Delta Galil Reports Third Quarter 2006 Results

TEL AVIV, Israel, Nov. 7 /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 third quarter 2006 revenues of $184.0 million compared to $172.0 million in revenues reported in the third quarter of 2005, an increase of 7.0%.

Revenues for the first nine months of 2006 were $532.6 million, compared to $514.3 million in the first nine months of 2005, an increase of 3.6%.

Operating income in the quarter was $8.2 million, compared to an operating loss of $21.6 million in the comparable quarter of last year.

Operating income in the third quarter of 2006 was $8.2 million, compared to $0.0 million operating income reported in the third quarter of 2005, which excluded reorganization expenses and impairment of assets.

Operating income for the first nine months of 2006 was $17.2 million, compared to an operating loss of $25.3 million in the first nine months of 2005.

Operating income for the nine-month period of 2006 was $18.9 million, compared to an operating loss of $3.2 million reported in the same period of last year, which excluded reorganization expenses and impairment of assets.

Net income in the third quarter of 2006 was $3.2 million, or $0.17 diluted earnings per share, compared to a loss of $22.8 million, or $1.22 diluted loss per share, reported in the third quarter of 2005.

Net income in the third quarter of 2006 was $3.2 million, or $0.17 diluted earnings per share, compared to a loss of $2.2 million, or $0.12 diluted loss per share, reported in the third quarter of last year, which excluded reorganization expenses and impairment of assets.

Net income for the first nine months of 2006 was $2.7 million, or $0.15 diluted earnings per share, compared to a loss of $28.7 million, or $1.54 diluted loss per share, reported in the same period of last year.

Net income for the first nine months of 2006 was $4.4 million, or $0.24 diluted earnings per share, compared to a loss of $7.9 million, or $0.42 diluted loss per share, reported in the first nine months of 2005, which excluded reorganization expenses and impairment of assets.

The Company had positive operating cash flow of $4.8 million in the quarter, compared to positive operating cash flow of $9.2 million in the third quarter of last year.

Operating cash flow for the first nine months was positive $15.6 million, compared to positive operating cash flow of $0.4 million achieved in the first nine months of 2005.

Mr. Dov Lautman, Chairman of the board of directors, stated, "Revenues in the third quarter increased in all markets in which we operate despite the continued erosion in selling prices. We saw an improvement in the operating results in all our divisions, which we attribute to an increase in sales as well as the continued successful implementation of our reorganization plan."

Mr. Lautman added: "As previously announced in June 2006, Mr. Aviram Lahav commenced his new position as CEO of Delta on November 1, 2006. Aviram first joined Delta in 1997 as Chief Financial Officer and had served as the CEO of the US Upper market division since March 2004. The Board and I are confident that Aviram has the experience and managerial abilities to effectively lead the Company going forward. We wish him much success in his new role."

Revenues by geographic area ($ millions) Third Quarter Nine Months Ended September 30 % % % % from from from from total total % total total % 2006 sales 2005 sales Chg. 2006 sales 2005 sales Chg. ----- ----- ----- ----- ---- ----- ----- ----- ----- ---- North America 110.9 60.3 102.8 59.8 7.9 322.9 60.6 305.6 59.5 5.7 Europe 57.4 31.2 55.2 32.1 4.0 167.0 31.4 169.9 33.0 (1.7) Israel 15.7 8.5 14.0 8.1 12.1 42.7 8.0 38.8 7.5 10.0 ----- ----- ----- ----- Total 184.0 100.0 172.0 100.0 7.0 532.6 100.0 514.3 100.0 3.6 Revenues and operating results by divisions ($ millions) Third Quarter Non-recurring items Operating Profit (loss) Reorganiz- Impairment before non- ation of Fixed Impairment Sales recurring items Expenses Assets of Goodwill % 2006 2005 Chg. 2006 2005 2005 2005 2005 ---- ---- ---- ---- ---- ---- ---- ---- Delta USA 73.8 70.3 5.0 4.1 3.1 1.1 1.5 U.S. Upper market 24.5 20.7 18.3 0.8 (0.4) 1.6 3.5 1.1 Europe 42.5 40.7 4.4 2.8 (1.2) 1.5 Socks-US & Europe 28.7 29.2 (1.6) (0.3) (1.1) 4.1 3.4 Delta Marketing Israel 14.1 12.9 8.8 1.8 1.6 Seam-less 4.8 4.5 7.0 (0.5) (1.2) 2.4 Adjustments & Others (4.4) (6.3) (0.5) (0.8) 0.4 1.0 ---- ---- ---- ---- ---- ---- ---- Total 184.0 172.0 7.0 8.2 -- 8.7 7.4 5.5 Impairment of Fixed Assets 7.4 Reorganiz- ation expenses 8.7 Impairment of Goodwill 5.5 ---- ---- Total Operating profit (loss) 8.2 (21.6) Nine Months Ended September 30 Non-recurring items Operating Profit (loss) Reorganiz- Impairment before non- ation of Fixed Impairment Sales recurring items Expenses Assets of Goodwill % 2006 2005 Chg. 2006 2005 2006 2005 2005 2005 ----- ----- ---- ---- ---- ---- ---- ---- ---- Delta USA 210.9 208.5 1.2 10.3 7.1 1.1 1.5 U.S. Upper market 71.9 59.2 21.4 2.7 (4.2) 1.6 3.5 1.1 Europe 124.3 121.5 2.3 4.3 (3.2) 2.0 Socks-US & Europe 87.3 93.1 (6.3) -- 0.7 4.1 3.4 Delta Marketing Israel 38.5 35.8 7.4 4.6 3.7 Seam-less 12.0 15.2 (21.1) (1.0) (6.2) 2.4 Adjustments & Others (12.3) (19.0) (2.0) (1.1) 1.7 0.4 1.0 ----- ----- ---- ---- ---- ---- ---- ---- Total 532.6 514.3 3.6 18.9 (3.2) 1.7 9.2 7.4 5.5 Impairment of Fixed Assets 7.4 Reorganiz- ation expenses 1.7 9.2 Impairment of Goodwill 5.5 ---- ---- Total Consolidated Operating profit (loss) 17.2 (25.3)

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, Bulgaria, 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 to changes in quotas, 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 Nine months ended Three months ended September 30 September 30 2006 2005 2006 2005 ------- ------- ------- ------- In US $ thousand (except per share data) Revenues 532,571 514,294 184,030 171,957 Cost of revenues 431,822 436,552 147,804 144,734 ------- ------- ------- ------- Gross profit 100,749 77,742 36,226 27,223 Selling, marketing, general and administrative expenses: Selling and marketing expenses 67,299 65,502 22,590 22,566 General and administrative expenses 14,541 14,853 5,325 4,466 Capital (gain) loss from realization of assets (514) 43 (68) 8 Impairment of fixed asset 7,415 7,415 Reorganization expenses 1,663 9,102 8,641 Goodwill impairment 5,505 5,505 Amortization of intangible asset 553 593 185 183 ------- ------- ------- ------- Operating income (loss) 17,207 (25,271) 8,194 (21,561) Financial expenses - net 9,473 7,159 3,167 2,718 Other income - net 300 ------- ------- ------- ------- Income (loss) before taxes on income 7,734 (32,130) 5,027 (24,279) Taxes on income (tax saving) 4,622 (3,352) 1,627 (1,284) ------- ------- ------- ------- Income (loss) after taxes on income 3,112 (28,778) 3,400 (22,995) Share in profits (loss) of an associated company (6) 77 Minority interest in losses (profits) of subsidiaries - net (377) 41 (155) 92 Net income (loss) for the period 2,735 (28,743) 3,245 (22,826) ------- ------- ------- ------- Earnings (loss) per share - basic 0.15 (1.54) 0.17 (1.22) Earnings (loss) per share - diluted 0.15 (1.54) 0.17 (1.22) Weighted average number of shares - in thousands: Basic 18,696 18,695 18,698 18,695 Diluted 18,698 18,703 18,750 18,695 CONDENSED CONSOLIDATED BALANCE SHEET September 30 December 31 2006 2005 2005 ------- ------- ------- In US $ thousands Assets: Current assets: Cash and cash equivalents 9,060 8,736 14,595 Accounts receivable: Trade 115,637 103,093 104,424 Other 12,038 13,567 13,244 Inventories 131,201 150,437 147,142 Property, plant and equipment for sale 4,532 7,420 Deferred income taxes 4,845 7,243 4,726 Total current assets 277,313 283,076 291,551 Investments and long-term receivables 9,140 8,025 7,436 Property, plant and equipment 100,879 117,416 109,131 Other assets and deferred charges 55,266 53,399 53,956 Intangible assets 13,820 14,185 14,499 ------- ------- ------- Total assets 456,418 476,101 476,573 Liabilities and shareholders' equity: Current liabilities: Short-term bank credit 125,786 107,498 110,183 Trade 60,581 50,727 61,255 Other 33,817 39,514 39,164 ------- ------- ------- Total current liabilities 220,184 197,739 210,602 Long-term liabilities: Bank loans and other liabilities 36,172 74,304 69,677 Liability for employee rights upon retirement 8,127 8,091 7,850 Deferred income taxes 1,416 1,526 1,267 ------- ------- ------- Total long-term liabilities 45,715 83,921 78,794 Total liabilities 265,899 281,660 289,396 Minority interest 2,850 2,425 2,863 Shareholders' equity 187,669 192,016 184,314 ------- ------- ------- Total Liabilities and shareholders' equity 456,418 476,101 476,573 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW Nine months ended Three months ended September 30 September 30 2006 2005 2006 2005 ------ ------- ------ ------ In US $ thousands Cash flows from operating activities: Net income (loss) for the period 2,735 (28,743) 3,245 (22,826) Adjustment required to reflect the cash flows from operating activities 12,820 29,154 1,572 32,037 Net cash provided by operating activities 15,555 411 4,817 9,211 Cash flows from investing activities: Purchase of fixed assets (4,374) (10,318) (1,288) (4,315) Additional payment for the acquisition of a subsidiary (1,245) (950) Proceeds from realization of fixed assets 1,031 300 243 29 Proceeds from realization of assets held for sale 2,846 750 Proceeds from realization of investment in associated company 300 Other (994) (550) (88) 170 Net cash used in investing activities (2,736) (11,218) (383) (4,116) Cash flows from financing activities: Long-term bank loans - net (39,748) (20,333) (6,800) (9,222) Short-term bank credit - net 21,846 19,153 929 6,200 Other (487) (1,359) (26) (827) Net cash used in financing activities (18,389) (2,539) (5,897) (3,849) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,570) (13,346) (1,463) 1,246 TRANSLATION IN DIFFERENCES IN CASH AND CASH EQUIVALENTS 35 (68) BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,595 22,150 10,523 7,490 ------ ------- ------ ------ BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 9,060 8,736 9,060 8,736 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW Nine months ended Three months ended September 30 September 30 2006 2005 2006 2005 ------ ------ ----- ------ In US $ thousands Adjustment required to reflect the cash flows from operating activities: Income and expenses not involving cash flows: Depreciation and amortization 11,477 11,842 4,001 3,595 Reorganization expenses and impairment of assets 1,241 20,739 (422) 20,594 Deferred income taxes - net 20 (6,928) 145 (968) Capital gain from realization of investment in associate company (300) Capital (gain) loss from realization of assets (514) 43 (68) 8 Other 721 (60) 99 (254) ------ ------ ----- ------ 12,945 25,336 3,755 22,975 Changes in operating assets and liabilities items: Increase in accounts receivable (10,268) (1,643) (6,311) (3,197) Decrease in accounts payable and accruals (5,837) (27,713) (590) (4,089) Decrease in inventories 15,980 33,174 4,718 16,348 ------ ------ ----- ------ (125) 3,818 (2,183) 9,062 ------ ------ ----- ------ 12,820 29,154 1,572 32,037 RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL RESULTS Nine months ended Three months ended September 30 September 30 2006 2005 2006 2005 ------ ------ ----- ------ In US $ thousands (except per share data) Operating income (loss) - As reported 17,207 (25,271) 8,194 (21,561) Non-GAAP Measures: Impairment of fixed assets 7,415 7,415 Goodwill impairment 5,505 5,505 Reorganization expenses 1,663 9,102 8,641 ------ ------ ----- ------ Operating income (loss) for the period before Non-GAAP Measures 18,870 (3,249) 8,194 0 Net income (loss) for the period - As reported 2,735 (28,743) 3,245 (22,826) Non-GAAP Measures: Impairment of fixed assets 7,415 7,415 Goodwill impairment 5,505 5,505 Reorganization expenses 1,663 9,102 8,641 Other income (300) Tax benefit (914) (914) ------ ------ ----- ------ Net income (loss) for the period before Non-GAAP Measures 4,398 (7,935) 3,245 (2,179) ------ ------ ----- ------ Diluted earnings (loss) per share ($) before Non-GAAP Measures 0.24 (0.42) 0.17 (0.12)