UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended April 2, 2005

OR

For the transition period from ______________ to ____________

Commission File Number 1-15583

DELTA APPAREL, INC.

2750 Premiere Parkway, Suite 100
Duluth, Georgia 30097

(678) 775-6900

(Not Applicable)

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 þ 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 þ.

As of April 26, 2005, there were outstanding 4,230,931 shares of the registrant’s common stock (prior to adjustment to reflect the 2-for-1 stock split that will be effective as of May 31, 2005), par value of $0.01, which is the only class of the outstanding common or voting stock of the registrant.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DELTA APPAREL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements.

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DELTA APPAREL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

See accompanying notes to condensed consolidated financial statements.

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DELTA APPAREL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

See accompanying notes to condensed consolidated financial statements.

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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 nine months ended April 2, 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® 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® is similar to the approach described in Statement 123. However, Statement 123® requires all 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® must be adopted for annual periods beginning after June 15, 2005. Statement 123® applies to new awards and to awards modified, repurchased, or cancelled after the required effective date, as well as to the unvested portion of awards outstanding as of the required effective date (“modified prospective application”). We expect to adopt Statement 123® on July 3, 2005. We are currently evaluating the effect that the adoption of Statement 123® will have on our financial position and results of operations (see Note H).

In March 2005, the Securities and Exchange Commission released SEC Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides the SEC staff’s position regarding the implementation of Statement 123®. SAB No. 107 contains interpretive guidance related to the interaction between Statement 123® and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment transactions. We are currently evaluating the effects that the adoption of SAB No. 107 will have on our financial position and will be incorporating it as part of our adoption of Statement 123®.

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 third quarter of fiscal years 2005 and 2004, distribution costs included in selling, general and administrative expenses totaled $2.3 million and $2.0 million, respectively. For the first nine months of fiscal years 2005 and 2004, distribution costs included in selling, general and administrative expenses totaled $6.2 million and $5.2 million, respectively. The Soffe segment was included in our results beginning on 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.

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Note E—Inventories

     Inventories consist of the following:

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 became our primary raw material in both the Delta and Soffe segments. Therefore, raw materials at April 2, 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 April 2, 2005 and July 3, 2004 were $15.0 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 our Edgefield 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 nine months ended April 2, 2005 was 30.7%, compared to 32.4% for the fiscal year ended July 3, 2004. During the quarter ended April 2, 2005, we decided to permanently reinvest our foreign earnings in Honduras. Therefore, we reversed a $0.7 million tax liability associated with the foreign earnings, resulting in the lower effective tax rate during the quarter ended April 2, 2005, which increased diluted earnings per share by approximately $0.08 (adjusted to reflect the 2-for-1 stock split effective as of May 31, 2005). 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 32.4% effective tax rate during fiscal year 2004, which increased diluted earnings per share by approximately $0.11 (adjusted to reflect the 2-for-1 stock split effective as of May 31, 2005).

We acquired the stock of M. J. Soffe Co. on October 3, 2003. Soffe made an election under Section 338(g) of the Internal Revenue Code with respect to the purchase to treat the stock purchase as an asset purchase for Federal income tax purposes. Following the filing of our consolidated income tax return for the fiscal year ended 2004, which includes the initial year of Soffe, we identified certain adjustments to the Soffe opening balance sheet tax basis of assets and liabilities and pursuant to Emerging Issues Task Force (“EITF”) 93-7, Uncertainties Related to Income Taxes in a Purchase Combination, upon resolution of the uncertainties related to income taxes in a business combination, we appropriately recorded the adjustments related to the tax assets and liabilities in the quarter ended April 2, 2005. These adjustments resulted in an increase in deferred tax assets of $1.9 million, an increase in taxes payable of $2.6 million and a reduction in other liabilities of $0.7 million.

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

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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):

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 April 2, 2005, minimum payments under these contracts to purchase yarn and finished apparel products with non-cancelable contract terms were $28.2 million and $1.6 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 April 2, 2005. Since the inception of the Stock Repurchase Program, we have purchased 736,114 shares (adjusted to reflect the 2-for-1 stock split effective as of May 31, 2005) of our common stock pursuant to the program for an aggregate purchase price of $4.2 million.

Quarterly Dividend Program

On January 20, 2005, our Board of Directors declared a cash dividend of seven cents per share of common stock (prior to adjustment to reflect the 2-for-1 stock split effective as of May 31, 2005) pursuant to our quarterly dividend program. We paid the dividend on February 28, 2005 to

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shareholders of record as of the close of business on February 16, 2005. On April 21, 2005, our Board declared a cash dividend of four cents per share of common stock payable after the stock split (eight cents per share of common stock prior to the 2-for-1 stock split) on May 31, 2005 to shareholders of record as of the close of business on May 18, 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.

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 April 2, 2005 and March 27, 2004, by operating segment, is as follows (in thousands):

Information about our operations as of and for the nine months ended April 2, 2005 and March 27, 2004, by operating segment, is as follows (in thousands). The results for the nine months ended March 27, 2004 include six months of operations from M. J. Soffe Co., which was acquired on October 3, 2003.

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The following reconciles the Segment Operating Income to the consolidated income before income taxes for the three and nine months ended April 2, 2005 and March 27, 2004.

Note M—Sale of Yarn Manufacturing Plant

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 $0.26 per diluted share (adjusted to reflect 2-for-1 stock split effective as of May 31, 2005). This gain was recorded in the fiscal quarter ended 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.

Note N—Termination of Non-Qualified Deferred Compensation Program

Our Board of Directors resolved to terminate our nonqualified deferred compensation plans pursuant to the exit strategy guidelines of the American Jobs Creation Act of 2004. We expect to terminate the plans by fiscal year-end. During the quarter ended April 2, 2005, we reclassified $2.0 million of cash surrender value of life insurance from Other Noncurrent Assets to Prepaid Expenses and Other Current Assets and $6.2 million of nonqualified deferred compensation liability from Other Noncurrent Liabilities to Accounts Payable and Accrued Expenses.

Note O—Subsequent Event

On April 21, 2005, the Board of Directors approved a 2-for-1 stock split of our common stock. On May 31, 2005, shareholders of record on May 18, 2005 will receive one additional share of common stock for each share held of record. All references in the financial statements with regard to the number of shares or average number of shares of common stock and related prices, dividends and per share amounts have been restated to reflect the 2-for-1 stock split.

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.

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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

Sales for our third quarter were $58.3 million compared to $58.8 million in the third quarter of last year. While net sales were down slightly compared to the prior year, we had a 330 basis point improvement in our gross margins from our second quarter of fiscal 2005. We achieved the gross margin improvement through price increases in our core fashion apparel styles, a more favorable sales mix of higher margin goods, and through several key improvements to our manufacturing process, including running our facilities at a higher capacity and decreasing our off-quality production.

Revenue in the Delta business was $36.0 million compared to $36.3 million in the third quarter of the prior year. This slight decrease was primarily the result of a temporary reduction in distribution capacity due to the transition of our primary distribution center in Knoxville, Tennessee to a new facility in Clinton, Tennessee. In response to the lower capacity during the quarter, we curtailed sales of basic commodity tees, while we continued to grow sales of higher margin products. In addition, we increased our private label sales to 25% of our sales, from 12% of our sales in the prior year quarter. Operating income in the Delta business increased to $6.1 million, or 16.8% of sales. Included in these results was the $3.6 million gain on the sale of our yarn manufacturing facility in Edgefield, South Carolina. We closed on the sale of the Edgefield plant in January of this year.

While the transition to our new distribution center limited our shipping capacity during the third quarter, we are now fully functional and are seeing improvements in our distribution process. Our new distribution center in Clinton, Tennessee is a modern facility that should enable us to improve customer service and lower our variable distribution cost. Additionally, we are now shipping from our newest distribution center located in Cranbury, N.J. This facility will be shipping both Delta and Soffe products. This joint Delta-Soffe facility is a key enhancement to our operations and will provide our customers with a higher level of service, which we expect to result in an expansion of our customer base in the northeast United States.

Revenues in the Soffe business for the third quarter increased approximately 2% to $22.9 million compared to the prior year quarter. In the quarter, we shipped approximately $1 million of close-out products. While this impacted our gross margins for the quarter, it should improve our inventory utilization. Demand appears good for our expanded and improved Spring and Fall product offerings, and we will continue to focus on the growth of our Soffe brand.

In February 2005 we announced the closing of our Soffe sewing facility in Bladenboro, North Carolina, which ceased sewing production in April 2005. In addition, we have recently announced reductions to our sewing production in our Fayetteville, North Carolina facility, as we continue to transition our domestic sewing production to offshore facilities. We will, however, maintain appropriate levels of sewing production in the United States to support our military programs, which require domestic manufacturing. We will continue to evaluate opportunities to lower our manufacturing costs to improve our gross margins. During the quarter, we increased our manufacturing production in both the Delta and Soffe businesses. We expect to continue to increase our production levels through fiscal year 2006.

We are encouraged by the growth opportunities in all key segments of our business. With our new distribution centers now fully operational, we are able to provide improved service to our customers and offer one day shipping to an expanded portion of the U.S. population base. We are concentrating on expanding our distribution at higher price points with new product. Our management team is focused on making Soffe a leaner, more profitable operation and we are encouraged