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- Net loss in the third quarter, excluding reorganization expenses and
impairment of fixed assets and goodwill, was $2.2 million, or $0.12
diluted loss per share. Net loss including non-recurring items totaled
$22.8 million, or $1.22 diluted loss per-share.
- Positive operating cash flow in the third quarter was $9.1 million.
- Operating profit in Q3 2005, before reorganization expenses and
impairment of fixed assets and goodwill, amounted to zero.
- Further to the announcement given with the second quarter result Delta
instituted a reorganization plan and impairment of fixed assets and
goodwill that resulted in a charge of $20.6 million ($1.10 per share),
or $21.5 million before tax in the third quarter of 2005.
- The Company expects that the full implementation of the reorganization
plan will take 12 months and therefore, be concluded during the third
quarter of 2006.
TEL AVIV, Israel, Nov. 15 /PRNewswire-FirstCall/ -- Delta Galil Industries
Ltd. (Nasdaq: DELT), ("Delta") the global provider of private label ladies
intimate apparel, socks, mens underwear, baby-wear and leisurewear, today
reported third quarter 2005 revenues of $172.0 million, a decrease of 3%
compared to the $176.5 million in revenues reported in the third quarter of
2004. Revenues, excluding Burlen, decreased by 17% in the third quarter
compared to the same period in 2004.
In the first nine months of 2005, sales increased 6% to $514.3 million,
compared to $487.1 in the first nine months of 2004. Revenues, excluding
Burlen, in the first nine months decreased by 12% compared to the first nine
months last year.
Net loss for the third quarter of 2005 was $22.8 million or $1.22 diluted
loss per share, compared to net income of $5.0 million or $0.27 diluted
earnings per share in the third quarter last year.
The net loss in the third quarter of 2005 includes reorganization expenses
and impairment of fixed assets and goodwill in a total charge of $20.6 million
($1.10 per share), or $21.5 million before tax. Excluding reorganization
expenses and impairments of fixed assets and goodwill, net loss for the third
quarter was $2.2 million or $0.12 diluted loss per share.
Net loss for the first nine months of 2005 was $28.7 million or $1.54
diluted loss per share, compared to net income of $12.9 million or $0.68 per
share for the same period last year. Excluding reorganization expenses and
impairments of fixed assets and goodwill, net loss for the first nine months
was $7.9 million or $0.42 diluted loss per share.
Operating cash flow in the third quarter of 2005 was positive $9.1 million
compared to negative operating cash flow of $2.8 million in the third quarter
of 2004.
In the first nine months of 2005, operating cash flow was positive $0.6
million compared to negative cash flow of $8.3 million in the first nine
months of 2004.
Sales by geographic area ($ million)
Third Quarter Nine Months Ended September 30
% of % of % of % of
total total % total total %
2005 sales 2004 sales Chg. 2005 sales 2004 sales Chg
North
Amer-
ica(1) 102.8 59.8 96.9 54.9 6.1 305.6 59.5 251.1 51.6 21.7
Europe 55.2 32.1 67.2 38.1 (17.9) 169.9 33.0 200.2 41.1 (15.1)
Israel 14.0 8.1 12.4 7.0 12.9 38.8 7.5 35.8 7.3 8.4
----- ---- ----- ----- ----- ----- ----- ----- ----- -----
Total 172.0 100.0 176.5 100.0 (2.6) 514.3 100.0 487.1 100.0 5.6
(1) North Americas revenues, excluding Burlen sales, decreased in the
third quarter and in the first nine months of 2005 by 20% and 12%
compared to the same periods last year.
Sales and operating results by divisions ($ million)
Third Quarter
Impairment
Operating Reorgani of Impairment
Sales Profit -zation Fixed of
% (loss) Expenses Assets Goodwill
2005 2004 Chg. 2005 2004 2005 2005 2005
Delta
USA(1) 70.3 55.2 27.3 3.1 3.2 1.3 1.5
U.S.
Upper
market 25.5 33.6 (24.2) (1.5) 0.5 1.6 5.9 2.1
Europe 40.7 50.7 (19.7) (1.2) 2.1 1.5
Socks
-US
&
Europe 29.2 32.7 (10.9) (1.1) 1.3 4.1 3.4
Delta
Marketing
Israel 12.9 11.0 17.2 1.6 1.2
Adjust-
ments(2) (6.6) (6.7) (0.9) 0.4 0.1
----- ----- ----- ----- ----- ----- -----
Consolidated 172.0 176.5 (2.6) -- 8.7 8.6 7.4 5.5
===== ===== ===== ===== ===== ===== =====
Impairment
of Fixed
Assets 7.4
Reorganization
expenses 8.6
Impairment
of Goodwill 5.5
Total
Consolidated
Operating
profit
(loss) (21.5) 8.7
Nine Months Ended September 30
Impairment
Operating Reorgani of Impairment
Sales Profit -zation Fixed of
% (loss) Expenses Assets Goodwill
2005 2004 Chg. 2005 2004 2005 2005 2005
Delta
USA(1) 208.5 140.4 48.5 7.1 7.5 1.3 1.5
U.S.
Upper
market 75.1 88.5 (15.1) (10.3) 0.8 1.6 5.9 2.1
Europe 121.5 146.9 (17.3) (3.2) 6.5 2.0
Socks-
US
&
Europe 93.1 103.4 (10.0) 0.7 5.9 4.1 3.4
Delta
Marketing
Israel 35.8 31.6 13.3 3.7 2.7
Adjust-
ments(2) (19.7) (23.7) (1.3) (1.4) 0.1
----- ----- ----- ----- ----- ----- -----
Consolidated 514.3 487.1 5.6 (3.3) 22.0 9.1 7.4 5.5
===== ===== ===== ===== ===== ===== =====
Impairment
of Fixed
Assets 7.4
Reorganization
expenses 9.1
Impairment
of Goodwill 5.5
Total
Consolidated
Operating
profit
(loss) (25.3) 22.0
(1) Including $25.2 and $84.6 million of Burlen sales in the third quarter
and in the first nine months of 2005. Excluding Burlen, sales
decreased by 18% and 12% respectively, compared to the same periods
last year.
(2) The adjustment item includes in sales: sales between divisions and
forward transactions results. In operating profit, it includes mainly
the establishment expenses of the new plant in China, capital gains,
cancellation of unrealized profits and forward transactions results
Mr. Arnon Tiberg, Deltas CEO, stated, "The primary reason for the
decrease in sales and in profits in the third quarter and the first nine
months of the year is the erosion of selling prices to some of our customers
particularly in our European operation in Marks & Spencer and in the U.S upper
market. This erosion reduced Deltas sales and operating profit by
approximately $40 million this year, compared to 2004 on an annual basis. We
are in a period of major changes in the global business environment. Following
the elimination of quotas as part of the WTO agreement, the market has been
characterized by strong pressure to lower prices. We are investing major
efforts to increase our brands activity and in implementing improvements in
fabrics and products. In addition we are entering new categories in existing
and new customers. We expect these actions to increase sales in the future".
Reorganization Plan and impairment of Fixed Assets and Goodwill
Following the change in the business environment and the erosion in
selling prices, Delta decided to implement a reorganization plan designed to
cut costs, increase efficiency and return to profitability. "We believe that
full implementation of the reorganization plan as reported in the second
quarter, along with reducing the cost of procurement will decrease costs and
help to offset a large portion of the selling price reduction," stated Mr.
Tiberg.
The implementation of the reorganization plan is expected to last 12
months and to end during the third quarter of 2006. The expected cost of this
plan is included in the third quarter of 2005 and amounts to $20.6 million
($1.10 per share), or $21.5 million before tax, and includes the following:
1. Reorganization plan in a total amount of $8.6 million. The Plan
includes the closing of manufacturing plants in Central and North
America and in Israel that will result in the dismissal of
approximately 2,000 workers. This amount includes $6.0 million in cash
which will be used mainly for severance payments and $2.6 million in
non-cash for impairment of fixed assets following the closures and
reduction of activity at the different production sites.
2. Non-cash fixed expenses in the amount of $7.4 million due to a decrease
in fixed assets fair value.
3. Impairment of Goodwill amounting to $5.5 million.
The Board of Directors appointed Mr. Isaac Dabah and Mr. Gideon Chitayat
as directors. These directors will fill the vacancies created by the
resignations of Mark Silver, J. Randall White and Anne E. Ziegler, who had
been nominated by Sara Lee and resigned following the sale by Sara Lee of its
shares in Delta Galil to GMM Capital, LLC.
Mr. Dabah and Mr. Chitayat will serve as directors until the next annual
general meeting of shareholders, which is scheduled for December 20, 2005.
Each of them will be nominees for re-election at that meeting.
Mr. Dabah, the Executive Director of GMM Capital, LLC, has been active in
the textile and apparel business for approximately 25 years.
Mr. Chitayat, who has taught at leading business schools in Israel and in
the United States, has been a strategic consultant to leading Israeli
companies.
The proxy statement for the upcoming meeting, which will be available on
or about November 27, 2005, will contain more complete biographies of each of
the directors.
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, Deltas products are sold worldwide
through retailers including Wal-Mart, Marks & Spencer, Target, Victorias
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 to 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 Companys reports filed from time to time
with the Securities and Exchange Commission.)
Contacts:
Yossi Hajaj Delta Galil Industries Ltd. Tel: +972-3-519-3744
U.S. Investors
Kathy Price The Global Consulting Group Tel: 646-284-9430
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine months ended Three months ended
September 30 September 30
2005 2004 2005 2004
------- ------- ------- -------
In US $ thousand (except per share data)
Revenues 514,294 487,067 171,957 176,472
Cost of revenues 436,552 392,468 144,734 142,775
Gross profit 77,742 94,599 27,223 33,697
Selling, marketing, general and
administrative expenses:
Selling and marketing expenses 65,502 60,107 22,566 20,947
General and administrative expenses 14,853 12,688 4,466 4,083
Capital gain (loss) from realization
of assets (43) 168 (8)
Impairment of fixed asset 7,415 7,415
Reorganization expenses 9,102 8,641
Goodwill impairment 5,505 5,505
Amortization of intangible asset 593 183
Operating income (loss) (25,271) 21,972 (21,561) 8,667
Financial expenses - net 7,159 4,954 2,718 1,799
Other income - net 300 958
Income (loss) before taxes on income (32,130) 17,976 (24,279) 6,868
Taxes on income (3,352) 3,807 (1,284) 1,365
Income (loss) after taxes on income (28,778) 14,169 (22,995) 5,503
Share in profits (loss) of an
associated company (6) (100) 77 2
Minority interest in losses (profits)
of subsidiaries - net 41 (1,199) 92 (471)
Net income (loss) for the period (28,743) 12,870 (22,826) 5,034
Earnings (loss) per share - basic (1.54) 0.70 (1.22) 0.27
Earnings (loss) per share - diluted (1.54) 0.68 (1.22) 0.27
Weighted average number of shares - in
thousands:
Basic 18,695 18,460 18,695 18,477
Diluted 18,703 18,869 18,695 18,820
Before non recurring items net of
taxes:
Non recurring items in the third quarter
and in the first nine months of the year
include Reorganization expenses, impairments
of assets and goodwill net of other income
and capital gain (loss) from realization of
assets.
Operating income (loss) for the period (3,206) 21,804 (8) 8,667
------ ------ ------ -----
Net income (loss) for the period (7,892) 12,750 (2,171) 5,034
====== ====== ====== =====
Earning (loss) per share - diluted ($) (0.42) 0.67 (0.12) 0.27
====== ====== ====== =====
CONDENSED CONSOLIDATED BALANCE SHEET
September 30 December 31
2005 2004 2004
------ ------ ------
In US $ thousands
Assets:
Current assets:
Cash and cash equivalents 8,736 5,070 22,150
Accounts receivable:
Trade 103,093 102,400 105,129
Other 13,567 14,978 10,627
Inventories 150,437 164,873 183,767
Deferred income taxes 7,243 5,257 3,675
Total current assets 283,076 292,578 325,348
Investments and long-term receivables 8,025 7,233 7,533
Property, plant and equipment 117,416 123,206 128,341
Other assets and deferred charges 53,399 54,594 58,497
Intangible asset 14,185 14,778
Total assets 476,101 477,611 534,497
Liabilities and shareholders
equity:
Current liabilities:
Short-term bank credit 107,498 106,501 83,545
Trade 50,727 63,620 80,338
Other 39,514 36,736 34,083
Total current liabilities 197,739 206,857 197,966
Long-term liabilities:
Bank loans and other liabilities 74,304 32,602 99,437
Liability for employee rights upon
retirement 8,091 6,983 7,408
Deferred income taxes 1,526 6,491 4,894
Total long-term liabilities 83,921 46,076 111,739
Total liabilities 281,660 252,933 309,705
Minority interest 2,425 3,542 3,711
Shareholders equity 192,016 221,136 221,081
Total Liabilities and
shareholders equity 476,101 477,611 534,497
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Nine months ended Three months ended
September 30 September 30
2005 2004 2005 2004
------ ------ ------ ------
In US $ thousands
Cash flows from operating activities:
Net income (loss) for the period (28,743) 12,870 (22,826) 5,034
Adjustment required to reflect the cash
flows from operating activities 29,338 (21,203) 31,953 (7,842)
Net cash provided by (used in)
operating activities 595 (8,333) 9,127 (2,808)
Cash flows from investing activities:
Purchase of fixed assets, net of
investment grants (10,318) (11,229) (4,315) (3,684)
Additional payment for the acquisition
of subsidiaries (950) (9,704) (1,001)
Proceeds from realization of fixed
assets 300 780 29 40
Proceeds from realization of investment
in associated company 2,640
Other (550) 276 170 651
Net cash used in investing activities (11,518) (17,237) (4,116) (3,994)
Cash flows from financing activities:
Long-term bank loans, net (20,333) 24,664 (9,222) 12,842
Dividend to shareholders (6,096) (1,854)
Short-term bank credit - net 19,153 (5,095) 6,200 (5,177)
Other (1,243) (532) (743) (453)
Net cash provided by (used in)
financing activities (2,423) 12,941 (3,765) 5,358
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (13,346) (12,629) 1,246 (1,444)
TRANSLATION IN DIFFERENCES IN CASH AND
CASH EQUIVALENTS (68)
BALANCE OF CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 22,150 17,699 7,490 6,514
BALANCE OF CASH AND CASH EQUIVALENTS AT
END OF PERIOD 8,736 5,070 8,736 5,070
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Nine months ended Three months ended
September 30 September 30
2005 2004 2005 2004
------ ------ ------ ------
In US $ thousands
Adjustment required to reflect the cash
flows from operating activities:
Income and expenses not involving cash
flows:
Depreciation and amortization 11,842 11,400 3,595 3,585
Reorganization expenses and impairment
of assets 20,739 20,594
Deferred income taxes - net (6,928) (336) (968) 71
Capital gain from realization of
investment in associated company (958)
Capital losses (gain) from sales of
fixed assets 43 (168) 8
Other (176) 1,599 (338) 702
25,520 11,537 22,891 4,358
Changes in operating assets and
liabilities items:
Increase in accounts receivable (1,643) (20,972) (3,197) (11,326)
Increase (decrease) in accounts payable
and accruals (27,713) 10,121 (4,089) (1,418)
Decrease (increase) in inventories 33,174 (21,889) 16,348 544
3,818 (32,740) 9,062 (12,200)
29,338 (21,203) 31,953 (7,842)
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