Delta Galil Reports First Quarter 2006 Results

TEL AVIV, Israel, May 9 /PRNewswire-FirstCall/ -- Delta Galil Industries Ltd. , ("Delta") the global provider of private label ladies' intimate apparel, socks, men's underwear, baby-wear and leisurewear, today reported first quarter 2006 revenues of $172.1 million, a decrease of 1% compared to the $173.5 million in revenues reported in the first quarter of 2005.

Loss for the first quarter of 2006 was $1.0 million or $0.05 diluted loss per share, compared to loss of $3.0 million or $0.16 diluted loss per share in the first quarter of last year.

Operating profit in the first quarter of 2006 was $3.1 million, compared to an operating loss of $1.7 million in the first quarter of last year.

Operating cash flow in the first quarter of 2005 was negative $3.6 million compared to negative cash flow of $18.8 million in the first quarter of last year.

Mr. Dov Lautman, Chairman and CEO of Delta, stated, "The first quarter 2006 results were positively affected by the continued efforts of our re- organization plan. An increase in quantities enabled revenues to remain stable, despite continued erosion in selling prices, mainly in the European operation. In addition to implementing our re-organization plan, we also are in the midst of implementing a change in our organizational structure. We are doing this in order to better match the Company's structure to the business environment. We believe that these two measures will return Delta to profitability."

Revenues by geographic area ($ millions) First Quarter % of total % of total % 2006 revenues 2005 revenues Chg. ----- ---------- ----- ---------- ----- North America 104.6 60.8 103.3 59.5 1.3 Europe 54.3 31.6 57.7 33.3 (5.9) Israel 13.2 7.6 12.5 7.2 5.6 ----- ----- Total 172.1 100.0 173.5 100.0 (0.8) ===== ===== Revenues and operating results by divisions ($ millions) First Quarter Revenues Operating Profit (loss) -------- ----------------------- 2006 2005 % Chg. 2006 2005 ----- ----- ------ ---- ---- Delta USA 69.7 73.5 (5.2) 2.3 3.5 U.S. Upper market 22.5 19.6 14.8 0.9 (2.1) Europe(1) 39.7 39.7 -- 0.1 (2.6) Socks-US & Europe 27.8 31.5 (11.7) (0.1) 1.0 Delta Marketing Israel 12.3 11.6 6.0 1.2 0.9 Seam-less 3.5 5.4 (35.2) (0.3) (2.3) China 0.5 (0.8) (0.3) Adjustments and others (3.9) (7.8) (0.2) 0.2 ----- ----- ------ ---- ---- Total 172.1 173.5 (0.8) 3.1 (1.7) ===== ===== ====== ==== ===== (1) Operating loss in the first quarter of 2005 includes restructuring expenses in the amount of $0.5 million from the closure of a sewing factory in Israel and loss of $1.0 million related to the closure of the logistic center in Hungary. Option Plan

The Board of Directors decided to approve two option plans, one for Israeli and other non-U.S. employees and the other for U.S. employees. A total of up to 1,400,000 options, representing approximately 6.5% of the Company's issued capital on a fully diluted basis, may be issued under the plans. Of such number, 1,100,000 options are issuable under the plan for Israeli and other non-U.S. employees and 300,000 options are issuable under the plan for U.S. employees. Each option may be exercised to one ordinary share of the Company, pursuant to terms of the relevant option plan.

The exercise price of the options granted will be the closing price of the ordinary shares on the Tel Aviv Stock Exchange on Thursday, May 11, 2006 converted to US dollars based on the exchange rate of the US dollar on that date. A total of 813,016 options were granted and 586,984 options remain available for future issuances under the plans. The plan for Israeli employees, which will be treated under the capital gains track under Section 102 of the Israeli Income Tax Ordinance, is subject to the approval of the Israeli Tax Authority. Treatment of the options granted under the plan for U.S. employees as incentive stock options, which have certain tax benefits for those receiving the options, is subject to shareholder approval at the Company's next shareholders meeting.

The options granted today vest over up to a four-year period and are exercisable over a period of three years after vesting. The vesting of 277,000 options, granted to 11 senior employees, are subject to achievement of financial performance goals. Of these options, 141,000 will vest if the Company's pre-tax net income, excluding one-time capital gains, is at least U.S. $27.5 million in 2007, and 136,000 will vest if the Company's pre-tax net income, excluding one-time capital gains, is at least U.S. $32.5 million in 2008.

Delta Galil is a leading global manufacturer of quality apparel sold under brands such as Calvin Klein, Hugo Boss, Nike, Ralph Lauren. Recognized for product innovation and development, Delta's products are sold worldwide through retailers including Wal-Mart, Marks & Spencer, Target, Victoria's Secret, JC Penney, Hema, and others. Headquartered in Israel, Delta operates manufacturing facilities in Israel, Jordan, Egypt, Turkey, Eastern Europe, North and Central America, the Caribbean and the Far East. For more information, please visit our website: http://www.deltagalil.com/.

(This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on the current expectations of the management of DELTA Galil Industries Ltd. (the Company) only, and are subject to a number of risk factors and uncertainties, including but not limited our dependence on a few significant customers; our anticipated growth strategies; our intention to introduce new products; anticipated trends in our business; future expenditures for capital projects; and our ability to continue to control costs and maintain quality which could cause the actual results or performance of the company to differ materially from those described therein.

For a more detailed description of the risk factors and uncertainties affecting the company, refer to the Company's reports filed from time to time with the Securities and Exchange Commission.)

Contacts: Yossi Hajaj Delta Galil Industries Ltd. Tel: [phone] U.S. Investors Kathy Price The Global Consulting Group Tel: [phone] CONDENSED CONSOLIDATED STATEMENT OF INCOME Three months ended Year ended March 31 December 31 2006 2005 2005 -------- -------- -------- In US $ thousands Revenues 172,068 173,458 684,481 Cost of revenues 142,791 148,762 582,799 -------- -------- -------- Gross profit 29,277 24,696 101,682 Selling, marketing, general and administrative expenses: Selling and marketing expenses 21,343 20,505 86,682 General and administrative expenses 4,879 5,146 20,326 Capital loss (gain) from realization of assets (258) 35 77 Impairment of fixed asset 7,415 Reorganization expenses 461 9,102 Goodwill impairment 5,505 Amortization of intangible asset 185 227 779 -------- -------- -------- Operating income (loss) 3,128 (1,678) (28,204) Financial expenses - net 3,030 2,375 10,218 Other income 300 300 -------- -------- -------- Income (loss) before taxes on income 98 (3,753) (38,122) Taxes on income (tax saving) 1,013 (974) (2,302) -------- -------- -------- Loss after taxes on income (915) (2,779) (35,820) Share in loss of an associated company (83) (27) Minority interest in profits of subsidiaries - net (82) (90) (500) -------- -------- -------- Loss for the period (997) (2,952) (36,347) ======== ======== ======== Loss per share - basic (0.05) (0.16) (1.94) ======== ======== ======== Loss per share - diluted (0.05) (0.16) (1.94) ======== ======== ======== Weighted average number of shares - in thousands: Basic 18,695 18,695 18,695 ======== ======== ======== Diluted 18,695 18,847 18,695 ======== ======== ======== CONDENSED CONSOLIDATED BALANCE SHEET March 31 December 31 2006 2005 2005 ------- ------- ------- In US $ thousands Assets: Current assets: Cash and cash equivalents 11,184 8,500 14,595 Accounts receivable: Trade 112,711 107,782 104,424 Other 11,186 14,162 13,244 Inventories 133,031 171,064 147,142 Property, plant and equipment for sale 7,420 7,420 Deferred income taxes 4,806 4,497 4,726 ------- ------- ------- Total current assets 280,338 306,005 291,551 ------- ------- ------- Investments and long-term receivables 7,969 7,534 7,436 ------- ------- ------- Property, plant and equipment 106,929 126,685 109,131 ------- ------- ------- Other assets and deferred charges 55,189 58,810 53,956 ------- ------- ------- Intangible assets 14,314 14,551 14,499 ------- ------- ------- Total assets 464,739 513,585 476,573 ======= ======= ======= Liabilities and shareholders equity: Current liabilities: Short-term bank credit 135,628 96,556 110,183 Trade 50,346 56,019 61,255 Other 35,289 34,003 39,164 ------- ------- ------- Total current liabilities 221,263 186,578 210,602 ------- ------- ------- Long-term liabilities: Bank loans and other liabilities 47,970 94,889 69,677 Liability for employee rights upon retirement 7,849 7,451 7,850 Deferred income taxes 1,369 3,237 1,267 ------- ------- ------- Total long-term liabilities 57,188 105,577 78,794 ------- ------- ------- Total liabilities 278,451 292,155 289,396 Minority interest 2,945 3,301 2,863 Shareholders equity 183,343 218,129 184,314 ------- ------- ------- Total Liabilities and shareholders equity 464,739 513,585 476,573 ======= ======= ======= CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW Three months ended Year ended March 31 December 31 2006 2005 2005 ------- -------- -------- In US $ thousands Cash flows from operating activities: Loss for the period (997) (2,952) (36,347) Adjustment required to reflect the cash flows from operating activities (2,582) (15,889) 47,951 ------- -------- -------- Net cash (used in) provided by operating activities (3,579) (18,841) 11,604 ------- -------- -------- Cash flows from investing activities: Purchase of fixed assets (1,936) (2,859) (13,034) Additional payment for the acquisition of subsidiaries (1,621) (2,274) Proceeds from realization of fixed assets 341 271 1,071 Proceeds from realization of investment in associated company 300 300 Other (359) (473) (510) ------- -------- -------- Net cash used in investing activities (3,575) (2,761) (14,447) ------- -------- -------- Cash flows from financing activities: Long-term bank loans - net (27,957) (4,548) (28,079) Short-term bank credit - net 31,695 13,011 24,957 Other (511) (1,522) ------- -------- -------- Net cash provided by (used in) financing activities 3,738 7,952 (4,644) ------- -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (3,416) (13,650) (7,487) TRANSLATION IN DIFFERENCES IN CASH AND CASH EQUIVALENTS 5 (68) BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,595 22,150 22,150 ------- -------- -------- BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 11,184 8,500 14,595 ======= ======== ======== CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW Three months ended Year ended March 31 December 31 2006 2005 2005 ------- -------- -------- In US $ thousands Adjustment required to reflect the cash flows from operating activities: Income and expenses not involving cash flows: Depreciation and amortization 3,692 4,012 15,811 Reorganization expenses and impairment of assets 19,390 Deferred income taxes - net 16 (2,479) (4,937) Capital gain from realization of investment in associated company (300) (300) Capital (gain) loss from sales of fixed assets (258) 35 77 Other 303 (24) 698 ------- -------- -------- 3,753 1,244 30,739 ------- -------- -------- Changes in operating assets and liabilities items: Increase in accounts receivable (6,282) (6,171) (2,130) Decrease in accounts payable and accruals (14,162) (23,665) (17,127) Decrease in inventories 14,109 12,703 36,469 ------- -------- -------- (6,335) (17,133) 17,212 ------- -------- -------- (2,582) (15,889) 47,951 ======= ======== ========