##### 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 October 1, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 Commission File number 333-376-17
 DELTA MILLS, INC.
  DELAWARE
    
    13-2677657(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 700 North Woods Drive
Fountain Inn, South Carolina
    
    29644(Address of principal executive offices)
    
    (Zip Code)
  (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 þ o
 o þ
 o þ




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PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed consolidated balance sheetsOctober 1, 2005 and July 2, 2005
    
    3Condensed consolidated statements of operationsThree months ended October 1, 2005 and October 2, 2004
    
    4Condensed consolidated statements of cash flowsThree months ended October 1, 2005 and October 2, 2004
    
    5Notes to condensed consolidated financial statements
    
    6-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15-29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    29Item 4. Controls and Procedures
    
    29-30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    30Item 3. Defaults upon Senior Securities
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    30Item 5. Other Information
    
    30Item 6. Exhibits
    
    30-31SIGNATURES
    
    32CERTIFICATIONS
    
    33-40EX-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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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 
 October 1, 2005
    
    
    July 2, 2005ASSETSCURRENT ASSETSCash
    
    $
    495
    
    
    $
    282Accounts receivable:Factor
    
    
    31,527
    
    
    
    37,039Less allowances for returns
    
    
    101
    
    
    
    10131,426
    
    
    
    36,938InventoriesFinished goods
    
    
    7,450
    
    
    
    10,004Work in process
    
    
    21,848
    
    
    
    19,507Raw materials and supplies
    
    
    5,430
    
    
    
    5,79734,728
    
    
    
    35,308Deferred income taxes
    
    
    761
    
    
    
    1,159Other assets
    
    
    911
    
    
    
    1,357TOTAL CURRENT ASSETS
    
    
    68,321
    
    
    
    75,044ASSETS HELD FOR SALE
    
    
    
    
    
    
    1,900PROPERTY, PLANT AND EQUIPMENT, at cost
    
    
    128,849
    
    
    
    128,830Less accumulated depreciation
    
    
    89,183
    
    
    
    87,96939,666
    
    
    
    40,861DEFERRED LOAN COSTS
    
    
    209
    
    
    
    237$
    108,196
    
    
    $
    118,042LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESTrade accounts payable
    
    $
    6,663
    
    
    $
    8,349Revolving credit facility
    
    
    29,052
    
    
    
    28,444Accrued income taxes payable
    
    
    13,695
    
    
    
    13,695Payable to affiliates
    
    
    3,780
    
    
    
    3,780Accrued employee compensation
    
    
    1,084
    
    
    
    4,937Accrued restructuring
    
    
    3,610
    
    
    
    1,054Accrued and sundry liabilities
    
    
    4,358
    
    
    
    4,815TOTAL CURRENT LIABILITIES
    
    
    62,242
    
    
    
    65,074LONG-TERM DEBT
    
    
    30,941
    
    
    
    30,941NON-CURRENT DEFERRED INCOME TAXES
    
    
    761
    
    
    
    1,159TOTAL LIABILITIES
    
    
    93,944
    
    
    
    97,174SHAREHOLDERS EQUITYCommon Stock  par value $0.01 a share  authorized
3,000 shares, issued and outstanding 100 sharesAdditional paid-in capital
    
    
    51,792
    
    
    
    51,792Accumulated deficit
    
    
    (37,540
    )
    
    
    (30,924
    )TOTAL SHAREHOLDERS EQUITY
    
    
    14,252
    
    
    
    20,868COMMITMENTS AND CONTINGENCIES$
    108,196
    
    
    $
    118,042
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##### Table of Contents



Three
    
    
    ThreeMonths Ended
    
    
    Months EndedOctober 1,
    
    
    October 2,2005
    
    
    2004Net sales
    
    $
    30,771
    
    
    $
    35,440Cost of goods sold
    
    
    31,051
    
    
    
    35,131GROSS PROFIT (LOSS)
    
    
    (280
    )
    
    
    309Selling, general and administrative
expenses
    
    
    2,096
    
    
    
    2,720Impairment and restructuring expenses
    
    
    2,828
    
    
    
    Other income
    
    
    62
    
    
    
    36OPERATING LOSS
    
    
    (5,142
    )
    
    
    (2,375
    )Interest expense
    
    
    (1,474
    )
    
    
    (1,291
    )LOSS BEFORE INCOME TAXES
    
    
    (6,616
    )
    
    
    (3,666
    )Income tax benefit
    
    
    
    
    
    
    (1,344
    )NET LOSS
    
    $
    (6,616
    )
    
    $
    (2,322
    )
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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedOctober 1, 2005
    
    
    October 2, 2004OPERATING ACTIVITIESNet loss
    
    $
    (6,616
    )
    
    $
    (2,322
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation
    
    
    1,214
    
    
    
    2,218Amortization
    
    
    28
    
    
    
    28Impairment and restructuring expenses
    
    
    2,828
    
    
    
    Change in deferred income taxes
    
    
    
    
    
    
    (1,344
    )Gains on disposition of property
and equipment
    
    
    (26
    )
    
    
    Deferred compensation
    
    
    (4,239
    )
    
    
    112Changes in operating assets and liabilities
    
    
    4,535
    
    
    
    (603
    )NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
    
    
    (2,276
    )
    
    
    (1,911
    )INVESTING ACTIVITIESProperty, plant and equipment:Purchases
    
    
    (19
    )
    
    
    (123
    )Proceeds of dispositions
    
    
    1,900
    
    
    
    NET CASH USED IN (PROVIDED BY)
INVESTING ACTIVITIES
    
    
    1,881
    
    
    
    (123
    )FINANCING ACTIVITIESProceeds from revolving lines of credit
    
    
    38,388
    
    
    
    40,449Repayments on revolving lines of credit
    
    
    (37,780
    )
    
    
    (38,365
    )NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
    
    
    608
    
    
    
    2,084INCREASE IN CASH
    
    
    213
    
    
    
    50Cash beginning of period
    
    
    282
    
    
    
    585CASH AT END OF PERIOD
    
    $
    495
    
    
    $
    635
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October 1, 2005
    
    July 2, 2005Current assets
    
    $
    179
    
    
    $
    105Non-current assets
    
    
    1,975
    
    
    
    Current liabilities
    
    
    4,501
    
    
    
    2,128Non-current liabilities
    
    
    
    
    
    
    434Stockholders deficit
    
    
    (2,347
    )
    
    
    (2,457
    )
  Three Months EndedOctober 1, 2005
    
    October 2, 2004Net sales
 Intercompany commissions
    
    $
    706
    
    
    $
    794Cost and expenses
    
    
    596
    
    
    
    897Net income (loss)
    
    
    110
    
    
    
    (103
    )
 6




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##### Table of Contents



1.
    
    Government business:
 
    
    revenues remaining at the fiscal year 2005 level for fiscal year 2006 and beyond
    
    minimum disruption from the problems associated with the transition to the new
uniform as discussed in Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operation  Management Overview and Company Outlook  Our
Government Business
    
    U.S. government funding for military uniforms is not materially delayed or decreased
as a result of delays in the budgeting process or the costs of recovering from recent
hurricanes and other demands on government resources
    
    a moderation in the rate of increase in energy and chemical costs
    
    continued credit approval of the government businesss customer base by our factor GMAC;
 2.
    
    Commercial cotton business:
 
    
    maintaining fiscal year 2005 revenue levels in fiscal year 2006 and beyond
    
    improved margins based on the continuation of current trends in sales prices and raw material costs
    
    a moderation in the rate of increase in energy and chemical costs
    
    continued credit approval of the commercial cotton businesss customer base by our factor GMAC
 3.
    
    Exit of the synthetics business:
 
    
    an orderly production flow to complete all commitments to our synthetics customers
    
    minimum negative run-out costs
    
    minimum inventory write-downs
    
    the collection of substantially all of the associated accounts receivable
 4.
    
    Payment terms required by our principal vendors and suppliers do not become materially
more stringent.
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
    
    On August 9, 2005, the Company entered into a waiver and amendment that (i) waived the
Companys noncompliance with the minimum EBITDA covenant for the fourth quarter ended
July 2, 2005, (ii) allows for the payout of deferred compensation plan participant
account balances, (iii) sets required minimum EBITDA levels for each quarter of fiscal
year 2006, (iv) provides that it will be an event of default if the Company and GMAC do
not enter into a written amendment establishing required EBITDA levels for the remainder
of the term of the credit facility, (v) provides for a $3.0 million supplement to the
allowed asset-based availability that is available through February of 2006 (the Company
will owe a $30,000 fee for any calendar month in which the Company uses, on more than
three days, all or part of this supplemental amount) and (vi) increased the applicable
margin on Eurodollar loans from 3% to 4%.
    
    On September 30, 2005, the Company entered into a further waiver and amendment to its
revolving credit agreement with GMAC. The credit facility amendment includes a waiver
with respect to the Companys requirement to provide financial statements for the fiscal
year ended July 2, 2005 reported on without qualification by the Companys independent
registered public accounting firm and sets new required minimum EBITDA levels for each
quarter of fiscal year 2006 and increases the applicable margin on Eurodollar loans from
4% to 5% and the applicable margin on prime rate loans from 0.75% to 2.75%. GMAC also
required an appraisal of the Companys inventory within 45 days, which has been provided.
The Company believes that GMAC will use this appraisal, among other matters, to
determine whether to extend the $3.0 million supplemental line beyond February 2006.
   8




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WeightedAverageShares
    
    PriceOutstanding at July 2, 2005
    
    
    331,409
    
    
    $
    6.75Granted
    
    
    
    
    
    
    N/AExercised
    
    
    
    
    
    
    N/AForfeited
    
    
    
    
    
    
    N/AOutstanding at October 1, 2005
    
    
    331,409
    
    
    $
    6.75Option price range  October 1, 2005
    
    
    
    
    
    $
    6.75Option price range  Exercised Shares
    
    
    
    
    
    
    N/AOptions available for grant  October 1, 2005
    
    
    
    
    
    
    85,341Options Exercisable  October 1, 2005
    
    
    
    
    
    
    331,409Weighted average fair value  Options Granted
    
    
    
    
    
    
    N/A
  9




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Service Shares
    
    Performance SharesTotal
    
    Stock
    
    Phantom
    
    Stock
    
    PhantomShares
    
    Awards
    
    Awards
    
    Awards
    
    AwardsOutstanding at July 2, 2005
    
    
    58,827
    
    
    
    17,650
    
    
    
    11,767
    
    
    
    17,646
    
    
    
    11,764Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at October 1, 2005
    
    
    58,827
    
    
    
    17,650
    
    
    
    11,767
    
    
    
    17,646
    
    
    
    11,764
  10




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Three MonthsEnded(In thousands)
    
    10/2/2004Net loss, as reported
    
    $
    (2,322
    )Add stock-based employee compensation expense
included in reported net loss, net of tax
    
    
    17Less total stock-based compensation expense
determined under fair value based method, net
of related tax effects
    
    
    (17
    )Pro forma net loss
    
    $
    (2,322
    )
   11




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##### Table of Contents



2006 Business Plan
  12




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##### Table of Contents



EmployeeTermination
    
    
    OtherCosts
    
    
    Expenses
    
    
    TotalRestructuring liability at July 2, 2005
    
    $
    993,000
    
    
    $
    61,000
    
    
    $
    1,054,000Restructuring charge recognized during
the quarter ended October 1, 2005
    
    
    2,728,000
    
    
    
    100,000
    
    
    
    2,828,000Less payments made during the quarter
ended October 1, 2005
    
    
    263,000
    
    
    
    9,000
    
    
    
    272,000Restructuring liability at October 1, 2005
    
    $
    3,458,000
    
    
    $
    152,000
    
    
    $
    3,610,000
 2005 Realignment Plan
    13




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14




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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
     Management Overview and Company Outlook
 The Current Environment.
  15




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##### Table of Contents



Synthetics Business.
  Our Cotton Business.
   Our Commercial Cotton (Khaki) Business.
   16




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##### Table of Contents



Our Government Business.
   1.
    
    The transition to the new uniform has been problematic for all of our
garment-manufacturing customers, causing some volatility in the order flow. The rate of
production has improved but continues to be slower than expected.2.
    
    Our government business is significantly affected by the timing and amount of federal
budget allocations to the procurement of military uniforms. Proposed allocations for the
U.S. Governments fiscal year beginning October 1, 2005 were consistent with our
expectations and support our estimate that our government sales in fiscal year 2006 will
remain at approximately the same high level as in fiscal year 2005. The timing for funding
to move through the supply chain is uncertain; however, early indications are that
production and sales rates will improve in our second fiscal quarter as compared to the
first fiscal quarter.3.
    
    Funding shortages and the problems encountered by the garment manufacturers in fiscal
year 2005 disrupted the governments planned transition from the old battle dress uniform
to the new one. Consequently, the government placed a stop work order on the old battle
dress uniform in order to maintain manageable inventory levels. The government is
accepting responsibility for the stop work order and is currently negotiating settlements
with the various garment manufacturers with respect to their inventory and the inventory of
their fabric suppliers. As a result of this settlement process, as of October 1, 2005, all
of our finished fabric associated with the stop work order has been sold to the appropriate
garment manufacturer and we do not anticipate any further impact from the stop work order.
  First Quarter Fiscal Year 2006.
    17




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The Termination of the Deferred Compensation Plan.
  GMAC Amendment.
   18




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In Conclusion.
    
    
    As discussed in Note C to our consolidated financial statements in Item 1 above, the Company has suffered recurring
losses from operations and has uncertainties with regard to its ability to operate within the availability established
by its revolving credit facility.
 
    
    Delays or reductions in federal government funding for the purchase of military fabrics could reduce the running
schedules, and hence the profitability, of our government business.
 
    
    If the federal government were to change its policy respecting U.S. sourcing requirements for military fabrics and
permit sourcing from foreign competitors with lower production costs, our government business would be materially
adversely affected.
 
    
    Changes in the retail demand for khaki products could reduce our apparel manufacturer customers demand for our
commercial cotton products.
 
    
    The continuation  or exacerbation  of adverse competitive conditions in the apparel and textile industries,
particularly, but not limited to, continued pressure from foreign imports, primarily from China, and the high level of
overcapacity in the domestic textile industry, could prevent us from returning to profitability.
 
    
    Continued high energy costs and the associated effect on the U.S. economy reduce the profitability of our business by
increasing our production costs and reducing retail demand for the apparel products of our commercial customers and
therefore the demand for our commercial cotton products.
 
    
    Material increases in the costs of yarn and greige fabric could adversely affect our business.
 
    
    Because we compete with foreign textile companies, increases in the strength of the U.S. dollar against the currencies
of our foreign competitors (which reduce the price for their goods compared to ours) would generally impair our
competitive position.
 
    
    Changes in U.S. and international trade regulations, including without limitation the end of quotas on textile and
apparel products among WTO member states in January 2005 have had a significant adverse impact on our competitive
position. The effect on us of the Dominican Republic  Central American U.S. Free Trade Agreement (DR-CAFTA), which
will eliminate duties on apparel coming from DR-CAFTA member states, remains to be seen. Further changes in trade
regulations could adversely impact our competitive position and profitability.
 
    
    The success of our 2006 Business Plan is dependent on predictable plant operating schedules supported by timely
customer orders in both commercial and government product lines.
 
    
    We have relied on waivers and amendments from the Companys credit facility lender, GMAC, in order to be in compliance
with the credit facility covenants. Were GMAC to refuse to waive or cure by amendment any future default and
accelerate the credit facility, our ability to refinance the debt would be doubtful. If GMAC were to accelerate the
credit facility in an event of default, holders of Delta Mills Senior Notes or the indenture trustee could also
accelerate the Senior Notes.
 
    
    The outstanding $30,941,000 principal balance of the Companys 9.625% Senior Notes is due in August 2007. Our
revolving credit facility matures in March 2007. We will need to refinance both of these obligations prior to March
2007 in order to be able to continue operations. We believe that any such refinancing will require, among other
things, successful implementation of our 2006 Business Plan, an improvement in demand for our products and a
significant improvement in our operating results. Particularly in light of our results over the last several fiscal
quarters and the continued challenges in our industry, there is significant uncertainty and no assurance that these
necessary conditions will occur in a timely fashion or at all.
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
    
    Our ability to borrow under our revolving credit facility is based primarily on a formula under which we may borrow up
to approximately 90% of outstanding accounts receivable balances plus approximately 50% of certain inventory balances.
If, due to the timing of billings to customers, inventories increase and accounts receivable decrease, we may be
unable to borrow the funds needed to respond to customer demands or to meet other needs for cash.
 
    
    We rely on the willingness of our principal vendors and suppliers to supply us product in accordance with reasonable
payment terms. Any significant tightening of these terms could materially adversely affect our operations.
 
    
    We believe that the success of our business depends on our ability to retain employees in the face of continued
pressures in the industry, and there can be no assurance that we will be able to do so.
 
    
    The impact of natural disasters such as hurricanes, acts of terrorism and other instances of Force Majeure could have
unforeseen adverse impacts on our business and financial condition.
 
    
    Projecting the costs related to the closing of our synthetics business is inherently uncertain. If the actual costs
substantially exceed our projections, we may not be able to meet the targets in our 2006 Business Plan or comply with
the financial covenants under the Companys credit facility.
 
    
    The future discovery of currently unknown conditions, such as environmental matters and similar items, could result in
significant unforeseen liability or costs to us and disrupt our ability to successfully execute our business plan.
 20




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##### Table of Contents



Results of Operations
First Quarter of Fiscal Year 2006 Versus First Quarter of Fiscal Year 2005
  Three Months
    
    Three MonthsEnded
    
    Ended
    
    Increase/ (Decrease)October 1, 2005
    
    October 2, 2004
    
    From 2005 to 2006Net Sales
    
    $
    30,771
    
    
    $
    35,440
    
    
    $
    (4,669
    )% of Net Sales
    
    
    100.00
    %
    
    
    100.00
    %Gross Profit (Loss)
    
    
    (280
    )
    
    
    309
    
    
    
    (589
    )% of Net Sales
    
    
    (0.91
    )%
    
    
    0.87
    %Selling, General and Administrative
Expenses
    
    
    2,096
    
    
    
    2,720
    
    
    
    (624
    )% of Net Sales
    
    
    6.81
    %
    
    
    7.67
    %Impairment and restructuring expenses
    
    
    2,828
    
    
    
    
    
    
    
    2,828Other Income
    
    
    62
    
    
    
    36
    
    
    
    26Operating Loss
    
    
    (5,142
    )
    
    
    (2,375
    )
    
    
    2,767% of Net Sales
    
    
    (16.71
    )%
    
    
    (6.70
    )%Interest Expense
    
    
    (1,474
    )
    
    
    (1,291
    )
    
    
    (183
    )% of Net Sales
    
    
    (4.79
    )%
    
    
    (3.64
    )%Loss Before Income Taxes
    
    
    (6,616
    )
    
    
    (3,666
    )
    
    
    2,950% of Net Sales
    
    
    (21.50
    )%
    
    
    (10.34
    )%Income Tax Benefit
    
    
    
    
    
    
    (1,344
    )
    
    
    1,344% of Net Sales
    
    
    0.00
    %
    
    
    (3.79
    )%Net Loss
    
    $
    (6,616
    )
    
    $
    (2,322
    )
    
    
    (4,294
    )% of Net Sales
    
    
    (21.50
    )%
    
    
    (6.55
    )%Order Backlog
    
    $
    47,625
    
    
    $
    47,142
    
    
    $
    483
 21




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##### Table of Contents



Net Sales:
  Gross Profit (Loss):
  Selling, General and Administrative Expenses:
  Impairment and Restructuring Expenses:
  Operating Loss:
  Interest Expense:
  Income Tax Benefit:
  Net Loss:
  22




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##### Table of Contents



Order Backlog:
   Liquidity and Sources of Capital
 Liquidity.
 1.
    
    Government business:
 
    
    revenues remaining at the fiscal year 2005 level for fiscal year 2006 and beyond
    
    minimum disruption from the problems associated with the transition to the new
uniform as discussed in Management Overview and Company Outlook  Our Government
Business.
    
    U.S. government funding for military uniforms is not materially delayed or decreased
as a result of delays in the budgeting process or the costs of recovering from recent
hurricanes and other demands on government resources
    
    a moderation in the rate of increase in energy and chemical costs
    
    continued credit approval of the government businesss customer base by our factor GMAC
 2.
    
    Commercial cotton business:
 
    
    maintaining fiscal year 2005 revenue levels in fiscal year 2006 and beyond
    
    improved margins based on the continuation of current trends in sales prices and raw material costs
    
    a moderation in the rate of increase in energy and chemical costs
    
    continued credit approval of the commercial cotton businesss customer base by our factor GMAC
 3.
    
    Exit of the synthetics business:
 
    
    an orderly production flow to complete all commitments to our synthetics customers
    
    minimum negative run-out costs
    
    minimum inventory write-downs
    
    the collection of substantially all of the associated accounts receivable
 4.
    
    Payment terms required by our principal vendors and suppliers do not become materially
more stringent.
  23




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##### Table of Contents



Sources and Uses of Cash.
    24




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##### Table of Contents



Delta Mills 9.625% Senior Notes.
 The GMAC Revolving Credit Facility.
  
    
    On August 9, 2005, the Company and GMAC entered into a waiver and amendment that (i)
waived the Companys noncompliance with the minimum EBITDA covenant for the fourth
quarter ended July 2, 2005, (ii) allows for the payout of deferred compensation plan
participant account balances, (iii) sets required minimum EBITDA levels for each quarter
of fiscal year 2006, (iv) provides that it will be an event of default if the Company and
GMAC do not enter into a written amendment establishing required EBITDA levels for the
remainder of the term of the credit facility, (v) provides for a $3.0 million supplement
to the allowed asset-based availability that is available through February of 2006 (the
Company will owe a $30,000 fee for any calendar month in which the Company uses, on more
than three days, all or part of this supplemental amount) and (vi) increased the
applicable margin on Eurodollar loans from 3% to 4%.
    
    On September 30, 2005, the Company entered into a further waiver and amendment to its
revolving credit agreement with GMAC. The credit facility amendment includes a waiver
with respect to the Companys requirement to provide financial statements for the fiscal
year ended July 2, 2005 reported on without qualification by the Companys independent
registered public accounting firm and sets new required minimum EBITDA levels for each
quarter of fiscal year 2006 and increases the applicable margin on Eurodollar loans from
4% to 5% and the applicable margin on prime rate loans from 0.75% to 2.75%. GMAC
required an appraisal of the Companys inventory within 45 days, which has been provided.
The Company believes that GMAC will use this appraisal, among other matters, to
determine whether to extend the $3.0 million supplemental line beyond February 2006.
 Restrictive Covenants.
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Cross-Default Clause in the Indenture.
 Need for Refinancing by 2007.
 Other Matters.
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CRITICAL ACCOUNTING POLICIES
  Impairment of Long  Lived Assets
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Income Taxes Accounting for Income Taxes
     Inventories
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Commodity Risk Sensitivity
  Interest Rate Sensitivity
   
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4.3.1.12
    
    Waiver and Amendments dated August 9, 2005 to Revolving Credit and Security Agreement
dated March 31, 2000 by and between GMAC Commercial Finance LLC, as lender and agent, and
Delta Mills, Inc.: Incorporated by reference to Exhibit 4.3.1.12 to the Companys Current
Report on Form 8-K dated August 8, 2005.4.3.1.13
    
    Waiver and Amendments dated September 30, 2005 to Revolving Credit and Security Agreement
dated March 31, 2000 by and between GMAC Commercial Finance LLC, as lender and agent, and
Delta Mills, Inc.: Incorporated by reference to Exhibit 4.3.1.13 to the Companys Annual
Report on Form 10-K for the fiscal year ended July 2, 2005.10.1.3**
    
    Form of Termination of Deferred Compensation Arrangement Agreement between Delta Woodside
Industries, Inc., Delta Mills, Inc., Delta Mills Marketing, Inc. and Employee Participants in
the Deferred Compensation Plan including schedule of terms for executive officers of the
Company: Incorporated by reference to Exhibit 10.1.3 to the Companys Annual Report on Form
10-K for the fiscal year ended July 2, 2005.
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31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Delta Mills, Inc.

(Registrant)Date November 15, 2005
    
    By: /s/ W.H. Hardman, Jr.W.H. Hardman, Jr.Chief Financial Officer
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