SOURCE: Delta Galil Industries Ltd.

May 15, 2007 16:46 ET

Delta Galil Reports First Quarter of 2007 Results

TEL AVIV, ISRAEL -- (MARKET WIRE) -- May 15, 2007 -- Delta Galil Industries Ltd. (NASDAQ: DELT), ("Delta") the global provider of private label ladies' intimate apparel, socks, men's underwear, baby-wear and leisurewear, today reported results for the first quarter, which ended March 31, 2007.

--  Revenues were $159.4 million compared to $172.1 million reported in
    the first quarter of 2006, a decrease of 7.4%.
    
--  In line with the Company's announcement of March 29 regarding its
    restructuring plan, Delta recorded, in its first quarter results,
    restructuring expenses of $10.8 million or $0.58 loss per diluted share.
    
--  Operating loss in the first quarter of 2007 was $8.5 million, which
    compares to an operating income of $3.1 million reported in the first
    quarter of 2006.  Excluding the restructuring expenses noted above, Delta
    would have reported operating income of $2.3 million in the first quarter
    of 2007.
    
--  Net loss was $13.2 million, or $0.70 loss per diluted share, compared
    to the net loss of $1.0 million, or $0.05 loss per diluted share reported
    in the first quarter of 2006.  Excluding the restructuring expenses noted
    above, Delta would have reported a net loss of $2.4 million, or $0.13 loss
    per diluted share.
    
--  The Company had positive cash flow of $0.9 million in the first
    quarter of 2007, compared to a negative cash flow of $4.0 million in the
    first quarter of 2006.
    
Selected data in US $ millions:

                                                          Q1 2007  Q1 2006
                                                          -------  -------
Revenues                                                  $ 159.4  $ 172.1
                                                          -------  -------
Operating income excluding restructuring expenses             2.3      3.1
                                                          -------  -------
Operating income (loss)                                      (8.5)     3.1
                                                          -------  -------
Adjusted EBITDA(1)                                            5.6      6.8
                                                          -------  -------
Net loss excluding restructuring expenses                    (2.4)    (1.0)
                                                          -------  -------
Restructuring expenses                                       10.8      -,-
                                                          -------  -------
Net loss in the period                                      (13.2)    (1.0)
                                                          -------  -------
Operating cash flow                                           0.9     (4.0)
                                                          -------  -------
(1) Adjusted EBITDA is a non-GAAP measure used by Delta Galil to measure
    performance of ongoing operations. It is derived from net income (loss)
    before taxes on income, financial expense net, restructuring expenses,
    and depreciation and amortization expenses.

    For a calculation of Adjusted EBITDA, please refer to the table
    accompanying this press release.



Restructuring plan

Further to the press release published by the Company on March 29, 2007, regarding its decision to adopt a restructuring plan, organizational changes and additional efficiency measures in light of continuous changes in the business environment, continued erosion of the selling prices and increased competition, Delta announced that the total cost of the plan as included in the 2007 first quarter results, amounted to $10.8 million or $0.58 per share. This cost includes $5.2 million in cash for severance obligations, and $5.6 million in non-cash expenses for impairment of assets following closures and downsizing at certain production facilities.

The Company estimates that the implementation of these changes will take place over the course of a year.

CEO Comments on the Quarter and State of the Business

Mr. Aviram Lahav, Delta's CEO, stated today: "The decrease in sales in Europe and in the US in the first quarter of 2007 is due to the erosion of selling prices and increased competition. The changes in the business environment in the intimate apparel division in the US and in Europe as reflected in the continuation of erosion in the selling prices; increased competition, rising prices in the manufacturing cost and the strengthening of the shekel against the dollar, led us to the decision to adopt the restructuring plan, in order to improve our competitive ability. The plan includes downsizing costs and transferring production facilities to lower cost countries. Our intention is to expand operations in Egypt so it will become the main manufacturing facility that will serve our clients in Europe and in the US Upper Market. Furthermore, we are implementing a restructuring plan in our socks division, which will include downsizing of overheads, and transferring of production to lower cost facilities in Bulgaria and in the Far East.

"We anticipate that these measures will contribute to the improvement of Delta's competitiveness and its return to profitability," concluded Mr. Lahav.

Revenues by Geographic Area ($ millions)

                                            First Quarter
                           ------------------------------------------------
                                     % from              % from
                                      total               total
                             2007    revenues    2006    revenues  % Chg
                           --------  --------  --------  --------  --------
North America                  92.3      57.9     104.6      60.8    (11.8)
Europe                         49.9      31.3      54.3      31.6     (8.1)
Israel                         17.0      10.6      13.2       7.6     28.2
Others                          0.2       0.2       -,-       -,-      -,-
                           --------            --------
Total                         159.4     100.0     172.1     100.0     (7.4)
                           ========            ========


Revenues and Operating Results by reportable segments ($ millions)

                               First Quarter

                                                       Operating
                                                        Income
                                                        (loss)
                                                       excluding  Restruct-
                                                     Restructur-    uring
                                      Revenues       ing expenses  Expenses
                                -------------------  ------------  --------
                                                %
                                2007   2006   Chg.   2007   2006     2007
                                -----  -----  -----  -----  -----  --------
Delta USA                        65.3   69.7   (6.3)   3.1    2.3       -,-
Intimate apparel-
Europe and US (*)                49.9   62.6  (20.3)  (2.4)   1.0       8.5
Socks-Europe & US                29.4   27.8    5.6    1.1   (0.1)      2.0
Delta Marketing Israel           14.5   12.3   18.0    1.6    1.2       -,-
Seam-Less                         3.7    3.5    7.1   (0.5)  (0.3)      0.3
Adjustments & Others             (3.4)  (3.8)         (0.6)  (1.0)      -,-
                                -----  -----         -----  -----  --------
Total                           159.4  172.1   (7.4)   2.3    3.1      10.8
                                =====  =====         -----  -----  ========
Restructuring expenses                                10.8    -,-
                                                     -----  -----
Total Consolidated operating
 profit (loss)                                        (8.5)   3.1
                                                     =====  =====

(*)  Following the changes in the organizational structure the results of
     the US Upper Market and the Europe segments are presented together.

     Comparable numbers were reclassified accordingly.
Use of Non-GAAP Measures

This press release provides financial measures that are not calculated in accordance with generally accepted accounting principals (GAAP). The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management uses both GAAP and non-GAAP measures when evaluating the business internally and therefore felt it important to make these non-GAAP adjustments available to investors. A reconciliation of each GAAP to non-GAAP financial measure discussed in this press release is contained in the accompanying financial tables.

Adjusted EBITDA is presented in the earnings release because management believes that it enhances the understanding of our operating results and is of interest to our investors. EBITDA, however, should not be considered as an alternative to operating income or income for the period as an indicator of our operating performance. Similarly, EBITDA should not be considered as an alternative to cash flows from operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies.

Delta Galil is a leading global manufacturer of quality apparel sold under brands such as Calvin Klein, Hugo Boss, Nike, and 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, Central America, the Caribbean and the Far East. For more information, please visit our website: 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 including the Company's Annual Report on Form 20-F.

                                 DELTA
                         GALIL INDUSTRIES LTD.

                CONDENSED CONSOLIDATED STATEMENT OF INCOME

                                      Three months ended       Year ended
                                           March 31           December 31
                                  --------------------------  ------------
                                      2007          2006          2006
                                  ------------  ------------  ------------
                                              In US $ thousands
                                  ----------------------------------------

Revenues                               159,364       172,068       706,699
Cost of revenues                       129,845       142,791       574,246
                                  ------------  ------------  ------------
Gross profit                            29,519        29,277       132,453
Selling, marketing, general and
 administrative expenses:
Selling and marketing expenses          22,378        21,343        88,165
General and administrative
 expenses                                5,027         4,879        19,587
Gain from realization of assets           (326)         (258)         (686)
Restructuring expenses                  10,800                       1,663
Amortization of intangible asset           185           185           739
                                  ------------  ------------  ------------
Operating income (loss)                 (8,545)        3,128        22,985
Financial expenses - net                 3,125         3,030        13,558
                                  ------------  ------------  ------------
Income (loss) before taxes on
 income                                (11,670)           98         9,427
Taxes on income (tax benefit)            1,419         1,013         5,784
                                  ------------  ------------  ------------
Income (loss) after taxes on
 income                                (13,089)         (915)        3,643
Minority interest of subsidiaries
 - net                                     (94)          (82)         (495)
                                  ------------  ------------  ------------
Net income (loss) for the period       (13,183)         (997)        3,148
                                  ============  ============  ============
Earnings (loss) per share - basic
 & diluted                               (0.70)        (0.05)         0.17
                                  ============  ============  ============
Weighted average number of shares
 - in thousands:
Basic                                   18,741        18,695        18,700
                                  ============  ============  ============
Diluted                                 18,741        18,695        18,742
                                  ============  ============  ============




                                 DELTA
                         GALIL INDUSTRIES LTD.

                   CONDENSED CONSOLIDATED BALANCE SHEET

                                           March 31           December 31
                                  --------------------------- -------------
                                      2007          2006          2006
                                  ------------- ------------- -------------
                                              In US $ thousands
                                  -----------------------------------------

         Assets:
 Current assets:
Cash and cash equivalents                 8,130        11,184        10,342
Restricted cash                                                       4,000
Accounts receivable:
Trade                                   110,238       112,711       109,710
Other                                     8,188        11,186         7,573
Inventories                             120,234       133,031       131,556
Assets held for sale                      4,260         7,420         4,474
Deferred income taxes                     4,628         4,806         4,779
                                  ------------- ------------- -------------
           Total current assets         255,678       280,338       272,434
                                  ------------- ------------- -------------

Investments and long-term
 receivables                              8,400         7,969         8,344
                                  ------------- ------------- -------------
Property, plant and equipment            92,746       106,929        99,263
                                  ------------- ------------- -------------
Other assets and deferred charges        57,604        55,189        57,562
                                  ------------- ------------- -------------
Intangible assets                        13,074        14,314        13,259
                                  ------------- ------------- -------------
           Total assets                 427,502       464,739       450,862
                                  ============= ============= =============

    Liabilities and shareholders equity:                     
Current liabilities:
Short-term bank credit                  137,426       135,628       124,039
Trade                                    47,603        50,346        59,038
Other                                    37,654        35,289        34,504
                                  ------------- ------------- -------------
         Total current
          liabilities                   222,683       221,263       217,581
                                  ------------- ------------- -------------


         Long-term liabilities:
Bank loans and other liabilities         17,409        47,970        33,196
Liability for employee rights
 upon retirement                          6,760         7,849         6,863
Deferred income taxes                     2,363         1,369         2,159
                                  ------------- ------------- -------------
          Total long-term
           liabilities                   26,532        57,188        42,218
                                  ------------- ------------- -------------

          Total liabilities             249,215       278,451       259,799
Minority interest                         2,780         2,945         2,846
Shareholders' equity                    175,507       183,343       188,217
                                  ------------- ------------- -------------
          Total Liabilities and
           shareholders equity          427,502       464,739       450,862
                                  ============= ============= =============




                                 DELTA
                         GALIL INDUSTRIES LTD.

              CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

                                      Three months ended       Year ended
                                           March 31           December 31
                                  --------------------------  ------------
                                      2007          2006          2006
                                  ------------  ------------  ------------
                                              In US $ thousands
                                  ----------------------------------------

Cash flows from operating
 activities:

Net income (loss) for the period       (13,183)         (997)        3,148
Adjustment required to reflect
 the cash flows from operating
 activities                             14,121        (2,958)       23,151
                                  ------------  ------------  ------------
Net cash provided by (used in)
 operating activities                      938        (3,955)       26,299
                                  ------------  ------------  ------------

Cash flows from investing
 activities:

Purchase of fixed assets                (2,581)       (1,936)       (5,706)
Additional payment for the
 acquisition of subsidiary              (2,400)       (1,245)       (1,245)
Proceeds from realization of
 fixed assets                              430           341         1,274
Proceeds from realization of
 assets held for sale                      302                       3,117
Collection (deposit) of
 restricted cash                         4,000                      (4,000)
Other                                     (184)         (359)       (1,027)
                                  ------------  ------------  ------------
Net cash used in investing
 activities                               (433)       (3,199)       (7,587)
                                  ------------  ------------  ------------
Cash flows from financing
 activities:

Long-term bank loans, net              (23,537)      (27,957)      (49,123)
Short-term bank credit - net            21,137        31,695        26,498
Other                                     (317)                       (399)
                                  ------------  ------------  ------------
Net cash provided by (used in)
 financing activities                   (2,717)        3,738       (23,024)
                                  ------------  ------------  ------------

DECREASE IN CASH AND CASH
 EQUIVALENTS                            (2,212)       (3,416)       (4,312)
TRANSLATION IN DIFFERENCES IN
 CASH AND CASH EQUIVALENTS                                 5            59
BALANCE OF CASH AND CASH
 EQUIVALENTS AT BEGINNING OF
 PERIOD                                 10,342        14,595        14,595
                                  ------------  ------------  ------------
BALANCE OF CASH AND CASH
 EQUIVALENTS AT END OF
 PERIOD                                  8,130        11,184        10,342
                                  ============  ============  ============



                                 DELTA
                         GALIL INDUSTRIES LTD.

              CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

                                      Three months ended       Year ended
                                           March 31           December 31
                                  --------------------------  ------------
                                      2007          2006          2006
                                  ------------  ------------  ------------
                                              In US $ thousands
                                  ----------------------------------------

Adjustment required to reflect
 the cash flows from operating
 activities:

Income and expenses not involving
 cash flows:
Depreciation and amortization            3,356         3,692        15,626
Restructuring expenses                  10,800                       1,156
Deferred income taxes - net                359            16           839
Gain from realization of assets           (326)         (258)         (686)
Other                                      238           303           762
                                  ------------  ------------  ------------
                                        14,427         3,753        17,697
                                  ------------  ------------  ------------

Changes in operating assets and
 liabilities items:

Increase in accounts receivable         (1,065)       (6,658)         (741)
Decrease in accounts payable and
 accruals                              (10,563)      (14,162)       (9,468)
Decrease in inventories                 11,322        14,109        15,663
                                  ------------  ------------  ------------
                                          (306)       (6,711)        5,454
                                  ------------  ------------  ------------
                                        14,121        (2,958)       23,151
                                  ============  ============  ============



                                 DELTA
                         GALIL INDUSTRIES LTD.

    RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL RESULTS IN THOUSANDS
                U.S. DOLLARS EXCEPT EARNINGS PER SHARE DATA

                                      Three months ended       Year ended
                                           March 31           December 31
                                  --------------------------  -------------
                                      2007          2006          2006
                                  ------------  ------------  -------------
                                              In US $ thousands
                                  ----------------------------------------

Operating income (loss)-As
 reported                               (8,545)        3,128         22,985
Restructuring expenses                  10,800                        1,663
                                  ------------  ------------  -------------
Operating income for the period
 before Non-GAAP Measures                2,255         3,128         24,648
                                  ============  ============  =============
Net income (loss) for the
 period-As reported                    (13,183)         (997)         3,148
Restructuring expenses                  10,800                        1,663
                                  ------------  ------------  -------------
Net income (loss) for the period
 before Non-GAAP Measures               (2,383)         (997)         4,811
                                  ============  ============  =============
Earnings (loss) per share-diluted
 ($) before Non-GAAP Measures            (0.13)        (0.05)          0.26
                                  ============  ============  =============


                                  ============  ============  =============
Calculation of the adjusted
 EBITDA
Net income (loss) for the peried       (13,183)         (997)         3,148
Minority interest of subsidiaries
 - net                                      94            82            495
Taxes on income                          1,419         1,013          5,784
Financial expenses - net                 3,125         3,030         13,558
Restructuring expenses                  10,800                        1,663
Depreciation and amortization            3,356         3,692         15,626
                                  ------------  ------------  -------------
Adjusted - EBITDA                        5,611         6,820         40,274
                                  ============  ============  =============

                                  ============  ============  =============

Contact Information

  • Contacts:
    Yossi Hajaj
    Delta Galil Industries Ltd.
    Tel: +972-3-519-3744

    U.S. Investors
    Kathy Price
    The Global Consulting Group
    Tel: +1-646-284-9430