. 2004 Non-Employee Director 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.
  (b)
    Reports on Form 8-K. On November 12, 2004, the Company filed and furnished a Current Report on Form 8-K dated
November 11, 2004 reporting information under Item 1.01 (Entry into a Material Definitive
Agreement) and Item 9.01 (Financial Statements and Exhibits). On November 18, 2004, the Company filed and furnished a Current Report on Form 8-K reporting
information under Item 1.01 (Entry into a Material Definitive Agreement), Item 7.01 (Regulation
FD Disclosure) and Item 9.01 (Financial Statements and Exhibits). 17




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##### Table of Contents



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)February 7, 2005
    
    By:
    
    /s/ Herbert M. MuellerDate
    
    Herbert M. MuellerVice President, Chief Financial Officer and Treasurer
 18