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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ____________________
Commission file number 0-538
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
New York 13-0435685
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1177 Avenue of the Americas, New York, New York 10036
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 782-2100.
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Class A Stock American Stock Exchange
Warrants to purchase shares of Class A Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class A Stock
4% Cumulative Convertible Preferred Stock
6 1/2% Cumulative Convertible Preferred Stock
(Titles of Classes)
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 |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.
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The number of shares outstanding of each of the issuer's classes of common
stock is: Common -- 0; Class A -- 23,678,984 (as of March 24, 1997).
The aggregate market value of the voting stock held by non-affiliates of
the registrant is $51,537,730 (as of March 24, 1997).
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OF AMPAL-AMERICAN ISRAEL CORPORATION
PART I
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ITEM 1. BUSINESS
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As used in this report (the "Report"), the term "Ampal" only refers to
Ampal-American Israel Corporation, the parent company; the term "Company" refers
to Ampal and its consolidated subsidiaries. Ampal is a New York corporation
founded in 1942.
For industry segment financial information and financial information about
foreign and domestic operations, see Note 11 to the Company's consolidated
financial statements included elsewhere herein.
The Company acquires interests in businesses located in the State of
Israel or that are Israel-related. An important objective of Ampal is to make
investments in companies that take advantage of growth in Israel's domestic
economy. The Company has diversified interests in the following sectors: high
technology and communications, energy distribution, hotels and leisure-time,
real estate, finance and basic industry. The Company intends to continue to
adhere to its historical policy of focusing its business interests primarily on
holdings in Israel-related enterprises.
The Company emphasizes long-term appreciation over short-term returns and
liquidity. The Company often makes equity investments accompanied by more
significant loans or loan guarantees with the intention that cash flow from
operations of the investee companies will repay these loans. In determining
whether to acquire an interest in a specific company, the Company considers
quality of management, qualification of investment partners, potential return on
investment, projected cash flow, market share and growth potential.
The Company generally seeks to acquire and maintain a sufficient equity
interest in a company to permit it, on its own or with investment partners, to
have influence in the management and operation of that company. The Company
often seeks investment partners who have expertise in the business in which an
investment is being made or whose operations and associations provide the
investee company with additional markets, sources of supply, financing or other
competitive advantages. The Company sometimes makes investments with or through
affiliated companies. Frequently, the Company enters into arrangements with its
investment partners or with the company in which it is investing in order to
ensure board representation or other rights relating to its investments. Bank
Hapoalim B.M. ("Hapoalim"), the largest bank in Israel, and its wholly-owned
subsidiary Atad Hevra Lahashkaot Limited ("Atad") were, until December 11, 1996,
Ampal's controlling shareholders and Hapoalim is currently the Company's
principal lender. Members of the Hapoalim group of companies sometimes invest
jointly with the Company. See "Significant Recent Developments Since Beginning
of Last Year - Change of Control of Ampal" and "Certain Relationships and
Related Transactions."
The growth of the Israeli economy, the success of a number of
Israeli-based companies, particularly in the area of high technology, the
privatization of government-owned companies and the acceleration of the peace
process over the last few years, have prompted numerous potential investors to
search for investment opportunities in Israel and have made it possible for
certain of such companies to gain direct access to Israeli and foreign public
securities markets. The Company competes for investment opportunities with other
established and well-capitalized investing entities. There can be no assurance
that opportunities will continue to be available to the Company at valuations
and on terms which are favorable.
1
Listed below by industry segment are the Company's most significant
investees, the principal business of each and the percentage of equity owned,
directly or indirectly, by Ampal. The table below also indicates whether the
investee is listed on the American Stock Exchange ("AMEX"), quoted on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or NASDAQ National Market ("NASDAQ NM") or listed on the Tel Aviv Stock Exchange
("TASE"). For further information with respect to the investees, see below.
PERCENTAGE
AS OF
INDUSTRY SEGMENT PRINCIPAL BUSINESS DECEMBER 31, 1996
- ---------------- ------------------ -----------------
HIGH TECHNOLOGY AND COMMUNICATIONS
A.T.V. Broadcasting Ltd................. Arabic Cable Channel 24.9(1)
Breeze Wireless Communications Ltd...... Wireless Local Area 8.5
Network
Comfy Interactive Movies Ltd............ Computer Technology for 7.0(2)
Children
Courses Investment in Technology Ltd.... Venture Capital Fund 4.6(3)
Idan Software Industries I.S.I. Ltd. Telecommunications 7.9(4)
(NASDAQ: "IDANF")...................... Services
Mainsoft Corporation.................... Develops Tools for Unix 1.8(5)
Memco Software Ltd. Computer Security Software 5.6(6)
(NASDAQ NM: "MEMCF")................... Products
M-Systems Flash Disk Pioneers Ltd. Data Storage Material 2.3
(NASDAQ NM: "FLSHF")...................
Mutech Ltd.............................. Develops Software for 7.2
Servers
Teledata Communication Ltd. (NASDAQ NM: Telecommunications Systems 8.0(7)
"TLDCF")...............................
TODD Investments Limited Wireless 15.0(8)
(Geotek Communications Ltd.)........... Telecommunications
Trinet Venture Capital Ltd.............. Venture Capital Fund 50.0
U.D.S. - Ultimate Distribution Distribution Software 21.9
Systems Ltd...........................
ENERGY DISTRIBUTION
Granite Hacarmel Investments Ltd. (TASE) Distribution of Refined 21.5
Petroleum Products
HOTELS AND LEISURE-TIME
Coral World International Limited....... Underwater Observatories 50.0
and Marine Parks
Country Club Kfar Saba Limited.......... Country Club Facility 51.0
Hod Hasharon Sport Center (1992) Country Club Facility 50.0
Limited Partnership....................
Moriah Hotels Ltd....................... Hotel Chain 46.0
REAL ESTATE, FINANCE AND OTHER HOLDINGS
Alzur Property Development Commercial Real Estate 17.3
Company Ltd............................
Am-Hal Ltd.............................. Senior Citizen Facilities 50.0
Ampal Development (Israel) Ltd.......... Holding Company 100.0
Ampal Financial Services Ltd............ Holding Company 100.0
Ampal (Israel) Ltd...................... Holding Company 100.0
Ampal Realty Corporation................ Commercial Real Estate 94.0
Bay Heart Limited....................... Shopping Mall Owner/Lessor 37.0
Epsilon Investment House Ltd............ Investment Bank 20.0
Etz Vanir Ltd. and Yakhin Mataim Ltd.... Citrus Groves 50.0
Industrial Buildings Corporation Ltd. Industrial Real Estate 5.6(9)
(TASE)..................................
Nir Ltd................................. Holding Company 99.9
2
Ophir Holdings Ltd. ("Ophir")........... Holding Company 42.5
Renaissance Israel...................... Investment Fund 15.0
Shmey-Bar Group......................... Commercial Real Estate 7.1(10)
BASIC INDUSTRY
Carmel Container Systems Limited (AMEX: Packaging Materials and 20.7
"KML")................................. Carton Production
M.D.F. Industries Ltd................... Medium Density Fiber 50.0
Products
Orlite Industries (1959) Ltd. (TASE).... Composite Material 25.3(11)
Products
Paradise Industries Ltd................. Mattresses and Fold-out Beds 85.1
- ----------
(1) The Company purchased its interest in A.T.V. Broadcasting Ltd. in 1997.
(2) The Company's ownership includes 3.4% of Comfy owned directly and 50% of
Trinet's 7.2% ownership of Comfy.
(3) The Company's ownership includes 2.5% of Courses Investment owned directly
and 42.5% of Ophir's 5% ownership of Courses Investment.
(4) The Company sold its interest in Idan on March 27, 1997.
(5) The Company's ownership reflects 42.5% of Ophir's 4.3% ownership of
Mainsoft.
(6) The Company's ownership reflects 42.5% of Ophir's 13.1% ownership of
Memco.
(7) The Company's ownership includes 1.1% of Teledata owned directly and 42.5%
of Ophir's 16.2% ownership of Teledata.
(8) The Company's ownership of Geotek Communications Ltd. is through TODD
Investments Limited, of which the Company directly owns 15%.
(9) The Company's ownership reflects 42.5% of Ophir's 13.3% ownership of
Industrial Buildings.
(10) The Company's ownership reflects 42.5% of Ophir's holdings of 16.7% in
each of the following three companies: Shmey-Bar (I.A.) 1993 Ltd.;
Shmey-Bar (T.H.) 1993 Ltd. and Shmey-Bar Real Estate 1993 Ltd.
(11) The Company's ownership includes 25.2% of Orlite owned directly and 42.5%
of Ophir's .2% ownership of Orlite.
SIGNIFICANT RECENT DEVELOPMENTS SINCE BEGINNING OF LAST FISCAL YEAR
- -------------------------------------------------------------------
CHANGE OF CONTROL OF AMPAL
On December 11, 1996, Hapoalim and Ampal entered into an Exchange
Agreement (the "Exchange Agreement") pursuant to which Hapoalim and Ampal
exchanged all 3,000,000 shares of Ampal's Common Stock, $1.00 par value (the
"Common Stock"), owned by Hapoalim for 3,000,000 shares of Ampal's Class A
Stock, $1.00 par value (the "Class A Stock"). Ampal's Board of the Directors
(the "Board") had formed a "Special Committee" consisting of five outside
directors to consider Hapoalim's request to (i) equalize the voting rights of
the Common Stock with the voting rights of the Class A Stock and (ii) compensate
Hapoalim for the reduction in its voting rights which would result from such
equalization. The Special Committee was authorized to negotiate, approve or
disapprove any such transaction on Ampal's behalf. The Special Committee
retained independent counsel and an independent investment bank to advise it in
connection with Hapoalim's proposal. The Special Committee unanimously approved
the exchange transaction and recommended that Ampal's Board also approve such
transaction and take all actions appropriate to effectuate it. Ampal's Board
approved the exchange transaction and the Exchange Agreement by the unanimous
vote
3
of all directors then present and voting at a meeting held on December 11, 1996.
After such vote, on December 11, 1996, the Special Committee was discharged.
In the Exchange Agreement, Ampal agreed to recommend to its shareholders
that they vote their shares at the next meeting of Ampal's shareholders in favor
of an amendment to Ampal's Certificate of Incorporation (the "Certificate") to
provide for the removal and elimination of the Common Stock from Ampal's
authorized shares and the cancellation of any reference to the Common Stock in
Ampal's Certificate. At a meeting held on March 27, 1997, the Board recommended
that the shareholders approve such an amendment to the Certificate at the annual
meeting to be held on May 28, 1997 (the "Annual Meeting"). Ampal also agreed
that until its Certificate is amended as provided above, Ampal will not reissue,
resell, transfer, distribute or take any other action with respect to any or all
of the Common Stock. Furthermore, until the later of such time as the
Certificate is amended as so provided or such time as Hapoalim's interest in
Ampal, whether directly or through subsidiaries of Hapoalim, is less than 10% of
all of the outstanding shares of the Class A Stock, Ampal will not issue any
class of equity security with voting rights that are preferential to the voting
rights of the Class A Stock, other than preferred stock that has customary
preferential voting rights with respect to the election of members of the Board
only in the event of the non-payment of preferential dividends.
In addition, on December 11, 1996, pursuant to the Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated May 12, 1996, among Atad
(collectively with Hapoalim, the "Bank"), Rebar Financial Corp. ("Rebar"),
Daniel Steinmetz, Benjamin Steinmetz and Raz Steinmetz (collectively, the
"Purchasers"), Atad delivered to Rebar 1,500,001 shares of Ampal's Class A Stock
in consideration for $11,798,583, previously deposited by Rebar and held in
escrow by Hapoalim (plus interest). Mr. Daniel Steinmetz will be a nominee as a
director of Ampal at the Annual Meeting. Mr. Raz Steinmetz is currently a
director of Ampal and Chairman of the Executive Committee.
Previously, on June 6, 1996, pursuant to the Stock Purchase Agreement,
Atad delivered to Rebar 5,742,351 shares of Ampal's Class A Stock in
consideration of $45,167,583.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of the outstanding Common Stock) and the Bank beneficially owned 10,500,991
shares (assuming conversion of shares of Ampal's preferred stock owned by the
Bank) of Ampal's Class A Stock (representing 50.2% of the outstanding Class A
Stock). As the holder of all the outstanding Common Stock, as to matters
submitted to the vote of the shareholders of Ampal (including the election of
directors other than 25% of the Board for whom only holders of Class A Stock
could vote), the Bank was entitled to cast a number of votes equal to the total
number of votes cast by the holders of Class A Stock, but, in no event, more
than ten votes per share of Common Stock. Thus, before the exchange of the
Bank's Common Stock for Class A Stock, as described above, the Bank had the
power to elect at least approximately 75% of Ampal's directors.
Following the consummation of the transactions described above, Rebar
beneficially owned 7,362,352 shares of Ampal's Class A Stock (representing 31.1%
of the outstanding Class A Stock), making it the single largest shareholder of
Ampal, and the Bank beneficially owned 6,258,639 shares (assuming conversion of
shares of Ampal's preferred stock owned by the Bank) of Ampal's Class A Stock
(representing 26% of the outstanding Class A Stock).
These transactions were executed by the Bank in order to comply with the
requirements of the Israeli banking laws requiring the Bank to decrease to 25%
or less its holdings in and means of control over Ampal by December 31, 1996.
See "Conditions in Israel - Israeli Banking Regulations." Following the
consummation of the transactions described above, the Bank owned 5,874,281
shares of Ampal's Class A Stock, representing 24.8% of the outstanding Class A
Stock (without assuming conversion of shares of Ampal's preferred stock owned by
the Bank).
4
On June 19, 1996, Ampal's Board of Directors was increased from 11 members
to 14 members by the addition of Messrs. Hillel Peled, Michael W. Sonnenfeldt
and Raz Steinmetz at the recommendation of Rebar. Upon the resignation of Mr.
Shlomo Recht, effective December 31, 1996, the actual number of directors was 13
with one vacancy. At a meeting of the Board held on March 27, 1997, the Board
set the number of directors at 13.
In connection with the initial closing under the Stock Purchase Agreement,
Rebar obtained a bridge loan from The First International Bank of Israel Ltd.
(the "Lender"), in Israel, in the amount of $45,580,000, representing
approximately 80% of the funds paid at the initial closing. The balance of the
funds were contributed to Rebar by Mr. Benjamin Steinmetz, Mr. Daniel Steinmetz
and Mr. Raz Steinmetz, Rebar's directors, executive officers and controlling
persons. The loan from the Lender bears interest at a floating rate equal to
.75% above LIBOR. The bridge loan can be prepaid in whole or in part at any time
on an interest payment date. Upon repayment of the bridge loan, the Lender has
indicated that it is prepared to provide a replacement loan for a period of up
to 9-1/2 years, with the interest rate and payment schedule to be determined at
that time. Rebar has granted to the Lender a first priority lien and security
interest on the Class A Stock acquired pursuant to the Stock Purchase Agreement.
If at the end of any quarter the value of the pledged shares is less than the
amount of the debt to the Lender, then Rebar is obligated, on demand from the
Lender, either to repay the excess portion of the loan or to provide additional
collateral. If the excess portion of the loan is not repaid, or additional
collateral is not provided, the Lender has the right to call the loan and
require it to be paid in full. The loan is guaranteed by Raz Steinmetz to the
extent, in the aggregate, of 25% of the amount of the loan.
In the Stock Purchase Agreement, the Bank and the Purchasers agreed to use
all legal means to cause a general meeting of Ampal's shareholders to be held no
later than March 31, 1997 (the "Election Meeting") at which they would vote on
the election of a 13-member board of directors consisting of three persons
recommended by the Bank and ten persons recommended by Rebar. The Bank and Rebar
subsequently agreed to postpone such vote until the upcoming Annual Meeting. For
the period between the date of the first closing under the Stock Purchase
Agreement and the Election Meeting (the "Interim Period"), Messrs. Peled,
Sonnenfeldt and Raz Steinmetz were appointed to the Board at the recommendation
of Rebar.
The Bank also agreed that during the Interim Period it would do everything
that is required and legal to prevent the Board from adopting resolutions which
(i) might infringe on the Purchasers' rights under the Stock Purchase Agreement,
(ii) authorize a deviation from Ampal's ordinary course of business or (iii)
authorize the investment in or sale of Ampal's property at a price of $3 million
or more, unless in each case such resolution is consented to by the directors
recommended by the Bank and those recommended by the Purchasers, provided that
the matter is not contrary to law or any agreement or undertaking of the Bank,
the Purchasers or Ampal. In addition, the Stock Purchase Agreement provides that
so long as Hapoalim, directly or indirectly, holds at least 8 1/3% of the voting
rights in Ampal, the Purchasers will use their best efforts so that the Board
shall consist of directors designated by Hapoalim reflecting Hapoalim's
proportionate holdings in Ampal.
Furthermore, pursuant to the Stock Purchase Agreement, the Purchasers
agreed that for so long as Hapoalim, directly or indirectly, holds at least 19
1/2% of the voting rights in Ampal, the Purchasers will use their best efforts
to preserve Hapoalim's interests in Ampal and to ensure that Hapoalim's
interests are not prejudiced by any future activities of Ampal (including by
enabling the Bank to participate in future private placements by Ampal in order
to maintain its proportionate interest in Ampal).
The Stock Purchase Agreement further provides that the Purchasers will
have certain rights of first refusal with respect to future sales by the Bank of
its shares in Ampal. In addition, under certain circumstances, the Purchasers
are entitled to purchase from the Bank a number of shares of Class A Stock equal
to the number of shares sold by the Bank in
5
market transactions. The Bank has the right, under certain circumstances, to
participate in future private sales by the Purchasers of their shares of Class A
Stock.
The Bank and the Purchasers agreed to cooperate to cause Ampal to enter
into a registration rights agreement with them which will require Ampal to
cooperate with Bank and the Purchasers in order to permit them to publicly offer
their shares of Ampal's stock in the United States, Israel or anywhere else that
either of them decides, and to permit them to include their shares of Ampal's
stock in any public offering by Ampal of its shares anywhere.
In addition, since Hapoalim no longer controls Ampal, Ampal could lose
certain rights granted under a shareholders agreement to select directors to the
board of Granite Hacarmel Investments Ltd. ("Granite"). As long as Ampal
maintains its current representatives on Granite's Board of Directors, the other
shareholder has agreed not to terminate such rights. If, however, Ampal loses
these rights, Ampal may no longer be able to account for its holdings in Granite
under the equity method of accounting. Furthermore, since Ampal is no longer
controlled by Hapoalim, under the terms of a shareholders agreement between
Ampal and the other shareholder of Coral World International Limited ("Coral
World"), Ampal would have been required, upon the receipt of a notice from the
other shareholder indicating its desire to purchase Ampal's shares of Coral
World, to seek to sell its shares of Coral World to an outside person (subject
to a right of first refusal by the other shareholder) or, failing that, to sell
its shares to the other shareholder at a price equal to the greater of the book
value or seven times the previous year's earnings per share. The other
shareholder has informed the Company that it has waived such rights. See "Energy
Distribution - Granite Hacarmel Investments Ltd." and "Hotels and Leisure-Time -
Coral World International Limited."
M.D.F. INDUSTRIES LTD. ("M.D.F.")
M.D.F. the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products, and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting. The Company,
however, continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations.
At Ampal's initiative, the Board of Directors of M.D.F. has approved
hiring consultants to study the operations and marketing of M.D.F. to determine
if a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
STOCK REPURCHASE PROGRAM
In March 1995, the Board of Directors of Ampal approved the repurchase by
Ampal of up to 2 million shares of its Class A Stock, at market prices from time
to time. As of February 21, 1996, Ampal had repurchased 605,400 shares of its
Class A Stock at an average price of $6.32 per share. On February 21, 1996, in
connection with developments regarding Hapoalim's ownership of Ampal's equity,
Ampal announced that it had temporarily suspended
6
purchases under this program. Such suspension is still in effect. See "Change of
Control of Ampal."
For a discussion of other developments regarding the Company's investees
and affiliates, see below, particularly "Coral World International Limited,"
"Orlite Industries (1959) Ltd." and "Pri Ha'emek (Canned and Frozen Food) 88
Ltd."
HIGH TECHNOLOGY AND COMMUNICATIONS
- ----------------------------------
A.T.V. BROADCASTING LTD. ("A.T.V.")
On February 25, 1997, the Company acquired a 24.9% interest in A.T.V.
Broadcasting Ltd. A.T.V. is expected to submit a bid to the Israeli Ministry of
Communications ("MOC") for the establishment and operation of a new cable
channel targeted at the Arabic-speaking population of Israel. Roll
Communications Ltd., a prominent media company, has a 10% equity interest in
A.T.V.
Prior to the submission of the bid, the Company invested $37,350 in A.T.V.
Should A.T.V. be selected by the MOC to manage and operate the cable channel,
Ampal will be required to invest an additional $196,875 and to make available
$406,250 as a loan. Ampal may also be required to provide additional financing.
It is anticipated that the cable channel will be carried by regional cable
companies and that its signal may be made available to the entire population of
the Middle East via satellite. Furthermore, for the first time, an Israeli cable
channel will be licensed to sell advertising time.
BREEZE WIRELESS COMMUNICATIONS LTD. ("BREEZE")
In June 1995, the Company invested $1 million to acquire a 13.6% equity
interest in Breeze. The Company's interest was diluted to 8.5% in 1996.
Breeze, formerly known as Lannair, Ltd., is an Israeli company which
develops, manufactures and markets wireless local area networks ("LANS") for
computers, using license-free, spread spectrum radio technology. Breeze's
product strategy focuses on two product lines, wireless LANS for personal
computers and notebooks and wireless remote bridges and modems. Breeze has a
distribution network with more than 100 distributors in 45 countries. It has a
United States subsidiary which develops sales and provides support to customers
on the American continent.
COMFY INTERACTIVE MOVIES LTD. ("COMFY")
As of December 31, 1996, Ampal Industries (Israel) owned a 3.4% equity
interest in Comfy. Trinet Venture Capital Ltd. ("Trinet"), the Company's
50%-owned venture capital fund, owned, as of December 31, 1996, a 7.2% equity
interest in Comfy. In addition to its equity interest, the Company owns 6,255
options to purchase Comfy common stock with an exercise price of $46 and Trinet
owns 1,390 options to purchase Comfy common stock with an exercise price of $46
per share. All such options are exercisable until December 11, 1999. Comfy is
developing and marketing a computer keyboard and interactive movies specially
designed for children ages 1-6.
COURSES INVESTMENT IN TECHNOLOGY LTD. ("COURSES INVESTMENT")
The Company and Ophir own 2.5% and 5% of Courses Investment, respectively.
Courses Investment is a venture capital fund which has invested in 18 start-up
companies in the fields of communications, software and electronics.
IDAN SOFTWARE INDUSTRIES I.S.I. LTD. ("IDAN")
Idan, through its direct and indirect subsidiaries, is a provider of
telecommunications services and products in Israel. Idan's subsidiary, Elitec
Industries 77 Ltd. ("Elitec"), through a subsidiary, provides tenant
communication services to office buildings and other facilities. Elitec, through
another subsidiary, provides outbound
7
international telephone and facsimile services to Israeli business customers and
issues a telephone calling card to Israeli business executives, professionals
and others for use primarily in placing direct-dial inter-country calls. Elitec
shares are publicly traded on the TASE.
Idan's subsidiary, ASP Computer Products, Inc., designs, manufactures and
distributes peripheral equipment for computers including sharing devices between
personal computers, laser printers and facsimile machines.
The Company has entered into a shareholders' agreement pursuant to which
it has agreed to vote all of its shares in favor of all of the nominees
nominated by the other parties to the agreement to Idan's board of directors,
and for so long as it holds at least 70% of the shares it purchased in a private
placement from Idan, the other shareholders have agreed to vote in favor of the
Company's nominee to Idan's board of directors.
The Company owned 7.9% of Idan, which it purchased in 1993. On March 27,
1997, the Company sold its interest in Idan to Idan's principal shareholder for
approximately $945,000. The Company will record a small gain with respect to
this transaction. Idan is quoted on NASDAQ NM under the symbol "IDANF."
M SYSTEMS FLASH DISK PIONEERS LTD. ("M SYSTEMS")
In January 1995, the Company acquired 260,416 common shares of M-Systems,
equal to a 4.1% interest, for $1 million and received warrants to purchase an
additional 130,206 common shares at $4.61 per share until June 30, 1998. M
Systems is an Israeli company that designs, develops, manufactures and markets
innovative software and hardware data storage solution. During 1996, M-Systems
sales increased by 80%. M-Systems also signed strategic alliance agreements with
several large companies. During 1996, the Company sold 55,000 common shares of
M-Systems for a net gain of $.3 million after taxes.
M Systems' shares are quoted on NASDAQ under the symbol "FLSHF."
TELEDATA COMMUNICATION LTD. ("TELEDATA")
Teledata designs, develops, manufactures, markets and supports advanced
wireline and wireless customer access network equipment for telephone operating
companies worldwide. Its products enable telephone operating companies to
enhance the capacity, reach and functionality of the network of transmission
links that connects subscribers to a local exchange, generally known as the
"local loop" or "customer access network." Using Teledata's products, telephone
operating companies can quickly and cost-effectively deploy new networks using
fiber, copper or radio links and upgrade the existing infrastructure in order to
substantially increase the number of subscribers that can be served and improve
the scope and quality of service offered.
During 1996, Ophir sold 250,000 Teledata ordinary shares for $4 million.
The Company's net gain on sale was $.5 million net of taxes. As of December 12,
1996, Ophir beneficially owned 16.2% of Teledata's ordinary shares. On March 14,
1997, Teledata filed a registration statement with the Securities and Exchange
Commission (the "SEC") in connection with the sale of 2,700,000 ordinary shares.
It is anticipated that Ophir will participate in the offering as a selling
shareholder and will sell 330,000 ordinary shares. As a result, should the
offering be completed as currently structured, Ophir will own approximately
11.4% of Teledata's ordinary shares (assuming that the underwriters do not
exercise their over-allotment options). During 1996, Ampal Industries sold
113,624 ordinary shares for a net gain of $1 million after taxes and 31,800
ordinary shares in the first quarter of 1997 reducing its holdings in Teledata
to 88,000 ordinary shares.
Ampal Industries, Ophir and a subsidiary of Hapoalim are currently
contemplating entering into a shareholders agreement with respect to voting on
the election of directors and other matters presented to the shareholders of
Teledata.
Teledata's shares are quoted on the NASDAQ NM under the symbol "TLDCF."
8
TRINET VENTURE CAPITAL LTD. ("TRINET")
In February 1994, the Company and ICH, established Trinet, a venture
capital fund for investments in high-technology ventures in Israel including
start-up entities. Each of the Company and ICH had committed to invest up to
$2.5 million in Trinet. In 1996, the commitment was increased by $4 million ($2
million each). Trinet is managed by Trinet Investment in High-Tech Ltd. which is
37.5%-owned by each of the Company and ICH. The balance is owned by an officer
of Trinet.
At the end of 1995, Trinet owned a 66% interest in Imagenet Ltd.
("Imagenet"), a company engaged in research and development activities related
to computer systems, software and hardware. Because of various share issuances
by Imagenet in 1996, Trinet's interest in Imagenet was reduced to 49.2%. Because
of the dilution and unrealized gain in 1996, the Company recorded a net gain of
$1 million after taxes.
In 1995, Trinet invested $900,000 for a 51% interest in Smart-Link Link
Ltd. ("Smart-Link"), a developer and marketer of multimedia products. In 1996,
Trinet increased its holdings in Smart-Link to 60.1% through an investment of an
additional $600,000. Between November 1996 and April 1997, other investors
invested or committed to invest $4 million in Smart-Link. It is therefore
anticipated that by April 1997 Trinet's holdings in Smart-Link will decrease to
approximately 40.6%. As a result of Trinet's realized gain, the Company recorded
a net gain of $1.1 million, after taxes.
In December 1996 and January 1997, Trinet invested an aggregate amount of
$1 million for a 62.2% interest in Nulan Technologies Ltd., a developer,
producer and marketer of communications and multimedia products.
Trinet also has a 7.2% interest in Comfy, see "Comfy Interactive Movies
Ltd.;" a 5.7% interest in Logal Software and Educational Systems Ltd. ("Logal"),
a developer and marketer of computer-integrated educational systems for
scientific instruction in educational systems (Trinet's holding was diluted to
5.7% as a result of a public offering completed by Logal in February 1996); and
a 2% interest in Peptor Ltd., a developer of advanced pharmaceutical products
based on synthetic peptide.
U.D.S. - ULTIMATE DISTRIBUTION SYSTEMS LTD. ("U.D.S.")
In September 1995, the Company invested $1.3 million to acquire a 21.9%
equity interest in U.D.S. and three-year options to acquire an additional 4.4%
equity interest.
U.D.S., formerly known as Barshar Ltd., is an Israeli-based software
company specializing in the management and optimization of a variety of logistic
tasks for the distribution industry. Its products allow savings in the cost of
distribution and increased management control over routing of products and
people. Its software has been adopted by Coca Cola-Europe, El Al Airlines, three
Israeli medical centers as well as by a major beer distributor in the United
States, for the management of personnel ground transportation.
ENERGY DISTRIBUTION
- -------------------
GRANITE HACARMEL INVESTMENTS LTD. ("GRANITE")
Granite owns the Sonol group of companies, the second largest Israeli
distributor of refined petroleum products. Supergas, a wholly-owned subsidiary
of Granite, is the third largest marketer and distributor in Israel of liquified
petroleum gas. Through its subsidiaries, Granite also manufactures and markets
lubricating oils and automotive batteries.
During 1996, Sonol had a net gain of six public gas stations to its
network. As of December 31, 1996, Sonol supplied petroleum products to 157
public gas stations in Israel, of which 110 are owned by or leased to Sonol.
Sonol sold approximately 2.1 and 2.4 million metric tons of refined petroleum
products and lubricating oils in 1996 and 1995, respectively. The main sources
of the decrease were reduced sales to large customers and
9
the termination of sales to areas controlled by the Palestinian Authority as of
September 1, 1996.
Pursuant to the recommendation of a committee appointed by the Minister of
Energy and Infrastructure, the Minister announced his intention to change the
policy which required petroleum companies to hold emergency stocks of crude oil
and refined products and to separate them from the operating inventories of the
oil companies. For the period which commenced November 1996 and ended February
1997, the requirement to hold emergency stocks of heavy fuel oil was gradually
reduced. Also, the government intends, in 1997, to separate the storage of
refined products included in the emergency stocks from the storage of
inventories used in current operations, and in the future, to have tender offers
to determine the party who will hold the emergency stocks in storage facilities
specially designated by the government.
In accordance with the government ordinance issued by the Minister of the
Finance and the Minister of National Infrastructures regarding the supplying of
aviation kerosene (hereinafter "ATK") to the airline companies at Ben-Gurion
Airport, as of September 1, 1996, Aviations Services Ltd. (an affiliate of
Granite) (hereinafter, "Aviation Services") ceased to be the sole supplier of
ATK. Sonol was one of the suppliers of ATK to Aviation Services for many years.
As a result of the cancellation of the right of Aviation Services to supply ATK,
Sonol will, like other fuel companies, become a direct supplier of ATK to the
airline companies at Ben-Gurion Airport. The decree also determined the prices
for refueling services and for infrastructure services provided to the airline
companies at Ben-Gurion Airport. In accordance with agreements signed with the
budget division of the Finance Ministry and with the Airports Authority,
Aviation Services will provide the refueling services and its 50% owned
subsidiary, Aviation Properties Ltd., will provide the infrastructure services.
The agreements do not provide Aviation Services with exclusivity in providing
refueling services at Ben-Gurion Airport.
On September 1, 1995, the Israeli government published a decree, the
purpose of which is to regulate infrastructure rates in the fuel economy. The
decree establishes, among other things, the various types of infrastructure
services and the maximum prices allowed, as well as the method for updating the
prices.
An appeal filed by Sonol, together with appeals filed by Paz and Delek,
fuel marketing companies, against a June 1993 ruling by the Controller of
Restrictive Trade Practices declaring that the exclusive agreements entered into
between the fuel marketing companies and filling station operators are
restrictive trade agreements, is now pending in the District Court in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995,
amended the above ruling following a compromise arrangement reached between
Sonol and Paz in their above mentioned appeals. Under the terms of the
compromise arrangement, Sonol agreed to release 36 stations not subject to an
"Accepted Leasing Agreement" as defined in the arrangement and the Controller of
Restrictive Trade Practices will rescind his ruling regarding other stations in
which Sonol is party to such an "Accepted Leasing Agreement." Several appeals
were filed in the Israeli Supreme Court against this arrangement, all of which
were rejected on December 2, 1996. The Court ruled that the Controller of
Restrictive Trade Practices had the authority to enter into the above
arrangement. As a result, Sonol released the 36 stations from the exclusive
agreements it had with them and is in the process of rescinding its appeal.
Sonol and Delek jointly own the rights to the Dalkan 2000, a computerized
system for marketing fuel products (primarily to automobile fleets). On January
26, 1997, the Controller of Restrictive Trade Practices ruled that the joint
marketing arrangement of the Dalkan 2000 system between Sonol and Delek is a
restrictive trade agreement. As a result of the position taken by the
Controller, Sonol and Delek agreed to divide the Dalkan 2000 system between
themselves so that each company will operate an independent system in a manner
that will enable customers, in accordance with their own preferences, to enter
into an agreement with either of the companies. The implementation of the
separation agreement will be carried out in stages from September 1997 to
December 1998.
10
A private legislative proposal dealing with the shortening of the terms of
exclusive agreements entered into between the fuel marketing companies and
filling station owners and operators is currently before the Knesset.
A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the fuel
marketing companies and station owners has been forwarded to government
ministries, the President of the Supreme Court and law faculties for their
comments.
At this time, it is too early to estimate the effects of the foregoing
developments on the overall Israeli fuel market in general, and on Sonol in
particular.
In order to attempt to offset adverse effects of reforms in the energy
market, Sonol continues to emphasize improving efficiency through modernization
and aggressive but selective expansion. Furthermore, Granite is pursuing a
policy of diversification. In 1993, Granite established a subsidiary, Granite
Hacarmel Properties (1993) Ltd. ("Granite Properties") which invests in real
estate projects in Israel. In early 1996, Granite Properties, through a
subsidiary, entered into an agreement to invest approximately $22 million to
acquire 10% of the equity of Nitzba Holdings Ltd., a company mainly involved in
holding and developing real estate projects. For an additional investment of
Granite, see "Ophir Holdings Ltd."
Sonol is negotiating to acquire franchises from fast food chains and a
fuel pump manufacturer. Furthermore, Sonol has implemented self-operation of
public service stations. As of December 31, 1996, 29 such stations were operated
by Sonol and this figure is expected to increase during 1997.
During 1996, as a result of additional purchases of shares by the Company,
the Company's ownership of Granite increased to 21.5%, as of December 31, 1996.
Warrants held by the Company expired in 1996 and were not exercised. The Company
is party to an agreement with the other shareholders of Granite which expires on
February 8, 1998, and which entitles the Company to appoint three of the eleven
members of Granite's board. The Company and these shareholders, who currently
own an aggregate of 83.2% of Granite, have also agreed to certain restrictions
on transfer and to vote together at general meetings of Granite's shareholders.
This agreement is terminable on 120 days' notice if a party (or a related group)
acquires more than 43% of Granite's share capital. During 1994, one of the
parties to the agreement acquired the interest of another and now owns 56.2% of
Granite's share capital. The shareholder and the Company have agreed to
negotiate a new or amended agreement and have entered into an interim agreement
which provides for the Company's continuing right to designate three members of
Granite's board until February 8, 1998 (the stated expiration date of the
current agreement), provided that there is no change in control of Ampal.
Notwithstanding the recent change in control in Ampal, as long as Ampal
maintains its current representatives on Granite's Board of Director, the
shareholder has agreed not to terminate the interim agreement. If the Company
ceases to exercise "significant influence" over Granite, under applicable
accounting principles (which the Company believes it continues to exercise by
virtue of its ownership interest and board representation) the Company would no
longer be permitted to account for its holdings in Granite under the equity
method of accounting, and the Company's reported earnings could be adversely
affected.
HOTELS AND LEISURE-TIME
- -----------------------
CORAL WORLD INTERNATIONAL LIMITED ("CORAL WORLD")
Coral World, which is 50%-owned by the Company, owns or controls marine
parks in Eilat (Israel) and Perth and Manly (Australia). Coral World's marine
park, located in Eilat is next to coral reefs and visitors at this park view
marine life in its natural coral habitat through large underwater windows. Coral
World's marine parks in Perth and Manly, Australia allow visitors to walk
through a transparent acrylic tube on the bottom of a man-made aquarium
surrounded by marine life. In addition to admission charges, Coral World's food
and beverage facilities and retail outlets are a significant revenue source.
Coral World and its affiliated companies employed a total of 182 persons as of
December 31, 1996.
11
In 1996, Coral World's parks had a total of approximately 1.1 million
visitors. In September 1995, Coral World's marine park in St. Thomas was damaged
by two hurricanes and was closed. Under an insurance policy, $1.1 million was
recovered. Coral World is in a dispute with another insurance company and its
agent with respect to its claim for up to $1.2 million of additional coverage.
It is too early to determine the outcome of this dispute or when this park will
be re-opened. On September 27, 1996, a wholly owned subsidiary of Coral World
sold its marine park in Nassau (Bahamas) to an unrelated party for $3.75 million
and Coral World recorded a loss on sale of approximately $5 million (the
Company's share is $2.5 million, $1.7 million net of taxes). In addition, in May
1996, Coral World's management made a decision to sell its marine park in St.
Thomas (U.S. Virgin Islands), and Coral World recorded a loss of approximately
$2 million (the Company's share is $1 million, $0.7 million net of taxes) to
adjust the carrying value of its investment to net realizable value.
Coral World is constructing a new marine park in Maui, Hawaii, at an
estimated cost of $18 million. This facility is expected to open in early 1998.
COUNTRY CLUB KFAR SABA LIMITED ("KFAR SABA")
Kfar Saba operates a country club facility (the "Club") in Kfar Saba, a
town north of Tel Aviv. Kfar Saba holds a long-term lease to the real property
on which the Club is situated. The Club's facilities include swimming pools,
tennis courts and a clubhouse.
The Club, which has a capacity of 2,000 member families, had approximately
1,900 member families for each of the 1995/96 and 1996/97 seasons. The
construction cost of the Club was $5.2 million, which was financed principally
with debt which is expected to be repaid by 2000. Kfar Saba's revenues are
principally attributable to annual memberships. The Company owns 51% of Kfar
Saba.
HOD HASHARON SPORT CENTER (1992) LIMITED PARTNERSHIP ("HOD HASHARON")
On December 31, 1995, the Company purchased from Kfar Saba its 50%
interest in Hod Hasharon for $1.4 million.
Hod Hasharon operates a similar country club facility (the "H.H. Club") in
Hod Hasharon, a town adjacent to Kfar Saba. The H.H. Club, which has a capacity
of 1,600 member families, had approximately 1,560 member families for the
1996/97 season compared with 1,345 member families for the 1995/96 season. The
H.H. Club, which opened in July 1994, was constructed at a cost of $4.8 million,
of which $2.1 million was borrowed from banks.
MORIAH HOTELS LTD. ("MORIAH")
Moriah, which is 46%-owned by the Company, is one of the largest hotel
chains in Israel based both upon the number of rooms and the number of
locations.
The following chart provides certain information with respect to hotels
Moriah owns or operates:
NO. OF MORIAH'S
LOCATION CATEGORY ROOMS INTEREST
- -------- -------- ----- --------
Jerusalem Luxury 292 Owns
Eilat Luxury 306 Owns
Dead Sea Luxury 220 Owns
Tel Aviv Luxury 355 Leases(1)
Tiberias Luxury 265 Leases(2)
Dead Sea First Class 196 Manages(3)
Zichron Yaakov Economy 112 Manages(3)
Nazareth Economy 120 Manages(3)
-----
Total 1,866
- ----------
12
(1) Net lease which expires in 2006.
(2) Net lease which expires in 2001.
(3) Management agreement which expires in 2004.
Moriah's competitive position has been enhanced by operating out of more
locations than any other chain in Israel, improving its facilities and providing
high quality service to its guests. During 1996, Moriah spent approximately $18
million on general improvements and renovations, including $12 million on the
Tel Aviv hotel. The Tel Aviv hotel, which has completed a $16 million
renovation, of which $4 million was provided by the landlord, was closed in
November 1995 and partially reopened on April 18, 1996.
Tourist arrivals in Israel during 1996 and 1995 were 2.2 million and 2.5
million, respectively. Moriah's occupancy rate was 63% (65%, exclusive of the
economy hotels) in 1996 and 72% (75%, exclusive of the economy hotels) in 1995.
The average occupancy rate in the Israeli hotel industry during 1996 was 68%.
Moriah's average room rate (expressed in dollars) decreased by 7.6% in 1996
compared to 1995.
Moriah's competitive position could be adversely affected by economic
changes in foreign countries, construction of new hotels in locations which
compete with Moriah's hotels or unrest in Israel or other areas of the Middle
East. As a result of the significant rise in tourism in Israel in recent years,
additional hotels have been or are being constructed and competition is expected
to intensify.
Moriah employed approximately 1,650 persons as of December 31, 1996.
The Moriah-owned Dead Sea hotel is located on the shore of a pool adjacent
to the Dead Sea. Because of industrial activities at the pool, its water level
has been rising to levels that threaten the hotel structure. Moriah litigated
the costs of protective measures and compensatory damages. As a result of a
settlement of the litigation in 1995, all actions and counter-actions filed by
the parties to the litigation were withdrawn. However, Moriah retained the right
to sue Dead Sea Works, one of the original defendants in the litigation, for
damages due to any further rise in the sea level.
In December 1995, Moriah entered into an agreement with Radisson SAS, the
international hotel chain, pursuant to which Moriah has been granted a 30-year
exclusive franchise in Israel. Moriah's hotels have been renamed to include the
Radisson name and are now included in the Radisson reservation network. The
agreement also grants Moriah the right to operate hotels in Jordan under the
name Radisson Moriah.
REAL ESTATE, FINANCE AND OTHER HOLDINGS
- ---------------------------------------
In Israel, most land is owned by the Israeli government. In this Report,
reference to ownership of land means either direct ownership of land or a
long-term lease from the Israeli Government, which is in most respects regarded
in Israel as the functional equivalent of ownership. It is the Israeli
government's policy to renew its long-term leases (which usually have a term of
49 years) upon their expiration.
AM-HAL LTD. ("AM-HAL")
Am-Hal has developed and operates a luxury senior citizens center in
Rishon Lezion, a city located approximately 10 miles south of Tel Aviv. The
center, which was completed in March 1992, includes 160 apartments which were
fully occupied on December 31, 1996 with a waiting list for 5 apartments, an
80-bed geriatric ward which has a 90% occupancy rate, a swimming pool and other
recreational facilities. The geriatric ward is leased by Am-Hal to a
non-affiliated health care provider until 2002. Rental payments are based upon
the profits of the geriatric ward, with a minimum rent of $340,000 per year.
The Company and a subsidiary of The Israel Corporation, a major Israeli
holding company, each own 50% of Am-Hal. The aggregate cost of the center was
approximately $21 million, and was financed principally by loans made or
guaranteed by the shareholders and refundable tenant deposits. These loans have
been repaid.
13
Due to the success of this project and the increased demand for such
services, Am-Hal has entered into a joint venture agreement with, among other,
the owner of a property consisting of 2.5 acres of land in Hod Hasharon, a city
located approximately 7 miles north of Tel Aviv. The joint venture intends to
build a senior citizens center on this site, a building of approximately 225,000
square feet (the building in Rishon Le-Zion is approximately 120,000 square
feet) including 4,500 square feet of underground parking. It is anticipated that
the center will include 280 apartments. The joint venture anticipates that the
center will be opened towards the end of 1999.
AMPAL DEVELOPMENT (ISRAEL) LTD. ("AMPAL DEVELOPMENT"), NIR LTD. ("NIR") AND
AMPAL FINANCIAL SERVICES LTD. ("AMPAL FINANCIAL") (TOGETHER, THE "HOLDING
COMPANIES")
Ampal Development, Nir and Ampal Financial, each of which is wholly-owned
by the Company, are engaged in the business of financing acquisitions by the
Company and holding and leasing commercial real estate in Israel. Prior to 1989,
these companies had acted primarily as lenders, and their financing activities
were the principal activities of the Company. In 1990, the Holding Companies
sold substantially all their loan portfolios to Hapoalim, and they relinquished
their banking licenses. The Holding Companies still service certain loans made
by them prior to their ceasing lending activity which are guaranteed by
Hapoalim.
It has been reported in the media that Israeli banks are the subject of
allegations that they engaged in improper business practices regarding lending.
The lending practices engaged in by the Holding Companies were substantially
similar to the lending practices of the other Israeli banks and, to that extent,
the Company may be subjected to the same possible claims. One claim in the
amount of 2.7 million New Israeli Shekels ("NIS" or "shekels") (approximately
$805,970) has already been asserted and a judgment by the High Court of Appeals
has not yet been rendered. It is too early to determine the extent of any
additional claims which may be asserted in this regard or the outcome of any
such claims. However, to the best of the Company's knowledge, the Company's
subsidiaries, which operated as banking institutions, acted within the law and
in accordance with the procedures and customs in effect at the time. The Company
expects to continue to vigorously defend the claim which has been asserted.
Ampal Development owns five commercial properties located in Israel
aggregating approximately 37,000 square feet. Four of these properties are net
leased to Hapoalim. Nir owns four commercial properties located in Israel
aggregating approximately 18,000 square feet. Three of these properties are net
leased to Hapoalim. Ampal Financial owns two commercial properties located in
Israel aggregating approximately 7,000 square feet. Both of these properties are
net leased to Hapoalim. For a discussion of Israeli real estate tax
considerations that may be applicable to certain real property leases of the
Holding Companies, see "Certain United States and Israeli Regulatory
Matters-Certain Israeli Real Estate Tax Matters."
The Holding Companies hold interests in other companies discussed
elsewhere in this Report and also make loans to these and other investees in
furtherance of their businesses.
Ampal Development issued debentures which are publicly traded on the TASE.
An aggregate of approximately $35.6 million of these debentures were outstanding
as of December 31, 1996. Ampal Development has deposited with Hapoalim funds
sufficient to pay all principal and interest on these debentures.
AMPAL (ISRAEL) LTD. ("AMPAL (ISRAEL)")
Ampal (Israel), a wholly-owned subsidiary of Ampal, owns an approximately
57,000 square feet commercial property located in Tel Aviv which houses its
principal offices. A portion of this property is net leased to Hapoalim and
another portion is net leased to Moriah. Ampal (Israel) also acts as a holding
company for other investments discussed elsewhere in this Report.
14
AMPAL REALTY CORPORATION ("AMPAL REALTY")
In June 1995, Ampal Realty purchased real property on which an
approximately 290,000 square foot office building is located for, approximately
$45 million. The building is located at 800 Second Avenue, New York, New York.
The building is 43.9%-occupied by the Consulate of the Government of Israel in
New York and many other Israeli government offices. Prior to the conversion (the
"Conversion") of the building into an office condominium, which is described
below, the Government of Israel leased its space under a lease which would have
expired on December 31, 2009, with an option by the lessee to extend for an
additional six years.
The original purchase was partially financed by a loan of $30 million from
Hapoalim at an interest rate based on a three-month London Interbank Offered
Rate plus 1% which was to have matured on the initial expiry date of June 28,
1996. As originally contemplated, Ampal Realty has requested, and Hapoalim has
agreed, to extend the repayment of the balance of the loan until June 28, 2000
with quarterly principal payments commencing March 28, 1997. Ampal guaranteed
$20 million of this loan. Concurrent with the Conversion, Ampal Realty repaid
$15 million of the outstanding principal of the loan and the guarantee was
reduced to $10 million.
On December 12, 1996, the building was converted into an office
condominium. Following the Conversion, on January 31, 1997, the Government of
Israel purchased a condominium unit consisting of floors 10 through 18 for a
purchase price of $31 million.
Currently, 58% of the space owned by Ampal Realty is occupied.
The Company owns 94% of Ampal Realty. An unrelated party owns the
remaining 6%. The Company and the other party have entered into a shareholders'
agreement which requires each of them to provide financing and guarantees on a
basis pro rata to its percentage shareholding in Ampal Realty.
During 1996, Ampal Realty recorded approximately $7.9 million in rent.
Ampal Realty intends to offer for sale or long term lease its remaining
interests in the building.
BAY HEART LIMITED ("BAY HEART")
Bay Heart was established in 1987 to develop and lease a shopping mall
(the "Mall") in the Haifa Bay area. Haifa is the third largest city in Israel.
The Mall, which opened in May 1991, is a modern three-story facility with
approximately 280,000 square feet of rentable space. The Mall is located at the
intersection of two major roads and provides a large mix of retail and
entertainment facilities including seven movie theaters. Approximately 37,500
square feet of the Mall are occupied by Supersol Ltd., one of the two largest
Israeli supermarket chains, and the parent of a co-investor in Bay Heart. Shekem
Department Stores, a major Israeli department store, is the other anchor tenant
under a net lease for approximately 57,600 square feet of retail and
approximately 17,750 square feet of storage and other space expiring in 2001. As
of December 31, 1996, approximately 99% of the Mall premises was occupied,
primarily under two-year leases, with options to extend for four additional
years, except for anchor tenants. The total cost of the Mall was approximately
$53 million, which was financed principally with debt. The Company owns 37% of
Bay Heart.
Bay Heart owns a 50% interest in 875 acres of land adjacent to the Mall.
The remaining 50% interest is held by an unrelated group of investors with whom
Bay Heart entered into a joint venture agreement. Bay Heart also owns 30,000
square feet of land adjacent to the Mall. These plots of land are intended to be
used for the construction of an addition to the Mall.
Bay Heart is a party to a Letter of Intent with both the Ports and
Railways Authority and a subsidiary of the Egged bus company regarding the
establishment of a joint company, in which each will be equal investors, for the
construction of a transportation and business complex next to the Mall. This
project will include the construction of both
15
a bus terminal and train station. The land for this project is owned by the
Ports and Railways Authority which, pending proper regulatory approval, is
expected to make it available to the joint company.
See "Certain United States and Israeli Regulatory Matters-Certain Israeli
Real Estate Tax Matters" for a discussion of Israeli real estate tax
considerations that may be applicable to certain real property leases of Bay
Heart.
EPSILON INVESTMENT HOUSE LTD. ("EPSILON")
In January 1995, the Company invested $1.5 million and acquired 20% of
Epsilon and its affiliate, Renaissance Investment Company Ltd. ("Renaissance").
Epsilon is an investment bank which provides portfolio management services and
Renaissance provides underwriting services in Israel through its subsidiaries.
ETZ VANIR LTD. ("ETZ VANIR") AND YAKHIN MATAIM LTD. ("YAKHIN MATAIM")
Both Etz Vanir and Yakhin Mataim cultivate orange, grapefruit, clementine,
lemon and avocado groves in Israel, both for export and domestic use, pursuant
to various long-term land leases which, including renewal options, do not expire
until the mid-21st century. These properties are located near the city of
Netanya between an existing and a proposed highway. Approximately 1,200 acres
are presently under cultivation by these two companies.
Ampal owns 50% of the equity of Etz Vanir and Yakhin Mataim. The remaining
50% of the equity of these companies is owned by an unrelated company, Yakhin
Hakal Ltd. ("Yakhin Hakal") which manages their operations. Because of a dispute
between Ampal and Yakhin Hakal regarding the operating agreement for the
companies, Ampal had requested that an Israeli court declare the agreement null
and void, and, in its response, Yakhin Hakal had stated that the companies owed
it approximately $4 million for services it had rendered to the companies. The
court ruled that Ampal and Yakhin Hakal should jointly appoint an additional
director of these companies, who will cast the deciding vote in cases of
dispute. Yakhin Hakal filed an appeal and requested a stay concerning the
implementation of the court's ruling. The appeal was denied by the Israeli
Supreme Court. The parties subsequently agreed to the appointment of the
Honorable Dov Levine, a retired judge, as the additional director with the
deciding vote. In addition, both Ampal and Yakhin Hakal have appointed
independent accountants who will jointly prepare Etz Vanir's and Yakhin Mataim's
financial statements. Etz Vanir and Yahkin Mataim have not reported their
financial results to Ampal since 1990 and therefore, their financial results
have not been included in the Company's financial statements.
In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding seeking to cause Etz Vanir and Yakhin Mataim to redeem perpetual
debentures owned by Ampal for approximately $700,000 and to require Ampal to
surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their
par value, which is nominal. Ampal is contesting this legal proceeding. Though a
hearing has been held, no judgment in this case has been rendered as of the date
hereof. See "Legal Proceedings."
INDUSTRIAL BUILDINGS CORPORATION LTD. ("INDUSTRIAL BUILDINGS")
Industrial Buildings, Israel's largest owner/lessor of industrial
property, is engaged principally in the development and construction of
buildings in Israel for industrial and commercial use and in project management.
Industrial Buildings carries out infrastructure development projects for
industrial and residential purposes, principally for a number of government
agencies and authorities. Industrial Buildings hires and coordinates the work of
contractors, planners and suppliers of various engineering services.
Industrial Buildings owns approximately 12.3 million square feet of space
in industrial buildings throughout Israel. It owns both multi-purpose buildings
and built-to-suit buildings which are constructed in accordance with the
specific requirements of tenants. In certain cases, there is an option in the
tenant's favor to purchase the
16
leased property, and, in the case of most built-to-suit properties, a commitment
on the part of the tenant to purchase the property.
The buildings which are owned by Industrial Buildings are leased to
approximately 2,430 lessees under net leases having terms of up to ten years.
See "Conditions in Israel-Certain Israeli Real Estate Tax Matters" for a
discussion of Israeli real estate tax considerations that may be applicable to
certain real property leases of Industrial Buildings. The average occupancy rate
in buildings owned or leased by Industrial Buildings was approximately 89% at
December 31, 1996.
Industrial Buildings' plans include building a project in the Tel Aviv
area comprising approximately 448 apartments, a commercial center of
approximately 43,000 square feet, an office building of approximately 156,000
square feet and parking facilities of approximately 883,000 square feet.
Approximately 7.2% of Industrial Buildings' space is located in the
administered territories. Industrial Buildings cannot predict whether the
ongoing peace process will have an effect on this space. See "Conditions in
Israel."
Industrial Buildings was founded as an Israeli Government company in 1961.
In 1988, Industrial Buildings first offered its shares to the public and its
shares are traded on the TASE. In 1993, the Government of Israel privatized the
company by selling its 51.3% stake in Industrial Buildings. Since the
privatization, Industrial Buildings has focused on improving financial results,
by decreasing staff and overhead costs and aggressively negotiating lease
renewal terms. Mivnat Holdings Ltd. ("Mivnat"), a holding company in which Ophir
has a 25% interest, purchased the Government's interest in Industrial Buildings.
Ophir's investment in the holding company was approximately $50 million. Ampal
owns 42.5% of Ophir. Industrial Buildings' policy is to distribute as a dividend
not less than 60% of each year's earnings during the period 1993 through 2000.
In December 1996, Industrial Buildings distributed a dividend of approximately
NIS 45 million ($13.8 million).
Ophir's interest in the holding company and the holding company's interest
in Industrial Buildings are subject to foreclosure in the event of a default by
any of the investors under the bank credit agreements entered into in connection
with the acquisition. Any amounts distributed as a dividend by Industrial
Buildings are required to be applied first to pay then due borrowings.
Industrial Buildings had a staff of approximately 48 permanent employees
as of December 31, 1995.
OPHIR HOLDINGS LTD. ("OPHIR")
Ophir is a holding company that holds interests in high technology and
real estate companies including Teledata Communication, Ltd. and Industrial
Buildings (which are discussed elsewhere in this Report). In addition, Ophir has
invested in two mutual funds and two start-up companies in the fields of
biotechnology and software. Ophir is 42.5%-owned by the Company.
Ophir owns, through a wholly-owned subsidiary, seven real estate
properties located in Israel aggregating approximately 118,360 square feet. Two
of these properties are leased to Hapoalim or its subsidiaries. For a discussion
of Israeli real estate tax considerations that may be applicable to certain real
property leases of Ophir, see "Certain United States and Israeli Regulatory
Matters--Certain Israeli Real Estate Tax Matters."
The Company and ICH, which also owns 42.5% of Ophir, are parties to a
shareholders' agreement regarding joint voting, directorships and rights of
first refusal with respect to Ophir.
Ophir has developed approximately 60,000 square feet of office and
commercial space and approximately 59,000 square feet of parking space on
property owned by it in Petach Tikva, Israel. On December 11, 1996, Ophir
entered into an agreement to sell this space
17
and property for $11.5 million, with an expected net profit of $2.5 million. The
pre-conditions for this sale have not yet been satisfied.
Ophir owns two acres of land in an industrial park in Netanya, Israel
together with an unrelated party. These parties entered into a joint venture
agreement regarding this site on which they intend to develop a 120,000 square
foot building for both industrial and commercial uses. The estimated cost of
development of this project is $10 million. Ophir's share of the property and
joint venture is 70%. It is anticipated that the joint venture will receive
regulatory approval for the development of an approximately additional 38,700
square feet.
Ophir owns a 16.7% interest in the Shmey-Bar group of companies
("Shmey-Bar"). Shmey-Bar acquired 2.3 million square feet of real estate
properties from Hamashbir Hamerkazi, Ltd. ("Hamashbir Hamerkazi") for $27.7
million. In the same transaction, Shmey-Bar received an option to acquire, for
$26.3 million, an additional 700,000 square feet of real estate properties from
Hamashbir Hamerkazi. These properties are situated in various locations in
Israel. Ophir's interest in Shmey-Bar was acquired with a nominal investment
accompanied by a $2.6 million shareholder's loan.
Ophir is, through a wholly-owned subsidiary, a limited partner in Clark/67
Associates L.P. ("Clark/67") which purchased an office building in New Jersey
for $3.2 million. Ophir invested $250,000 of Clark/67's $500,000 capital.
On October 17, 1996, Memco Software Ltd. ("Memco"), a provider of computer
security solutions, conducted its initial public offering of 3,870,000 ordinary
shares (including 450,000 over-allotment shares) at $15.00 per share. Memco sold
3,450,000 of these shares and received net proceeds of approximately $46
million, and existing shareholders sold 420,000 shares. Prior to the offering,
Ophir owned a 17.9% interest in Memco, which it purchased for $2.5 million.
Ophir sold ordinary shares in the offering, reducing its ownership interest to
13.1%. Ophir continues to hold 2,026,388 shares of Memco. The Company recorded a
fourth quarter gain of approximately $1.2 million, after taxes, with respect to
the offering.
In December 1994, Ophir invested approximately $6.75 million and acquired
33% of a 60,000 square foot property in Tel Aviv. The owners of the property
have begun construction of a building on the property consisting of 229,000
square feet of office space, 22,000 square feet of commercial space and 500
parking spaces at a total cost of approximately $30 million. In addition,
Granite invested $3 million and acquired 17% of this property. Since January
1995, Ophir and Granite have invested additional funds for the construction of
the building. On February 20, 1997, Ophir, Granite, and an unrelated third
party, Zeus Investments Ltd., entered into an agreement with Revadim
(Properties) Ltd., a subsidiary of Hapoalim, to sell their interests in the
property. Pursuant to the agreement, Granite and Ophir will sell their entire
interests and Zeus will sell a portion of its interest. Granite's share of the
consideration will be approximately NIS 36 million (approximately $10.7 million)
and Ophir's share will be approximately NIS 70 million (approximately $20.9
million). Completion of the sale, which will take place upon the completion of
the building, is expected to take place by December 31, 1997. Upon completion of
the building, Ophir and Granite's portion of the total cost of the building will
become available. At such time, Granite and Ophir are expected to announce their
net profits after taxes.
In September 1995, Ophir acquired a 10% interest in a joint venture which
has agreed to purchase 4.4 million square feet of land near Haifa for
approximately $15 million, on which the parties intend to develop a commercial
real estate project for rent. Ophir has obligated itself to invest up to $1.5
million in the first stage of this project and its share of development costs is
estimated to be as much as $30 million.
For information regarding Ophir's interest in Teledata, see "Teledata
Communication Ltd."
18
RENAISSANCE ISRAEL
In July 1994, the Company agreed to invest $3 million for 15% of
Renaissance Israel, a fund that invests in Israel-related companies generally on
the same terms and conditions as the Renaissance Fund LDC. (the "Renaissance
Fund"). The Renaissance Fund was formed in 1994 to invest primarily in emerging
markets, basic industry and government privatizations in Israel and elsewhere in
the Middle East. The Company had invested an aggregate of $2.8 million in
Renaissance Israel, as of December 31, 1996, with an additional commitment of
$200,000. The Company has a representative on the Executive Committee of the
Renaissance Fund and is entitled to certain potential co-investment
opportunities.
In March 1995, Renaissance Israel and the Renaissance Fund (together, the
"Funds") invested a total of approximately $29 million and acquired a 24.9%
interest in a holding company which acquired 100% of the shares of Shikun
U'Fituach le-Israel Ltd. ("SHOP") from the Israeli government for approximately
$293 million, of which approximately $175 million consisted of non-recourse debt
financing from banks. The Company's interest and share of the investment in this
holding company is 0.7% and $850,000, respectively. SHOP is one of Israel's
largest housing and development companies whose activities include residential
and industrial construction as well as infrastructure for residential areas.
In March 1995, the Funds invested a total of approximately $8 million and
acquired 25.1% of Clalcom Ltd. ("Clalcom"). Clalcom is engaged in the
telecommunications business in Israel and is expected to take part in a bid to
be the second international telecommunications carrier in Israel. On September
3, 1996, the Renaissance Fund made an additional investment in Clalcom in the
form of a capital note, as part of a $3,000,000 investment in Clalcom's American
subsidiary, Network-One Inc. ("NetOne"). NetOne is developing a date fax
transmission network to compete with traditional voice transmission services.
The capital note is convertible into ordinary shares of Clalcom at any time. The
principal amount of the note is payable at any time subsequent to August 2016,
if not earlier converted.
On June 20, 1996, the Company invested $1.5 million for 15% equity
interest in TODD Investment Ltd., which in turn owns 1,000 units of Geotek
Communications Inc. a wireless telecommunications company. Each unit consist of
one share of Series N, Cumulative Convertible Preferred Stock, which is
convertible into ninety-one shares of common stock (subject to adjustment), and
five-year warrants to purchase an additional thirty shares of common stock at an
exercise price of $11.00 per share. The preferred shares will pay a dividend,
payable in common stock, at a rate of 10% per annum.
BASIC INDUSTRY
- --------------
CARMEL CONTAINER SYSTEMS LIMITED ("CARMEL")
Carmel is one of the leading Israeli designers and manufacturers of
paper-based packaging and related products. Carmel manufactures a varied line of
products, including corrugated shipping containers, moisture-resistant
packaging, consumer packaging, triple-wall packaging and wooden pallets and
boxes.
Carmel estimates that it manufactures approximately 25% of the folding
board, approximately 85% of the corrugated triple wall, and approximately 35% of
the corrugated board packaging in Israel. Carmel's products are marketed to a
wide variety of customers for diverse uses, but its principal market is
packaging for agricultural products and for the food and beverage industry.
During the last few years, sales of packaging products to exporters of
agricultural products have declined slightly, but have been partially offset by
an increase in domestic sales.
In 1996, Carmel invested $25 million for machinery and infrastructure. On
December 1996, one of Carmel's plants was relocated to a leased property in
Caesarea, Israel and a second plant is expected to be moved in the Summer of
1997. As of December 31, 1996, Carmel employed 820 persons.
As of December 31, 1996, the Company owned 20.7% of the shares of Carmel,
of which 0.3% were acquired during 1996. Shares of Carmel are listed for trading
on the AMEX under
19
the symbol "KML." The Company, American Israel Paper Mills Ltd., the largest
paper producer in Israel, and Robert Kraft, a United States investor, are
parties to a shareholders' agreement with respect to their shareholdings (which
aggregate approximately 78% of the shares) in Carmel. The agreement includes
provisions governing board representation, required votes for specified
corporate actions, matters on which the shareholders agree to cooperate and
rights of first refusal with respect to the sale or transfer of the shares owned
by the parties. Carmel has granted to International Forest Products Corporation,
an affiliate of Mr. Kraft, a right to supply up to 80% of Carmel's requirements
for imported paper and forest products in the ordinary course of Carmel's
business and on a competitive basis.
DAVIDSON-ATAI PUBLISHERS LTD. ("DAVIDSON-ATAI")
On February 27, 1997, the Company sold its 20.7% interest in
Davidson-Atai, a publishing company, to principals of Davidson-Atai for
approximately $100,000. The transaction yielded a nominal profit for the
Company.
M.D.F. INDUSTRIES LTD. ("M.D.F.")
M.D.F. the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting. The Company,
however, continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations.
At Ampal's initiative, the Board of Directors of M.D.F. has approved
hiring consultants to study the operations and marketing of M.D.F. to determine
if a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
ORLITE INDUSTRIES (1959) LTD. ("ORLITE")
Orlite, formerly known as Orlite Engineering Company Ltd., is one of
Israel's largest manufacturers of composite material products for military and
civilian applications, including specialized fireproof ammunition storage
containers for the Israeli Merkava tank, ballistic helmets for military and
police use, specialized aerospace components, outdoor storage distribution
cabinets for telecommunications, cable and electrical switching equipment and
filament wound non-metallic pressure vessels for agriculture and industrial
water treatment systems.
Orlite's markets are changing due to spending cuts undertaken by the
Israeli Ministry of Defense ("MOD"). As a result, Orlite expects no growth in
sales to the MOD, which previously represented almost 90% of Orlite's sales, and
is focusing on sales of its civilian products which have grown to more than 50%
of Orlite's sales and which Orlite believes will continue to constitute its most
important growth segment.
Orlite's largest growth products are its composite outdoor storage
cabinets which house electrical, cable and telecommunications equipment and are
less susceptible to adverse weather conditions than metal cabinets. In 1996,
Israel Electric Corp. and Bezeq
20
(the Israeli telephone company) accounted for a substantial portion of Orlite's
civilian sales. Orlite seeks to expand its sales base by, among other methods,
developing other applications for its technology and exporting its products.
As of December 31, 1996, Orlite employed 150 permanent workers and 15
temporary workers. Orlite owns its manufacturing facilities.
During 1996, as a result of additional purchases of shares by the Company,
the Company's direct and indirect ownership of Orlite was increased to 25.3% as
of December 31, 1996.
On December 19, 1996, the Company entered into two agreements with ICH to
sell its direct holding in Orlite and the subsidiary which holds such interest
in Orlite for an aggregate purchase price of $5.2 million, plus interest. The
Company is expected to record a gain of $.8 million ($.5 million net of taxes).
These sales are subject to regulatory approval.
PARADISE INDUSTRIES LTD. ("PARADISE")
Paradise is a leading manufacturer and distributor of mattresses and
fold-out beds in Israel. Paradise manufactures and distributes its mattresses
under the brand names "Paradise," "Mefi" and "Sealy." "Sealy" mattresses are
manufactured and distributed by Paradise under a ten-year exclusive license
covering the Israeli market expiring in 2002 with an option for an additional
five-year term. Paradise owns its own manufacturing facilities and employs
approximately 100 persons. It distributes mattresses through independent stores
and by direct sales to hotels.
Paradise recorded losses in 1996, primarily in the third quarter, because
of increased advertising and promotional expenses in connection with a new
marketing program and general operating expenses.
The Company currently owns 85.1% of the share capital of Paradise.
PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD. ("PRI HA'EMEK")
On December 23, 1996, the Company transferred its 58.5% equity interest in
Pri Ha'emek, which constituted its entire holdings, to Agrifarm International
Limited ("Agrifarm"), an unrelated British company. The sale was made pursuant
to an agreement entered into between Ampal Industries and Agrifarm on October
11, 1996. Pri Ha'emek processes and packages frozen vegetables, canned juices
and other vegetables and citrus products in Israel and markets its products
primarily in Israel and Europe and, to a lesser extent, in North America and
Japan.
As part of the same transaction, the following were effected: (i) the
Company waived its rights to receive the outstanding balance of loans made by it
to Pri Ha'emek in the amount of NIS 7,897,796 (equal to $2,415,967, based upon
the exchange rate between the shekel and the U.S. dollar on the date of
transfer); (ii) the Company assigned to Agrifarm loans in the amount of NIS
3,033,720 (equal to $928,027) due from Pri Ha'emek; (iii) the Company
transferred to Agrifarm $1,500,000, which amount Agrifarm transferred to Pri
Ha'emek in exchange for which Hapoalim released the Company from guarantees of
debts of Pri Ha'emek totaling $1,500,000; (iv) the Company transferred NIS
2,045,812 (equal to $625,822) to Pri Ha'emek; and (v) Agrifarm granted to the
Company an option to repurchase Pri Ha'emek shares from Agrifarm for one and
one-half years at a price of NIS 0.50 per share. Since Agrifarm has purchased
additional shares of Pri Ha'emek from another shareholder of Pri Ha'emek, the
Company's option has been set at a figure equal to 8.3% of Pri Ha'emek's shares.
See "Management's Discussion and Analysis of Financial Condition and Operations"
for information on the results of these transactions.
21
EMPLOYEES
- ---------
As of December 31, 1996, Ampal had 12 employees including one employee
whose compensation is shared with Hapoalim. Ampal (Israel) had 9 employees and
Ampal Industries (Israel) Ltd. had 5 employees as of that date. Relations
between Ampal and its employees are satisfactory.
CONDITIONS IN ISRAEL
--------------------
Most of the companies in which Ampal directly or indirectly invests,
conduct their principal operations in Israel and are directly affected by the
economic, political, military, social and demographic conditions there. The
following information is included in order to describe certain of these
conditions in Israel. All figures and percentages are approximate. A substantial
portion of the information with respect to Israel presented hereunder has been
taken from Annual Reports of the Bank of Israel, the Israeli Central Bureau of
Statistics and from economic reports of Hapoalim. No independent verification
has been made of such information.
Operations in Israel
A state of hostility has existed, varying as to degree and intensity,
between Israel and the Arab countries. In addition, Israel, and companies doing
business with Israel, have been the subject of an economic boycott by the Arab
countries since Israel's establishment, although its impact has decreased since
1993, with the progress in the peace process, as discussed below. Following the
Six-Day War in 1967, Israel has administered the territories of the West Bank
and the Gaza Strip. A peace agreement between Israel and Egypt was signed in
1979 under which full political relations have been established.
Since 1991, negotiations have taken place between Israel, its Arab
neighbors and the Palestinians to end the state of hostility in the region. In
September 1993, a breakthrough occurred in Israeli-Palestinian relations with
the signing of the Oslo Agreement. This was followed by a joint
Israeli-Palestinian Declaration of Principles (the "Declaration") which was
signed by Israel and the Palestine Liberation Organization ("PLO") in
Washington, D.C., outlining interim Palestinian self-government arrangements. As
a result of these agreements, Palestinian self-rule in the Gaza Strip and other
portions of the administered territories has been implemented and elections of a
Palestinian council were held in January 1996. In addition, PLO Chairman Arafat
sent a letter to then Israeli Prime Minister Rabin in which the PLO recognized
Israel's right to exist in peace and security, renounced terrorism and violence
and affirmed that the clauses of the PLO Covenant denying Israel's right to
exist are no longer valid. In reply, Israel recognized the PLO as the
representative of the Palestinians in the peace negotiations. Since then, Israel
and the PLO have conducted a series of discussions, which have been periodically
interrupted due to events in the region, designed to complete these
arrangements. Israel signed a peace agreement with Jordan which has led to
diplomatic and commercial relations. Israel is currently negotiating a peace
agreement with Syria.
Industrial Buildings, a major owner/lessor of industrial properties in
Israel, owns approximately 1 million square feet of industrial buildings in the
administered territories (approximately 7.2% of its total holdings). The future
status of buildings owned and property leased by Industrial Buildings in the
administered territories is uncertain, but historically the Government of Israel
has compensated property owners for forfeitures resulting from government
actions.
Demographics
Since the beginning of 1990, Israel has been experiencing a new wave of
immigration, primarily from the former Soviet Union. Approximately 75,000 new
immigrants arrived during 1996. During the period 1990 through 1996, Israel's
population increased by approximately 22%. The immigration from the former
Soviet Union may benefit Israel and its economy in the long-term by providing
highly educated, cost-competitive labor and by stimulating its economic growth.
22
Assistance from the United States
The State of Israel receives approximately $3 billion of annual grants for
economic and military assistance from the United States and will have received
approximately $10 billion of United States Government loan guarantees by 1998,
subject to reduction in certain circumstances. These loan guarantees were
granted over a period of five years ($2 billion per annum) commencing in 1993.
The Israeli economy could suffer material adverse consequences were such aid or
guarantees to be significantly reduced. There is no assurance that foreign aid
from the United States will continue at or near amounts received in the past.
Economic Activity
Israel's gross domestic product ("GDP") increased by 4.4% in 1996 while
business sector GDP rose by 5%. The slowdown in economic activity in 1996
followed six years (1990-1995) during which GDP rose by an annual average of
6.1% and business sector GDP increased by 7.3%. The slowdown in the growth rate
resulted from the Bank of Israel's policy of monetary restraint which led to a
major appreciation of the shekel which, in turn, was responsible for a five
percentage point decrease in exports. The export rate in 1996 fell to 4.6% in
real terms, half the average annual rate of the increases recorded during
1992-95. Imports of goods and services increased by 8%. The concurrent increase
in the import surplus amounted to $12.8 billion. After deducting unilateral
transfers of $7.9 billion, the deficit in the current account for 1996 totalled
$4.9 billion as compared to $4.2 billion in 1995.
In 1996, private consumption rose by 5.5%, amounting to 2.8% in per capita
terms. Private consumption has been growing rapidly since 1990 and nearly always
at a higher rate than the growth in GDP. This has led to a decline in gross
savings from 23% of GDP in 1990 to 20% of GDP in 1996, and to the aforementioned
rise in the current account deficit.
The unemployment rate decreased from an average of 11% in 1992 to 6.7% in
1996, following an increase of 360,000 in the number of employed persons,
300,000 of whom are in the business sector. The average unemployment rate among
immigrants in 1996 declined to 9.3%.
Israel's labor force is among the most highly educated in the world. Its
135 engineers per 10,000 employees ratio is twice as high as the United States'
ratio of 70 per 10,000. Labor productivity is forecast to increase at a rapid
pace as the immigrant employees, 44% of whom have a college education, learn the
language and are absorbed into the economy.
The inflation rate in 1996 was 10.6%. One of the factors responsible for
the relatively low rate was the Bank of Israel's policy of monetary restraint,
which led to a considerable appreciation of the shekel and to a slower pace of
economic growth.
During 1996, the shekel was devalued by 3.7% relative to the United States
dollar from NIS 3.135 to NIS 3.251. This modest devaluation resulted primarily
from the high interest rates in Israel.
To offset the effects of inflation on the purchasing power of the Israeli
currency, the Government of Israel has instituted "linkage" policies which have
also been followed by most private organizations. Through linkage, the amount of
an obligation or payment is increased from time to time by an amount related to
changes in an index which may be the exchange rate of a foreign currency or a
price index. The payee is thus compensated for the relative decline in the
purchasing power of the NIS. Linkage adjustments may be based upon the total or
only a specified percentage of the change in the index being used. Many
obligations or payments in shekels are linked to the United States dollar or the
Israeli CPI, including payment obligations and receivables of many of the
Companies' investees.
23
The following table sets forth for the periods indicated the effects of
annual inflation on linkage adjustments and annual devaluations, as discussed in
the preceding paragraph.
ISRAEL ANNUAL U.S.
ANNUAL CLOSING INFLATION ANNUAL
INFLATION EXCHANGE ANNUAL ADJUSTED FOR INFLATION
YEAR ENDED DEC. 31 RATE(1) RATE(2) DEVALUATION(3) DEVALUATION(4) RATE(5)
- ------------------ ------- ------- -------------- -------------- -------
1991.............. 18.0 2.283 11.5 5.85 4.2
1992.............. 9.4 2.764 21.1 (9.64) 3.0
1993.............. 11.2 2.986 8.0 2.93 3.0
1994.............. 14.5 3.018 1.1 13.2 2.6
1995.............. 8.1 3.135 3.9 4.1 2.8
1996.............. 10.6 3.251 3.7 6.6 3.3
- ----------
(1) "Israel Annual Inflation Rate" is the percentage increase in the Israeli
CPI between December of the year indicated and December of the preceding
year.
(2) "Closing Exchange Rate" is the rate of exchange of one United States
dollar for the NIS at December 31 of the year indicated as reported by the
Bank of Israel.
(3) "Annual Devaluation" is the percentage increase in the value of the United
States dollar in relation to the NIS during the calendar year.
(4) "Annual Inflation Adjusted for Devaluation" is obtained by dividing the
December Israeli CPI by the Closing Exchange Rate, thus first obtaining a
United States dollar-adjusted Israeli CPI, and then calculating the yearly
percentage changes in this adjusted index.
(5) "U.S. Annual Inflation Rate" is obtained by calculating the percentage
change in the United States Consumer Price Index for All Urban Consumers,
as published by the Bureau of Labor Statistics of the United States
Department of Labor.
Israeli Investment
Since the establishment of the State of Israel in 1948, the Government of
Israel has promoted the development of industrial and agricultural projects
through a variety of methods including tax abatements and tax incentives.
Industrial research and development projects in Israel may qualify for
government aid if they deal with the development of commercial products to be
made in Israel for sale abroad. Direct incentives usually are provided in the
forms of grants, regulated in accordance with the Law for Encouragement of
Industrial Research and Development 1984.
Since 1988, the Government of Israel's policy has been one of
privatization aimed at reducing its direct ownership interest in enterprises,
and the Government of Israel has sold or is planning to sell all or part of its
stake in many Government-owned companies.
Trade Agreements
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade which provides for reciprocal lowering of trade barriers among
its members.
Israel became associated with the European Economic Community ("E.E.C.")
by an agreement concluded on July 1, 1975 which confers certain advantages with
respect to Israeli exports to most European countries and obliges Israel to
lower its tariffs with respect to imports from those countries over a number of
years. A renewal of this
24
agreement was signed in November 1995. Israel signed a similar agreement with
the European Free Trade Association ("EFTA") in 1992.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA") which is intended ultimately to eliminate
all tariff and certain nontariff barriers on most trade between the two
countries. Under the FTA agreement, most products received immediate duty-free
status in 1985, stated reductions are taking place on others and reductions in
tariffs relative to a third category were accelerated between 1990 and 1995, by
which year all tariffs were eliminated. Israel is the only country in the world
with free trade agreements with the United States, EFTA and E.E.C.
On July 31, 1996, Israel and Canada signed a free trade agreement that
eliminated all tariffs on most industrial goods. Duties on a variety of
agricultural products were also reduced or entirely removed. Food trade is not
covered by the agreement and continues to face tariffs as do certain cotton
fabrics and women's swimwear. Discussions are expected to be held within two
years to expand agricultural and food trade between the two countries. The
treaty is expected to help Israel develop closer trade relations with Canada,
especially in the wake of the North American Free Trade Agreement.
On August 28, 1996, Israel signed a security cooperation agreement with
Turkey to extend security ties between the two countries. The agreement among
other things, is aimed at regulating cooperation between the two countries'
military industries, as well as technology sharing. This agreement paved the way
for the implementation of a $600 million project between Israel Aircraft
Industries Ltd. and the Turkish Ministry of Defense to upgrade Turkish Phantom
jet-fighters.
On September 10, 1996, Israel paved the way for its entry into the
Eurobond market by establishing a euro-medium-term note program of up to $750
million over the next three years. This program allows for bonds to be issued on
international markets with interest and principal payments due in the currency
in which the bonds are issued. Seven leading underwriters cooperated with the
Ministry of Finance on the issue, including Merrill Lynch as lead underwriter,
Daiwa Europe Ltd., Deutsche Bank AG London, Goldman Sachs International, Morgan
Stanley & Co. International Ltd., Swiss Bank Corporation and UBS Limited.
The end of the Cold War has enabled Israel to establish commercial and
trade relations with a number of nations, including Russia, China and the
nations of Eastern Europe, with which Israel had not previously had such
relations.
Economic Factors
Israel's defense expenditures, debt service and expenditures for the
absorption of immigrants are very high. As a result, the share of Israeli
resources available for other national purposes is limited. The defense burden,
debt service and expenditures for the absorption of immigrants, development of
the economy and the provision of a minimum standard of living, particularly for
the members of the lower income segments of the community, and the maintenance
of a minimum level of net foreign reserves, have resulted in a high import
surplus for many years. This surplus has been covered primarily by military and
economic aid from the United States, personal remittances from abroad, sales of
Israel Government bonds, primarily in the United States, institutional and free
market loans and contributions from the Jewish community worldwide.
Israel does not have an abundance of raw materials, including oil, and
therefore it is dependent to a large degree on the import of such raw materials.
In 1996, the number of tourists who arrived in Israel was approximately
2.2 million, slightly less than the number of tourists who arrived in 1995. The
tourism industry suffered in 1996 from security related incidents which began in
February with a wave of terrorist attacks. The decline ceased by August and the
level of incoming tourism stabilized during the fourth quarter of 1996.
On December 31, 1994, 1995 and 1996, respectively, Israel's outstanding
net foreign debt was approximately $18.4 billion, $20.2 billion and $20.0
billion, respectively.
25
Israel had approximately $8.8 billion of foreign exchange reserves at the end of
1996 compared to $8.2 billion at the end of 1995 and $6.8 billion at the end of
1994.
Economic and Monetary Policies
In order to stimulate economic growth, the Israeli government has
continued a policy adopted in 1989 aimed at increasing the availability of
investment capital. This policy increased the availability of such capital by
loosening restrictions on the importation of foreign capital into the country
and freeing additional foreign currency deposits held in Israeli banks for
domestic lending by reducing bank liquidity requirements.
In an effort to stimulate exports and economic growth, the Israeli
government abandoned the fixed exchange rate policy which was followed in
previous years. Commencing in 1989 the rate of exchange was allowed to
fluctuate, within a range of 3% (later changed to 5% and still later to 7%) up
or down, after an initial devaluation of 13.4%. Further fluctuations and
devaluations have occurred or have been declared since then, including a 13.3%
devaluation in the fourth quarter of 1992. The current exchange rate mechanism
adopted in December 1991 allows the exchange rate to fluctuate around a diagonal
mid-band rate which initially was allowed to increase by 9% per annum, and since
July 1993, to increase by 6% per annum.
In the past several years the Israeli government has also liberalized
regulations relating to the Israeli securities market.
CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS
S.E.C. Exemptive Order
In 1947, the SEC granted Ampal an exemption from the Investment Company
Act of 1940, as amended (the "1940 Act"), pursuant to an Exemptive Order. The
Exemptive Order was granted based upon the nature of Ampal's operations, the
purposes for which it was organized, which have not changed, and the interest of
purchasers of Ampal's securities in the economic development of Israel. There
can be no assurance that the SEC will not reexamine the Exemptive Order and
revoke, suspend or modify it. A revocation, suspension or material modification
of the Exemptive Order would materially and adversely affect the Company. In the
event that Ampal becomes subject to the provisions of the 1940 Act, it could be
required, among other matters, to make material changes to its management,
capital structure and methods of operation, including its dealings with
principal shareholders and their related companies.
Certain Israeli Real Estate Tax Matters
Under Israeli law, a lease of real property with a term of more than 10
years is required to be reported to the Israeli Appreciation Tax Authorities and
is subject to a land appreciation tax or an income tax and an acquisition tax.
The Israeli Tax Commissioner has taken the position that certain arrangements
for the lease of real property, including multiple leases, leases with renewal
options and leases or options to lease between affiliated companies, which in
the aggregate provide a term exceeding 10 years, are subject to the above
reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and
Carmel, are parties (mostly as lessors) to lease transactions which, under the
Commissioner's interpretation, may be deemed leases for terms in excess of 10
years. These investees have all reported their lease income as taxable income
and have recently reported such transactions to the tax authorities. Should the
tax authorities decide to enforce their position and prevail, these investees
would be in breach of Israeli law, and could be subject to material taxes and to
civil and criminal penalties. A similar assessment made against Bay Heart in
this regard by the tax authorities has been abandoned.
The Company's investees have taken the position, which the Company
believes is shared by many of the other affected taxpayers in Israel, that the
Commissioner's position in this matter is incorrect. The Company cannot predict
whether the Commissioner's position will be upheld or, if upheld, the effect on
the Company and its investees.
26
Israeli Banking Regulations
A provision of the Banking (Licensing) Law, 5741 - 1981, as amended (the
"Banking Law") imposes limitations on the purchase and holding of means of
control of non-banking corporations by Israeli banks. The Banking Law does not
permit Israeli banks, including Hapoalim, to invest more than 25% of its capital
in non-banking corporations, including Ampal or to hold more than 25% of the
means of control of each such corporation. Under the Banking Law, the Company
may not use financing directly or indirectly provided by Hapoalim to make
acquisitions of interests in a non-banking corporation. Hapoalim may not extend
credit to the Company except in the ordinary course of business and on terms
similar to those on which credit is extended to other customers of the same
class.
In addition, under an amendment to the Banking Law enacted in March 1994,
Israeli banks, including Hapoalim, were required to reduce their holdings in and
means of control over grandfathered non-banking corporations, including Ampal,
to 25% by not later than December 31, 1996. Following recommendations of a
committee formed by the Ministry of Finance in order to examine the overall
economic implications of a further reduction in the permitted holdings of banks
in non-banking corporations, the Government of Israel has recently introduced a
new bill to amend the Banking Law. This bill would require banks, including
Hapoalim, to further reduce their holdings in and means of control over
individual non-banking corporations such as Ampal to 20% by December 31, 1999,
and to reduce their overall investment in non-banking corporations to 20% of the
bank's capital by date. Pursuant to this bill, each bank's permitted investments
in non-banking corporations by the end of 2002, would not exceed 15% of each
Israeli bank's capital, with the addition of up to 10% of its capital permitted
to be invested, subject to certain limitations, in certain eligible non-banking
corporations. In order to comply with Banking Law, during 1996, Hapoalim engaged
in a series of transactions which reduced its holdings in Ampal and resulted in
Hapoalim no longer controlling Ampal. See "Significant Developments Since
Beginning of Last Fiscal Year - Change of Control of Ampal."
From time to time, the Company engages in transactions with Hapoalim and
its affiliates. Currently, the Company maintains substantial deposits with
Hapoalim and its subsidiaries. See "Certain Relationships and Related
Transactions."
United States Banking Regulations
Hapoalim is subject, through the United States International Banking Act
of 1978 ("IBA"), to the provisions of the United States Bank Holding Company Act
of 1956 ("BHC"). Due to Ampal's status as a subsidiary of Hapoalim for purposes
of the IBA and BHC, there may be limitations upon the direct or indirect
investment activities of Ampal in the United States. While Ampal itself is a
"grandfathered" investment of Hapoalim under the IBA for purposes of the BHC,
Ampal may not invest in more than 25% of the voting shares or the equity of
United States corporations or non-United States corporations which have a
majority of their assets in or revenues derived from the United States, subject
to certain exceptions. Management of Ampal does not believe that these
limitations contained in the BHC and the regulations of the Board of Governors
of the Federal Reserve System thereunder have had or will have any material
adverse impact upon the Company or its operations.
Israeli Foreign Exchange Regulations
Foreign exchange regulations are in effect in Israel. The regulations are
administered by the Controller of Foreign Currency, an official of the Bank of
Israel, who is appointed by the Minister of Finance. The Company's capital
investments in Israeli enterprises and the payment in U.S. dollars of dividends
on such investments do not require prior approval by the Controller. Under
Israeli law, foreign investors who make foreign currency investments in Israeli
companies are entitled to receive payments of dividends and proceeds upon resale
of the investment in that foreign currency.
To the extent that loans or investments have been or will be made by Ampal
or any of its subsidiaries in or to Israeli enterprises, substantially all such
loans or investments have been, and will be, made in such manner as to permit
the payment of dividends, interest and principal and proceeds of resale thereon
in U.S. dollars.
27
TAX INFORMATION
Israeli Taxation Of Ampal
Ampal (to the extent that it has income derived in Israel) and Ampal's
Israeli subsidiaries are subject to taxes imposed under the Israeli Income Tax
Ordinance. For 1996, Israeli companies were taxed on their income at a rate of
36%. This reduction to 36% represents the final stage of reforms begun in 1987.
These reforms consisted of combining two separate types of taxes on company
income, company tax and income tax, into one tax, and reducing the effective tax
rate on company income in 1987 from 61% to 45%, with further reductions to
43.5%, 41%, 40% 39%, 38% and 37% from 1990 through 1995.
A tax treaty between Israel and the United States became effective on
December 30, 1994. This treaty has not had a substantial impact on the taxation
of the Company in the United States or in Israel.
Ampal has income from interest, rent and dividends resulting from its
investments in Israel. Under Israeli law, Ampal has been required to file
reports with the Israeli tax authorities with respect to such income. In
addition, as noted below, Ampal is subject to a withholding tax on dividends
received from Israeli companies at a rate of either 25%, 15% or 12.5%, depending
on the percentage ownership of the investment and the type of income generated
by that company (as opposed to dividends payable to Israeli companies, which are
exempt from tax, except for the dividends paid by an approved enterprise to
either residents or non-residents, the tax on which is withheld at a rate of
15%). Under an arrangement with the Israeli tax authorities, such income has
been taxed based on principles generally applied in Israel to income of
non-residents. Ampal has filed reports with the Israeli tax authorities through
1993 and has received "final assessments" with respect to such reports filed
through 1992 (which final assessments are, under Israeli law, subject to
reconsideration by the tax authorities only in certain limited circumstances,
including fraud). Based on the tax returns filed by Ampal through 1993, it has
not been required to make any additional tax payments in excess of the
withholding on its dividends. In addition, under Ampal's arrangement with the
Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and the
United States on interest, rental and dividend income derived from Israeli
sources has not exceeded the taxation which would have been payable by Ampal in
the United States had such interest, rental and dividend income been derived by
Ampal from United States sources. There can be no assurance that this
arrangement will continue in the future. This arrangement does not apply to
taxation of Ampal's Israeli subsidiaries.
Generally, under the provisions of the Income Tax Ordinance, income paid
to non-residents of Israel by residents of Israel is generally subject to
withholding tax at the rate of 25%. However, withholding rates on income paid to
United States residents by residents of Israel are subject to the United
States-Israel tax treaty. No withholding has been made on interest and rent
payable to Ampal under an exemption which Ampal has received from the income tax
authorities on an annual basis. There can be no assurance that this exemption
will continue in the future. The continued tax treatment of Ampal by the Israeli
tax authorities in the manner described above is based on Ampal continuing to be
treated, for tax purposes, as a non-resident of Israel that is not doing
business in Israel.
Under Israeli law, a tax is payable on capital gains of residents and
non-residents of Israel. With regard to non-residents, this tax applies to gains
on sales of assets either located in Israel or which represent a right to assets
located in Israel (including gains arising from the sale of shares of stock in
companies resident in Israel). Since January 1, 1994, the portion of the gain
attributable to inflation prior to that date is taxable at a rate of 10%, while
the portion since that date is exempt from tax, while the remainder of the
profit, if any, was taxable to corporations at 36% in 1996. Non-residents of
Israel are exempt from the 10% tax on the inflationary gain derived from the
sale of shares in companies that are considered Israeli residents if they choose
to compute the inflationary portion of the gain based on the change in the rate
of exchange between Israeli currency and the foreign currency in which the
shares were purchased from the date the shares were purchased until the date the
shares were sold.
28
The Income Tax Law (Adjustment for Inflation), 1985, which applies to
companies which have business income in Israel or which claim a deduction in
Israel for financing costs, has been in force since the 1985 tax year. The law
provides for the preservation of equity whereby certain corporate assets are
classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation
resistant) Assets. Where shareholders' equity, as defined therein, exceeds the
depreciated cost of Fixed Assets, a tax deduction which takes into account the
effect of the annual inflationary change on such excess is allowed, subject to
certain limitations. If the depreciated cost of Fixed Assets exceeds
shareholders' equity, then such excess, multiplied by the annual inflation
change, is added to taxable income.
Individuals and companies in Israel pay VAT at a rate of 17% of the price
of assets sold and services rendered. They can deduct VAT paid on goods and
services acquired by them for the purpose of their business.
United States Taxation Of Ampal
Ampal and its United States subsidiaries (in the following tax discussion,
generally "Ampal") are subject to United States taxation on their consolidated
taxable income from foreign and domestic sources. The gross income of Ampal for
tax purposes includes or may include (i) income earned directly by Ampal, (ii)
Ampal's share of "subpart F income" earned by certain foreign corporations
controlled by Ampal, (iii) Ampal's share of income earned by certain electing
"passive foreign investment companies" of which Ampal is a stockholder and (iv)
an amount (if any) generally equal to Ampal's share of a controlled foreign
corporation's "excess passive assets." Subpart F income includes dividends,
interest and certain rents and capital gains. Excess passive assets of a
controlled foreign corporation for a taxable year are the excess of the average
of the amounts of passive assets held by the corporation as of the close of each
quarter of a taxable year over 25% of the average of the amounts of total assets
held by the corporation at such times. Since 1993, the maximum rate applicable
to domestic corporations is 35%.
Ampal is entitled to claim as a credit against its United States income
tax liability all or a portion of income taxes, or of taxes imposed in lieu of
income taxes, paid to foreign countries. If Ampal receives dividends from a
foreign corporation in which it owns 10% or more of the voting stock, in
determining total foreign income taxes paid by Ampal for purposes of the foreign
tax credit, Ampal is treated as having paid the same proportion of the foreign
corporation's post-1986 foreign income taxes as the amount of such dividends
bears to the foreign corporation's post-1986 undistributed earnings.
In general, the total foreign tax credit that Ampal may claim is limited
to the proportion of Ampal's United States income taxes that its foreign source
taxable income bears to its taxable income from all sources, foreign and
domestic. The Internal Revenue Code of 1986, as amended (the "Code"), also
limits the ability of Ampal to offset its United States tax liability with
foreign tax credits by subjecting various types of income to separate
limitations. Source of income and deduction rules may further limit the use of
foreign taxes as an offset against United States tax liability. As a result of
the operation of these rules, Ampal may choose to take a deduction for foreign
taxes in lieu of the foreign tax credit.
Ampal may be subject to the alternative minimum tax ("AMT") on
corporations. Generally, the tax base for the AMT on corporations is the
taxpayer's taxable income increased or decreased by certain adjustments and tax
preferences for the year. The resulting amount, called alternative minimum
taxable income, is then reduced by an exemption amount and subject to tax at a
20% rate. As with the regular tax computation, AMT can be offset by foreign tax
credits (separately calculated under AMT rules and generally limited to 90% of
AMT liability as specially computed for this purpose).
In connection with the transfers in 1992 of its stock in Granite and in
1994 of its stock in Orlite to separate foreign subsidiaries, Ampal entered into
gain recognition agreements with the Internal Revenue Service. Under these
agreements, if either foreign subsidiary sells all or a portion of its stock in
Granite before 2003 or in Orlite before 2005, Ampal generally will be required
to recognize for tax purposes a proportionate amount of gain based upon the fair
market value of the stock sold on the date of the
29
transfer to the foreign subsidiary, and to pay tax due in respect of such gain
together with interest accrued on such tax since the date of the gain
recognition agreement.
ITEM 2. PROPERTY
--------
Ampal subleases 2,825 square feet of office space leased by Hapoalim at
1177 Avenue of the Americas, New York City under a sublease which expires on
August 30, 2009. The base rent, which commenced in September 1994, is $170,000,
subject to escalation. In 1996, Ampal's total payment to Hapoalim in connection
with this lease was $171,247.
Ampal or its subsidiaries leases office space in various locations in the
United States and Israel to Hapoalim and its subsidiaries, pursuant to leases
which will generally expire in the years between 2000 and 2003, in exchange for
total annual rental payments of approximately $3,454,000. Generally, the annual
payments are based upon 10% of the value of the property linked to the CPI.
Other properties of the Company, and the Company's acquisition of a
building located at 800 Second Avenue, New York, New York and the building's
subsequent conversion into an office condominium, are discussed elsewhere in
this Report. See "Business."
ITEM 3. LEGAL PROCEEDINGS
-----------------
In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding in Tel Aviv District Court seeking to cause Etz Vanir and Yakhin
Mataim to redeem the perpetual debentures owned by Ampal for approximately
$700,000 and to require Ampal to surrender all of its preferred shares of Etz
Vanir and Yakhin Mataim for their par value (which is a nominal amount), on the
alleged grounds that the perpetual debentures are debt and not equity
investments. It is Ampal's view that its investments in these companies, which
were made in the 1950's, are equity investments and are not subject to
redemption by these companies, other than upon liquidation. Ampal is contesting
this legal proceeding. A hearing was held in the spring of 1996 though no
judgment has yet been rendered.
For a description of a claim for NIS 2.7 million asserted against Ampal
Financial, see "Real Estate, Finance and Other Holdings - Ampal Development
(Israel) Ltd., Nir Ltd. and Ampal Financial Services Ltd."
For a description of the Israeli Tax Commissioner's position concerning
certain reporting requirements and taxes, see "Certain United States and Israeli
Regulatory Matters - Certain Israeli Real Estate Tax Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On October 3, 1996, at Ampal's Annual Meeting of Shareholders, the
following persons were elected as directors by the following vote:
(i) CLASS A FOR AUTHORITY WITHHELD
------- --- ------------------
H.B. Henshel 16,316,952 97,720
I. Hochberg 16,316,698 97,974
H. Kronish 16,316,039 98,633
E. Sommer 16,317,348 97,324
30
(ii) COMMON/CLASS A FOR AUTHORITY WITHHELD
-------------- --- ------------------
A. Abend 32,659,467 169,877
M. Arnon 32,731,863 97,481
S.I. Batkin 32,731,263 98,081
Y. Elinav 32,725,520 103,824
L. Lefkowitz 32,725,583 103,761
H. Peled 32,731,520 97,824
S. Ravid 32,731,362 97,982
S. Recht 32,731,870 97,474
M.W. Sonnenfeldt 32,725,520 103,824
R. Steinmetz 32,734,020 95,324
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
PRICE RANGE OF CLASS A STOCK
----------------------------
Ampal's Class A Stock is listed on the AMEX under the symbol "AIS.A." The
following table sets forth the high and low sales prices for the Class A Stock,
as reported on the consolidated transaction reporting system for each calendar
quarter during the periods indicated:
HIGH LOW
---- ---
1996:
Fourth Quarter.......................... $ 5 1/8 $ 4 9/16
Third Quarter........................... 5 1/8 4 3/8
Second Quarter.......................... 5 15/16 4 5/8
First Quarter........................... 7 1/8 5 1/8
1995:
Fourth Quarter.......................... 6 1/4 5 1/8
Third Quarter........................... 7 3/16 5 3/4
Second Quarter.......................... 6 7/8 5 5/8
First Quarter........................... 7 1/8 5 1/2
As of March 24, 1997, there were 1,274 record holders of Class A Stock.
Redeemable Warrants to purchase Class A Stock, issued in connection with
Ampal's 1994 public offering, are listed on the AMEX under the symbol "AIS.WS."
The warrants are exercisable until January 31, 1999, but became callable by
Ampal, in whole or in part, on February 1, 1996 without payment to the holder.
As of March 18, 1997, there were no shares of Common Stock outstanding.
VOTING RIGHTS
Unless dividends on any outstanding preferred stock are in arrears for
three successive years as discussed below, the holders of Class A Stock are
entitled to one vote per share on all matters voted upon by shareholders and,
voting as a class, have the right to elect the Class A Directors. The Class A
Directors constitute 25% of the total number of directors. Other than in the
election of Class A Directors, the holders of Common Stock, voting as a class,
are entitled to as many votes as shall equal the number of votes to which the
holders of Class A Stock are entitled, but in no event more than ten votes per
share of Common Stock. Notwithstanding the above, if dividends on any
outstanding series of preferred stock are in arrears for three successive years,
the holders of all outstanding series of preferred stock as to which dividends
are in arrears shall have the exclusive right to vote for the election of
directors until all cumulative dividend arrearages are paid. The shares of
Common Stock and Class A Stock do not have cumulative
31
voting rights, which means that any holder of at least 50% of the Common Stock
can, as long as such person owns at least one share of Class A Stock, can elect
all of the members of Ampal's Board other than the Class A Directors.
As a result of the exchange by Hapoalim, on December 11, 1997, of
3,000,000 shares of Common Stock for 3,000,000 shares of Class A Stock, no
Common Stock is currently outstanding. Therefore, notwithstanding the previous
paragraph, the holders of Class A Stock now elect all the members of Ampal's
Board of Directors. See "Significant Recent Developments Since Beginning of Last
Fiscal Year - Change of Control of Ampal." At the Annual Meeting of Ampal's
shareholders, to be held on May 28, 1997, Ampal's shareholders will be asked to
amend Ampal's Certificate of Incorporation by eliminating the Common Stock, all
references to the Common Stock and the rights of holders of Class A Stock,
voting as a class, to elect 25% of Ampal's directors. As a result, the Class A
Stock will be the only authorized voting stock (unless dividends on outstanding
preferred stock are in arrears for more than three years, as discussed above)
and the distinction between Class A Directors and the remaining directors will
be eliminated.
DIVIDEND POLICY
In 1995, Ampal paid a dividend of $.21 per share on its Class A Stock and
Common Stock. From 1989 through 1994 and in 1996, Ampal did not pay a dividend
on the Class A Stock and Ampal has never paid a dividend on its Common Stock
other than in 1995. Past decisions not to pay cash dividends reflected the
policy of Ampal to apply retained earnings, including funds realized from the
disposition of holdings, to finance its business activities and to redeem
debentures. The payment of cash dividends in the future will depend upon the
Company's operating results, cash flow, working capital requirements and other
factors deemed pertinent by the Board.
Dividends on all classes of Ampal's shares are payable as a percentage of
par value. The holders of Ampal's presently authorized and issued 4% Preferred
Stock and 6 1/2% Preferred Stock (each having a $5.00 par value) are entitled to
receive cumulative dividends at the rates of 4% and 6 1/2% per annum,
respectively, payable out of surplus or net earnings of Ampal before any
dividends are paid on the Common Stock or Class A Stock. If Ampal fails to pay
such dividend on the preferred stock in any calendar year, such deficiency must
be paid in full, without interest, before any dividends may be paid on the Class
A Stock or Common Stock. After the payment of all cumulative dividends on the
preferred stock and a non-cumulative 4% dividend on the Class A Stock, the Board
may, but is not required to, declare dividends out of any remaining surplus or
net earnings of Ampal, which dividends are participated in by the holders of 4%
Preferred Stock and Class A Stock to the extent of an additional 8% each, before
the holders of the Common Stock are entitled to receive any dividends. If after
the payment of the aforesaid dividends on the preferred stock and Class A Stock
there remains any surplus, the Board may, but is not required to, declare
dividends out of any remaining surplus in an amount of up to 12% on the Common
Stock. If, thereafter, there remains any surplus, any dividends declared are to
be participated in by the holders of 4% Preferred Stock, Class A Stock and
Common Stock, pro rata.
RECENT SALES OF UNREGISTERED SECURITIES
On December 11, 1996, Hapoalim and Ampal entered into the Exchange
Agreement pursuant to which Hapoalim exchanged with Ampal all 3,000,000 shares
of Common Stock held by Hapoalim for 3,000,000 shares of Class A Stock. Such
exchange was exempted from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Sections 3(a)(9) and 4(2) of the
Securities Act. See "Significant Developments Since Beginning of Last Fiscal
Year - Change of Control of Ampal."
32
Item 6.
SELECTED FINANCIAL DATA
- -----------------------
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Revenues ........................ $ 44,360 $ 44,713(1) $ 43,745(1) $ 42,679(1) $ 54,149(1)
Net (loss)income ................ (10,252)(2) 2,166(2) 7,334(2) 226(2)(3) 10,324(2)
(Loss) earnings per Class A share $ (.37)(2) $ .08(2) $ .27(2) $ .01(2)(3) $ .44(2)
Total assets .................... 283,551 312,094(1) 301,194(1) 271,124(1) 301,550(1)
Notes, deposits and
debentures payable ............. 102,414 115,881(1) 95,995(1) 124,745(1) 149,922(1)
Dividends declared per
Class A share .................. -- $ .21 -- -- --
(1) Restated to reflect Pri Ha'emek (Canned and Frozen Food) 88 Ltd. as a
discontinued operation.
(2) Includes (loss) income from discontinued operations, as follows:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Loss) income from discontinued
operations $(2,892) $(4,315) $ 969 $ (214) $ 684
(Loss) earnings per Class A
share from discontinued
operations $ (.10) $ (.15) $ .04 $ (.01) $ .03
(3) Includes cumulative effect on prior years of change in accounting principle
of $(4,982), equal to $(.21) per share.
33
Items 7 & 8.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
- -------
The "Company" (refers to Ampal-American Israel Corporation ("Ampal"), and its
consolidated subsidiaries) acquires interests in businesses located in the State
of Israel or that are Israel-related. An important objective of Ampal is to make
investments in companies that take advantage of growth in Israel's domestic
economy. The Company has diversified interests in the following sectors: high
technology and communications, hotels and leisure-time, real estate, finance,
energy distribution and basic industry. The Company generally seeks to acquire
and maintain a sufficient equity interest in a company to permit it, on its own
or with investment partners, to have influence in the management and operation
of that company. In determining whether to acquire an interest in a specific
company, the Company considers quality of management, qualifications of
investment partners, potential return on investment, projected cash flow, market
share and growth potential.
The Company emphasizes long-term appreciation over short-term returns and
liquidity. The Company often makes equity investments accompanied by more
significant loans or loan guarantees with the intention that cash flow from
operations of the investee companies will repay these loans.
The Company's results of operations are directly affected by the results of
operations of its investees. The results of companies which are greater than
50%-owned are included in the consolidated financial statements of the Company.
The Company accounts for its holdings in investees over which the Company
exercises significant influence, generally 20%- to 50%-owned companies
("affiliates"), under the equity method. Under the equity method, the Company
recognizes its proportionate share of such companies' income based on its
percentage of direct and indirect equity interests in earnings of those
companies. If the Company's interest in a subsidiary were to be reduced to
20%-50%, the investment would be recorded under the equity method. The Company's
results of operations are affected by capital transactions of the affiliates.
Thus, the issuance of shares by an affiliate at a price per share above the
Company's carrying value per share for such affiliate results in the Company
recognizing income for the period in which such issuance is made, while the
issuance of shares by such affiliate at a price per share that is below the
Company's carrying value per share for such affiliate results in the Company
recognizing a loss for the period in which such issuance is made. The Company
accounts for its holdings in investees, other than those described above, on the
cost method or in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
A comparison of the Company's financial statements from year to year must be
considered in light of the Company's acquisitions and divestitures during each
period.
The Company's effective tax rates have been, and in the future may be, above
United States statutory rates, in part, because of taxes paid in foreign
jurisdictions by investees for which Ampal does not fully receive tax credits in
the United States.
For those subsidiaries and affiliates whose functional currency is considered to
be the New Israeli Shekel ("NIS"), assets and liabilities are translated at the
rate of exchange at the end of the reporting period and revenues and expenses
are translated at the average rates of exchange during the reporting period.
Translation differences of those foreign companies' financial statements are
included in the cumulative translation adjustment account of shareholders'
equity.
Should the NIS be devalued against the dollar, cumulative translation
adjustments are likely to result in reductions of shareholders' equity. As of
December 31, 1996, the effect on shareholders' equity was a decrease of
approximately $6.5 million. Upon
34
disposition of an investment, the related cumulative translation adjustment
balance will be recognized in determining gains or losses.
DISCONTINUED OPERATIONS
- -----------------------
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), which was the
Company's 58.5%-owned food processing subsidiary, initiated a recovery plan at
the end of 1995, and recorded further losses in 1996. Its food processing
revenues decreased in 1996 as a result of decreased sales volume in the domestic
market. Food processing expenses increased in 1996 due to the increases in labor
costs and costs of raw materials, which were linked to the increases in the
Consumer Price Index in Israel ("CPI"), decreased labor productivity and a
reduction of discounts from suppliers. Therefore, on December 23, 1996, the
Company sold all of its equity interest in Pri Ha'emek to Agrifarm International
Limited ("Agrifarm"), a British company. Accordingly, the results of Pri
Ha'emek, whose financial statements were previously consolidated with the
Company's financial statements, have been presented as discontinued operations
in the Company's 1996 consolidated financial statements. The Company's 1995 and
1994 consolidated financial statements have been restated to conform with the
current year's presentation. In connection with the sale, the Company recorded a
loss on disposition of $3.2 million and a tax benefit of $3.9 million which was
based on a total loss of its investment in Pri Ha'emek in the amount of $9.7
million. In 1995 and 1994 Pri Ha'emek generated revenues in the amounts of $31.4
million and $34.1 million, respectively.
RESULTS OF OPERATIONS
- ---------------------
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
- ---------------------------------------------------------------------
Consolidated income from continuing operations decreased from $6.5 million for
the year ended December 31, 1995, to a loss of $7.4 million for the same period
in 1996. The decrease in income in 1996 resulted primarily from the loss
recorded with respect to the impairment of the Company's investment in M.D.F.
Industries Ltd. ("M.D.F."), decreases in equity in earnings of affiliates,
unrealized losses on investments, losses incurred by the Company's manufacturing
subsidiary Paradise Industries Ltd. ("Paradise"), higher net interest expense
and an unrealized loss on rental property. These decreases were partially offset
by an increase in net rental income.
M.D.F., the Company's 50%-owned affiliate, which has established a plant in
Israel for the production of medium density fiber boards, and which completed
its running-in period on June 30, 1996, incurred significant losses in 1996. The
losses are primarily attributable to the excess of cost of sales per production
unit over the selling price. M.D.F.'s sales prices were affected by the decrease
in worldwide prices of all wood-connected products, and to the establishment of
nearly 30 new plants for the production of medium density fiber boards
throughout the world. In view of the substantial losses incurred by M.D.F. and
the continuing depressed prices with respect to its products, the Company
believes that further substantial losses will be incurred by M.D.F.
Consequently, because of the uncertainty with respect to M.D.F.'s future
operations, the Company has recorded a loss from impairment of this investment
in December 1996 for its full remaining investment in and loans to M.D.F. in the
amount of $8.8 million. This loss, in addition to the $1.3 million loss
previously recorded by the Company in 1996 with respect to M.D.F., resulted in a
total loss attributable to the operations of M.D.F. in the amount of $8.6
million, net of tax benefits. M.D.F. will no longer be accounted for as an
affiliate of the Company under the equity method of accounting; however, the
Company continues to be contingently liable with respect to $5 million of
guarantees given by the Company with respect to M.D.F.'s bank obligations. At
Ampal's initiative, the Board of Directors of M.D.F. has approved hiring
consultants to study the operations and marketing of the company to determine if
a recovery plan can be implemented. In addition, the owner of the other 50%
interest in M.D.F. has agreed to provide additional funds in the amount of up to
$2 million to M.D.F., if required for M.D.F. to meet its obligations.
Equity in earnings of affiliates decreased from $7.4 million for the year ended
December 31, 1995, to $6.3 million for the same period in 1996. The decrease is
primarily attributable to losses recorded by the Company's 50%-owned affiliate,
Coral World International Limited ("CWI"). On September 27, 1996, a wholly-owned
subsidiary of CWI sold its marine park in Nassau (Bahamas) to an unrelated party
for $3.75 million and CWI recorded a loss on sale of approximately $5 million
(the Company's share is $2.5 million,
35
$1.7 million net of taxes). In addition, in May 1996, CWI's management made a
decision to sell its marine park in St. Thomas (U.S. Virgin Islands), and CWI
recorded a loss of approximately $2 million (the Company's share is $1 million,
$.7 million net of taxes) to adjust the carrying value of its investment to net
realizable value.
Moriah Hotels Ltd. ("Moriah"), the Company's 46%-owned affiliate, which is one
of the largest hotel chains in Israel, recorded lower earnings in 1996 primarily
because its Tel Aviv hotel was closed for renovations for part of the period.
Moriah also experienced decreases in room rates which resulted from the decrease
in tourism to Israel in 1996. The Tel Aviv hotel, which has undergone a $16
million renovation, of which $4 million is to be provided by the landlord,
partially reopened in April 1996, and its renovations were completed in the
fourth quarter of 1996.
The decreases noted above were partially offset by the increased earnings
recorded by the Company's 50%-owned affiliate, Trinet Venture Capital Ltd.
("Trinet"), a high technology venture capital fund, which recorded unrealized
gains on its investments in Smart-Link Ltd. ("Smart-Link"), Imagenet Ltd.
("Imagenet") and Logal Software and Educational Systems Ltd. ("Logal").
Smart-Link, which is engaged in development of products in the field of
multimedia and computers, issued 27.3% of its shares to various investors for $3
million in November 1996. Imagenet, which develops and markets computer-aided
network engineering software products, completed a $2.5 million private
placement for 26.7% of its shares in June 1996. Logal, which markets
computerized educational systems for learning sciences in high schools and
colleges, completed a $13 million public offering in February 1996 in the United
States. In addition, Ophir Holdings Ltd. ("Ophir") the Company's 42.5%-owned
affiliate, reported improved results in 1996 which are primarily attributable to
gains it recorded with respect to the initial public offering conducted by its
affiliate, Memco Software, Ltd. on October 17, 1996, and to the increased
earnings of its affiliate, Teledata Communication Ltd. ("Teledata"). Teledata's
earnings improved as a result of increased sales, mainly because of its more
successful marketing efforts.
Manufacturing revenues and expenses reflect the operations of Paradise, the
Company's 85.1%-owned subsidiary, which is a leading manufacturer and
distributor of mattresses and fold-out beds in Israel. Paradise recorded losses
in 1996, primarily in the third quarter, because of increased advertising and
promotional expenses in connection with a new marketing program.
Interest income decreased in 1996 primarily as a result of lower balances of
interest-earning assets and lower interest rates in 1996. Interest expense
increased in 1996 mainly because of debt incurred in connection with the
purchase of an office building ("800 Second Avenue") located in New York City.
On June 28, 1995, the Company's 94%-owned subsidiary purchased 800 Second Avenue
for approximately $45 million. The approximately 290,000 rentable square-foot
office building houses the Consulate of the Government of Israel (the
"Government") in New York and other Israeli government offices as well as other
tenants. The property was converted into a condominium in December 1996. On
January 31, 1997, the Company sold to the Government the portion of the building
which it occupies for $31 million. As a result of this transaction, the Company
recorded a loss of $1.1 million ($.6 million net of taxes) in its December 31,
1996 financial statements.
The increases in rental income and rental property expenses are attributable to
the operations of 800 Second Avenue.
The Company recorded $.6 million of unrealized losses and $.3 million of
unrealized gains on marketable securities and $2 million and $1.9 million of
gains on sale of investments in the years ended December 31, 1996 and 1995,
respectively. The realized gains recorded in 1996 were mainly attributable to
the Company's investments in Teledata and M-Systems Flash Disk Pioneers Ltd.
("M-Systems"), whereas the gains recorded in 1995 were mainly attributed to the
Company's investment in Mercury Interactive Corporation ("Mercury"). Unrealized
losses in 1996 were attributed to the Company's investments in Idan Software
Industries I.S.I., Ltd. ("Idan")and in Mercury.
The change in the effective income tax rate in 1996 is mainly attributable to
the losses of certain Israeli subsidiaries and affiliates (including M.D.F.)
from which no tax benefits are available.
36
RESULTS OF OPERATIONS
- ---------------------
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
- ---------------------------------------------------------------------
Consolidated income from continuing operations increased from $6.4 million for
the year ended December 31, 1994, to $6.5 million for the year ended December
31, 1995. The increase in net income resulted primarily from an increase in net
rental income and equity in earnings of affiliates in 1995 which were offset by
lower realized and unrealized gains on investments.
Equity in earnings of affiliates increased for the year ended December 31, 1995,
as compared to the same period in 1994. The earnings of Ophir increased in 1995
because of realized gains recorded on its investment in DSP Communications, Inc.
as well as decreased interest expense on its CPI-linked bank borrowings in 1995
due to the lower rate of increase in the CPI in Israel. In 1995, the Company
recorded its share of earnings of its then 49%-owned affiliate, Bank Hapoalim
(Cayman) Ltd. ("Cayman") through the date of sale of Cayman, whereas in 1994 the
Company recorded its share of losses of Cayman, mainly because Cayman recorded
unrealized losses on its marketable securities. Bay Heart Limited, the Company's
37%-owned affiliate which owns and operates a shopping mall near Haifa, reported
improved results in 1995 mainly because of lower interest expense on its
CPI-linked borrowings in 1995 due to the lower rate of increase in the CPI in
Israel. Carmel Container Systems Limited ("Carmel"), the Company's 20.4%-owned
affiliate, which is a manufacturer of paper-based packaging, also reported
higher earnings in 1995 because of increased sales volume and selling prices
which were adjusted for the continuing increase in the price of paper on
international markets in 1995. At the same time, Carmel's gross profit increased
due to greater efficiency and improvements originating from investments in
equipment as well as the renovation of production lines at its plants. Am-Hal
Ltd., the Company's 50%-owned affiliate which operates a luxury senior citizens
center in Rishon Lezion, recorded higher earnings in 1995 resulting from a
higher occupancy rate which reached 100% in 1995 and a decrease in finance
expenses resulting from loan repayments. These increases were partially offset
by the decrease in the 1995 earnings of Granite Hacarmel Investments Limited
("Granite"), the Company's 21.3%-owned affiliate, because of decreased income
from dividends, higher financing expenses, and increased provision for taxes
which resulted from the unavailability of tax benefits in 1995 which were
available in 1994. In addition, equity in earnings of affiliates was also
affected by the Company's share of losses recorded by Teledata as a result of
decreases in its sales prices because of increased competition, losses incurred
by a marine park in Nassau (Bahamas) which is owned by the Company's 50%-owned
affiliate, CWI, and losses recorded by the Company's start-up affiliates.
Interest income from related parties and interest expense to others decreased as
a result of the lower rate of the CPI in 1995 and because of the repayments of
deposits, notes and loans receivable and scheduled debenture redemptions.
The increases in rental income and rental property operating expenses are
attributable to the operations of 800 Second Avenue.
The Company recorded $.3 million and $2.4 million of unrealized gains on
marketable securities and $1.9 million and $3.1 million of gains on sale of
investments in the years ended December 31, 1995 and 1994, respectively. These
gains were mainly attributed to the Company's investments in DSP Group, Inc.
("DSP Group") and Mercury. In addition, on August 15, 1995, Ampal sold all of
its Ordinary Shares and 7% Preferred Shares of Cayman, which constituted 49% and
50% of each series, respectively, to Bank Hapoalim B.M. ("Hapoalim"). The sales
price was approximately $20.3 million and the Company recorded a gain on sale of
approximately $.4 million ($.2 million, net of taxes). The Company obtained an
opinion from an independent investment consultant that the consideration
received in the sale was fair to the Company. The aggregate fair value of
trading securities amounted to approximately $3.3 million and $7.1 million at
December 31, 1995 and 1994, respectively.
On November 6, 1995, Ampal sold its property located at 174 North Michigan
Avenue, Chicago, Illinois to an unrelated party for $.85 million. In connection
therewith, Ampal received $.55 million from Hapoalim and Ampal, as landlord, and
Hapoalim, as tenant, released each other from their respective obligations under
a lease which was scheduled to
37
expire in 2007. Ampal obtained an opinion from an independent real estate
consultant that the consideration received from Hapoalim was fair to Ampal. The
Company recorded a total gain of approximately $.5 million ($.3 million, net of
taxes).
The increase in the effective income tax rate from 43% in 1994 to 48% in 1995 is
attributable to changes in the components of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1996, cash and cash equivalents were $9.7 million as compared
with $16 million at December 31, 1995. In addition, Ampal had approximately $25
million of highly liquid interest-bearing securities included in the investments
caption at December 31, 1996, as compared with $34 million at December 31, 1995.
The decrease in cash and cash equivalents and short-term investments is
primarily related to the scheduled redemptions of debentures, additional
investments, including $1.5 million indirectly invested in Geotek
Communications, Inc., an international wireless telecommunications company, and
an additional investment made in Pri Ha'emek in the amount of $4.5 million.
These cash outflows were partially offset by the scheduled repayments of
deposits, notes and loans receivable.
As of December 31, 1996, the Company had issued guarantees on certain
outstanding loans to its investees and subsidiaries in the aggregate principal
amount of $17.1 million, and has commitments issued to its investees of up to
$14.7 million.
In 1996 Ampal paid dividends in the amount of $.20 and $.325 per share on its 4%
and 6-1/2% Preferred Stock. In 1995, Ampal paid dividends on its Class A Stock
and Common Stock in the amount of $.21 per share, and $1.05 and $.325 per share
on its 4% and 6-1/2% Preferred Stock, respectively. Total dividends paid in 1996
amounted to $.4 million as compared with 1995 dividends of $5.6 million.
CHANGE OF CONTROL OF AMPAL
- --------------------------
On June 6, 1996, Hapoalim completed the sale of 5,742,351 shares of Ampal's
Class A Stock (equal to 27.9% of the outstanding Class A Stock as of that date,
not assuming conversion of Hapoalim's Preferred Stock) at a price of $7.87 per
share to Rebar Financial Corp. ("Rebar"), a company controlled by the Steinmetz
family. This sale of shares was made within the framework of the reduction of
the non-banking holdings of Hapoalim according to the Banking (Licensing) Law in
effect in Israel, which required Hapoalim to sell non-banking holdings in excess
of 25% by the end of 1996. Furthermore, on December 11, 1996, Hapoalim delivered
to Rebar an additional 1,500,001 shares of Ampal's Class A Stock.
Hapoalim continues to hold 5,874,281 shares of Ampal's Class A Stock (equal to
24.8% of the outstanding Class A Stock as of December 31, 1996, without assuming
conversion of shares of Ampal's Preferred Stock owned by Hapoalim). As of
December 31, 1996, Rebar held 7,391,952 shares of Ampal's Class A Stock (equal
to 31.25% of the outstanding shares of Class A Stock).
Also, on December 11, 1996, but prior to the sale of shares referred to above,
Hapoalim and Ampal entered into an exchange agreement pursuant to which Hapoalim
and Ampal exchanged all 3,000,000 shares of Ampal's Common Stock owned by
Hapoalim for 3,000,000 shares of Ampal's Class A Stock. Ampal's Board had formed
a "Special Committee" consisting of five outside directors to consider
Hapoalim's request to (i) equalize the voting rights of the Common Stock with
the voting rights of the Class A Stock, and (ii) compensate Hapoalim for the
reduction in its voting rights which would result from such equalization. The
Special Committee was authorized to negotiate, approve or disapprove any such
transaction on Ampal's behalf. The Special Committee retained independent
counsel and an independent investment bank to advise it in connection with
Hapoalim's proposal. The Special Committee unanimously approved the exchange
transaction and recommended that Ampal's Board also approve such transaction and
take all actions appropriate to effectuate it. Ampal's Board approved the
exchange transaction and the exchange agreement by the unanimous vote of all
directors then present and voting at a meeting held on December 11, 1996.
In the exchange agreement, Ampal agreed to recommend to its shareholders that
they vote their shares at the next meeting of Ampal's shareholders in favor of
an amendment to the
38
Certificate of Incorporation ("Certificate") to provide for the removal and
elimination of the Common Stock from Ampal's authorized shares and the
cancellation of any reference to the Common Stock in Ampal's Certificate. In
addition, Ampal agreed that until its Certificate is amended as provided above,
Ampal will not reissue, resell, transfer, distribute or take any other action
with respect to any or all of the Common Stock. Furthermore, until the later of
such time as the Certificate is amended as so provided or such time as
Hapoalim's interest in Ampal, whether directly or through subsidiaries of
Hapoalim, is less than 10% of all the outstanding shares of the Class A Stock,
Ampal will not issue any class of equity security with voting rights that are
preferential to the voting rights of the Class A Stock, other than preferred
stock that has customary voting rights with respect to the election of members
of the Board only in the event of the non-payment of preferential dividends. On
March 27,1997, the Board of Directors of Ampal authorized the submission to the
shareholders of a proposal to eliminate the Common Stock from Ampal's
capitalization at the next annual meeting to be held May 28, 1997.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of outstanding Common Stock) and 10,500,991 shares (assuming conversion of
shares of Ampal's Preferred Stock owned by Hapoalim) of Ampal's Class A Stock
(representing 50.2% of the outstanding Class A Stock). As the holder of all the
outstanding Common Stock, as to matters submitted to the vote of the
shareholders of Ampal (including the election of directors other than 25% of the
Board for whom only holders of Class A Stock could vote), Hapoalim was entitled
to cast a number of votes equal to the total number of votes cast by the holders
of Class A Stock, but, in no event, more than ten votes per share of Common
Stock. Thus, before the exchange of Hapoalim's Common Stock for Class A Stock,
as described above, Hapoalim had the power to elect at least approximately 75%
of Ampal's directors.
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Ampal-American Israel Corporation:
We have audited the accompanying consolidated balance sheets of Ampal-American
Israel Corporation (a New York Corporation) and subsidiaries (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of certain consolidated subsidiaries, which statements
reflect assets and revenues of 43% and 44%, respectively, in 1996, 38% and 35%,
respectively, in 1995, and revenues of 49% in 1994, of the related consolidated
totals. Also, we did not audit the financial statements of certain affiliated
companies, the investments in which are reflected in the accompanying financial
statements using the equity method of accounting, or the financial statements of
a discontinued operation. The Company's equity in net earnings (loss) of these
affiliated companies and the (loss) income from discontinued operations in 1995
and 1994 represents $10,443,000, $4,376,000, and $5,305,000 of consolidated net
income (loss) for the years ended December 31, 1996, 1995 and 1994,
respectively. The statements of these subsidiaries, affiliated companies and
discontinued operation were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Ampal-American Israel Corporation and subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and cash
flows for each of the three years in period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1997
40
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) (Note 2) (Note 2)
REVENUES:
Equity in earnings of affiliates (Note 10) .... $ 6,333 $ 7,424 $ 5,793
Manufacturing ................................. 10,891 10,159 9,624
Interest:
Related parties .............................. 9,918 10,811 15,766
Others ....................................... 1,956 3,629 1,713
Rental income ................................. 11,663 7,793 3,139
Realized and unrealized gains on investments
(Notes 1(d) and 3) ........................... 1,342 2,193 5,525
Gain on sale of real estate rental property
(Note 3) ..................................... -- 526 --
Other ......................................... 2,257 2,178 2,185
-------- -------- --------
Total revenues ........................... 44,360 44,713 43,745
-------- -------- --------
EXPENSES:
Manufacturing ................................. 12,027 9,436 8,898
Interest:
Related parties .............................. 3,918 3,108 2,878
Others ....................................... 10,163 9,813 13,356
Rental property operating expenses ............ 5,670 2,886 507
Loss from impairment of investment (Note 10(c)) 10,083 -- --
Unrealized loss on rental property (Note 3) ... 1,095 -- --
Other ......................................... 6,865 7,122 6,950
-------- -------- --------
Total expenses ........................... 49,821 32,365 32,589
-------- -------- --------
(Loss) income from continuing operations
before income taxes .......................... (5,461) 12,348 11,156
Income taxes (Note 9) ......................... 1,899 5,867 4,791
-------- -------- --------
(Loss) income from continuing operations ...... (7,360) 6,481 6,365
-------- -------- --------
Discontinued operations (Note 2):
Loss from operations ......................... (3,610) (4,315) (576)
Gain on issuance, net of taxes ............... -- -- 1,545
Loss on disposition of $3,169, net of
applicable tax benefit of $3,887 ............ 718 -- --
-------- -------- --------
(Loss) income from discontinued operations .... (2,892) (4,315) 969
-------- -------- --------
NET (LOSS) INCOME ........................ $(10,252) $ 2,166 $ 7,334
======== ======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing operations ... $ (.27) $ .23 $ .23
(Loss) earnings from discontinued operations . (.10) (.15) .04
-------- -------- --------
(Loss) earnings per Class A share (Note 8) .... $ (.37) $ .08 $ .27
======== ======== ========
Weighted average number of Class A and
equivalent shares outstanding (in thousands) . 24,844 24,980 24,526
Dividends per Class A share ................... $ -- $ .21 $ --
The accompanying notes are an integral part of the consolidated financial
statements.
41
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, DECEMBER 31,
ASSETS AS AT 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2)
Cash and cash equivalents .............................. $ 9,685 $ 15,976
Deposits, notes and loans receivable (Note 4) .......... 57,041 73,935
Investments (Notes 3 and 10) ........................... 134,032 142,583
Real estate rental property, less accumulated
depreciation of $6,215 and $4,994 (Note 3) ............ 58,199 57,289
Property and equipment, less accumulated
depreciation of $4,041 and $3,731 ..................... 5,571 6,097
Other assets ........................................... 19,023 13,636
Net assets of discontinued operations (Note 2) ......... -- 2,578
-------- --------
TOTAL ASSETS ........................................... $283,551 $312,094
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
42
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND December 31, DECEMBER 31,
SHAREHOLDERS' EQUITY AS AT 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2)
LIABILITIES
Notes and loans payable: (Note 5)
Related parties ........................................ $ 34,005 $ 37,326
Others ................................................. 10,538 4,177
Debentures (Note 6) ...................................... 57,871 74,378
Accounts and income taxes payable, accrued
expenses and minority interests ......................... 29,017 31,798
--------- ---------
Total liabilities ................................ 131,431 147,679
--------- ---------
SHAREHOLDERS' EQUITY (Notes 7 and 14)
4% Cumulative, Participating, Convertible
Preferred Stock, $5 par value; authorized
650,000 shares; issued and outstanding
190,936 and 199,030 shares .............................. 955 995
6-1/2% Cumulative, Convertible Preferred Stock,
$5 par value; authorized 4,282,850 shares;
issued and outstanding 1,002,483 and 1,052,599
shares .................................................. 5,012 5,263
Class A Stock, $1 par value; authorized 60,000,000 shares;
issued 24,256,420 and 21,065,392 shares; outstanding
23,651,020 and 20,459,992 shares ........................ 24,257 21,066
Common Stock, $1 par value; authorized, 3,000,000
shares, issued and outstanding
3,000,000 shares in 1995 ................................ -- 3,000
Additional paid-in capital ............................... 57,410 57,310
Retained earnings ........................................ 74,943 85,559
Treasury Stock, 605,400 shares of Class A Stock,
at cost ................................................. (3,829) (3,829)
Cumulative translation adjustments ....................... (6,530) (4,354)
Unrealized loss on marketable securities ................. (98) (595)
--------- ---------
Total shareholders' equity ....................... 152,120 164,415
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 283,551 $ 312,094
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
43
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2) (Note 2)
Cash flows from operating activities:
Net (loss) income ............................ $(10,252) $ 2,166 $ 7,334
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of affiliates ............ (6,333) (7,424) (5,793)
Loss (income) from discontinued operations .. 2,892 4,315 (969)
Gain on issuance of shares by affiliate ..... -- -- (351)
Realized and unrealized gains on investments (1,342) (2,193) (5,525)
Gain on sale of real estate rental property . -- (526) --
Unrealized loss on rental property .......... 1,095 -- --
Depreciation expense ........................ 2,038 1,627 1,318
Amortization expense ........................ 3,587 4,446 5,014
Loss from impairment of equity investment ... 10,083 -- --
Minority interests .......................... (551) (298) (471)
(Increase) decrease in other assets .......... (3,158) (1,331) 1,759
(Decrease) increase in accounts and income
taxes payable, accrued expenses and minority
interests ................................... (232) (2,371) 1,688
Investments made in trading securities ....... (2,391) (6,403) (2,099)
Proceeds from sale of trading securities ..... 3,254 13,379 3,012
Dividends received from affiliates ........... 1,806 4,898 4,767
-------- -------- --------
Net cash provided by operating activities ... 496 10,285 9,684
-------- -------- --------
Cash flows from investing activities:
Deposits, notes and loans receivable collected 17,546 26,958 40,215
Deposits, notes and loans receivable granted . (2,046) (5,426) (8,736)
Investments made in:
Available-for-sale securities ............... (228) (1,369) --
Affiliates and others ....................... (11,497) (34,143) (24,604)
Proceeds from sale of investments:
Affiliates and others ....................... 13,744 26,633 4,715
Purchase of property and equipment ........... (380) (499) (592)
Purchase of real estate rental property ...... (2,475) (45,408) --
Proceeds from sale of real estate rental
property .................................... -- 1,426 --
-------- -------- --------
Net cash provided by (used in) investing
activities ................................. 14,664 (31,828) 10,998
-------- -------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
44
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands) (Note 2) (Note 2)
Cash flows from financing activities: Notes and
loans payable received:
Related parties ............................. $ 2,187 $ 30,892 $ 332
Others ...................................... 8,201 1,056 669
Notes and loans payable repaid:
Related parties ............................. (4,866) (5,890) (17,234)
Others ...................................... (1,950) (958) (2,177)
Debentures repaid ............................ (22,180) (10,909) (20,486)
Proceeds from issuance of shares to minority
interests ................................... -- 50 --
Proceeds from issuance of shares ............. -- -- 50,724
Dividends paid ............................... (364) (5,614) (406)
Purchase of treasury shares .................. -- (3,829) --
-------- -------- --------
Net cash (used in) provided by financing
activities ................................. (18,972) 4,798 11,422
-------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................. (2,479) (1,275) (1,270)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents .................................. (6,291) (18,020) 30,834
Cash and cash equivalents at beginning of year 15,976 33,996 3,162
-------- -------- --------
Cash and cash equivalents at end of year ...... $ 9,685 $ 15,976 $ 33,996
======== ======== ========
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year:
Interest:
Related parties ............................. $ 2,384 $ 1,611 $ 871
Others ...................................... 3,309 3,084 4,380
-------- -------- --------
Total interest paid ....................... $ 5,693 $ 4,695 $ 5,251
======== ======== ========
Income taxes paid ........................... $ 3,729 $ 6,903 $ 1,878
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
45
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------
(Dollars in thousands, except share amounts and per share data)
4% PREFERRED STOCK
Balance, beginning of year .......................... $ 995 $ 1,033 $ 1,068
Conversion of 8,094, 7,578 and 7,112 shares
into Class A Stock ................................. (40) (38) (35)
-------- -------- --------
Balance, end of year ................................ $ 955 $ 995 $ 1,033
======== ======== ========
6-1/2% PREFERRED STOCK
Balance, beginning of year .......................... $ 5,263 $ 5,575 $ 6,011
Conversion of 50,116, 62,328 and 87,415 shares
into Class A Stock ................................. (251) (312) (436)
-------- -------- --------
Balance, end of year ................................ $ 5,012 $ 5,263 $ 5,575
======== ======== ========
CLASS A STOCK
Balance, beginning of year .......................... $ 21,066 $ 20,841 $ 16,225
Issuance of shares upon exchange of Common Stock .... 3,000 -- --
Issuance of shares upon conversion of
Preferred Stock .................................... 191 225 298
Issuance of shares in a public offering* ............ -- -- 4,318
-------- -------- --------
Balance, end of year ................................ $ 24,257 $ 21,066 $ 20,841
======== ======== ========
COMMON STOCK
Balance, beginning of year .......................... $ 3,000 $ 3,000 $ 3,000
Exchange for Class A Stock .......................... (3,000) -- --
-------- -------- --------
Balance, end of year ................................ $ -- $ 3,000 $ 3,000
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year .......................... $ 57,310 $ 57,185 $ 10,605
Conversion of Preferred Stock ....................... 100 125 173
Proceeds from issuance of shares in a public
offering ........................................... -- -- 46,407
-------- -------- --------
Balance, end of year ................................ $ 57,410 $ 57,310 $ 57,185
======== ======== ========
RETAINED EARNINGS
Balance, beginning of year .......................... $ 85,559 $ 89,007 $ 82,079
Net (loss) income ................................... (10,252) 2,166 7,334
Dividends:
4% Preferred Stock - $.20, $1.05 and $.20 per share (38) (209) (42)
6-1/2% Preferred Stock - $.325 per share .......... (326) (351) (364)
Class A Stock - $.21 per share .................... -- (4,424) --
Common Stock - $.21 per share ..................... -- (630) --
-------- -------- --------
Balance, end of year ................................ $ 74,943 $ 85,559 $ 89,007
======== ======== ========
TREASURY STOCK (Note 7)
Balance, beginning of year .......................... $ (3,829) $ -- $ --
Purchase of 605,400 shares of Class A Stock
at cost ............................................ -- (3,829) --
-------- -------- --------
Balance, end of year ................................ $ (3,829) $ (3,829) $ --
======== ======== ========
* Issuance of 4,500,000 shares, including 182,066 held in treasury.
46
The accompanying notes are an integral part of the consolidated financial
statements.
47
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands, except share amounts and per share data)
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year .................. $(4,354) $(2,636) $(2,171)
Foreign currency translation adjustment ..... (2,176) (1,718) (465)
------- ------- -------
Balance, end of year ........................ $(6,530) $(4,354) $(2,636)
======= ======= =======
UNREALIZED LOSS ON MARKETABLE SECURITIES
Balance, beginning of year .................. $ (595) $ (511) $ 4,300**
Transfer to trading securities .............. 67 -- (3,800)
Write-down due to permanent impairment ...... 511 -- --
Unrealized loss, net ........................ (81) (84) (1,011)
------- ------- -------
Balance, end of year ........................ $ (98) $ (595) $ (511)
======= ======= =======
** Represents cumulative effect of adoption of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
The accompanying notes are an integral part of the consolidated financial
statements.
48
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
Note 1 - Summary of Significant Accounting Policies
(a) The Company
As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated subsidiaries. A
substantial portion of the Company's operations involves transactions with Bank
Hapoalim B.M. ("Hapoalim") and companies affiliated or related thereto.
Hapoalim, the largest bank in Israel, and its wholly-owned subsidiary, Atad
Hevra Lehashkaot Limited ("Atad"), were Ampal's controlling shareholders through
December 11, 1996. (See Note 14). At December 31, 1996, Hapoalim and Atad owned
24.8% of Ampal's outstanding Class A Stock.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Consolidation
The consolidated financial statements include the accounts of Ampal and its
subsidiaries. Certain prior year amounts have been reclassified to conform with
the current year's presentation.
Investments in which the Company exercises significant influence, generally
20%-to 50%-owned companies ("affiliates"), are accounted for by the equity
method, whereby the Company recognizes its proportionate share of such
companies' net income or loss. Goodwill, representing the excess of the purchase
price over the fair value of the net assets of the acquired entities, is being
amortized on a straight-line basis over the period of expected benefit of ten
years.
(c) Translation of Foreign Currencies
For those subsidiaries and affiliates whose functional currency is
considered to be the New Israeli Shekel, assets and liabilities were translated
at the rate of exchange at the end of the reporting period and revenues and
expenses were translated at the average rates of exchange during the reporting
period. Translation differences of those foreign companies' financial statements
are included in the cumulative translation adjustment account of shareholders'
equity.
Assets and liabilities of foreign subsidiaries and companies accounted for
by the equity method whose functional currency is the U.S. dollar are translated
using year-end rates of exchange, except for property and equipment and certain
investment and equity accounts which are translated at rates of exchange
prevailing on the dates of acquisition. Revenues and expenses are translated at
average rates of exchange during the year except for revenue and expense items
relating to assets translated at historical rates which are translated on the
same basis as the related asset. Translation gains and losses for these
companies are reflected in the consolidated statement of income.
(d) Investments
The Company applies the principles of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities,"
49
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which requires that marketable equity securities, other than equity securities
accounted for by the equity method, be reported at fair value. For those
securities which are classified as trading securities, unrealized gains and
losses are reported in the statement of income. Unrealized gains and losses from
those securities which are classified as available-for-sale are reported as a
separate component of shareholders' equity. At December 31, 1996 and 1995, the
aggregate fair values of available-for-sale securities were $1.4 million
(cost-$2.1 million) and $2.6 million (cost-$3.1 million), respectively, and the
aggregate fair values of trading securities were $4.5 million (cost- $3.5
million) and $3.2 million (cost-$2.2 million), respectively.
In the years ended December 31, 1996, 1995 and 1994, the Company recorded
$(.6) million, $.3 million and $2.4 million of unrealized (losses) gains,
respectively, on marketable securities in the statement of income. In 1996 and
1994, included in those amounts were gross (losses) gains of $(.1) million and
$4.6 million, respectively, on trading securities, and $(.5) million and $(2.2)
million, respectively, on available-for-sale securities where the impairment in
value is other than temporary.
In 1994, the Company's then 49%-owned affiliate, Bank Hapoalim (Cayman)
Ltd., recorded an unrealized loss on marketable securities, the Company's share
of which was approximately $.8 million, which resulted from the transfer of
securities from the available-for-sale category to the trading security
category.
During 1996, 1995 and 1994, the Company invested approximately $2.4
million, $6.4 million and $2.1 million in marketable securities, which are
classified as trading securities.
(e) Property and Equipment
The Company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful life of the related assets. In accordance
with Statement of Financial Accounting Standards No. 121 ("SFAS No. 121")
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of.", these assets are reviewed on a quarterly and annual basis for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be reasonable. Furthermore, the assets
are evaluated for continuing value and proper useful lives by comparison to
expected future cash flows. For the year ended December 31, 1996, the adoption
of SFAS No. 121 did not have a material effect on the Company.
(f) Income Taxes
The Company applies the deferred method of accounting for income taxes
whereby deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
financial statements carrying amounts and the tax bases of existing assets and
liabilities.
Deferred income taxes are not provided on undistributed earnings of foreign
subsidiaries totalling approximately $33 million, since such earnings are
currently expected to be permanently reinvested outside the United States. If
the earnings were not considered permanently invested, approximately $11 million
of deferred income taxes would have been provided. Deferred income taxes are
provided on equity in earnings of affiliates, and gains on issuances of shares
by affiliates, and unrealized gains on investments. Ampal's foreign subsidiaries
file separate tax returns and provide for taxes accordingly.
(g) Cash Equivalents
Cash equivalents include time deposits and notes receivable with maturities
at acquisition of 90 days or less.
50
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Discontinued Operations
On December 23, 1996, the Company sold all of its equity interest in its
food processing subsidiary, Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ("Pri
Ha'emek") to Agrifarm International Limited ("Agrifarm"), a British company. In
connection with the sale, the Company recorded a loss on disposition of $3.2
million and a tax benefit of approximately $3.9 million, which was based on a
total loss of its investment in Pri Ha'emek in the amount of $9.7 million. In
1995 and 1994 Pri Ha'emek generated revenues in the amounts of $31.4 million and
$34.1 million, respectively.
Accordingly, the results of Pri Ha'emek, whose financial statements were
previously consolidated with the Company's financial statements have been
presented as discontinued operations in the Company's 1996 consolidated
financial statements. The Company's 1995 and 1994 consolidated financial
statements and the notes to the consolidated financial statements have been
restated to conform with the current year's presentation.
Note 3 - Acquisitions and Dispositions
(a) In June 1996, the Company made a $1.5 million indirect investment in Geotek
Communications, Inc., an international wireless telecommunications company.
During 1996, the Company also invested $1.6 million ($.8 million to acquire
additional interests) in its existing affiliates.
(b) In 1996, the Company received gross proceeds in the amount of $2 million
from sale of 113,624 shares of Teledata Communications Ltd. ("Teledata") and
realized a gain on sale of $1.5 million ($1 million after taxes).
(c) Also in 1996, the Company received gross proceeds in the amount of $.7
million from sale of 55,200 shares of M-Systems Flash Disk Pioneers Ltd. and
realized a gain on sale of $.5 million ($.3 million after taxes).
(d) On June 28, 1995, the Company's 94%-owned subsidiary purchased a property
("800 Second Avenue") for approximately $45 million. The approximately 290,000
square-foot office building is located at 800 Second Avenue, New York, New York
and houses the Consulate of the Government of Israel (the "Government") in New
York and other Israel government offices as well as other tenants. The property
was converted into a condominium in December 1996. The purchase was partially
financed by a loan of $30 million from Hapoalim (see Note 5). The Company
financed the balance of the acquisition from its own funds. On January 31, 1997,
the Company sold to the Government the portion of the building which it occupies
for $31 million. As a result of this transaction, the Company recorded a loss of
$1.1 million ($.6 million net of taxes) in its December 31, 1996 financial
statements.
(e) In January 1995, the Company invested $1.5 million to acquire a 20% equity
interest in Epsilon Investment House Ltd. ("Epsilon") and its affiliate,
Renaissance Investment Company Ltd. ("Renaissance"). Epsilon is an investment
bank which provides portfolio management and Renaissance provides underwriting
services in Israel through its subsidiaries.
(f) In September 1995, the Company invested $1.3 million to acquire a 21.9%
equity interest and three-year options to acquire an additional 4.4% equity in
U.D.S. - Ultimate Distribution Systems Ltd., an Israeli-based software company
specializing in the management and optimization of a variety of logistic tasks
for the distribution industry.
(g) In 1995, the Company invested an aggregate of approximately $2.6 million for
13.6% of Breeze Wireless Communications Ltd., an Israeli company which develops,
manufactures and markets wireless local area networks for computers, 4.1% of
M-Systems Flash Disk Pioneers Ltd., an Israeli company which develops,
manufactures and markets data storage media based on "flash memory," a silicon
memory chip, and 5.8% of Comfy Interactive Movies Ltd., an Israeli company which
develops and markets a computer keyboard and interactive movies specially
designed for children ages 1-6. The Company also invested approximately $1.6
million to acquire additional interests in its existing subsidiaries and
affiliates.
51
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) On August 15, 1995 Ampal sold all of its Ordinary Shares and 7% Preferred
Shares of Bank Hapoalim (Cayman) Ltd. ("Cayman"), which constituted 49% and 50%
of each series, respectively, to Hapoalim. The sales price was approximately
$20.3 million and the Company recorded a gain on sale of approximately $.4
million ($.2 million, net of taxes). The Company obtained an opinion from an
independent investment consultant that the consideration received in the sale
was fair to the Company. The Company recorded its share of earnings in Cayman
through the date of sale.
(i) On November 6, 1995, Ampal sold its property located at 174 North Michigan
Avenue, Chicago, Illinois to an unrelated party for $.85 million. In connection
therewith, Ampal received $.55 million from Hapoalim and Ampal, as landlord, and
Hapoalim, as tenant, released each other from their respective obligations under
a lease which was scheduled to expire in 2007. Ampal obtained an opinion from an
independent real estate consultant that the consideration received from Hapoalim
was fair to Ampal. The Company recorded a total gain of approximately $.5
million ($.3 million, net of taxes).
(j) In 1995 and 1994, the Company received gross proceeds in the amounts of $1.9
and $2.6 million from sales of 106,000 and 120,000 shares of DSP Group, Inc.
("DSP Group") and recorded a loss of $.1 million and a gain of $2 million ($.1
million and $1.3 million after taxes), respectively.
(k) In 1995 and 1994, the Company received gross proceeds in the amounts of $4
million and $1.9 million from sales of 237,000 and 155,000 shares of Mercury
Interactive Corporation ("Mercury"), which the Company acquired in 1992, and
recorded gains of approximately $.9 million and $1.5 million ($.6 million and $1
million after taxes), respectively.
Note 4 - Deposits, Notes and Loans Receivable
Deposits, notes and loans receivable earn interest at varying rates
depending upon their linkage provisions. The deposits are guaranteed by
Hapoalim. Deposits, notes and loans receivable have maturities of up to 9 years.
Note 5 - Notes and Loans Payable
Notes and loans payable consist primarily of bank borrowings either in U.S.
Dollars, linked to the U.S. Dollar or in unlinked shekels with interest rates
varying depending upon their linkage provision and mature through 2000.
On June 28, 1995, in connection with the purchase of 800 Second Avenue (see
Note 3(d)), the Company borrowed $30 million from Hapoalim at an interest rate
based on London Interbank Offered Rates plus 1% (6.6875% at December 31, 1995).
On January 31, 1997, in connection with the sale of a portion of the premises to
the Government, $15 million received from the Government was used to repay a
portion of the loan to Hapoalim. The remaining balance of the loan of $15
million is due on February 28, 1998 and bears interest at the rate of 6.617% at
December 31, 1996.
The weighted average interest rates on the balances of short-term
borrowings at year-end are as follows: 9.05% on $20.6 million and 7.25% on $34.3
million in 1996 and 1995, respectively.
52
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Debentures
Debentures outstanding at December 31 consist of:
1996 1995
------------------
Ampal:
- ------
Various series with interest rates ranging from
10%-12%, maturing 1997-2003 ............................. $31,458 $47,934
Ampal Development (Israel) Ltd.:
Various series with interest rates ranging from
6.2%-7.5%, linked to the Consumer Price Index in
Israel, maturing 1997-2005, secured by assets of
$37 million ............................................. 35,559 38,992
------- -------
67,017 86,926
Less: Unamortized discounts .............................. 9,146 12,548
------- -------
Total .................................................... $57,871 $74,378
======= =======
Certain debentures are presentable for early redemption. If presented for
early redemption, maturities (including required obligations) for the five years
ending December 31 would be:
1997 - $28,107*
1998 - 6,186
1999 - 6,186
2000 - 6,781
2001 - 2,024
Thereafter - 8,195
* If no debentures are presented for early redemption, scheduled maturities will
amount to $17,332.
Note 7 - Shareholders' Equity
Capital Stock
The 4% and 6-1/2% preferred shares are convertible into 5 and 3 shares of
Class A Stock, respectively. At December 31, 1996, a total of 8,583,254 shares
of Class A Stock is reserved for issuance upon the conversion of the Preferred
Stock and the exercise of warrants and options.
The 4% and 6-1/2% Preferred Stock are preferred as to dividends on a
cumulative basis. Additional dividends out of available retained earnings, if
declared, are payable on an annual non-cumulative basis as a percentage of par
value as follows:
(i) up to 4% on Class A Stock, then
(ii) up to 8% on Class A Stock and 4% Preferred
(iii) up to 12% on Common Stock, then
(iv) on 4% Preferred Stock, Class A Stock and Common Stock, ratably.
Preferred shares are nonvoting unless dividends are in arrears for three
successive years. At December 31, 1996, there are no dividend arrearages.
On December 11, 1996, Ampal issued 3,000,000 shares of Class A Stock in
exchange for the 3,000,000 shares of Common Stock held by Hapoalim (See Note
14).
On February 1, 1994, Ampal completed a public offering of 4.5 million
units, each consisting of one share of Class A Stock and one redeemable warrant
to purchase one share of Ampal's Class A Stock for $12.125 per unit. The
warrants are exercisable at $16 per share at any time until January 31, 1999,
and are callable by Ampal, in whole or in part,
53
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from and after February 1, 1996, without payment to the holder. The net proceeds
which Ampal received from this offering amounted to approximately $51 million.
In March 1995, the Board of Directors of Ampal approved the repurchase by
Ampal of up to 2 million shares of its Class A Stock, at market prices from time
to time. As of December 31, 1995, Ampal had repurchased 605,400 shares of its
Class A Stock for approximately $3.8 million. On February 21, 1996, Ampal
announced that it had temporarily suspended purchases under this program.
On November 8, 1995, at a Special Meeting of Shareholders of Ampal, the
shareholders voted to approve an amendment to Ampal's Certificate of
Incorporation increasing the number of authorized shares of Class A Stock from
30,000,000 to 60,000,000.
On November 5, 1993, Ampal's Board of Directors approved a stock option
plan which provides for grants of options to purchase up to 200,000 shares of
Class A stock in the aggregate to employees, officers and directors of Ampal and
certain subsidiaries of Ampal. On January 25, 1994, the Stock Option Committee
of the Board of Directors approved the issuance of 134,900 options (of which
13,775 options have been cancelled) in the aggregate at an exercise price of
$10.91 per share (a 10% discount from market price on the date of grant). The
entire discount was recorded as compensation expense in 1994. The Stock Option
Plan was approved by Ampal's shareholders on September 22, 1994. At December 31,
1996, 121,125 options are exercisable.
Retained Earnings
At December 31, 1996, retained earnings include $58 million for affiliates
accounted for by the equity method, of which $33.8 million and an additional $42
million from subsidiaries is not available for the payment of dividends. In most
cases this results from Israeli requirements that dividends may only be paid on
the basis of shekel-denominated and not dollar-denominated retained earnings.
Note 8 - Earnings Per Class A Share
Earnings per share ("EPS") is reflected for Class A Stock and not for
Common Stock since Class A Stock is publicly held whereas the Common Stock is
not. At December 31, 1996, Common Stock was no longer outstanding (See Note 14).
EPS assumes the conversion of the 4% and 6-1/2% Preferred Stock into Class A
Stock during the year and gives effect to the participatory rights of the
weighted average number of shares of Common Stock outstanding during the year,
as follows: 1996-2,769,000 shares; 1995 and 1994-3,000,000 shares. The exercise
of warrants and options is not included in the calculation of EPS because their
effect would be anti-dilutive. Therefore, EPS is calculated by dividing net
income by 27.6 million, 28 million and 27.5 million shares in 1996, 1995 and
1994, respectively.
Note 9 - Income Taxes
The components of current and deferred
income tax expense (benefit) are: 1996 1995 1994
-----------------------------------
Current:
State and local ........................... $ 65 $ 65 $ 60
Federal ................................... 912 6,239 1,311
Foreign ................................... 999 1,153 796
Deferred:
State and local ........................... (214) 60 --
Federal ................................... (60) (1,772) 1,299
Foreign ................................... 197 122 1,325
-------- -------- --------
Total .................................. $ 1,899 $ 5,867 $ 4,791
======== ======== ========
54
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of deferred income
tax (benefit) expense are:
Equity in earnings of affiliates ........... $ 404 $ (1,808) $ 1,066
Net operating loss carryforwards ........... (577) -- --
Unrealized gains (losses) .................. 336 (30) 2,240
Gains on issuances of shares ............... -- -- 145
Debenture selling expenses ................. (21) (27) (240)
Other ...................................... (219) 275 (587)
-------- -------- --------
Total ................................... $ (77) $ (1,590) $ 2,624
======== ======== ========
The domestic and foreign components
of income (loss) from continuing
operations before income taxes are:
Domestic ................................... $ (1,894) $ 1,571 $ 253
Foreign .................................... (3,567) 10,777 10,903
-------- -------- --------
Total ................................... $ (5,461) $ 12,348 $ 11,156
======== ======== ========
A reconciliation of income taxes
between the statutory and effective
tax is as follows:
Federal income tax at 34%, 35% and 34% ..... $ (1,857) $ 4,321 $ 3,905
Taxes on foreign income in excess of
U.S. rate .................................. 4,040 1,516 900
Other ...................................... (284) 30 (14)
-------- -------- --------
Total effective tax: (35%), 48% and 43% .... $ 1,899 $ 5,867 $ 4,791
======== ======== ========
Other assets include approximately $3.2 million ($1.5 million in 1995) of
deferred tax assets which represent the tax benefit of the temporary differences
between the carrying values of the fixed assets in the financial statements and
their income tax bases and $2.5 million of income tax receivable recorded with
respect to the losses incurred in Pri Ha'emek. Accounts and income taxes payable
and accrued expenses include approximately $22.2 million ($22.6 million in 1995)
of deferred tax liability provided on undistributed earnings of affiliates.
Note 10 - Investments in Affiliates and Others
The companies accounted for by the equity method and the Company's share of
equity in those investees are:
1996 1995 1994
---------------------
Am-Hal Ltd. ............................................ 50% 50% 50%
Bank Hapoalim (Cayman) Ltd.(See Note 3(h)).............. -- -- 49
Bay Heart Limited (a) .................................. 37 37 37
Carmel Containers Systems Limited ...................... 20.7 20.4 20
Coral World International Limited(b) ................... 50 50 50
Epsilon Investment House Ltd............................ 20 20 --
Hod Hasharon Sport Center (1992) Limited
Partnership ........................................... 50 50 25.5
Granite Hacarmel Investments Limited ................... 21.5 21.3 21.2
M.D.F. Industries Ltd.(c)............................... -- 50 --
Moriah Hotels Ltd. ..................................... 46 46 46
Ophir Holdings Ltd.(d) ................................. 42.5 42.5 42.5
Orlite Industries (1959) Ltd. ("Orlite")................ 25.3 22.7 22
Renaissance Investment Company Ltd. .................... 20 20 --
Trinet Investment in High-Tech Ltd. .................... 37.5 37.5 37.5
Trinet Venture Capital Ltd.(e) ......................... 50 50 50
U.D.S. - Ultimate Distribution Systems Ltd.............. 21.9 21.9 --
55
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined summarized financial information for the above companies is as follows:
1996 1995 1994
-----------------------------
Revenues ......................................... $788,169 $748,170 $590,872
Gross profit ..................................... 184,533 163,962 118,689
Net income ..................................... 36,346 23,439 26,176
Property and equipment ........................... $356,901 $329,150 $282,842
Other assets ..................................... 503,255 426,581 474,813
-------- -------- --------
Total assets ................................... $860,156 $755,731 $757,655
======== ======== ========
Total liabilities, including bank borrowings ..... $546,457 $457,408 $435,756
======== ======== ========
The carrying value of the Company's investments in shares of its publicly traded
affiliates and others at December 31, 1996, amounted to $46.7 million and had a
market value of $45.4 million, based upon quoted market prices of shares traded
on the American Stock Exchange, NASDAQ National Market and the Tel Aviv Stock
Exchange. There is no assurance that any of these investments could be realized
at the quoted market price.
(a) At December 31, 1996, the Company had a note receivable from Bay Heart
Limited in the amount of $5.8 million and recorded interest income in the amount
of $294 for the year.
(b) On September 27, 1996, a wholly-owned subsidiary of Coral World
International Limited ("CWI"), the Company's 50%-owned affiliate, sold its
marine park in Nassau (Bahamas) to an unrelated party for $3.75 million and CWI
recorded a loss on sale of approximately $5 million (the Company's share is $2.5
million, $1.7 million net of taxes). In addition, in May 1996, CWI's management
made a decision to sell its marine park in St. Thomas (U.S. Virgin Islands), and
CWI recorded a loss of approximately $2 million (the Company's share is $1
million, $.7 million net of taxes) to adjust the carrying value of its
investment to net realizable value.
At December 31, 1996, the Company had a note receivable from CWI in the
amount of $.6 million and recorded interest income in the amount of $69 for the
year.
(c) M.D.F. Industries Ltd. ("M.D.F."), the Company's 50%-owned affiliate, which
has established a plant in Israel for the production of medium density fiber
boards, and which completed its running-in period on June 30, 1996, incurred
significant losses in 1996.
The losses are primarily attributable to the excess of cost of sales per
production unit over the selling price. In view of the substantial losses
incurred by M.D.F. and the continuing depressed prices with respect to its
products, the Company believes that further substantial losses will be incurred
by M.D.F. Consequently, because of the uncertainty with respect to M.D.F.'s
future operations, the Company has recorded a loss from impairment of this
investment in December 1996 earnings for its full remaining investment in and
loans to M.D.F. in the amount of $8.8 million. This loss, in addition to the
$1.3 million loss previously recorded by the Company in 1996 with respect to
M.D.F., resulted in a total loss attributable to the operations of M.D.F. in the
amount of $8.6 million, net of tax benefits. M.D.F. will no longer be accounted
for as an affiliate of the Company under the equity method of accounting,
however, the Company continues to be contingently liable with respect to $5
million of guarantees given by the Company with respect to M.D.F.'s bank
obligations.
(d) At December 31, 1996, the Company had a note receivable from Ophir in the
amount of $4.5 million and recorded interest income in the amount of $178 for
the year. Also at December 31, 1996, the Company had a non-interest bearing note
payable to Ophir in the amount of $1.2 million.
(e) At December 31, 1996, the Company had a non-interest bearing note receivable
from Trinet Venture Capital Ltd. in the amount of $3.3 million.
56
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Segment Information
Segment information presented below results primarily from operations in Israel.
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues:
- ---------
Finance ........................... $ 15,154 $ 17,982 $ 27,258
Real estate rental ................ 11,405 8,344(d) --(e)
Mattress manufacturing ............ 10,892 10,174 9,625
Leisure-time ...................... 1,671 1,514 1,411
Intercompany adjustments .......... (1,095) (725) (342)
--------- --------- ---------
Total ........................ $ 38,027 $ 37,289 $ 37,952
========= ========= =========
Equity in (Losses) Earnings
- ---------------------------
of Affiliates:
--------------
Finance ........................... $ -- $ 566(b) $ (2,531)(b)
Real estate rental ................ (1,083)(c) (678)(c) --(e)
Mattress manufacturing ............ -- -- --
Leisure-time ...................... (2,336)(a) 1,779(a) 3,647(a)
--------- --------- ---------
Total ........................ $ (3,419) $ 1,667 $ 1,116
========= ========= =========
Pretax Operating (Loss) Income:
- -------------------------------
Finance ........................... $ (12,076) $ 1,125 $ 5,380
Real estate rental ................ 1,855 3,803 --(e)
Mattress manufacturing ............ (1,516) 428 401
Leisure-time ...................... (608) (730) (889)
--------- --------- ---------
Total ........................ $ (12,345) $ 4,626 $ 4,892
========= ========= =========
Total Assets:
- -------------
Finance ........................... $ 230,318 $ 257,985 $ 290,983
Real estate rental ................ 62,745 61,804 --(e)
Mattress manufacturing ............ 8,520 7,912 8,328
Leisure-time ...................... 3,262 4,949 4,792
Intercompany adjustments .......... (21,294) (23,134) (7,991)
--------- --------- ---------
Total ........................ $ 283,551 $ 309,516 $ 296,112
========= ========= =========
57
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Investments in Affiliates:
- --------------------------
Finance .............................. $ -- $ -- $28,913(b)
Real estate rental ................... 8,902(c) 9,768(c) --(e)
Mattress manufacturing ............... -- -- --
Leisure-time ......................... 34,489(a) 37,108(a) 35,194(a)
------- ------- -------
Total ........................... $43,391 $46,876 $64,107
======= ======= =======
Capital Expenditures:
- ---------------------
Finance .............................. $ 48 $ 26 $ 154
Real estate rental ................... 2,475 45,408 --(e)
Mattress manufacturing ............... 262 368 334
Leisure-time ......................... 70 105 104
------- ------- -------
Total ........................... $ 2,855 $45,907 $ 592
======= ======= =======
Depreciation and Amortization:
- ------------------------------
Finance .............................. $ 3,476 $ 4,322 $ 5,276
Real estate rental ................... 1,291 809 --(e)
Mattress manufacturing ............... 581 650 725
Leisure-time ......................... 277 292 331
------- ------- -------
Total ........................... $ 5,625 $ 6,073 $ 6,332
======= ======= =======
Corporate office expense is principally applicable to the financing operation
and has been charged to that segment above. Revenues and pretax operating income
above exclude equity in earnings of affiliates and minority interests. Total
assets exclude assets from discontinued operations.
(a) Operations in Australia, Bahamas (see Note 10), Israel, U.S. Virgin Islands
and United States.
(b) Operations in Israel (1994 only) and Cayman Islands.
(c) Operations in Israel.
(d) Includes gains on sale of real estate rental property (see Note 3).
(e) The Company did not have a real estate rental segment in 1994; all amounts
related to real estate rental for this year is reflected in the finance
segment.
The real estate rental segment consists of rental property owned in Israel and
the United States leased to related and unrelated parties. The mattress
manufacturing segment consists of Paradise Industries, Ltd., which is a leading
manufacturer and distributor of mattresses and fold-out beds in Israel whose
customer base consists of independent stores as well as hotel chains. The
leisure-time segment consists primarily of Moriah Hotels Ltd. (hotel chain in
Israel), Coral World International Limited (marine parks located around the
world) and Country Club Kfar Saba (the company's 51%-owned subsidiary located in
Israel).
Note 12 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(a) Cash and Cash Equivalents
For short-term investments, the carrying amount is a reasonable estimate of
fair value.
58
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Deposits, Notes and Loans Receivable
The fair value of these deposits, notes and loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
(c) Investments
For financial instruments with maturities between 91 days and 1 year, and
all marketable securities, the carrying amount is a reasonable estimate of fair
value.
(d) Commitments
Due to the relatively short term of commitments discussed in Note 13, their
contract value is considered to be their fair value.
(e) Deposits, Notes and Loans Payable and Debentures
The fair value of notes and loans payable, deposits payable and debentures
outstanding is estimated by discounting the future cash flows using the current
rates offered by lenders for similar borrowings with similar credit ratings and
for the same remaining maturities.
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents ...... $ 9,685 $ 9,685 $ 15,976 $ 15,976
Deposits, notes and loans
receivable .................... 57,041 56,752 73,935 72,955
Investments .................... 31,341 31,341 40,100 40,100
-------- -------- -------- --------
$ 98,067 $ 97,778 $130,011 $129,031
======== ======== ======== ========
Financial liabilities:
Deposits, notes and loans
payable ....................... $ 44,543 $ 44,514 $ 41,503 $ 41,025
Debentures outstanding ......... 57,871 59,795 74,378 77,403
-------- -------- -------- --------
$102,414 $104,309 $115,881 $118,428
======== ======== ======== ========
Note 13 - Commitments and Contingencies
(a) The combined minimum annual lease payments on Ampal's corporate offices,
Country Club Kfar Saba and Paradise, without giving effect to future
escalations, are approximately $.7 million a year for the years 1997 through
2001, and $8 million in the aggregate, thereafter. The leases expire in 2009,
2038 and 2001, respectively.
(b) For the years 1997 through 2001, the combined minimum lease receipts to be
received by the Company from rental properties are approximately $4.8 million in
1997 ($2.8 million from related parties); $4.2 million in 1998 ($2.3 million
from related parties); $3.8 million in 1999 ($1.9 million from related parties);
$3.1 million in 2000 ($1.4 million from related parties); $1.8 million in 2001
(all from non-related parties); and $12.4 million in the aggregate, thereafter
(all from non-related parties).
(c) The Company has issued guarantees on bank loans to its investees and
subsidiaries totalling $17.1 million (includes $5 million of guarantees with
respect to M.D.F.).
The Company's commitments to its investees amounted to $14.7 million.
(d) An appeal filed by Sonol, a subsidiary of the Company's investee, Granite,
59
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
together with appeals filed by Paz and Delek, the other two major fuel marketing
companies, against the June 1993 ruling by the Controller of Restrictive Trade
Practices declaring that exclusive agreements entered into between the fuel
marketing companies and filling station operators are restrictive trade
agreements, is now pending in the District Court in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995,
amended the above ruling following a compromise agreement reached between Sonol
and Paz in their above mentioned appeals. Under the terms of the compromise
arrangement, Sonol will release 36 stations not subject to an "Accepted Leasing
Agreement" as defined in the arrangement and the Controller will rescind his
ruling regarding other stations in which Sonol is party to such an "Accepted
Leasing Agreement." Several appeals were filed in the supreme court against this
arrangement, which were rejected on December 2, 1996. The court ruled that the
Controller of Restrictive Trade Practices had the authority to enter into the
above arrangement and that it is in effect. As a result, Sonol released the 36
stations from the exclusive agreements it had with them and is in the process of
rescinding its appeal.
Sonol and "Delek" the Israel Fuel Corporation Ltd. ("Delek") jointly own
the rights to the "Dalkan 2000," a computerized system for marketing fuel
products (primarily to automobile fleets). On January 26, 1997, the Controller
of Restrictive Trade Practices ruled that the joint marketing arrangement of the
"Dalkan 2000" system by Sonol and Delek is a restrictive trade agreement. As a
result of the position taken by the Controller, both Sonol and Delek agreed to
divide the "Dalkan 2000" system between themselves so that each company will
operate an independent system in a manner that will enable customers, in
accordance with their own preference, to enter into an agreement with either of
the companies. The implementation of the separation agreement will be carried
out in stages from September 1997 to December 1998.
60
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A private legislative proposal dealing with the shortening of the terms of
exclusive agreements entered into between the fuel marketing companies and
filling station owners and operators has passed its first reading in the
Knesset, the Israeli parliament. The Economics Committee of the current Knesset
has decided that the rule of "Continuity" will be in effect and shall continue
dealing with this proposal.
A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the fuel
marketing companies and station owners has been forwarded to government
ministries, the President of the Supreme Court and law faculties for their
comments.
At this time, it is too early to estimate the effects of the said
developments on the overall Israeli fuel market in general, and on Granite in
particular.
(e) Under Israeli law, a lease of real property with a term of more than 10
years is required to be reported to the Israeli Appreciation Tax Authorities and
is subject to a land appreciation tax or an income tax and an acquisition tax.
The Israeli Tax Commissioner has taken the position that certain arrangements
for the lease of real property, including multiple leases, leases with renewal
options and leases or options to lease between affiliated companies, which in
the aggregate provide a term exceeding 10 years, are subject to the above
reporting and taxes.
Certain of the investees, including Ophir, Industrial Buildings and Carmel,
are parties (mostly as lessors) to lease transactions which, under the
Commissioner's interpretation, may be deemed leases for terms in excess of 10
years. These investees have all reported their lease income as taxable income
and have recently reported such transactions to the tax authorities. Should the
tax authorities decide to enforce their position and prevail, these investees
would be in breach of Israeli law, and could be subject to material taxes and to
civil and criminal penalties. An assessment made against Bay Heart Limited in
this regard by the tax authorities has been abandoned.
The Company's investees have taken the position, which the Company believes
is shared by many of the other affected taxpayers in Israel, that the
Commissioner's position in this matter is incorrect. The Company cannot predict
whether the Commissioner's position will be upheld or, if upheld, the effect on
the Company and its investees.
61
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(f) In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding in Tel Aviv District Court seeking to cause Etz Vanir Ltd. ("Etz
Vanir") and Yakhin Mataim Ltd. ("Yakhin Mataim") to redeem the perpetual
debentures owned by Ampal for approximately $.7 million and to require Ampal to
surrender all of its preferred shares of Etz Vanir and Yakhin Mataim for their
par value, on the alleged grounds that these are debt and not equity
investments. It is Ampal's view, that its investments in these companies, which
were made in the 1950's, are equity investments and are not subject to
redemption by these companies, other than upon liquidation. Ampal is contesting
this legal proceeding. Though a hearing has been held no judgment in this case
has been rendered as of the date hereof.
Note 14 - Change of Control of Ampal
On June 6, 1996, Hapoalim completed the sale of 5,742,351 shares of Ampal's
Class A Stock (equal to 27.9% of the outstanding Class A Stock as of that date,
not assuming conversion of Hapoalim's Preferred Stock) at a price of $7.87 per
share to Rebar Financial Corp. ("Rebar"), a company controlled by the Steinmetz
family. This sale of shares was made within the framework of the reduction of
the non-banking holdings of Hapoalim according to the Banking (Licensing) Law in
effect in Israel, which required Hapoalim to sell non-banking holdings in excess
of 25% by the end of 1996. Furthermore, on December 11, 1996, Hapoalim delivered
to Rebar an additional 1,500,001 shares of Ampal's Class A Stock.
Hapoalim continues to hold 5,874,281 shares of Ampal's Class A Stock (equal to
24.8% of the outstanding Class A Stock as of December 31, 1996, without assuming
conversion of shares of Ampal's Preferred Stock owned by Hapoalim). As of
December 31, 1996, Rebar held 7,391,952 shares of Ampal's Class A Stock (equal
to 31.25% of the outstanding shares of Class A Stock).
Also, on December 11, 1996, but prior to the sale of shares referred to above,
Hapoalim and Ampal entered into an exchange agreement pursuant to which Hapoalim
and Ampal exchanged all 3,000,000 shares of Ampal's Common Stock owned by
Hapoalim for 3,000,000 shares of Ampal's Class A Stock. Ampal's Board had formed
a "Special Committee" consisting of five outside directors to consider
Hapoalim's request to (i) equalize the voting rights of the Common Stock with
the voting rights of the Class A Stock, and (ii) compensate Hapoalim for the
reduction in its voting rights which would result from such equalization. The
Special Committee was authorized to negotiate, approve or disapprove any such
transaction on Ampal's behalf. The Special Committee retained independent
counsel and an independent investment bank to advise it in connection with
Hapoalim's proposal. The Special Committee unanimously approved the exchange
transaction and recommended that Ampal's Board also approve such transaction and
take all actions appropriate to effectuate it. Ampal's Board approved the
exchange transaction and the exchange agreement by the unanimous vote of all
directors then present and voting at a meeting held on December 11, 1996.
In the exchange agreement, Ampal agreed to recommend to its shareholders that
they vote their shares at the next meeting of Ampal's shareholders in favor of
an amendment to the Certificate of Incorporation ("Certificate") to provide for
the removal and elimination of the Common Stock from Ampal's authorized shares
and the cancellation of any reference to the Common Stock in Ampal's
Certificate. In addition, Ampal agreed that until its Certificate is amended as
provided above, Ampal will not reissue, resell, transfer, distribute or take any
other action with respect to any or all of the Common Stock. Furthermore, until
the later of such time as the Certificate is amended as so provided or such time
as Hapoalim's interest in Ampal, whether directly or through subsidiaries of
Hapoalim, is less than 10% of all the outstanding shares of the Class A Stock,
Ampal will not issue any class of equity security with voting rights that are
preferential to the voting rights of the Class A Stock, other than preferred
stock that has customary voting rights with respect to the election of members
of the Board only in the event of the non-payment of preferential dividends. In
March 1997, the Board of Directors of Ampal authorized the submission to the
shareholders of a proposal to eliminate the Common Stock from Ampal's
capitalization at the next annual meeting to be held May 28, 1997.
Prior to the consummation of the transactions described above, Hapoalim
beneficially owned 3,000,000 shares of Ampal's Common Stock (representing 100%
of outstanding Common Stock)
62
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 10,500,991 shares (assuming conversion of shares of Ampal's Preferred Stock
owned by Hapoalim) of Ampal's Class A Stock (representing 50.2% of the
outstanding Class A Stock). As the holder of all the outstanding Common Stock,
as to matters submitted to the vote of the shareholders of Ampal (including the
election of directors other than 25% of the Board for whom only holders of Class
A Stock could vote), Hapoalim was entitled to cast a number of votes equal to
the total number of votes cast by the holders of Class A Stock, but, in no
event, more than ten votes per share of Common Stock. Thus, before the exchange
of Hapoalim's Common Stock for Class A Stock, as described above, Hapoalim had
the power to elect at least approximately 75% of Ampal's directors.
Note 15 - Subsequent Events
The Company has entered into two agreements as of December 19, 1996, with
Investment Company of Bank Hapoalim to sell its direct holding in Orlite and a
wholly-owned subsidiary which holds a separate interest in Orlite for an
aggregate purchase price of $5.2 million, plus interest. The Company is expected
to record a gain of $.8 million, ($.5 million net of taxes) in 1997. These sales
are subject to regulatory approval.
63
SELECTED QUARTERLY FINANCIAL DATA
- ---------------------------------
(Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------------------------------------------------
(Dollars in thousands, except per share data)
Year Ended
December 31, 1996(1)
Revenues ......................... $ 7,998 $ 14,562 $ 7,300 $ 14,500 $ 44,360
Net interest (expense) ........... (247) (416) (429) (1,115) (2,207)
Manufacturing operations ......... (112) (139) (799) (86) (1,136)
(Loss) income from continuing
operations ....................... $ (1,401) $ 2,953 $ (2,565) $ (6,347) $ (7,360)
(Loss) from discontinued
operations ....................... (1,501) (1,074) (60) (257) (2,892)
-------- -------- -------- -------- --------
Net (loss) income ................ $ (2,902) $ 1,879 $ (2,625) $ (6,604) $(10,252)
======== ======== ======== ======== ========
(Loss) earnings per Class A share:
(Loss) earnings from continuing
operations ....................... $ (.05) $ .10 $ (.09) $ (.23) $ (.27)
(Loss) from discontinued
operations ....................... (.06) (.03) -- (.01) (.10)
-------- -------- -------- -------- --------
(Loss) earnings per
Class A share ................... $ (.11) $ .07 $ (.09) $ (.24) $ (.37)
======== ======== ======== ======== ========
Year Ended
December 31, 1995(2)
Revenues ......................... $ 10,739 $ 11,082 $ 12,228 $ 10,664 $ 44,713
Net interest income (expense) .... 687 29 (170) 973 1,519
Manufacturing operations ......... 158 331 194 40 723
Income from continuing operations $ 1,757 $ 1,775 $ 1,668 $ 1,281 $ 6,481
(Loss) from discontinued
operations ..................... (171) (774) (1,183) (2,187) (4,315)
-------- -------- -------- -------- --------
Net income (loss) ................ $ 1,586 $ 1,001 $ 485 $ (906) $ 2,166
======== ======== ======== ======== ========
Earnings (loss) per Class A share:
Earnings from continuing
operations ....................... $ .07 $ .06 $ .06 $ .04 $ .23
(Loss) from discontinued
operations ....................... (.01) (.03) (.04) (.07) (.15)
-------- -------- -------- -------- --------
Earnings (loss) per
Class A share ................... $ .06 $ .03 $ .02 $ (.03) $ .08
======== ======== ======== ======== ========
1. The first and second quarters have been restated to reflect the results of
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. as a discontinued operation.
2. Each quarter has been restated to reflect the results of Pri Ha'emek
(Canned and Frozen Food) 88 Ltd. as a discontinued operation.
64
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
MANAGEMENT
The following table sets forth certain information regarding Ampal's
directors and executive officers:
NAME POSITION
Raz Steinmetz (1)............ Director and Chairman of the Executive Committee
Shlomo Recht(1)*............. Chairman of the Board and Director
Lawrence Lefkowitz(1)........ President, Chief Executive Officer and Director*
Moshe Mor**.................. Executive Vice President
Yehoshua Gleitman............ Executive Vice President of Ampal and Managing
Director of Ampal (Israel)***
Alan L. Schaffer............. Vice President-Finance and Treasurer
Alla Kanter.................. Vice President-Accounting and Controller
Isaiah Halivni............... Vice President-Legal and Secretary
Miri Lent Sharir............. Assistant Vice President-Israel Operations
Harry B. Henshel(2)(5)(6).... Class A Director****
Herbert Kronish(5)(6)........ Class A Director****
Evelyn Sommer(2)(3)(5)(6).... Class A Director****
Irwin Hochberg(3)(5)(6)...... Class A Director****
Arie Abend(2)................ Director
Michael Arnon................ Director
Stanley I. Batkin(1)(3)(5)(6) Director
Yaacov Elinav(1)(4).......... Director
Hillel Peled................. Director
Shimon Ravid(4).............. Director
Michael W. Sonnenfeldt....... Director
- ----------
* Mr. Recht resigned as Chairman of the Board and Director of Ampal,
effective December 31, 1996. Pending election of a new Chairman of the
Board, Mr. Lefkowitz has assumed the duties of the Chairman of the Board.
** Mr. Mor has submitted his resignation as Executive Vice President of
Ampal, effective April 12, 1997, though he will continue to be an employee
of Ampal (Israel).
*** Ampal (Israel) is a wholly-owned subsidiary of Ampal. Mr. Gleitman's
appointment is effective April 1, 1997.
**** Only holders of Class A Stock are entitled to vote for the Class A
Directors. See "Market for Registrant's Common Equity and Related
Stockholders Matters - Voting Rights."
The numbers listed below, which follow the names of some of the foregoing
directors, designate committee membership:
(1) Member of the Executive Committee of the Board which meets as necessary
between regularly scheduled Board meetings and, consistent with certain
statutory limitations, exercises all the authority of the Board.
65
(2) Member of the Audit Committee of the Board which reviews functions of the
outside auditors, auditors' fees and related matters.
(3) Member of the Related Party Transactions Committee of the Board which
reviews and passes upon the fairness of business transactions between
Ampal and related parties.
(4) Member of the Stock Option Committee of the Board which administers
Ampal's 1993 Stock Option Plan. For a description of such plan, see
"Executive Compensation - Stock Option Plan."
(5) Member of the Special Committee of the Board which was formed to consider
Hapoalim's request to equalize the voting rights of the Common Stock with
those of the Class A Stock, and to negotiate, approve or disapprove any
such transaction on Ampal's behalf. This committee has completed its work
and has been discharged.
(6) Member of the Share Repurchase Committee which administers Ampal's stock
repurchase program.
In 1996, the Board of Directors met four times and acted by written
consent two times, the Executive Committee did not meet but acted by written
consent seven times, the Audit Committee met once, the Related Party
Transactions Committee did not meet but acted by written consent one time and
the Stock Option Committee did not meet. The Special Committee was formed in
February 1996 and met four times before being discharged on December 11, 1996.
Ampal does not have a nominating committee or compensation committee. Other than
Messrs. Raz Steinmetz and Peled, all directors attended more than 75% of the
aggregate of (1) the total number of Board of Directors meetings held during the
period in 1996 for which such individual was a director and (2) the total number
of meetings held by all committees of the Board on which such individual served
in 1996 (during the period of such service).
The following sets forth the ages of all of the above-mentioned directors
and officers, all positions and offices with Ampal or its subsidiaries held by
each director and officer and the term of office of each such director and
officer.
RAZ STEINMETZ, 33, has managed various investments for his family,
including real estate, financial investments and others, since September 1994.
From September 1993 through September 1994, he worked as a trainee at Republic
National Bank of New York. From September 1991 through July 1993, he attended
University of Pennsylvania, Wharton Business School, where he received a Masters
Degree in Business Administration. He became a director of Ampal in June 1996
and Chairman of the Executive Committee in December 1996. Mr. Steinmetz is the
son of Daniel Steinmetz.
SHLOMO RECHT, 55, was Chairman of the Board of Directors of Ampal from
July 1994 until his resignation, effective December 31, 1996. From March 1994
until July 1994, he was Vice Chairman of the Board of Directors of Ampal. From
April 1990 until March 1994, he was Managing Director of Poalim Capital Markets
and Investments Ltd. From 1988 until 1989, and from 1994 to 1996, he served as a
director of Ampal.
LAWRENCE LEFKOWITZ, 59, has been President and Chief Executive Officer of
Ampal since November 1990. Since August 1990 at the request of, and pursuant to
the terms of his employment agreement with, Ampal, he has been Counsel to
Hapoalim and rendered legal services to its United States Branches.
MOSHE MOR, 61, has been Executive Vice President of Ampal since December
1995. Prior thereto, he was Vice President-Israel Operations of Ampal for more
than five years. Mr.
66
Mor has submitted his resignation, effective April 12, 1997, though he will
continue to be an employee of Ampal (Israel).
YEHOSHUA GLEITMAN, 47, will become Executive Vice President of Ampal and
Managing Director of Ampal (Israel), head of Ampal's Israeli operations, on
April 1, 1997. From August 1996 until February 1997, he was Director General of
the Israeli Ministry of Industry and Trade and was Chief Scientist at the
Ministry of Industry and Trade from January 1993 until February 1997. Prior to
his tenure with Ministry of Industry and Trade, Mr. Gleitman was Director
General of AIMS Limited, a trading company.
ALAN L. SCHAFFER, 54, has been Vice President-Finance and Treasurer of
Ampal since August 1990.
ALLA KANTER, 39, has been Vice President-Accounting of Ampal since
September 1995 and Controller of Ampal since August 1990.
ISAIAH HALIVNI, 30, has been Vice President-Legal and Secretary of Ampal
since February 1997. From November 1993 until January 1997, he was an associate
at Kronish, Lieb, Weiner & Hellman LLP ("KLWH"). From October 1992 until May
1993, he was an attorney employed by the law firm of Yigal Arnon & Co., a Tel
Aviv law firm. From August 1989 until May 1992, he attended Columbia University
School of Law.
MIRI LENT SHARIR, 40, has been Assistant Vice President-Israel Operations
of Ampal since July 1988 and has been employed by Ampal (Israel) for more than
five years. She also serves as a director of Teledata Communications Ltd. (of
which Ampal indirectly owned 8.0% as of December 31, 1996) and Carmel Container
Systems Limited (of which Ampal directly and indirectly owned 20.7% as of
December 31, 1996).
HARRY B. HENSHEL, 78, has been Vice Chairman of the Board of Bulova
Corporation ("Bulova") since 1996. He was Chairman of the Board of Bulova from
1974 until 1996. He has also served as Chairman of the Chief Executives Council
of Omega Group since 1990 and as a director of the Ponce Hotel Corporation for
more than 20 years and the Universal Holdings Corp. since 1993. He has been a
member of the Advisory Board of the New York State Business Partnership for more
than five years and a trustee of the New York Backstretch Employees Pension
Trust for more than 10 years. He served on the Board of Directors of Ampal
Industries from 1982 until 1990. He became a director of Ampal in 1993.
HERBERT KRONISH, 70, has been a Senior Partner of KLWH since 1958. KLWH
has been legal counsel to Ampal since 1982. He became a director of Ampal in
1994.
EVELYN SOMMER, 58, has been President of Women's International Zionist
Organization-USA, and a representative of Women's International Zionist
Organization to the United Nations for more than five years, has been Chairman,
American Section of the World Jewish Congress for more than five years and has
been Chairman, North American Section of the World Jewish Congress since January
1996. She became a director of Ampal in 1982.
IRWIN HOCHBERG, 68, has been a Senior Partner and President of Bloom
Hochberg & Co., P.C., which provides accounting, auditing and tax service,
professional and consulting services to commercial and individual clients, for
more than five years. He also serves as a director of Transmedia Network, Inc.
He became a director of Ampal in 1994.
ARIE ABEND, 59, has been a Joint Managing Director of Hapoalim and
Regional Manager, Western Hemisphere of Hapoalim since June 1994. From March
1991 until May 1994, he was a Senior Executive Vice President of Hapoalim. In
1984, 1985 and 1991, he served as a director of Ampal. He became a director
again in 1994.
67
MICHAEL ARNON, 71, was Chairman of the Board of Directors of Ampal from
November 1990 to July 1994. From July 1986 until November 1990, he was President
and Chief Executive Officer of Ampal. He became a director of Ampal in 1986.
STANLEY I. BATKIN, 82, served on the Board of Directors of Ampal
Industries from 1983 until 1990 and was a member of its Executive Committee from
1986 until 1990. From 1976 to 1983, he served as a director of Ampal. He became
a director again in 1991.
YAACOV ELINAV, 52, has been a Senior Deputy Managing Director of Hapoalim
since August 1992. From October 1991 to August 1992, he was a Deputy Managing
Director of Hapoalim. From October 1988 to October 1991, he was head of the
Corporate Division of Hapoalim. He became a director of Ampal in 1992.
HILLEL PELED, 49, has been President of Inveco International, Inc., a
private investment company, since January 1990. From January 1982 to June 1986,
he served as Vice President-Finance and Treasurer of Ampal. He became a director
of Ampal in June 1996.
SHIMON RAVID, 60, has been a Joint Managing Director of Hapoalim since
February 1994. From October 1989 until February 1994, he was a Senior Deputy
Managing Director of Hapoalim. He became a director of Ampal in 1990.
MICHAEL W. SONNENFELDT, 40, is the founder and Managing Director of Emmes
& Company LLC, a private real estate investment group headquartered in New York
City. He became a director of Ampal in June 1996.
At the Annual Meeting, to be held on May 28, 1997, Messrs. Batkin, Henshel
and Kronish will not be nominees for directors of Ampal. In addition to the
other 10 current directors, the following individuals will be nominees for
directors at the Annual Meeting:
BENZION BENBASSAT, 59, has been the President and Chief Executive Officer
of D.R.B. Investments Ltd., an investment company, for more than the past five
years. He also serves as a director of Paradise Industries Ltd. (of which Ampal
indirectly owns 85.1%).
KENNETH L. HENDERSON, 42, is an attorney and has been a partner at
Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson") since 1987.
Robinson provided legal services to Ampal during 1996.
DANIEL STEINMETZ, 59, has managed family diamond trading businesses in
Israel for more than the past five years. Mr. Steinmetz is the father of Raz
Steinmetz.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Ampal's officers and directors,
and persons who own more than 10% of a registered class of Ampal's equity
securities, to file reports of ownership and changes in ownership with the SEC
and the American Stock Exchange. These persons are required by regulation of the
SEC to furnish Ampal with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Ampal believes that during 1996, Ampal's officers,
directors and greater than 10% beneficial owners complied with all applicable
Section 16(a) filing requirements.
68
ITEM 11. EXECUTIVE COMPENSATION
----------------------
SUMMARY COMPENSATION TABLE
- --------------------------
The table below presents information regarding remuneration paid or accrued
for services to Ampal and its subsidiaries by the executive officers named below
during the three fiscal years ended December 31, 1996, 1995 and 1994.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options* Compensation
-------- ---- ------ ----- ------------ -------- ------------
Lawrence Lefkowitz(1) 1996 $220,851 $8,123(4) $28,800(5)
(President and 1995 212,351 $16,335 9,088(4) 26,055(6)
Chief Executive Officer) 1994 204,351 8,710(4) 16,000 24,619(7)
Moshe Mor(2) 1996 193,751 23,364(8)
(Executive Vice President) 1995 145,880 37,185 17,982(8)
1994 120,377 15,150 15,930(8)
Alan L. Schaffer 1996 147,950 19,527(9)
(Vice President-Finance 1995 142,250 10,942 16,467(10)
and Treasurer) 1994 136,750 13,000 14,413(11)
Miri Lent Sharir 1996 120,272 19,239(8)
(Assistant Vice President- 1995 111,767 29,880 17,463(8)
Israel Operations) 1994 93,777 11,500 14,749(8)
Shlomo Recht(3) 1996 122,791 9,286 13,436(8)
(Chairman of the Board) 1995 114,633 10,455 13,337(8)
1994 79,174 7,662 9,333(8)
- ----------
* Indicates number of shares of Class A Stock underlying stock options
(1) Hapoalim reimbursed Ampal $100,000 per year from August 1990 through
December 1995 for Mr. Lefkowitz's legal services. By agreement between
Ampal and Hapoalim, beginning in January 1996, Hapoalim reimbursed Ampal
$120,000 per year. Mr. Lefkowitz is employed pursuant to an employment
agreement expiring September 12, 1998, renewable thereafter automatically
for successive one-year terms unless one year's prior notice is given,
providing for the payment of salary which shall not be less than the
salary paid to him in 1992 ($191,961) and which salary is subject to
annual review.
(2) Mr. Mor has submitted his resignation as Executive Vice President of
Ampal, effective April 12, 1997, though he will continue to be an employee
of Ampal Israel.
(3) Mr. Recht resigned his position with Ampal, effective December 31, 1996.
(4) Consists of amounts reimbursed for the payment of taxes.
(5) Comprised of Ampal's contribution pursuant to (i) Ampal's pension plan of
$15,476; (ii) Ampal's Supplementary Executive Retirement Plan of $8,899
and (iii) Ampal's Savings Plan of $4,425. See "Other Benefits" below for a
description of such plans.
(6) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,562; (ii) Ampal's Supplementary Executive Retirement Plan of $9,993
and (iii) Ampal's Savings Plan of $500.
(7) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,596; (ii) Ampal's Supplementary Executive Retirement Plan of $8,523
and (iii) Ampal's Savings Plan of $500.
69
(8) Comprised of Ampal (Israel)'s contribution to its pension plan.
(9) Comprised of Ampal's contribution pursuant to (i) Ampal's pension plan of
$15,117 and (ii) Ampal's Savings Plan of $4,410.
(10) Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
$15,562; (ii) Ampal's Supplementary Executive Retirement Plan of $405 and
(iii) Ampal's Savings Plan of $500.
(11) Comprised of Ampal's contribution pursuant to Ampal's Savings Plan of $500
and the remainder pursuant to Ampal's Pension Plan.
FISCAL YEAR-END OPTION VALUES(1)
Number of Securities
Underlying Unexercised
Name Options at Fiscal Year-End(2)
- ---- -----------------------------
Exercisable Unexercisable
----------- -------------
Lawrence Lefkowitz 16,000 0
Moshe Mor 15,150 0
Alan L. Schaffer 13,000 0
Miri Lent 11,500 0
Shlomo Recht 0 0
(1) No options were granted to or exercised by any named executive officer
during 1996, and no options were in-the-money as of December 31, 1996.
(2) This represents the total number of shares of Class A Stock subject to
stock options held by the named executive at December 31, 1996.
70
OTHER BENEFITS
Ampal maintains a money purchase pension plan ("Pension Plan") for its
eligible employees. Eligible employees are all full-time employees of Ampal
except non-resident aliens, night-shift employees and employees represented by a
collective bargaining unit. In 1990, the Pension Plan was amended so that
Ampal's annual contribution was equal to 7% of each employee's compensation plus
5.4% of the employee's compensation in excess of the Social Security taxable
wage base for that year. In 1994, the Pension Plan was amended so that Ampal's
contribution is equal to 7% of each employee's compensation plus 5.7% of the
compensation in excess of the Social Security taxable wage base for that year.
Employees become vested in amounts contributed by Ampal depending on the
number of years of service worked, as provided in the following table:
Vested
Years of Service Percentage:
---------------- -----------
less than 2 years 0%
2 but less than 3 years 20%
3 but less than 4 years 40%
4 but less than 5 years 60%
5 but less than 6 years 80%
6 or more years 100%
Benefits under the Pension Plan are paid in a lump sum, in an annuity form
or in installments.
71
Ampal maintains a Savings Plan for its eligible employees pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
Eligible employees are all employees of Ampal except non-resident aliens,
night-shift employees and employees represented by a collective bargaining unit.
Participation by employees in the Savings Plan is voluntary. Participating
employees may direct that a specific percentage of their annual compensation (up
to 15%) be contributed to a self-directed 401(k) savings account. The amount
which any employee could contribute to his or her 401(k) savings account in
1996, was limited under the Code to $9,500. For each plan year up to and
including 1995, Ampal matched 50% of each employee's contribution up to a
maximum matching contribution of $500 for each participant. Effective January 1,
1996, the Savings Plan was amended so that Ampal matches 50% of each employee's
contribution up to a maximum of 3% of the employee's compensation. Employees who
were eligible to participate in the Savings Plan as of December 31, 1995 are
100% vested at all times in the account balances maintained in their 401(k)
savings account and employees who became eligible to participate in the Savings
Plan on or after January 1, 1996, become vested in amounts contributed by Ampal
depending on the number of years of service worked, as provided in the following
table:
Vested
Years of Service Percentage:
---------------- -----------
less than 2 years 0%
2 but less than 3 years 20%
3 but less than 4 years 40%
4 but less than 5 years 60%
5 but less than 6 years 80%
6 or more years 100%
Benefits under the Savings Plan are required to be paid in a single,
lump-sum distribution. Payment is usually made after termination of employment.
In 1994, Ampal established a Supplementary Executive Retirement Plan
("SERP") for its eligible employees. Ampal's obligation under the SERP is to pay
to affected employees the amount that would have been paid to them by the
Pension Plan but for the operation of Section 401(a)(17) of the Code.
COMPENSATION OF DIRECTORS
Directors of Ampal who are not employees of Ampal or Hapoalim receive $500
per Board meeting attended. Such persons also receive the same amount for
attendance at meetings of committees of the Board, provided that such committee
meetings are on separate days and on a day other than the day of a regularly
scheduled Board meeting.
STOCK OPTION PLAN
In November 1993, the Board approved a stock option plan (the "Stock
Option Plan") which provides for grants of options to purchase up to 200,000
shares of Ampal Class A Stock in the aggregate to employees, officers and
directors of Ampal and certain subsidiaries of Ampal. Options granted under the
Stock Option Plan may be either options which are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code
("ISOs"), or options that are not intended to so qualify ("Non-ISOs"). The Stock
Option Plan was approved by Ampal's shareholders on September 22, 1994.
The Stock Option Plan is administered by the Board or by a Stock Option
Committee thereof (the "Committee") consisting exclusively of directors who are
not to be granted options under the Stock Option Plan. The Board (or the
Committee) determines, subject to the terms of the Stock Option Plan, the
individuals to whom options are to be granted and the terms of the options,
including the exercise price, number of shares subject to each option, whether
the option is to qualify as an ISO and the vesting of rights to exercise each
option. Currently, the Stock Option Committee is administered by a committee
consisting of Mr. Elinav and Mr. Ravid.
72
The exercise price of each ISO granted under the Plan must not be less
than the fair market value of the shares on the date of grant or 110% of the
fair market value on the date of grant if the ISO grantee owns stock
representing more than 10% of the voting power of Ampal's capital stock or value
of all classes of stock of Ampal or a subsidiary corporation. The exercise price
of each Non-ISO granted under the Stock Option Plan, which may be less than fair
market value on the date of grant, will be fixed by the Board (or the Committee)
at the time the Non-ISO is granted.
The Board (or the Committee) shall determine the dates on which each
option shall be exercisable and the conditions precedent to such exercise.
However, all options, other than those granted to non-employee directors of
Ampal, may not be exercisable prior to the second anniversary of their date of
grant. Options granted to non-employee directors of Ampal shall be exercisable
immediately upon grant. The terms of options granted under the Stock Option Plan
may not exceed five years.
To the extent that a grant of options results in the aggregate fair market
value of the shares of Class A Stock with respect to which ISOs are exercisable
for the first time by an optionee during any calendar year exceeding $100,000,
such options are treated as Non-ISOs.
Pursuant to an amendment to the Stock Option Plan, dated March 23, 1994,
optionees may pay the exercise price or their tax withholding obligation with
the shares of Class A Stock which are to be delivered upon exercise.
In January 1994, pursuant to the Stock Option Plan, Non-ISO Options to
purchase 134,900 Class A shares were granted to employees, officers, and
directors of Ampal and certain subsidiaries of Ampal. No stock options were
granted under the Stock Option Plan during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, members of the Executive Committee of the Board of Directors
which functions as the compensation committee of Ampal included: Mr. Lawrence
Lefkowitz, President and Chief Executive Officer of Ampal; Mr. Stanley I.
Batkin; Mr. Yaacov Elinav, Senior Deputy Managing Director of Hapoalim; Mr.
Shlomo Recht, Chairman of the Board of Directors of Ampal in 1996; and Mr. Raz
Steinmetz. Mr. Michael Arnon, formerly Chairman of the Board, Chief Executive
Officer and President of Ampal, was a member of the Executive Committee until
his resignation in June 1996. Mr. Steinmetz became a member of the Executive
Committee in June 1996 and Chairman of the Executive Committee in December 1996.
For a description of business transactions between Ampal and Hapoalim, see
"Certain Relationships and Related Transactions."
ITEM. 12. SECURITY OWNERSHIP OF CERTIAN BENEFICAL OWNERSHIP AND MANAGEMENT
----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS OF AMPAL
The following table sets forth information as of March 24, 1997 as to the
holders known to Ampal who beneficially own more than 5% of the Class A Stock,
the only outstanding series of voting securities. For purposes of computation of
the percentage ownership of Class A Stock set forth in the table, conversion of
any 4% Cumulative Convertible Preferred Stock (the "4% Preferred Stock") and
6-1/2% Cumulative Convertible Preferred Stock (the "6-1/2% Preferred Stock")
owned by such beneficial owner has been assumed, without increasing the number
of shares of Class A Stock outstanding by amounts arising from possible
conversions of convertible securities held by shareholders other than such
beneficial owner. As at March 24, 1997, there were outstanding 23,678,984 (not
including treasury shares) shares of Class A Stock of Ampal and no shares of
Common Stock. In addition, there were outstanding 989,185 non-voting shares of
6-1/2% Preferred Stock (each convertible into 3 shares of Class A Stock) and
189,322 non-voting shares of 4% Preferred Stock (each convertible into 5 shares
of Class A Stock).
73
Certain Beneficial Owners
Name and Address Amount and Nature Percent
of Beneficial Owner Title of Class of Beneficial Ownership of Class
- ------------------- -------------- ----------------------- --------
Daniel Steinmetz Class A Stock 7,446,652 shs.(1) 31.4%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Raz Steinmetz Class A Stock 7,446,652 shs.(1) 31.4%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Rebar Financial Corp. Class A Stock 7,446,652 shs.(1) 31.4%
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British Virgin Islands
Bank Hapoalim B.M. Class A Stock 6,258,639 shs.(2) 26.0%
50 Rothschild Blvd.
Tel Aviv, Israel
- ----------
(1) As reported by Mr. Daniel Steinmetz, Mr. Raz Steinmetz and Rebar on Forms
4 for the month of February 1997 filed with the SEC on March 28, 1997.
Consists of 7,446,652 shares of Class A Stock held directly by Rebar. Mr.
Raz Steinmetz is the President of Rebar and Mr. Daniel Steinmetz is the
Vice President. They are the sole directors of Rebar and beneficially own,
directly and indirectly, 96% and 4% of the outstanding equity of Rebar,
respectively.
(2) As reported by Hapoalim on Amendment No. 34, dated December 18, 1996, to
its Statement on Schedule 13D filed with the SEC. These shares represent
all of the shares owned directly by its wholly-owned subsidiary Atad.
Assumes conversion of 122,536 shares of 6-1/2% Preferred Stock and 3,350
shares of 4% Preferred Stock.
Security Ownership Of Management
The following table sets forth information as of March 24, 1997 as to each
class of equity securities of Ampal or any of its subsidiaries beneficially
owned by each director and named executive officer of Ampal listed in the
Summary Compensation Table and by all directors and named executive officers of
Ampal as a group. All ownerships are direct unless otherwise noted. The table
does not include directors or named executive officers who do not own any such
shares:
74
Ampal-American Israel Corporation
- ---------------------------------
CLASS A STOCK
- -------------
Amount and Nature Percent of
Name of Beneficial Ownership Outstanding Shares
---- ----------------------- ------------------
Michael Arnon 7,500(1) *
Stanley I. Batkin 10,000(2) *
Harry B. Henshel 22,000(2) (3) *
Irwin Hochberg 3,000(4) *
Herbert Kronish 1,000 *
Lawrence Lefkowitz 48,375(5) *
Miri Lent Sharir 16,630(6) *
Moshe Mor 15,150(1) *
Shlomo Recht 2,000 *
Alan L. Schaffer 13,000(1) *
Evelyn Sommer 5,000(2) *
Raz Steinmetz 7,446,652(7) 31.4%
All Directors and Executive
Officers as a Group 7,590,307(8) 31.9%
WARRANTS TO PURCHASE
- --------------------
CLASS A STOCK
-------------
Amount and Nature Percent of
Name of Beneficial Ownership Outstanding Shares
---- ----------------------- ------------------
Harry B. Henshel 15,000 *
All Directors and Executive
Officers as a Group 15,000(9) *
- ----------
* Represents less than 1% of the class of securities.
(1) Consists of options to purchase shares of Class A Stock which are
currently exercisable.
(2) Includes options to purchase 5,000 shares of Class A Stock which are
currently exercisable.
(3) Includes warrants to purchase 15,000 shares of Class A Stock which are
currently exercisable.
(4) Includes 1,000 shares of Class A Stock held of record by Mr. Hochberg's
wife.
(5) Includes 23,100 shares of Class A Stock held by a trust under an estate as
to which Mr. Lefkowitz is co-personal representative and options to
purchase 16,000 shares of Class A Stock which are currently exercisable.
(6) Includes options to purchase 11,500 shares of Class A Stock which are
currently exercisable.
(7) Attributable to 7,446,652 shares of Class A Stock held directly by Rebar.
For Mr. Steinmetz's affiliation with Rebar, see "Certain Beneficial
Owners."
(8) Includes warrants to purchase 14,000 shares of Class A Stock which are
currently exercisable and options to purchase 63,000 shares of Class A
Stock which are currently exercisable. Includes equity securities owned by
Mr. Mor who will no longer be an executive officer after April 12, 1997
and Mr. Recht who is no longer an officer or director of Ampal.
75
(9) Consists of warrants to purchase 15,000 shares of Class A Stock held by
Mr. Henshel.
See "Significant Developments Since Beginning of Last Fiscal Year - Change
of Control of Ampal" for the change of control of Ampal that took place in 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Board of Directors of Ampal maintains a Related Party Transactions
Committee comprised of independent directors which reviews and passes upon the
fairness of any business dealings and arrangements (other than borrowings on
then prevailing market terms or deposits made in the ordinary course of
business) between Ampal and any affiliated party. With certain exceptions, Ampal
may not enter into transactions with any officer, director or principal
shareholder of Ampal, without first obtaining the approval of the Related Party
Transactions Committee, the disinterested members of the Board of Directors or
the shareholders. In addition, in connection with the Exchange Agreement, the
Special Committee considered Hapoalim's request to (i) equalize the voting
rights of the Common Stock with the voting rights of the Class A Stock and (ii)
compensate Hapoalim for the reduction in its voting rights which would result
from such equalization.
The management of Ampal believes that all of the following transactions
were done on terms which were no less advantageous to Ampal than could have been
obtained from unaffiliated third parties.
Ampal borrows and receives deposits from Hapoalim and its subsidiaries.
During 1996, the largest amount of such indebtedness outstanding at any one time
was $34,798,000 and interest expense thereon was $3,861,000. Additionally, Ampal
makes loans to and maintains deposits with Hapoalim and its subsidiaries. The
largest amount of such loans and deposits at any one time during 1996 was
$68,133,000 and interest income thereon was $7,252,000. As of December 31, 1996,
the amount of borrowings and deposits from Hapoalim and its subsidiaries was
$32,375,000 and the amount of loans to and deposits with Hapoalim and its
subsidiaries was $45,866,000. Ampal is the beneficiary of a $2 million committed
line of credit from Hapoalim which expires in October 1997. Borrowings under
this line of credit bear interest at a variable rate of interest equal to LIBOR
plus 1/2%. Such loans and borrowings are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated third persons and, in the opinion of
the management of Ampal, do not involve more than normal risk of collectibility
or present other unfavorable features.
Ampal subleases 2,825 square feet of office space leased by Hapoalim at
1177 Avenue of the Americas, New York City under a sublease which expires on
August 30, 2009. The base rent which commenced in September 1994, is $170,000,
subject to escalation. In 1996, Ampal's total payments to Hapoalim in connection
with this lease totalled $171,247.
Ampal or its subsidiaries leases office space in various locations in the
United States and Israel to Hapoalim and its subsidiaries, pursuant to leases
which will generally expire in the years between 2000 and 2003, in exchange for
total annual rental payments of approximately $3,454,000. Generally, the annual
payments are based upon 10% of the value of the property linked to the Israeli
CPI.
In 1991, Ampal agreed that its third lien on certain assets of Pri Ha'emek
(Canned and Frozen Food) 88 Ltd. ("Pri Ha'emek"), an Ampal subsidiary, would
rank behind the lien of Hapoalim on those assets. On December 23, 1996, Ampal
sold its interest in Pri Ha'emek to an unrelated third party.
At the request of, and pursuant to the terms of an employment agreement
with, Ampal, Mr. Lefkowitz has been counsel to Hapoalim and has rendered legal
services to its United
76
States branches since August 1990. In 1996, Hapoalim reimbursed Ampal $120,000
for the services of Mr. Lefkowitz under the arrangement.
On December 11, 1996, Hapoalim exchanged 3,000,000 shares of Common Stock
for 3,000,000 shares of Class A Stock and Ampal agreed to recommend to its
shareholders that the Certificate be amended by eliminating the Common Stock and
removing any reference in the Certificate to the Common Stock. See "Significant
Developments Since Beginning of Last Fiscal Year - Change in Control of Ampal."
77
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
Page
Reference*
----------
(1) Financial Statements and Supplementary Data
Ampal-American Israel Corporation and Subsidiaries
Report of Independent Public Accountants........... 40
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994.......... 41
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 42
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 44
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996,
1995 and 1994................................... 46
Notes to Consolidated Financial Statements......... 49
Supplementary Data:
Selected quarterly financial data for the years
ended December 31, 1996 and 1995................ 64
(2) Financial Statement Schedules
Schedules which have been omitted are not
applicable or the required information is shown in
the financial statements or notes thereto.
(i) Schedule of Representative Rates of Exchange
between the U.S. dollar and New Israeli Shekel
for three years ended December 31, 1996............ 87
(ii) Consolidated financial statements filed pursuant to
Rule 3-09 of Regulation S-X
Bay Heart Ltd. & its Subsidiary
Report of Independent Public Accountants........... 90
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 92
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 95
Consolidated Statements of Changes in Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 96
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 97
Notes to Consolidated Financial Statements......... 101
78
Page
Reference*
----------
Carmel Container Systems Ltd. and its Subsidiaries
Report of Independent Auditors..................... 129
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 130
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 132
Consolidated Statements of Changes in Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 133
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 134
Notes to Consolidated Financial Statements......... 136
Coral World International Ltd. and Subsidiaries
Report of Independent Public Accountants .......... 181
Consolidated Balance Sheets as at December 31,
1996 and 1995 .................................. 182
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994 ......... 184
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 .. 185
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 .............. 187
Notes to Consolidated Financial Statements ........ 188
Granite Hacarmel Investments Limited and Subsidiaries
Report of Certified Public Accountants............. 194
Consolidated Balance Sheets as at
December 31, 1996, and 1995..................... 196
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 198
Consolidated Statements of Shareholders'
Equity for the years ended
December 31, 1996, 1995 and 1994................ 199
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 200
Notes to Consolidated Financial Statements......... 204
Moriah Hotels Ltd.
Report of Certified Public Accountants............. 252
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 253
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 255
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994................ 256
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 257
Notes to Consolidated Financial Statements......... 259
Ophir Holdings Ltd.
Report of Independent Auditors..................... 277
Consolidated Balance Sheets as at
December 31, 1996 and 1995...................... 279
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.... 281
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994................ 283
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.... 285
Notes to Consolidated Financial Statements......... 289
Orlite Industries (1959) Ltd.
Report of Certified Public Accountants............. 331
Balance Sheets as at December 31, 1996 and 1995.... 332
Statements of Income for the years ended
December 31, 1996, 1995 and 1994................ 333
Statements of Changes in Shareholders' Equity for
the years ended
79
Page
Reference*
----------
December 31, 1996, 1995 and 1994................ 334
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................ 335
Notes to the Financial Statements.................. 337
Trinet Venture Capital Ltd.
Report of Certified Public Accountants............. 363
Balance Sheets as at December 31, 1996 and 1995.... 365
Statements of Operations for the years ended
December 31, 1996, 1995 and for the period from
commencement of operations (February 1, 1994)
through December 31, 1994....................... 366
Statements of Changes in Shareholders' Deficiency
for the years ended December 31, 1996, 1995
and 1994........................................ 367
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................ 368
Notes to the Financial Statements.................. 370
(iii) Reports of Other Certified Public Accountants
filed pursuant to Rule 2-05 of Regulation S-X:
AM-HAL Ltd......................................... 383
Ampal Engineering (1994) Ltd....................... 384
Ampal Enterprises Ltd.............................. 386
Ampal Financial Services Ltd....................... 387
Ampal Holding (1991) Ltd........................... 388
Ampal Industries (Israel) Ltd...................... 390
Ampal (Israel) Ltd................................. 391
Ampal Properties Ltd............................... 393
Bank Hapoalim (Cayman) Ltd......................... 395
Country Club Kfar Saba Limited..................... 397
Epsilon Investment House Ltd....................... 399
Hapoalim (Latin America) Casa Bancaria S.A......... 400
Hod Hasharon Sport Center (1992) Limited
Partnership..................................... 402
Mivnat Holdings Ltd................................ 404
Nir Ltd............................................ 405
Paradise Industries Ltd. (U.S. Dollars)............ 407
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ...... 410
Red Sea Marineland Holding (1973) Ltd.............. 411
Red Sea Underwater Observatory Ltd................. 413
Renaissance Investment Co. Ltd..................... 415
Shmey-Bar Real Estate 1993 Ltd..................... 416
Shmey-Bar (T.H.) 1993 Ltd.......................... 418
Teledata Communication Ltd......................... 420
Trinet Investment in High-Tech Ltd................. 421
U.D.S.-Ultimate Distribution Systems Ltd........... 422
80
Page
Reference*
----------
(3) List of Exhibits
Exhibit 3 - Articles of Incorporation and By-Laws
3a. --Restated Certificate of Incorporation dated
December 23, 1982. (Filed as Exhibit 3a. to
Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by
reference. File No. 0-538).
3b. --Certificate of Correction of Certificate of
Amendment to the Certificate of Incorporation
dated December 27, 1982. (Filed as Exhibit
3b. to Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by
reference. File No. 0-538).
3c. --Certificate of Amendment of the Certificate
of Incorporation dated March 17, 1983. (Filed
as Exhibit 3c. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
3d. --Certificate of Amendment of the Certificate
of Incorporation dated July 14, 1988. (Filed
as Exhibit 3d. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
81
3e. --Certificate of Amendment of the Certificate
of Incorporation dated November 30, 1995.
(Filed as Exhibit 3e. to Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference. File No.
0-538).
3f. --By-Laws of the registrant as amended (filed
as Exhibit 3d to Form 10-K for fiscal year
ended December 31, 1992 and incorporated
herein by reference. File 0-538).
Exhibit 4 - Instruments defining the rights of security holders,
including indentures
4a. --Form of Indenture dated as of November 1, 1984 (filed
as Exhibit 4a to Registration Statement No.
2-88582 and incorporated herein by reference).
4b. --Form of Indenture dated as of May 1, 1986 (filed
as Exhibit 4a to Pre-Effective Amendment No. 1
to Registration Statement No. 33-5578 and
incorporated herein by reference).
82
Exhibit 10 -- Material contracts
10a. --Employment contract of Lawrence Lefkowitz,
dated July 26, 1993. (Filed as Exhibit 10.2 to
Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10b. --Legal Services Agreement dated as of August 1,
1990 between Bank Hapoalim B.M. and Ampal-American
Israel Corporation. (Filed as Exhibit 10i to Form
10-K for fiscal year ended December 31, 1990 and
incorporated herein by reference. File No.
0-538).
10c. --Warrant Agreement between Ampal-American Israel
Corporation and Chemical Bank, dated as of
February 1, 1994. (Filed as Exhibit 10e to Form
10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference. File No.
0-538).
10d. --Agreement dated February 7, 1992 among
Inerta-Energies Future Technologies Ltd., Yehuda
(Yuli) Offer, Offer Brothers (Management) Ltd.,
Offer Shipping Ltd., Offer Ship Holdings Ltd.,
L.I.N. (Holdings) Ltd., I.I.Z. European
Enterprise B.V., Amnon Leon, Ampal Industries Inc.
and Yeshayahu Landau (Translation). (Filed as
Exhibit 10.1 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-51023 and
incorporated herein by reference).
10e. --Ampal-American Israel Corporation's 1993 Stock Option
Plan. (Filed as Exhibit 10.3 to Pre-Effective
Amendment No. 1 to Registration Statement No.
33-51023 and incorporated herein by reference).
83
Page
Reference*
----------
10f. --Amendment dated as of March 23, 1994 to Ampal-American
Israel Corporation's 1993 Stock Option Plan.
(Filed as Exhibit 10h to Form 10-K for the fiscal
year ended December 31, 1993 and incorporated
herein by reference. File No. 0-538).
10g. --Agreement dated March 22, 1993 between the Investment
Company of Bank Leumi, Ltd., and Ophir Holdings
Ltd., Mercazim Investments Ltd., Diur B.P. Ltd.
and Mivnat Holdings Ltd. (Filed as Exhibit 10.4
to Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10h. --Committed Line of Credit Agreement dated as of June 5,
1992 and amendments dated October 31, 1992 and
October 31, 1993. (Filed as Exhibit 10.5 to
Pre-Effective Amendment No. 1 to Registration
Statement No. 33-51023 and incorporated herein by
reference).
10i. --Agreement dated January 18, 1994 between Ampal
Industries, Inc. and Inerta-Energies and Future
Technologies Ltd. (Translation). (Filed as Exhibit
10.6 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-51023 and
incorporated herein by reference).
10j. --Agreement dated March 30, 1994 between Investment
Company of Bank Hapoalim Ltd., Ampal (Israel) Ltd.
and Ampal Industries (Israel) Ltd. (Translation).
(Filed as Exhibit 10l to Form 10-K for the fiscal
year ended December 31, 1994 and incorporated
herein by reference. File No. 0-538).
10k. --Agreement of Sale and Purchase, dated April 12, 1995
between Massachusetts Mutual Life Insurance
Company and Ampal Realty Corporation (Filed as
Exhibit (1) to Form 8-K, dated June 28, 1995 and
incorporated herein by reference. File No.
0-538).
10l. --Amendment dated June 12, 1995 to Exhibit 10l. (Filed
as Exhibit (2) to Form 8-K, dated June 28, 1995
and incorporated herein by reference. File No.
0-538).
10m. --Agreement dated August 15, 1995 by and among Ampal-
American Israel Corporation and Bank Hapoalim B.M.
(Filed as Exhibit 10m. to Form 10-K for the fiscal
year ended December 31, 1995 and incorporated
herein by reference. File No. 0-538).
10n. --Share Purchase Contract dated October 11, 1996
between Ampal Industries, Inc. and Agrifarm
International Ltd. (Translation). (Filed as
Exhibit 10 to Form 10-Q for the quarterly period
ended September 30, 1996 and incorporated herein
by reference. File No. 2-5061).
10o. --Exchange Agreement dated as of December 11,
1996 between Ampal-American Israel Corporation
Ampal and Bank Hapoalim B.M. (Filed as Exhibit 2
to Amendment No. 34 of Schedule 13D filed by Bank
Hapoalim B.M. on December 20, 1996 and
incorporated herein by reference).
10p. --Agreement of Sale dated December 12, 1996
between Ampal Realty Corporation and The
Government of Israel. E-2
10q. --Declaration Establishing a Plan for Condominium
84
Ownership of Premises 800 Second Avenue, New York,
New York, dated December 12, 1996 (Filed as Exhibit
A to Exhibit 10p of this Report). E-27
85
Page
Reference*
----------
Exhibit 11 -- Statement re Computation of earnings per share... E-114
Exhibit 12 -- Statement re Computation of Ratios............... E-115
Exhibit 21 -- Subsidiaries of the Registrant................... E-116
Exhibit 23 -- Consents of Auditors:
AM-HAL Ltd......................................... E-117
Ampal-American Israel Corporation.................. E-118
Ampal Engineering (1994) Ltd....................... E-119
Ampal Enterprises Ltd.............................. E-120
Ampal Financial Services Ltd....................... E-121
Ampal Holding (1991) Ltd........................... E-122
Ampal Industries (Israel) Ltd...................... E-123
Ampal (Israel) Ltd................................. E-124
Ampal Properties Ltd............................... E-125
Bank Hapoalim (Cayman) Ltd......................... E-126
Bay Heart, Ltd .................................... E-127
Carmel Container Systems Ltd. ..................... E-128
Coral World International Ltd. .................... E-129
Country Club Kfar Saba Limited..................... E-130
Epsilon Investment House Ltd....................... E-131
Granite Hacarmel Investments Limited............... E-132
Hapoalim Mayo Casa (Uruguay) S.A................... E-133
Hod Hasharon Sport Center (1992) Ltd. Partnership.. E-134
Mivnat Holdings Ltd................................ E-135
Moriah Hotels Ltd.................................. E-136
Nir Ltd............................................ E-137
Ophir Holdings Ltd................................. E-138
Orlite Industries (1959) Ltd....................... E-139
Paradise Industries Ltd............................ E-140
Pri Ha'emek (Canned and Frozen Food) 88 Ltd. ...... E-141
Red Sea Marineland Holding (1973) Ltd.............. E-142
Red Sea Underwater Observatory Ltd................. E-144
Renaissance Investment Co. Ltd..................... E-146
Shmey-Bar Real Estate 1993 Ltd..................... E-147
Shmey-Bar (T.H.) 1993 Ltd.......................... E-148
Teledata Communication Ltd......................... E-149
Trinet Investment in High-Tech Ltd................. E-150
Trinet Venture Capital Ltd......................... E-151
U.D.S.-Ultimate Distribution Systems Ltd........... E-152
Exhibit 24 -- Powers of Attorney............................... E-153
(b) A Current Report on Form 8-K, dated December 11, 1996
was filed by the Registrant which listed an Item 1
event relating to a change of control of Registrant
and an Item 5 event, the resignation of Shlomo Recht
as Chairman of the Board of Directors of Registrant.
A second Current Report on Form 8-K, dated December
23, 1996, which described in Item 2 event, the
transfer of Ampal's interest in Pri Ha'emek to
Agrifarm, was also filed.
* Page references preceded by the letter "E" refer to the separately bound
volume of exhibits.
86
REPRESENTATIVE RATES OF EXCHANGE
BETWEEN THE U.S. DOLLAR AND THE NEW ISRAELI SHEKEL
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
-------------------------------------------
The following table shows the amount of New Israeli Shekels equivalent to one
U.S. Dollar on the dates indicated:
1996 1995 1994
----------------------------------------
March 31 3.111 2.968 2.969
June 30 3.203 2.951 3.033
September 30 3.220 2.995 3.013
December 31 3.251 3.135 3.018
87
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
88
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
INDEX
Page
-------------
Report of Independent Auditors 90-91
Balance Sheets 92-94
Statements of Income 95
Statements of Changes in Shareholders' Equity 96
Statements of Cash Flows 97-100
Notes to Financial Statements 101-127
89
[Letterhead of Ronel Stettner & Co.]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
BAY HEART LTD.
We have audited the balance sheets of Bay Heart Ltd. ("the Company") as of
December 31, 1996 and 1995, and the consolidated balance sheets of the Company
and its subsidiary ("the consolidated") as of December 31, 1996 and 1995, and
the related statements of income, statements of changes in shareholders' equity
and statements of cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the auditors Regulations (Auditor's
Mode of Performance), 1973 and, accordingly, we has performed such auditing
procedures as we considered necessary in the circumstances. For purposes of
these financial statements, there is no material difference between generally
accepted Israeli auditing standards and auditing standards generally accepted in
the U.S. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentations.
We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israeli currency
in accordance with opinion issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements, appear in Note 23 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 24.
In our opinion, based on our audit, the above mentioned consolidated financial
statements present fairly the financial position consolidated and Company - as
of December 31, 1996 and 1995, the results of its operations, the changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, in conformity with accounting principles generally
accepted in Israel, consistently applied.
Also, in our opinion, the condensed - consolidated and the Company's financial
statements based on nominal data as presented in Note 24 present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as at December 31, 1996 and 1995, and the results of operations,
changes in shareholder's equity, and its cash flows for each of the three years
in the period ended December 31, 1996, on the basis of the historical cost
convention.
90
[Letterhead of Ronel Stettner & Co.]
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of historical
net income (loss) and shareholder's equity to the extent summarized in Note
24(g) to the financial statements.
/s/ [Illegible]
Haifa, Israel, RONEL STETTNER & CO.
February 10, 1997 Certified Public Accountants (Israel)
91
CONSOLIDATED BALANCE SHEET
92
BAY HEART LTD. & ITS SUBSIDIARY
BALANCE SHEETS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
Note Adjusted NIS
-------------------------------------------------------------------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 1 1 1 1
Trade receivables 3 1,353 1,534 1,353 1,534
Accounts receivable 4 564 258 476 258
----------- ------------ ----------- ------------
1,918 1,793 1,830 1,793
----------- ------------ ----------- ------------
INVESTMENT LOANS AND LONG-TERM 5 978 452 8,084 7,803
RECEIVABLES
----------- ------------ ----------- ------------
FIXED ASSETS, NET 202,823 206,844 195,101 199,327
----------- ------------ ----------- ------------
205,719 209,089 205,015 208,923
=========== ============ =========== ============
/s/ M. Mor
---------------------------------------------
Mr. M. Mor
Chairman of the Board
/s/ Y. Freidenberg
---------------------------------------------
Mr. Y. Freidenberg
Director
/s/ U. Dori
---------------------------------------------
Mr. U. Dori
Director
February 10, 1997
----------------------------
Date
The accompanying notes are an integral part of the financial statements.
93
BAY HEART LTD. & ITS SUBSIDIARY
BALANCE SHEETS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
Note Adjusted NIS
-------------------------------------------------------------------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Credits from banks 7 20,506 20,007 20,506 20,007
Trade payables 8 1,614 1,340 1,614 1,340
Accounts payable and accrudes 9 3,538 4,384 2,834 4,218
----------- ------------ ----------- ------------
25,658 25,731 24,954 25,565
----------- ------------ ----------- ------------
LONG TERM LIABILITIES:
Deferred taxes on income 10 8,536 7,374 8,536 7,374
Liabilities in respect of employee 11 2 10 2 10
rights upon retirement, net
Liabilities to banks 12 78,560 91,698 78,560 91,698
Liabilities to related parties 13 50,298 47,220 50,298 47,220
Tenants' deposits 1,214 1,287 1,214 1,287
----------- ------------ ----------- ------------
138,610 147,589 138,610 147,589
----------- ------------ ----------- ------------
CHARGES,COLLATERALS,COMMITMENTS
AND CONTINGENCIES 14
SHAREHOLDERS' EQUITY 15 41,451 35,769 41,451 35,769
----------- ------------ ----------- ------------
205,719 209,089 205,015 208,923
=========== ============ =========== ============
The accompanying notes are an integral part of the financial statements.
94
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENTS OF INCOME
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
The Company and Consolidated (Note 1)
--------------------------------------------------
Year ended December 31,
1996 1995 1994
------------ ------------ -----------
Note Adjusted NIS
-------- ---------------------------------------------------
(In thousands except per share data)
Revenues 16 31,992 31,631 31,173
Operating expenses 17 12,680 13,170 12,337
------------ ------------ -----------
Gross profit 19,312 18,461 18,836
General and administrative expenses 18 1,642 1,519 1,433
------------ ------------ -----------
Income from ordinary operations 17,670 16,942 17,403
Financial expenses, net (8,704) (8,720) (7,948)
Other income 19 - - 844
Capital loss (11) (51) -
------------ ------------ -----------
Income before taxes 8,955 8,171 10,299
Taxes on income 20 3,273 3,103 4,428
------------ ------------ -----------
Net income for the year 5,682 5,068 5,871
============ ============ ===========
Earnings per share (in adjusted NIS)
Earnings per NIS 1.- par value shares 21 1.36 1.21 1.40
============ ============ ===========
The accompanying notes are an integral part of the financial statements.
95
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Receipts
Share on account Retained
capital of shares earnings Total
------------ ---------- ------------ ------------
Adjusted NIS
-----------------------------------------------------------------
(In thousands)
Balance at January 1, 1994 14,678 1,427 8,725 24,830
Net income for the year - - 5,871 5,871
------------ ------------ ------------ ------------
Balance at December 31, 1994 14,678 1,427 14,596 30,701
Net income for the year - - 5,068 5,068
------------ ------------ ------------ ------------
Balance at December 31, 1995 14,678 1,427 19,664 35,769
Net income for the year - - 5,682 5,682
------------ ------------ ------------ ------------
Balance at December 31, 1996 14,678 1,427 25,346 41,451
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
96
BAY HEART LTD. & ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
CONSOLIDATED
---------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------
1996 1995 1994
------------ ------------ -----------
Adjusted NIS
---------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year 5,682 5,068 5,871
Adjustment to reconcile net income to net cash
provided by operating activities (Appendix A) 5,169 7,846 8,500
------- ------- -------
Net cash provided by operating activities 10,851 12,914 14,371
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in fixed assets (885) (1,658) (11,639)
Long-term loans and receivables (230) (452) --
Disposal of fixed assets 45 8 17
------- ------- -------
Net cash used by investing activities (1070) (2,102) (11,622)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term loans from received related parties 3,295 3,227 9,337
Short-term loans repaid from related parties -- -- (2,992)
Long-term loans received from banks 2,646 -- --
Repaid long-term loans from banks (15,349) (14,592) (12,704)
Short-term credits from banks, net (300) 585 3,678
Decrease in tenant's deposits (73) (42) (101)
------- ------- -------
Net cash used by financing activities (9,781) (10,822) (2,782)
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS -- (10) (33)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
1 11 44
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1 1 11
======= ======= =======
The accompanying notes are an integral part of the financial statements.
97
BAY HEART LTD. & ITS SUBSIDIARY
APPENDIX A: ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
CONSOLIDATED
---------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------
1996 1995 1994
------------ ------------ -----------
Adjusted NIS
---------------------------------------------------
(In thousands)
INCOME AND EXPENSES NOT INVOLVING
CASH FLOWS:
Depreciation and amortization 5,115 5,467 5,435
Erosion of long-term loans 147 (1,089) (244)
Deferred taxes on income 1,162 1,293 1,995
Increase (decrease) in liability regarding employee's
rights upon retirement (8) 8 (42)
Capital loss 11 51 --
------ ------ ------
6,427 5,730 7,144
------ ------ ------
CHANGES IN OPERATING ASSETSAND LIABILITY ITEMS:
Decrease (increase) in trade receivables 181 251 (355)
Decrease (increase) in trade receivables (330) 111 1,557
Collection of war damage claims -- 2,534 --
Increase (decrease) in trade payables 274 593 (316)
Increase (decrease) in accounts payable and accruals (1,383) (1,373) 470
------ ------ ------
(1,258) 2,116 1,356
------ ------ ------
------ ------ ------
5,169 7,846 8,500
====== ====== ======
The accompanying notes are an integral part of the financial statements.
98
BAY HEART LTD. & ITS SUBSIDIARY
STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
THE COMPANY
---------------------------------------------------
For the Year Ended December 31,
1996 1995 1994
------------ ----------- ------------
Adjusted NIS
---------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 5,682 5,068 5,871
Adjustment to reconcile net income to cash net
provided by operating activities (Appendix A) 5,169 7,846 8,500
------- ------- -------
Net cash provided by operating activities 10,851 12,914 14,371
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in fixed assets (691) (1,067) (4,937)
Long-term loan to subsidiary (424) (1,042) (6,703)
Disposal of fixed assets 45 8 17
------- ------- -------
Net cash used by investing activities (1070) (2,101) (11,623)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term loans received from related parties 3,295 3,227 9,337
Short-term loans repaid from related parties -- -- (2,992)
Long-term loans received from banks 2,646 -- --
Long-term loans repaid from banks (15,349) (14,592) (12,704)
Short-term credits from banks, net (300) 585 3,678
Decrease in tenant's deposits (73) (42) (101)
------- ------- -------
Net cash used by financing activities (9,781) (10,822) (2,782)
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS: -- (9) (34)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
1 10 44
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1 1 10
======= ======= =======
The accompanying notes are an integral part of the financial statements.
99
BAY HEART LTD. & ITS SUBSIDIARY
APPENDIX A: ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
THE COMPANY
---------------------------------------------------
For the Year Ended December 31,
1996 1995 1994
------------ ----------- ------------
Adjusted NIS
---------------------------------------------------
(In thousands)
INCOME AND EXPENSES NOT INVOLVING
CASH FLOWS:
Depreciation and amortization 5,115 5,467 5,435
Erosion of long-term loans 147 (1,089) (244)
Deferred taxes on income 1,162 1,293 1,995
Increase (decrease) in liability I respect of
employee's rights upon retirement, net (8) 8 (42)
Capital loss 11 51 --
------ ------ ------
6,427 5,730 7,144
------ ------ ------
CHANGES IN OPERATING ASSETS AND
LIABILITY ITEMS:
Decrease (increase) in accounts receivable 181 251 (355)
Decrease (increase) in trade receivables (330) 111 1,557
Collection of war damage claims -- 2,534 --
Increase(decrease) in trade payables 274 593 (316)
Increase (decrease) in accounts payable and accruals
(1,383) (1,373) 470
------ ------ ------
(1,258) 2,116 1,356
------ ------ ------
------ ------ ------
5,169 7,846 8,500
====== ====== ======
The accompanying notes are an integral part of the financial statements.
100
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 1:- THE COMPANY AND ITS ACTIVITIES
The Company is a private company, owning and operating a shopping
center in the Haifa Bay area, known as "Bay Heart".
A wholly owned subsidiary, Bay Heart Properties (1994) Ltd. (BHP)
has acquired 50% of the titles in adjacent land. In 1996 BHP was
engaged in the planning of a commercial center on the adjacent
land. All erection costs were charged to cost of land. BHP was
engaged in no other activities, and there is no statement of income
to be attached.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Financial statements in adjusted Israeli currency:
--------------------------------------------------
1. The financial statements are presented on the basis of the
historical cost adjusted to the changes in the general
purchasing power of the Israeli currency (NIS), in accordance
with the principles determined by the Institute of Certified
Public Accountants in Israel ("the Israeli Institute").
All figures in the accompanying financial statements
(including comparative figures) are presented in adjusted NIS,
which have a stable purchasing power (NIS of December 1996),
based upon the changes in the Israeli CPI.
The financial statements are adjusted based on the accounts of
the Company maintained in nominal NIS. A summary of the
financial statements in nominal NIS is presented in Note 23.
2. The adjusted amounts of non-monetary assets do not necessarily
represent realizable or current economic value, but only the
originla historical cost of those assets in terms of adjusted
NIS. The term "cost" in these financial statements signifies
cost in adjusted NIS.
b. Principles of adjustment:
-------------------------
1. Non-monetary balance sheet items and the related components of
statement of income:
a) Non-monetary items (mainly fixed assets and related
accumulated depreciation, inventories and related customer
advances, work in progress and the related customer
advances, intangible assets and deferred charges, and share
capital and capital surplus derived from cash flow from
shareholders) have been adjusted on the basis of the
Israeli CPI at the time the related transactions were
carried out. The components of the statement of income
relating to non-monetary items (mainly changes in
inventories and work in progress, depreciation and
amortization) have been adjusted on the same basis used for
the adjustment of the related balance sheet items.
101
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
b) Deferred taxes are computed on the basis of the adjusted
figures (see 2f. below).
c) Share capital and capital surplus derived from retained
earnings (by way of distribution of bonus shares or by
other transfers from retained earnings to capital surplus)
have been reflected in these financial statements only if
they represent capitalization of earnings in real terms.
d) Monetary items (items whose amounts in the balance sheet
reflect current or realizable values) are presented in the
balance sheet as of December 31, 1996 in their nominal
amounts (figures for the preceding years have been adjusted
to the December 1996 Israeli CPI).
2. Statement of income:
--------------------
a) The components of the statement of income (exept for
financing), relating to transactions carried out during the
year - sales, expenses, etc, have been adjusted on the
basis of receipt or at the time of payment until balance
sheet date of the changes in the Israeli CPI at the time.
The erosion of monetary balances relating to the aforesaid
transactions has been included in the relevant items in the
statement of income..
b) The components of the statement of income relating to
non-monetary items have been adjusted on the same basis
used for the adjustment of the related balance sheet items
(mainly depreciation, capital gain, etc).
c) The components of the statement of income relating to
provisions included in the balance sheet, such as liability
in respect of employee rights upon retirement, net and
provisions for vacation pay, have been determined on the
basis of the changes in the balances of the related balance
sheet items after their relative cash flows are taken into
account.
d) Equity in results of subsidiaries has been determined on
the basis of the adjusted financial statements of the
subsidiaries.
e) The financial expenses, net reflect real financial income
and expenses.
f).Deferred taxes:
---------------
Deferred taxes are computed in respect of differences
between the amount, included in these financial statements
and those to be considered for tax purposes. The main
components in respect of which deferred taxes have been
incluede are as follows:
1. Differences between the value of fixed assets in the
financial statements and for depreciation differences
of buildings whose depreciation period exceeds 20
years.
2. Change in balances of taxes due to different timing.
The amounts included in these financial statements and
those to be considered for tax purposes
102
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
Adjusted to the NIS of December 1996
3. Deferred tax balances are computed at the enacted
tax rate expected to be in effect at the time when
these taxes will be released to the statement of
income. No deferred taxes were computed in respect
of capital gains that would be due in the event that
the investments in subsidiary was realized, since
the company intends to hold such investments.
g. Data regarding Israeli CPI and exchange rate of foreign currency:
-----------------------------------------------------------------
Below are Israeli CPI's and rates of exchange of one U.S. dollar:
Exchange rate of
At the year ended one U.S. dollar Israeli CPI *
------------------------------ ------------------ ----------------------
December 1996 NIS 3.251 143.1 points
December 1995 NIS 3.135 129.4 points
December 1994 NIS 3.018 119.7 points
December 1993 NIS 2.986 94.0 points
Changes during the year
------------------------------
December 1996 3.7% 10.6%
December 1995 3.9% 8.1%
December 1994 1.1% 14.5%
Real increase in the Israeli
CPI relative to the exchange
rate of the dollar during
the year
------------------------------
December 1996 6.7%
December 1995 4.0%
December 1994 13.2%
*) According to the index for the month ending on balance sheet date on an
average basis of 1993=100.
103
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 3:-TRADE RECEIVABLE
Consolidated The Company
------------------------ -------------------------
December 31, December 31,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Adjusted NIs
---------------------------------------------------------
(In thousands)
-
Open balances 746 1,227 746 1,227
Checks receivable 610 332 610 332
------ ------ ------ ------
1,356 1,559 1,356 1,559
Less allowance for doubtful accounts (3) (25) (3) (25)
------ ------ ------ ------
1,353 1,534 1,353 1,534
====== ====== ====== ======
NOTE 4:- ACCOUNTS RECEIVABLE
Current maturities of long-term receivables 29 40 29 40
Institutions 196 -- 108 --
Other accounts receivable 339 218 339 218
------ ------ ------ ------
564 258 476 258
====== ====== ====== ======
104
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 5:- LONG-TERM LOANS AND RECEIVABLES
Consolidated The Company
-------------------------- --------------------------
December 31, December 31,
-------------------------- --------------------------
1996 1995 1996 1995
---------- ----------- ----------- ----------
Adjusted NIS
-----------------------------------------------------------
(In thousands)
Long-term loan - extension of
shopping center (a) 891 452 - -
Prepaid expenses, less amortization (b) 116 40 116 40
---------- ----------- ----------- ----------
1,007 492 116 40
Less current maturities (b) (29) (40) (29) (40)
---------- ----------- ----------- ----------
978 452 87 -
Investment in subsidiary
---------- ----------- ----------- ----------
Long-term loans (c) - - 7,997 7,803
---------- ----------- ----------- ----------
978 452 8,084 7,803
========== =========== =========== ==========
(a) The Company is committed, under an agreement with the parties
to a joint venture (Note 14b) to provide the financing of the
erection costs (mainly: planning and taxes) of the joint
project, pending the obtainment of an accompanying bank
financing scheme. The share of the other parties in the joint
venture, financed by the Company as aforesaid (50%), amounted
to NIS 891 thousand. This amount is presented as a long-term
loan to other parties. This loan will bear interest at the
rate which will be applicable to the said bank financing.
At this stage, accompanying bank financing has not yet been
obtained, and the long-term loan was linked to the changes in
the Israeli CPI.
Pursuant to the agreement, the loan will be secured by a lien
on the rights to land of the other parties, as mentioned, as
welll as by a note via a lien on the rights to revenues from
the shopping center.
(b) Prepaid expenses in respect of using the parking loat are
amortized over the period of the agreement (5 years) ending in
January 2001.
(c) The loan is linked to the Israeli CPI. Repayment date is to be
determined by the Company's Board of Directors, subject to
fifteen months' advance notice to the subsidiary company.
105
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 6:- FIXED ASSETS:
Consolidated:
Machinery Furniture
and and office
Land (a) equipment equipment Vehicles Total
----------- -------------- -------------- ----------- ------------
Adjusted NIS
--------------------------------------------------------------------------------
(In thousands)
Cost:
Balance at January 1, 1996 203,968 11,465 822 110 216,365
Additions during year 168 288 50 177 628
Disposals during year - - - (110) (110)
----------- -------------- -------------- ----------- ------------
Balance at December 31, 1996 204,136 11,753 872 177 216,883
----------- -------------- -------------- ----------- ------------
Accumulated depreciation
Balance at January 1, 1996 17,473 5,227 293 39 23,032
Additions during year 3,784 1,161 84 21 5,050
Disposals during year - - - (52) (52)
----------- -------------- -------------- ----------- ------------
Balance at December 31, 1996 21,257 6,388 377 8 28,030
----------- -------------- -------------- ----------- ------------
----------- -------------- -------------- ----------- ------------
Depreciated cost at the end of the year 182,879 5,365 495 169 188,908
Payments on account of fixed assets 143 - - - 143
Investment in erection of shopping
center (b) 12,038 - - - 12,038
Vacant land 1,734 - - - 1,734
----------- -------------- -------------- ----------- ------------
Depreciated cost at December 31,1996 196,794 5,365 495 169 202,823
=========== ============== ============== =========== ============
Depreciated cost at December 31, 1995 200,007 6,237 528 72 206,844
=========== ============== ============== =========== ============
106
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
The Company:
Fixed assets include the above amount excluding land in the amount of
NIS 7,722 thousand.
(a) The Company has ownership rights to land, except an area of 379 sqm
held under capitalized leasehold from the Israel Land Authority. The
Israel Land Authority, approved the sale of ownership to the Company,
and the consideration thereof was paid. The ownership agreement has
not yet been signed.
(b) (1) Investment in the erection of shopping center include land of the
Company in the amount of NIS 4,316 thousand and the share of the
subsidiary (50%) in land in the amount of NIS 6,568 thousand and
in the planning and erection expenses in the amount of NIS 1,154
thousand. The land of the subsidiary has not yet been registered
in the name of the subsidiary in the Land Registry offfice due to
various procedures that the sellers have to complete. To secure
the registration, a mortage of the land in favor of the
subsdiary, was recorded.
(2) Land in the amount of NIS 1,734 thousand was purchased from a
company under liquidation. The land has not yet been recorded in
the name of the Company due to a debt of the land owners to
Haifa's Municipality which was not yet paid by the receiver.
Pursuant to the purchase agreement, the receiver obligated to
deposit the proceeds with a deposit under its name, if not, those
proceeds be used unitl the land is registered in the name of the
Company. The debt of the landowners to Haifa's Municipality
totals NIS 129 thousand.
(c) As for charges - see Note 14.
December 31,
-------------------------------
NOTE 7:- CREDITS FROM BANKS Interest 1996 1995
Rate ------------- ------------
% Adjusted NIS
----------- -------------------------------
(In thosuands)
Banks-overdrafts 19.2 439 437
Banks short-term loans 16.2 3,900 4,202
Banks - Current maturities of long-term loans 16,167 15,368
------ ------
20,506 20,007
====== ======
NOTE 8:- TRADE PAYABLES
Open balances 1,604 1,182
Checks payable 10 486
------ ------
1,614 1,668
====== ======
107
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
Consolidated The Company
---------------------------- ----------------------------
December 31, December 31,
1996 1995 1996 1995
------------ ----------- ------------ ------------
Adjsuted NIS
---------------------------------------
(In thousands)
NOTE 9:- ACCOUNTS PAYABLE AND
ACCRUALS
Revenues received in advance 815 1,064 815 1,064
Employee's salaries and related expenses 336 321 336 321
Related parties 345 332 345 332
Institutions 996 996 296 830
Interest payable 657 761 657 761
Other accounts payable and accruals 389 582 385 582
----- ----- ----- -----
3,538 4,056 2,834 3,890
===== ===== ===== =====
NOTE 10:-DEFERRED TAXES ON INCOME
a. Composition:
Balance Transfer
at the to Balance at
beginning statement the end of
of the year of income the year
------------- ------------- ------------
Adjusted NIS
-------------------------------------------------------
(In thousands)
The caption includes the tax effect of the
following items:
Accelerated depreciation of buildings 7,440 1,147 8,587
Timing differences of allowable expenses (66) 15 (51)
------ ------ ------
7,374 1,162 8,536
====== ====== ======
Deferred taxes are computed at tax rate of 36%, applicable when payments
will fall due.
b. The depreciated balance of certain depreciable fixed assets
(buildings) includes amounts which will not be recognized for tax
purposes as deductible depreciation, and which, in accordance with
the provisions of the Institute of Certified Public Accountants in
Israel are treated as permanent differences, in respect of which no
deferred taxes need to be provided.
108
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
December 31,
----------------------------------
1996 1995
------------ ------------
Adjusted NIS
----------------------------------
(In thousands)
Balance at the beginning of the year 1,832 1,877
Changes during the year 16 (45)
------------ ------------
Balance at the end of the year 1,848 1,832
============ ============
NOTE 11:-LIABILITY IN RESPECT OF EMPLOYEE'S RIGHTS UPON RETIREMENT, NET
December 31,
----------------------------------
1996 1995
------------ ------------
Adjsuted NIS
----------------------------------
(In thousands)
Severance pay 331 300
Less: amounts funded (329) (290)
------------- ------------
2 10
============= ============
The Company's liability for severance pay is fully covered by the
provision for severance pay -amounts funded in managers' insurance
policies and in provident funds.
Amounts funded include accruals, and may be withdrawn only open
fullfilment of provisions of the Severance Pay Law, and related to
income tax withholding.
109
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 12:- LIABILITIES TO BANKS
Principal and interest are linked to the Israeli CPI, at the following
terms:
Consolidated
and
the Company
--------------------
December 31, 1996
--------------------
Adjusted NIS
--------------------
Annual Interest Rates (In thousands)
-----------------------------
8.075% 6,962
5.675%- 6.575% 22,877
5.25% - 5.50% 31,466
4.75% - 4.85% 33,422
-----------
94,727
Less - current authorities (16,167)
-----------
78,560
===========
The maturities are as follows:
Second year 21,011
Third year 17,063
Fourth year 12,780
Fifth year 7,323
Sixth year and thereafter 20,383
-----------
78,560
===========
As for charges - see Note 14.
NOTE 13:-LIABILITIES TO REALTED PARTIES
Consolidated
and
the Company
--------------------
December 31, 1996
--------------------
Adjusted NIS
--------------------
Annual Interest Rates (In thousands)
-----------------------------
Shareholders 15,315
Related parties 34,983
-----------
50,298
===========
The loans are linked to the Israeli CPI and bear annual interest at the
rate of 5.4%-5.5%. Interest accrued is during the year added to
principal. The maturity dates of the loans, will be determined by the
Board of Directors of the Company, subject to prior notice of 15 months.
110
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 14:-CHARGES, COLLATERALS, COMMITMENTS AND CONTINGENCIES
a. Charges and collaterals
Long-term loans from banks, amounting on December 31, 1996 to NIS
94,727 thousand, are secured by unlimited fixed and floating
charges on all of the Company's assets. Part of the loans are also
secured by lien on rental contracts.
b. Commitments:
1. A wholly owned subsidiary of the Company acquired 50% of the
rights in adjacent land. The subsidiary and the sellers
undertook to carry out a joint venture for the planning,
construction, renting and managing of a shopping center on the
said land. The subsidiary undertook to provide banking
facilities to finance the said project.
The parties undertook to mortgage the said land, and to assign
the rental agreements as security for the said financing..
As of balance sheet date, various planning expenses relating
to the above project aggregated to NIS 1 million. The total
scope of investment in the project is estimated by the parties
at $25 million.
The subsidiary and the partners to the joint venture examin
the possibility of postponing the erection of the above
project and erecting a smaller project as an interim-stage.
2. On August 22, 1995, the Company signed an agreement to erect a
transportation complex in the vicinity of the Company's
shopping center. The parties to the agreement are the Ports
and Railways Authority, "Nitzba" (affiliate of Egged), and the
Company, in equal share. The agreement is subject to approval
by the Government of Israel. The complex is to include a
railway station, a bus terminal, commercial space and a
parking lot. The projected inclusive cost is estimated by the
parties at $25 million.
111
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
c. Long-term leases
1. Future minimum lease revenues under all leases with initial
or remaining non-cancelable lease terms in excess of one
year as of December 31, 1996, are as follows:
Year Adjusted NIS
----------------------------------- -----------------
(In thousands)
1997 17,045
1998 11,552
1999 8,601
2000 7,359
2001 3,438
2002 and thereafter 12,652
-----------------
Total minimum lease revenues 60,647
=================
2. Total rentals pending on revenues from sales, for the year
ended December 31, 1996 amount to NIS 3,597 thousand.
3. In addition, lessees undertook to pay maintenance and
management fees.
4. Lease payments are linked to the Israeli CPI.
5. Lease agreements usually include renewal options.
112
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
d. Contingencies:
1. The Company provided to the Municipality of Haifa a bank
guarantee in the amount of NIS 58 thousand to secure the
terms of the building permits.
2. Tax assessments by the Betterment Tax Authorities, have been
received by the Company for an additional payment of
purchase tax in respect of purchase of land in the amount of
NIS 147 thousand. The Company has objections to these
assessments, however, a resolution has not yet been
obtained. In order to enable the registration of the rights
to that land, the payment of the purchase tax was guaranteed
by issuing a bank guarantee in the amount of NIS 141
thousand.
Based on legal counsel's opinion, the Company believes that
the prospects of its objection being ultimately sustained
and upheld are good, and therefore no provision was
recorded.
e. Claims in dispute:
The Company has recognized a provision for the full exposure of
excess, as provided in its insurance policies. Injury claims
filed against the Company are based on legal counsel's opinion
and Company management covered by insurance policies.
113
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 15:-SHARE CAPITAL
Issued and
Authorized outstanding
-------------- ---------------
Ordinary shares of NIS 1 par value each
Number of shares 5,000,000 4,189,289
========= =========
Nominal amount 5,000 4,189
=========
Remeasurement supplement 10,489
---------
14,678
=========
The ordinary shares entitle their holders to attend and vote at
shareholder meetings, and to participate in distribution of profits and
in the excess of assets over liabilities upon winding-up.
114
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
Year ended December 31
-----------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
----------------------------------------------
(In thousands)
NOTE 16:-REVENUES
Rental 25,131 24,975 24,576
Management fees 6,861 6,656 6,597
---------- ---------- ----------
Operating expenses 31,992 31,631 31,173
========== ========== ==========
NOTE 17:-OPERATING COSTS
Salaries and related expenses 1,484 1,517 1,222
Depreciation and amortization 5,115 5,467 5,435
Cleaning and security 2,520 2,400 2,138
Electricity and water 811 991 1,030
Insurance and municipal taxes 737 951 892
Advertising 1,043 939 849
Other expenses 970 905 771
---------- ---------- ----------
12,680 13,170 12,337
========== ========== ==========
NOTE 18:-GENERAL AND ADMINISTRATIVE
EXPENSES
Salaries and related expenses 527 593 468
Professional fees 341 447 804
Management fees 332 332 -
Other expenses 442 147 161
---------- ---------- ----------
1,642 1,519 1,433
========== ========== ==========
NOTE 19:-OTHER INCOME
The amount relates to the collection of debt which was considered
as bad debt in previous years.
115
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 20:-TAXES ON INCOME
Year ended December 31
---------------------------------------------
1996 1995 1994
---------- ---------- ---------
Adjusted NIS
---------------------------------------------
(In thousands)
a. Composition:
Current taxes on income 1,970 1,788 2,404
Erosion of tax prepayment 70 22 29
Deferred taxes 1,310 1,293 1,995
Deferred taxes in respect of
previous years (148) -- --
Taxes in respect of previous years 71 -- --
------ ----- -----
3,273 3,103 4,428
====== ===== =====
b. Effective tax rate
Reconciliation between the theoretical tax expense assuming all the income
of the company were taxed at the regular rates applicable to companies in
Israel and the actual tax expense as reported in the statement of income:
Year ended December 31
---------------------------------------------
1996 1995 1994
---------- ---------- ---------
Adjusted NIS
---------------------------------------------
(In thousands)
Statutory
Regular tax rates 36% 37% 38%
====== ===== =====
Theoretical tax expense in respect of this income 3,227 3,025 3,914
Effect of disallowable expenses for tax purposes 42 35 --
Measurement base differences between financial
statements and reporting for tax purposes and other
differences, net 11 21 4
Erosion of advance payment 70 22 29
Adjustment of provision for
accelerated depreciation of
building -- -- 481
Taxes in respect of previous years (77) -- --
------ ----- -----
3,273 3,103 4,428
====== ===== =====
c. Tax assessments:
Final tax assessments have been received by the Company through tax year
1994.
116
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 21:-EARNINGS PER NIS 1 PAR VALUE OF ORDINARY SHARES
The net income and the par value of shares used in the computation of
net earnings per NIS1 par value of shares are as follows:
Year ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
---------------------------------------------
(In thousands)
Weighted number of shares used in the computation of net
earnings per share 4,189 4,189 4,189
========== ========== ==========
Net income 5,682 5,068 5,871
========== ========== ==========
NOTE 22:-TRANSACTIONS WITH RELATED PARTIES
a. Liabilitites to related parties:
See Notes 9 and 13.
b. Benefits granted to and transactions with related parties:
Year ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
Adjusted NIS
---------------------------------------------
(In thousands)
1. Payments:
Interest on short-term loans (in nominal NIS) -- -- 342
Interest on long-term loans 2,964 3,132 1,591
2. Revenues- rental and management fees 3,138 3,138 3,111
3. Related party employed by the Company - salary 488 459 436
4. Management fee 332 332 --
5. A related party has placed a guarantee on long-term loan from bank in the amount of NIS 2,669 thousand.
117
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 23:-A SUMMARY OF THE FINANCIAL STATEMENTS IN NOMINAL (HISTORICAL) VALUES
a. Balance sheets:
December 31
1996 1995
---------- -------
NIS
----------------------
(In thousands)
Assets:
-------
Current assets 1,827 1,608
Loan to subsidiary 7,997 7,056
Long-term loans and receivables 82 --
Fixed assets, net 103,661 105,140
---------- ---------
113,567 113,804
========== =========
Liabilities less shareholders' deficiency
-----------------------------------------
Current liabilities 24,954 23,117
Long-term liabilities 130,074 126,791
Shareholders' deficiency (41,461) (36,104)
---------- ---------
113,567 113,804
========== =========
118
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
b. Statements of operations:
Year ended December 31,
------------------------------------------------
1996 1995 1994
----------- ----------- -----------
NIS
------------------------------------------------
(In thousands)
Revenues: 30,776 27,424 24,524
------- ------- -------
Operating expenses 9,014 8,099 6,693
Depreciation and amortization 2,725 2,902 2,872
------- ------- -------
11,739 11,001 9,595
------- ------- -------
Income from ordinary operations 19,037 16,423 14,959
Financial expenses, net (22,357) (18,049) (23,990)
Other income -- -- 700
Capital gain (loss) 4 (23) --
------- ------- -------
Loss before tax on income (3,316) (1,649) (8,331)
Taxes on income (2,041) (1,617) (2,012)
------- ------- -------
Loss for the year (5,357) (3,266) (10,343)
======= ======= =======
c. Statement of changes in shareholders' deficiency:
Receipts
Share on account
capital of shares Deficit Total
------------ ------------ ------------ ------------
NIS
------------------------------------------------------------------
(In thousands)
Balance at January 1, 1994 4,189 484 (27,168) (22,495)
Loss for the year - - (10,343) (10,343)
------------ ------------
------------ ------------
Balance at December 31, 1994 4,189 484 (37,511) (32,838)
Net loss for the year - - (3,266) (3,266)
------------ ------------ ------------ ------------
Balance at December 31, 1995 4,189 484 (40,777) (36,104)
Net loss for the year - - (5,357) (5,357)
------------ ------------ ------------ ------------
Balance at December 31, 1996 4,189 484 (46,134) (41,461)
============ ============ ============ ============
119
NOTE 24:TRANSLATION INTO U.S. DOLLARS
INDEX
Page
----------
(a) Principles of Remeasurement 121
(b) Condensed Consolidated Balance Sheets 122
(c) Condensed Consolidated Statement of Income 123
(d) Condensed Consolidated Statement of Shareholders' Equity 124
(e) Condensed Consolidated Statement of Cash Flow 125
(f) Taxes on Income 127
(g) Effect of Translation 127
120
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 24:-CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S.
DOLLARS
(a) Principles of Translation
-------------------------
The primary financial statements of the company are presented in
Isarel Shekels. They have been prepared on the basis of historical
cost as adjusted for the changes in the general purchasing power of
the Israel currency, in accordance with opinions issued by the
Institute of Certified Public Accountants in Israel.
The accounting principles generally accepted in the United States
differ from the aforesaid principles accepted in Israel.
The consolidated financial statements, hereafter presented in this
note, are based on the nominal financial statements in Israel Shekels,
as adjusted to comply with the accounting principles generally
accepted in the United States, as specified hereunder.
The accompanying statements are based on the December 31, 1992, dollar
statements. These were reported in U.S. dollars as if the U.S. dollar
were the functional currency.
For the purpose of the accompanying statements, the 1992 dollar
statements were translated into New Israel Sheklels (NIS) at the rate
of exchange prevailing on December 31, 1992. Commencing January 1,
1993, the nominal shekel was adopted as functional currency,
irrespective of the effects of inflation, and translated into U.S.
dollars at the following rates of exchange:
Assets and liabilities - rate at each Balance Sheet date.
Revenues expenses, gains and losses - annual average rate of each
year.
The resulting translation adjustments are reflected as a component of
shareholders' equity.
The translated amounts do not necessarily purport to represent U.S.
dollars, nor the real value of the assets in dollar terms.
121
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(b) Condensed Consolidated Balance Sheet
------------------------------------
In NIS In USD
------------------------- --------------------------
December 31 December 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
ASSETS
------
CURRENT ASSETS 1,915 1,614 589 515
LONG-TERM LOANS AND
RECEIVABLES 973 409 299 130
DEFERRED TAXES ON INCOME 8,983 5,739 2,763 1,830
FIXED ASSETS
Cost, net of depreciation 143,002 144,384 43,987 46,056
------- ------- ------ ------
154,873 152,146 47,638 48,531
======= ======= ====== ======
In NIS In USD
------------------------- --------------------------
December 31 December 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS'
-----------------------------
EQUITY
------
CURRENT LIABILITIES 25,658 23,267 7,892 7,422
LONG-TERM DEBT 130,074 126,791 40,010 40,444
SHAREHOLDERS' EQUITY (859) 2,088 (264) 665
---------- ---------- ---------- ----------
154,873 152,146 47,638 48,531
========== ========== ========== ==========
122
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(c) Condensed Consolidated Statement of Income
------------------------------------------
In NIS In USD
---------- -----------
For the year ended For the year ended
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ----------- ----------
Rental and management
income 30,776 27,424 24,524 9,659 9,107 8,182
------- ------- ------- ------ ------ ------
Less:
Maintenenace general and
administrative expenses 9,014 8,099 6,693 2,829 2,690 2,233
Depreciation and
amortization 3,561 3,824 3,792 1,117 1,269 1,265
------- ------- ------- ------ ------ ------
12,575 11,923 10,485 3,946 3,959 3,498
------- ------- ------- ------ ------ ------
------- ------- ------- ------ ------ ------
Operating Profit 18,201 15,501 14,039 5,713 5,148 4,684
Finance expenses, net (22,357) (18,023) (23,990) (7,016) (5,985) (8,004)
Other income (Expenses) -- -- 700 -- -- 234
Capital gain (loss) 6 (32) -- 2 (11) --
------- ------- ------- ------ ------ ------
Net loss before taxes (4,150) (2,554) (9,251) (1,301) (848) (3,086)
Taxes of income see (f)
hereunder 1,203 858 2,999 377 285 1,000
------- ------- ------- ------ ------ ------
Net loss for the year (2,947) (1,696) (6,252) (924) (563) (2,086)
======= ======= ======= ====== ====== ======
123
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(d) Condensed Consolidated Statement of Change of Shareholders' Equity
------------------------------------------------------------------
Share Capital
and Receipt
on Account Translation Retained
Shares Adjustment Earnings Total
--------------- --------------- ------------- ----------
Adjusted NIS
------------------------------------------------------------------
(In thousands)
Balance January 1, 1994 8,052 (3,698) 5,682 10,036
Net loss for the year -- -- (6,252) (6,252)
----- ------ ------ -------
Balance December 31, 1994 8,052 (3,698) (570) 3,784
Net loss for the year -- -- (1,696) (1,696)
----- ------ ------ -------
Balance December 31, 1995 8,052 (3,698) (2,266) 2,088
Net loss for the year -- -- (2,947) (2,947)
----- ------ ------ -------
Balance December 31, 1996 8,052 (3,698) (5,213) (859)
===== ====== ====== =======
(As translated into US $, in thousands)
Balance January 1, 1994 2,913 (1,653) 2,101 3,361
Translation adjustment for the year 1994 -- (20) -- (20)
Net loss for the year -- -- (2,086) (2,086)
----- ------ ------ ------
Balance December 31, 1994 2,913 (1,673) 15 1,255
Translation adjustment for the year 1995 -- (27) -- (27)
Net loss for the year -- -- (563) (563)
----- ------ ------ ------
Balance December 31, 1995 2,913 (1,700) (548) 665
Translation adjustment fort the year 1996 -- (5) -- (5)
Net loss for the year -- -- (924) (924)
----- ------ ------ ------
Balance December 31, 1996 2,913 (1,705) (1,472) (264)
===== ====== ====== ======
124
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
(e) Condensed Consolidated Statement of Cash Flow
----------------------------------- ---------
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ---------- ----------- ---------- ---------- -----------
OPERATING ACTIVITIES
Net loss (2,947) (1,696) (6,252) (924) (563) (2,086)
Reconciliation of net
income to cash provided
by operating activities
(Appendix A) 14,750 13,414 17,064 4,630 4,455 5,695
------- ---------- ----------- ---------- ---------- -----------
Cash provided by
operating activities 11,803 11,718 10,812 3,706 3,892 3,609
------- ---------- ----------- ---------- ---------- -----------
INVESTING ACTIVITIES
Investment in fixed assets (2,185) (2,393) (9,710) (686) (795) (3,240)
Long-term loan (594) (409) - (187) (136) -
Disposal of fixed assets 45 6 13 14 2 4
---------- ---------- -------- --------- ---------- -----------
Net cash used by
investment activities (2,734) (2,796) (9,697) (859) (929) (3,236)
---------- ---------- --------- --------- ---------- -----------
FINANCING ACTIVITIES
Long-term loans from
related parties 2,964 2,918 7,810 930 969 2,606
Long-term loans from
banks 2,500 - - 785 - -
Repayment of long-term
loans from banks (14,727) (12,704) (9,944) (4,622) (4,219) (3,318)
Short-term loans from
shareholders and related
parties - - (2,188) - - (730)
Increase in bank short-
term credits 144 804 3,117 45 267 1,040
Deposits from tenants 50 52 67 15 17 22
---------- ---------- ----------- ---------- ---------- ----------
Cash used by financing
activities (9,069) (8,930) (1,138) (2,847) (2,966) (380)
---------- ---------- ----------- ---------- ---------- -----------
Effect of exchange rate
changes - - - - - (1)
---------- ---------- ----------- ---------- ---------- -----------
---------- ---------- ----------- ---------- ---------- -----------
DECREASE IN CASH AND
CASH EQUIVALENTS - (8) (23) - (3) (8)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR
AT END OF YEAR 1 9 32 - 3 11
---------- ---------- ----------- ---------- ---------- -----------
1 1 9 - - 3
========== ========== =========== ========== ========== ===========
125
BAY HEART LTD. & ITS SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRANSLATED INTO U.S DOLLARS
----------------------------------------------------------------------------
APPENDIX A: RECONCILIATION OF NET INCOME TO CASH PROVIDED
BY OPERATING ACTIVITIES
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ----------- ---------- ---------- ---------- ----------
INCOME AND EXPENSES
NOT INVOLVING CASH-
FLOWS
Depreciation and amortization 3,561 3,824 3,792 1,118 1,270 1,265
Deferred taxes (3,244) (2,474) (5,011) (1,018) (822) (1,672)
Linkage increment on long-term
loans 14,773 9,828 17,107 4,637 3,264 5,708
Termination of employment (7) 7 (30) (2) 2 (10)
Capital loss (gain) (6) 32 -- (2) 11 --
Provision for doubtful debts -- -- -- -- -- --
------- ------- ------- ------ ------ ------
15,077 11,217 15,858 4,733 3,725 5,291
------- ------- ------- ------ ------ ------
CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Decrease (increase) in accounts
receivable and other debtors (337) 281 648 (106) 93 217
Decrease (increase) in war damage
claim 33 2,107 (288) 10 700 (96)
Increase (decrease) in suppliers and
other credit balances (23) (191) 846 (7) (63) 283
------- ------- ------- ------ ------ ------
(327) 2,197 1,206 (103) 730 404
------- ------- ------- ------ ------ ------
------- ------- ------- ------ ------ ------
14,750 13,414 17,064 4,630 4,455 5,695
======= ======= ======= ====== ====== ======
126
BAY HEART LTD. & ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
(f) Taxes on income consists:
In NIS In USD
------------- ------------
For the year For the year
ended ended
1996 1995 1994 1996 1995 1994
---------- ----------- ---------- ---------- ---------- ----------
Current tax payable 2,041 1,616 266 556 537 89
Transfer to deferred taxes,
assets. 3,244 2,474 3,265 933 822 1,089
========== =========== ========== ========== ========== ==========
1,203 858 2,999 377 285 1,000
========== =========== ========== ========== ========== ==========
(g) Effect of Translation
---------------------
Shareholders' Equity (deficit)
------------------------------
For the Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Primary statements, in conformity with
accounting principles generally
accepted in Israel (1) 12,750 10,317 8,509
Dollar statements, in conformity with
accounting principles generally
accepted in the United States (264) 665 1,255
Net Income (Loss)
-----------------
Primary statements, in conformity
with accounting principles
generally accepted in Israel (1) 1,748 1,462 1,627
Dollar statements, in conformity with
accounting principles generally
accepted in the United States (924) (563) (2,086)
(1) The amounts are presented in U.S. Dollars at the rate of balance sheet date.
127
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
ADJUSTED TO THE NIS OF DECEMBER 1996
INDEX
Page
----
Report of Independent Auditors 129
Consolidated Balance Sheets 130-131
Consolidated Statements of Income 132
Statements of Changes in Shareholders' Equity 133
Consolidated Statements of Cash Flows 134
Notes to Financial Statements 136-178
128
[GRAPHIC OMITTED]
KOST LEVARY & FORER
A MEMBER OF
ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
CARMEL CONTAINER SYSTEMS LTD.
We have audited the accompanying consolidated balance sheets of Carmel
Container Systems Ltd. and its subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of subsidiaries, whose assets
as of December 31, 1995 and 1996 constitute approximately 22% and 21%,
respectively, of total consolidated assets and whose revenues for the three
years in the period ended December 31, 1996 constitute approximately 32%, 30%
and 30%, respectively, of total consolidated revenues. The financial statements
referred to above were audited by other auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for these subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973, which do not differ significantly from generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement either originating within
the financial statements themselves, or due to any misleading statement included
therein. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
The aforementioned consolidated financial statements have been prepared
on the basis of the historical costs adjusted for the changes in the general
purchasing power of the Israeli currency as measured by the changes in the
Israeli Consumer Price index, in accordance with statements No. 36 and 50 of the
Institute of Certified Public Accountants in Israel.
In our opinion, based upon our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Carmel Container
Systems Ltd. and its subsidiaries as of December 31, 1995 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel which differ in certain respects from
those followed in the United States as described in Note 22 to the consolidated
financial statements.
/s/ Kost, Levary and Forer
----------------------------------------
Tel-Aviv, Israel KOST, LEVARY and FORER
March 10, 1997 Certified Public Accountants (Israel)
A member of Ernst & Young International
129
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
December 31, December 31, 1996
------------------------------ -----------------------
1995 1996 Convenience
------------- ------------- translation into
Adjusted NIS U.S. dollars
-------------------------- -----------------------
(In thousands)
ASSETS (Notes 16 and 19)
CURRENT ASSETS:
Cash and cash equivalents 1,570 820 252
Trade receivables (Note 3) 100,776 91,890 28,265
Accounts receivable (Note 4) *) 6,043 7,849 2,414
Inventories (Notes 2e and 5) 80,421 65,722 20,216
------------- ------------ ---------
188,810 166,281 51,147
------------- ------------ ---------
FIXED ASSETS (Notes 2g and 6):
Cost 201,948 283,817 87,301
Less - accumulated depreciation 107,061 121,709 37,437
------------- ------------ ---------
94,887 162,108 49,864
------------- ------------ ---------
OTHER ASSETS (Notes 2h and 7) 1,811 1,221 376
------------- ------------ ---------
285,508 329,610 101,387
============= ============ =========
*) Reclassified.
The accompanying notes are an integral part of the financial statements.
130
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
December 31, December 31, 1996
------------------------------ --------------------------
1995 1996 Convenience
------------- -------------
translation into
Adjusted NIS U.S. dollars
------------------------------ --------------------------
(In thousands)
LIABILITIES AND SHAREHOLDERS'
EQUITY (Note 20)
CURRENT LIABILITIES:
Credit from banks and others
(Notes 9, 12 and 13) 30,460 47,554 14,627
Trade payables (Note 10) 73,659 83,604 25,716
Accounts payable and accruals (Note 11) 33,055 24,998 7,689
------------- ------------- ----------------
137,174 156,156 48,032
------------- ------------- ----------------
LONG-TERM LIABILITIES:
Debentures (Note 12) 26,302 19,779 6,084
Liabilities to banks (Note 13a) 14,359 29,096 8,950
Liabilities to related parties (Note 13b) 2,778 2,778 855
Liability in respect of employee rights
upon retirement, net (Note 15) 1,057 1,658 510
Deferred income taxes (Note 19e) 9,925 11,338 3,488
------------- ------------- ----------------
54,421 64,649 19,887
------------- ------------- ----------------
MINORITY INTEREST IN A SUBSIDIARY (* 7,705 9,256 2,846
------------- ------------- ----------------
SHAREHOLDERS' EQUITY:
Share capital (Note 18) 19,001 19,001 5,845
Capital surplus 36,069 36,091 11,102
Retained earnings 31,339 44,689 13,746
------------- ------------- ----------------
86,409 99,781 30,693
Less shares held by a subsidiary 201 232 71
------------- ------------- ----------------
86,208 99,549 30,622
------------- ------------- ----------------
285,508 329,610 101,387
============= ============= ================
*) Reclassified.
The accompanying notes are an integral part of the financial statements.
March 10, 1997 /s/ Yoram Shetrit /s/ Ya'acov Yerushalmi /s/ Robert Kraft
- --------------------- --------------------- ----------------------- -----------------------
Date of approval of Yoram Shetrit Ya'acov Yerushalmi Robert Kraft
financial statements General Manager Vice Chairman of Chairman of the Board
the Board of Directors of Directors
131
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Year ended December 31, Year ended December 31, 1996
------------------------------------------------------------------------
1994 1995 1996 Convenience translation
--------------- ------------ ---------
Adjusted NIS into U.S. dollars
------------------------------------------------------------------------
(In thousands, except per share amounts)
Revenues from sales, net (Note 21a) 316,376 374,650 363,373 111,773
Cost of sales (Note 21b) 255,108 303,016 295,967 91,039
--------------- ------------ --------- ----------------
Gross profit 61,268 71,634 67,406 20,734
--------------- ------------ --------- ----------------
Selling expenses (Note 21c) 12,275 13,886 15,134 4,655
General and administrative expenses (Note 21d) 18,320 19,197 19,658 6,047
Reorganization plan expenses (Note 21g) 3,599 2,577 - -
--------------- ------------ --------- ----------------
34,194 35,660 34,792 10,702
--------------- ------------ --------- ----------------
Income from ordinary operations 27,074 35,974 32,614 10,032
Financial expenses, net (Note 21e) 5,000 7,374 10,104 3,108
--------------- ------------ --------- ----------------
22,074 28,600 22,510 6,924
Other income (expenses), net (Note 21f) (1,623) 32 371 114
--------------- ------------ --------- ----------------
Income before taxes on income 20,451 28,632 22,881 7,038
Taxes on income (Note 18d) 7,491 9,182 7,980 2,455
--------------- ------------ --------- ----------------
12,960 19,450 14,901 4,583
Minority interest in a subsidiary, net 1,502 1,957 1,551 477
--------------- ------------ --------- ----------------
Net income for the year 11,458 17,493 13,350 4,106
=============== ============ ========= ================
Earnings per NIS 1 par value of shares (in adjusted NIS) 4.56 6.97 5.31 1.63
=============== ============ ========= ================
Weighted average number of shares outstanding 2,511 2,511 2,512 2,512
=============== ============ ========= ================
The accompanying notes are an integral part of the financial statements.
132
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Share Shares Total
capital Capital Retained held by a shareholders'
(Note 18) surplus earnings subsidiary equity
------------- ----------- ------------ -------------- ---------------
Adjusted NIS
------------------------------------------------------------------------------------
(In thousands)
Balance at January 1, 1994 19,001 36,069 2,388 (187) 57,271
Net income - - 11,458 - 11,458
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1994 19,001 36,069 13,846 (187) 68,729
Shares held by a subsidiary - - - (14) (14)
Net income - - 17,493 - 17,493
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1995 19,001 36,069 31,339 (201) 86,208
Shares held by a subsidiary - - - (31) (31)
Compensation expenses in
respect of options issued to - 22 - - 22
employees
Net income - - 13,350 - 13,350
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1996 19,001 36,091 44,689 (232) 99,549
============= =========== ============ ============= ===============
Convenience translation into U.S. dollars
------------------------------------------------------------------------------------
(In thousands)
Balance at January 1, 1996 5,845 11,095 9,640 (61) 26,519
Shares held by a subsidiary - - - (10) (10)
Compensation expenses in
respect of options issued to - 7 - - 7
employees
Net income - - 4,106 - 4,106
------------- ----------- ------------ ------------- ---------------
Balance at December 31, 1996 5,845 11,102 13,746 (71) 30,622
============= =========== ============ ============= ===============
The accompanying notes are an integral part of the financial statements.
133
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Year ended
Year ended December 31, December 31,1996
------------------------------- -----------------
1994 1995 1996 Convenience
----------- -------- ------- translation into
Adjusted NIS U.S. dollars
--------------------------------- -----------------
(In thousands)
Cash flows from operating activities:
Net income for the year 11,458 17,493 13,350 4,106
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in a subsidiary, net 1,502 1,957 1,551 477
Depreciation and amortization 12,959 14,787 17,060 5,248
Deferred income taxes, net 128 (18) 1,413 435
Increase (decrease) in liability in respect of employee rights upon
retirement, net (554) (355) 601 185
Capital losses (gains), net 875 (95) (398) (122)
Increase in value of long-term loans and other liabilities (1,911) (708) (798) (245)
Compensation expenses in respect of options issued to employees -- -- 22 7
Decrease (increase) in trade receivables (6,407) (8,983) 8,886 2,733
Decrease (increase) in accounts receivable (622) 2,464 (1,370) (421)
Decrease (increase) in inventories (14,805) (25,526) 14,699 4,521
Increase in trade payables 10,484 10,862 9,945 3,059
Increase (decrease) in accounts payable and accruals 5,900 11,072 (8,412) (2,588)
------- ------- ------- -------
Net cash provided by operating activities 19,007 22,950 56,549 17,395
------- ------- ------- -------
Cash flows from investing activities:
Sources:
Proceeds from sale of fixed assets 1,349 792 663 204
Proceeds from Government loans 70 -- -- --
Short-term loans collected, net -- 480 -- --
Uses:
Purchase of fixed assets (25,109) (18,267) (84,546) (26,006)
Shares held by a subsidiary -- (14) (31) (10)
Short-term credit granted, net (481) -- -- --
------- ------- ------- -------
Net cash used in investing activities (24,171) (17,009) (83,914) (25,812)
------- ------- ------- -------
The accompanying notes are an integral part of the financial statements.
134
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Adjusted to the NIS of December 1996
Year ended
Year ended December 31, December 31, 1996
------------------------------------------ -------------------------
1994 1995 1996 Convenience
------------ ----------- --------------- translation
Adjusted NIS into U.S. dollars
------------------------------------------ -------------------------
(In thousands)
Cash flows from financing activities:
Sources:
Proceeds from long-term loans 6,739 3,570 21,953 6,753
Short-term credit from bank and others, net 6,621 4,492 17,485 5,378
Issue of shares to minority in a subsidiary 568 166 - -
Uses:
Principal payments on long-term liabilities (7,218) (16,581) (12,823) (3,944)
------------ ----------- --------------- -----------------
Net cash provided by (used in) financing activities 6,710 (8,353) 26,615 8,187
------------ ----------- --------------- -----------------
Net increase (decrease) in cash and cash equivalents 1,546 (2,412) (750) (230)
Cash and cash equivalents at the beginning of the year 2,436 3,982 1,570 482
------------ ----------- --------------- -----------------
Cash and cash equivalents at the end of the year 3,982 1,570 820 252
============ =========== =============== =================
Additional information regarding investing and
financing activities which do not involve cash:
In 1994, capital notes in a subsidiary, in the amount
of NIS 3,422 thousand were converted into share capital.
Cash paid during the year for:
Interest 3,499 4,382 6,122 1,883
============ =========== =============== =================
Income taxes 4,739 1,334 6,376 1,961
============ =========== =============== =================
The accompanying notes are an integral part of the financial statements
135
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1:- GENERAL
Carmel Container Systems Ltd. ("Carmel Systems" or "the Company"), an
Israeli Corporation, is an industrial company. Carmel Systems and its
subsidiaries (the "Group") are designers, manufacturers and marketers
of paper - based packaging products.
The Group designs and produces shipping containers and corrugated
cardboard panels, triple-walled cardboard containers, corrugated
cardboard and other types of paper consumer packaging, as well as
wooden pallets. The companies' sales are to a large number of
customers mainly in Israel.
In December 1995, C.D. Packaging Systems Ltd. established together
with KNP BT Solid Board Division B.V. (a Dutch company) the packaging
company - Solid Packaging Board Ltd. which is engaged in marketing
products manufactured by C.D. Packaging Systems Ltd., using the
know-how of the Dutch company as well as products manufactured by the
Dutch company.
Commencing December 1995, the financial statements of Solid Packaging
Board Ltd. are consolidated with the financial statements of the
Company (by the proportionate consolidation method)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Financial statements in adjusted new Israeli shekels:
The Group maintains its accounts in nominal new Israeli shekels
(NIS).
The accompanying financial statements are presented in NIS
adjusted for changes in the general purchasing power of the
Israeli currency, as measured by the changes in the Israeli
Consumer Price Index, in accordance with Statements of the
Institute of Certified Public Accountants in Israel.
The adjusted amounts of non-monetary assets do not necessarily
represent realization value or current economic value, but rather
the original historical cost of those assets in terms of adjusted
NIS.
The term "cost" in these financial statements signifies cost in
adjusted NIS.
136
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. All nominal figures, including those of previous years, have been
adjusted to the Israeli Consumer Price Index published for
December 1996 as follows:
1. Balance sheet:
Non-monetary items (such as fixed assets and the related
accumulated depreciation, other assets and the related
accumulated amortization, inventories, and capital surplus
and share capital derived from cash received from
shareholders) were adjusted on the basis of the Israeli
Consumer Price Index published for the month in which they
were acquired or incurred.
Equity, the "initial difference" deriving from investments
in subsidiaries and minority interest in a subsidiary are
included on the basis of the adjusted financial statements
of those companies.
Deferred income taxes are computed based on the adjusted
figures (see i. below).
Monetary items are reflected in the balance sheet as of
December 31, 1996 in their nominal amounts. Figures for the
preceding year have been adjusted to the December 1996
Israeli Consumer Price Index.
2. Statement of income:
The components of the statement of income (except for
financing), relating to transactions carried out during the
year - sales, purchases, labor costs, etc., have been
adjusted at indices for the months in which the transactions
occurred. The erosion of monetary balances relating to the
aforesaid transactions has been included in financial income
or expenses.
Income and expense items related to non-monetary items (such
as depreciation and amortization, changes in inventories,
capital gains or losses, and minority interest in a
subsidiary) were adjusted on the same basis as the related
balance sheet items.
Income and expense items related to provisions included in
the balance sheet have been included on the same basis as
the analysis of the adjusted change in the related balance
sheet items.
The financing component represents financial income and
expenses in real terms, as well as the erosion of monetary
items during the year.
137
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Taxes on income:
Current taxes are composed of payments on account during the
year and (or net of) the amounts outstanding as of balance
sheet date. The payments on account (or claimed as returns)
have been adjusted based on the Israeli Consumer Price Index
on the date of each payment and the amounts outstanding are
not adjusted.
In this manner, the current taxes also include the expense
which derives from the erosion of the value of the payments
on account from the date of payment to the end of the year.
Deferred income taxes - see i. below.
3. Convenience translation into U.S. dollars:
The adjusted financial statements as of December 31, 1996
have been translated into United States dollars using the
rate of exchange of the United States dollar as of December
31, 1996 (U.S. $ 1.00 - NIS 3.251). The translation was made
solely for the convenience of the readers.
It should be noted that the adjusted NIS figures do not
necessarily represent the current cost amounts of the
various elements presented and that the translated United
States dollar figures should not be construed as a
representation that the Israeli currency amounts actually
represent, or could be converted into, dollars.
c. Principles of consolidation:
The consolidated financial statements include the accounts of Carmel
Systems and its over 50% controlled subsidiaries and a subsidiary
consolidated by the proportional consolidation method (see Note 23).
Material Intercompany balances and transactions among the Company and
the subsidiaries (wholly consolidated or consolidated by the
proportionate consolidation method) have been eliminated.
As for tax aspects, see i. below.
d. Allowance for doubtful debts:
Such allowance is determined in respect of specific debts which, based
on management's estimation, are doubtful of collection.
e. Inventories:
Inventories are stated at the lower of cost or market value.
138
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Cost is determined as follows:
Work in progress and finished products - on the basis of computed
manufacturing costs;
Raw materials - by the "first-in, first-out" method;
Auxiliaries and packaging materials - on the basis of
moving-average cost.
f. Cash and cash equivalents:
Cash and cash equivalents are considered by the Company to be highly
liquid investments, which include short-term bank deposits, with
original maturities of less than three months.
g. Fixed assets:
1. These assets are stated at cost, net of related investment grants
received from the State of Israel under the terms of the Law for
the Encouragement of Capital Investments. Cost of pallets and
spare parts has been determined according to the base stock
method.
2. Depreciation is computed by the straight-line method over the
estimated useful lives of the assets.
The annual depreciation rates are as follows:
%
--------------------
Buildings 8
Machinery and equipment 6 - 8
Motor vehicles and forklifts 10 - 15
Office furniture and equipment 6 - 20
Leasehold improvements 15 - 20
h. Other assets:
1. Excess of cost over the fair value of assets:
Excess of cost over the fair value of the net assets of
subsidiary at the date of acquisition of subsidiary, is amortized
over a period of ten years.
139
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Issuance and discount expenses of debentures:
Issuance and discount expenses of debentures are stated at cost
and are amortized over the redemption period of the debentures,
using the effective interest rate on the debenture issuance.
i. Income taxes:
1. Deferred tax are computed in respect of temporary differences
between the carrying amounts of the assets and liabilities
included in these financial statements and those to be considered
for tax purposes. As to the main components in respect of which
deferred taxes have been included - see Note 18e.
2. Deferred tax balances are computed at the enacted tax rate
expected to be effect at the time when these taxes will be
released to the statement of income. The amount presented in the
statement of income represents the changes in the said balances
during the reported year.
3. The Company has not recorded deferred taxes for the realization
of investments in subsidiaries that management intends to retain.
Similarly, deferred taxes have not been provided for future
taxable distributions from subsidiaries, since it is the Group's
policy not to initiate a distribution of a dividend that involves
an additional tax liability for the Group.
140
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
j. Consumer Price Index and rates of exchange:
The following are details of the Consumer Price Index and the rate of
exchange of the U.S. dollar:
Consumer Price Rate of exchange
As of the end of the year: Index (points)*) of the U.S. dollar
-------------------------- ----------------- --------------------
1996 143.1 NIS 3.251
1995 129.4 NIS 3.135
1994 119.7 NIS 3.018
1993 104.6 NIS 2.986
The change during the year:
---------------------------
1996 10.6% 3.7%
1995 8.1% 3.9%
1994 14.5% 1.1%
*) According to the Consumer Price Index for the month ending on the
balance sheet date on an average basis of 1993 = 100.
k. Revenue recognition:
Revenues from sales are recognized upon delivery when no significant
vendor obligations remain and collection is deemed probable.
l. Earnings per share:
Earnings per share are computed based on the weighted average number
of shares outstanding during the year, in accordance with Opinion No.
55 of the Institute of Certified Public Accountants in Israel.
m. Hedging transactions and foreign currency options:
The Company enters into foreign exchange contracts to hedge certain of
its operational commitments and balance sheet exposure against changes
in foreign currency exchange rates. Such exposure is a result of the
portion of the Company's operations, assets and liabilities that are
denominated in currencies other than NIS. When the Company's foreign
exchange contracts hedge operational commitments, the effects of
movements in currency exchange rates on these instruments are
recognized when the related operating revenue and expenses are
recognized. When foreign exchange contracts hedge balance sheet
exposure, such effects are recognized when the exchange rate changes.
Because the impact of
141
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
movements in currency exchange rates on foreign exchange contracts
offsets the related impact on the underlying items being hedged, these
instruments do not subject the Company to risk that would otherwise
result from changes in currency exchange rates.
The Company had foreign exchange contracts of NIS 2.2 million
outstanding at December 31, 1996. The foreign exchange contracts
require the Company to exchange foreign currencies for NIS and
generally mature within three months.
The Company neither holds nor issues financial instruments for trading
purposes.
The unrealized gains and losses due to the hedging transaction
designated to reduce the Company's exposure to foreign currency risk
included in the statement of income, are insignificant.
All of the foreign exchange contracts will be completed by March 1997.
n. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
o. Accounting for stock issued to employees:
The Company accounts for stock based compensation in accordance with
the requirements of APB-25. "Accounting for Stock Issues to
Employees". Pro forma information with respect to the fair value of
the options is provided according to the requirements of FAS-123
"Accounting for Stock Based Compensation".
142
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Under APB-25, the difference between the fair value of the Ordinary
Shares on the date of grant of the options and the exercise price of
such options, if any, will be charged to income over the vesting
periods. The amount of the difference will correspondingly be
presented as capital surplus.
p. Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents
and trade receivables.
The Company's cash and cash equivalents are invested in deposits in
major Israeli banks. Management believes that the financial
institutions that hold the Company's investment are financially sound
and, accordingly, minimal credit risk exists with respect to these
investments.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries.
The Company performs ongoing credit evaluations of its debtors. In
management's estimations, the allowance for doubtful debts adequately
covers anticipated losses in respect of its accounts receivable
credits risks.
q. Fair value of financial instruments:
1. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents. - The carrying amount reported in the
-------------------------
balance sheet for cash and cash equivalents approximates its fair
value.
Debentures - Fair values of debentures issued to the public are
----------
based on the quoted market prices.
Long - and short-term debt - The carrying amounts of the
--------------------------
Company's borrowings under its short-term credit agreements
approximate their fair value. The fair value of the Company's
long-term debt is estimated using discounted cash flows analyses,
based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
143
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. The carrying amounts and fair value of the Company's financial
instruments at December 31, 1996, are as follows (amounts in
thousands):
Carrying
amount Fair value
------------- --------------
Cash and cash equivalents 820 820
Short-term debt 34,433 34,433
Debentures 26,332 25,678
Long-term debt 38,442 38,442
NOTE 3:- TRADE RECEIVABLES
a. Composed as follows:
December 31, December 31, 1996
------------------------------ ----------------------
1995 1996 Convenience
------------- --------------- translation into
Adjusted NIS U.S. dollars
----------------------------- ----------------------
(In thousands)
Open accounts 90,110 85,444 26,282
Notes receivable 12,623 10,365 3,188
------------- --------------- ---------------
102,733 95,809 29,470
Less - allowance for
doubtful debts 1,957 3,919 1,205
------------- --------------- ---------------
100,776 91,890 28,265
============= =============== ===============
b. As for balances with related parties, see Note 2l.
144
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4:- ACCOUNTS RECEIVABLE
December 31, December 31, 1996
------------------------------ ----------------------
1995 1996 Convenience
------------- --------------- translation into
Adjusted NIS U.S. dollars
------------------------------ ----------------------
(In thousands)
Related parties - 436 134
Employees 409 251 77
Government authorities - 1,810 557
Other receivables *) 5,634 5,352 1,646
----------- ------------- --------------
6,043 7,849 2,414
=========== ============= ==============
*) Reclassified.
NOTE 5:- INVENTORIES
Raw materials 60,257 42,416 13,047
Auxiliaries and packaging materials
2,968 2,457 756
Work in progress 2,169 2,625 807
Finished products 13,099 13,064 4,018
----------- ------------- --------------
78,493 60,562 18,628
Goods in transit 1,928 5,160 1,588
----------- ------------- --------------
80,421 65,722 20,216
=========== ============= ==============
145
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6:- FIXED ASSETS
a. Composed as follows:
Motor Office Pallets
Freehold Machinery vehicles furniture and spare
land and and and and Leasehold parts -
buildings equipment *) forklifts equipment improvements base stock
----------- ------------- --------- ------------ --------------- ------------
Adjusted NIS
-----------------------------------------------------------------------------------
(In thousands)
Cost at January 1, 1996 7,512 144,815 10,575 11,208 9,810 7,215
Additions during the year - 85,989 905 1,980 582 -
Deductions during the year - 1,300 366 23 988 -
--------- ------------- ---------- ------------ --------------- ------------
Balance at December 31, 7,512 229,504 11,114 13,165 9,404 7,215
1996
--------- ------------- ---------- ------------ --------------- ------------
Accumulated depreciation
at January 1, 1996 6,531 80,552 4,375 8,399 7,204 -
Additions during the year 218 13,032 1,329 1,230 1,251 -
Deductions during the year - 1,300 166 23 923 -
--------- ------------- ---------- ------------ --------------- ------------
Balance at December 31, 6,749 92,284 5,538 9,606 7,532 -
1996
--------- ------------- ---------- ------------ --------------- ------------
Depreciated cost at
December 31, 1996 763 137,220 5,576 3,559 1,872 7,215
========= ============= ========== ============ =============== ============
Depreciated cost at
December 31, 1995 981 64,263 6,200 2,809 2,606 7,215
========= ============= ========== ============ =============== ============
Total
----------------
Payments Convenience
on account translation
of machinery into
and equipment Total U.S. dollars
------------- ---------- ----------------
Adjusted NIS
---------------------------
(In thousands)
Cost at January 1, 1996 10,813 201,948 62,118
Additions during the year (4,910) 84,546 26,006
Deductions during the year - 2,677 823
---------------- ---------- ----------------
Balance at December 31, 5,903 283,817 87,301
1996
---------------- ---------- ----------------
Accumulated depreciation
at January 1, 1996 - 107,061 32,931
Additions during the year - 17,060 5,248
Deductions during the year - 2,412 742
146
---------------- ---------- ----------------
Balance at December 31, - 121,709 37,437
1996
---------------- ---------- ----------------
Depreciated cost at
December 31, 1996 5,903 162,108 49,864
================ ========== ================
Depreciated cost at
December 31, 1995 10,813 94,887
================ ==========
*) Net of investment grant (see Note 2g) amounting to NIS 8,283 ($
2,548) (1995 - NIS 8,730).
b. For charges - see Note 16.
c. For claims - see Note 15c.
147
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7:- OTHER ASSETS
December 31, December 31, 1996
-------------------------------- ------------------------
1995 1996 Convenience
------------- ---------------- translation into
Adjusted NIS U.S. dollars
-------------------------------- ------------------------
(In thousands)
a. Cost:
Initial difference 1,874 1,874 576
Issuance and discount
expenses of debentures 4,800 3,840 1,182
-------------- ------------- -----------------
6,674 5,714 1,758
-------------- ------------- -----------------
b. Accumulated amortization:
Initial difference 1,874 1,874 576
Issuance and discount
expenses of debentures 2,989 2,619 806
-------------- ------------- -----------------
4,863 4,493 1,382
-------------- ------------- -----------------
1,811 1,221 376
============== ============= =================
NOTE 8:- LEASES
a. Carmel Systems signed a lease agreement for the rental of an
industrial building in Holon. The agreement has been extended until
June 30, 1997.
b. Carmel Systems leases a warehouse for finished products in Rosh
Ha'ayin. The agreement is valid until September 1997.
c. Carmel Systems leases an industrial building in Carmiel under
agreements ending in April 2001, subject to a renewal option for three
additional years.
d. Carmel Systems signed a lease agreement for the rental of an
industrial building in Caesarea for 20 years commencing August 1996.
The Company has an option to purchase the building at market value
after the 13th year.
148
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. C.D. Packaging Systems Ltd. leases an industrial building in Migdal
Ha'emek until January 2004, and also sub-leases offices in Petah-Tikva
from a subsidiary of a shareholder.
f. Tri-Wall Containers Ltd. leases an industrial building in Netanya
until November 1997, and also leases offices in Tel-Aviv.
Minimum rental payments under the aforementioned leases, all of which are
operating leases and linked to the exchange rate of the U.S. dollar or to
the Consumer Price Index, are as follows:
December 31, 1996 December 31, 1996
--------------------- ------------------
Convenience
translation into
Adjusted NIS U.S. dollars
--------------------- ------------------
(In thousands)
For the year ended
December 31,
1997 9,510 2,925
1998 8,347 2,568
1999 8,347 2,568
2000 8,347 2,568
2001 and thereafter 51,577 15,864
--------------------- ------------------
86,128 26,493
===================== ==================
149
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9:- CREDIT FROM BANKS AND OTHERS
a. Composition:
December 31, 1995
------------------------------------------------------
In foreign
Weighted currency
average Linked or linked
interest rate to CPI Unlinked thereto Total
-------------------- --------- ----------- ------------ ----------
1995 1996
--------- --------
% Adjusted NIS
-------------------- --------------------------------------------------------
(In thousands)
Overdrafts 19 18 - 1,427 - 1,427
Short-term
credit from
banks 17 16 - 12,123 - 12,123
Short-term
credit from
others 24 23 - 3,318 - 3,318
Current
maturities
of
long-term
loans and
debentures 6 6 9,522 - 4,070 13,592
--------- ---------- --------- ----------
9,522 16,867 4,070 30,460
========= ========== ========= ==========
December 31, 1996
------------------------------------------------------------------
In foreign
currency
Linked or linked
to CPI Unlinked thereto Total Total
--------- ---------- ----------- ------- -----------
Convenience
translation
into U.S.
Adjusted NIS dollars
------------------------------------------------- -----------
(In thousands)
Overdrafts - 2,433 - 2,433 748
Short-term
credit from
banks - 29,000 - 29,000 8,920
Short-term
credit from
others - 3,000 - 3,000 923
Current
maturities
of
long-term
loans and
debentures 9,591 - 3,530 13,121 4,036
-------- ------------ --------- -------- ------------
9,591 34,433 3,530 47,554 14,627
150
======== ============ ========= ======== ============
b. See Note 16 in regard to charges to collateralize part of the
short-term loans and credit.
151
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10:- TRADE PAYABLES
December 31, December 31, 1996
------------------- -----------------
1995 1996 Convenience
---- ---- translation into
Adjusted NIS U.S. dollars
------------------- -----------------
(In thousands)
Trade payables 71,275 79,336 24,403
Checks and notes payable 2,384 4,268 1,313
------ ------ ------
73,659 83,604 25,716
====== ====== ======
Including shareholders 12,711 13,938 4,287
====== ====== ======
Including related parties 18,551 21,875 6,729
====== ====== ======
NOTE 11:- ACCOUNTS PAYABLES
AND ACCRUALS
Liabilities to related parties 984 1,339 412
Liabilities to employees and payroll
accruals
liabilities for wages and salaries 15,630 19,138 5,887
Government authorities 10,620 1,296 399
Other 5,821 3,225 991
------ ------ ------
33,055 24,998 7,689
====== ====== ======
152
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12:- DEBENTURES
a. Composition:
Weighted average December 31, December 31, 1996
interest rate at ----------------- -----------------
Linkage terms December 31, 1996 1995 1996 Convenience
------------- ----------------- ------ ------ translation into
% Adjusted NIS U.S. dollars
----------------- ------------------ -----------------
(In thousands)
Debentures Israeli CPI 5.1% 32,830 26,332 8,100
Less - current maturities 6,528 6,553 2,016
------ ------ -----
26,302 19,779 6,084
====== ====== =====
b. The debentures are redeemable
as follows:
First year (current maturities) 6,528 6,553 2,016
------ ------ -----
Second year 6,528 6,553 2,016
Third year 6,528 6,553 2,016
Fourth year 6,528 6,673 2,052
Fifth year 6,718 -- --
------ ------ -----
26,302 19,779 6,084
------ ------ -----
32,830 26,332 8,100
====== ====== =====
c. See Note 16 in regard to securities to collateralize the
abovementioned debentures.
153
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13:- LIABILITIES TO BANKS AND RELATED PARTIES
a. 1. Liabilities to banks are composed as follows:
December 31, December 31, 1996
--------------------- -----------------
1995 1996 Convenience
------ ------ translation into
Adjusted NIS U.S. dollars
--------------------- -----------------
(In thousands)
Banks 21,424 35,664 10,970
Less - current maturities 7,065 6,568 2,020
------ ------ ------
14,359 29,096 8,950
====== ====== ======
2. Linkage terms and rates of interest of the loans:
Weighted average
interest rate at
Linkage terms December 31, 1996
------------------------------ -----------------
%
-----------------
Israeli CPI 3.75 9,883 19,119 5,881
Foreign currency - U.S. dollar 9.50 8,174 14,863 4,572
Foreign currency - Yen 1.45 3,367 1,682 517
------ ------ ------
21,424 35,664 10,970
====== ====== ======
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CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. The long-term loans are repayable as follows:
December 31, December 31, 1996
--------------------- -----------------
1995 1996 Convenience
------ ------ translation into
Adjusted NIS U.S. dollars
--------------------- -----------------
(In thousands)
First year (current maturities) 7,065 6,568 2,020
------ ------ ------
Second year 6,949 5,517 1,697
Third year 3,299 6,429 1,978
Fourth year 2,568 5,744 1,767
Fifth year 1,543 5,744 1,767
Sixth year and thereafter -- 5,662 1,741
------ ------ ------
14,359 29,096 8,950
------ ------ ------
21,424 35,664 10,970
====== ====== ======
b. Liabilities to related parties:
1. Composed as follows:
Weighted average
Linkage terms interest rate
------------- -----------------
%
-----------------
Shareholders Israeli CPI -- 2,778 2,778 855
===== ===== ===
2. Maturity dates will be determined by the provider of the loans but not
before January 1, 1998.
c. See Note 16 in regard to securities to collateralize the abovementioned
loans.
155
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14:- LIABILITY IN RESPECT OF EMPLOYEE RIGHTS UPON RETIREMENT, NET
a. Severance pay and retirement grants:
1. Under Israeli law and labor agreements, the companies in the
Group are required to make severance or pension payments and
retirement grants in addition to pension entitlement to
dismissed employees and to employees leaving employment under
certain circumstances.
In respect of these liabilities, regular deposits are made
with various severance pay and pension funds; the balance
sheet accrual represents the unfunded balance of the
liabilities. Where the custody and management of the fund is
independent of the Company, the funded amounts are not
reflected in the balance sheet.
The above deposits and the balance sheet accrual fully cover
the Company's liabilities in respect of employee rights upon
retirement.
Employees dismissed from service before attaining retirement
age are entitled to severance pay, computed on the basis of
the most recent salary. As to part of the Group's employees -
in the event that the amounts accumulated in the pension fund
are insufficient to cover the severance pay computed as above
- the Group is obligated to supplement the balance.
Generally, monthly employees continue in service until the age
of retirement. Consequently, management is of the opinion that
any additional liability for supplemental payment as mentioned
above for employees who may be dismissed in the future is
insignificant.
The Company's employees are participants in a pension fund to
which the Company makes current monthly payments. The Company
has no further commitments to pay pension payments in excess
of the amounts provided to the pension funds. The pension fund
is external and independent of the Company.
2. The liability for salary payments to certain employees who
were dismissed from service is included in liabilities in
respect of employee rights upon retirement, discounted at an
annual real interest rate of 5%.
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CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's pension and severance expense is as follows:
Year ended December 31, Year ended
----------------------- December 31,
1994 1995 1996 1995
---- ----- ----- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
----------------------- ----------------
(In thousands)
4,473 4,483 4,521 1,391
===== ===== ===== =====
b. Under employment agreements, some of the employees retiring after
the age of 55, who have utilized no more than 65% of the sick leave
to which they are entitled, will receive compensation for unutilized
sick leave.
c. The amounts funded for compensation are deposited with the central
fund for compensation and with a provident fund in the name of the
employees. Withdrawal of the amounts funded is conditioned upon
fulfillment of the regulations outlined in the Severance Pay Law.
d. Below are the amounts of liabilities in respect of employee rights
upon retirement, retirement grants and compensation for unused sick
leave, as presented in balance sheet:
December 31,
------------------- December 31,
1995 1996 1996
---- ---- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
------------------- ----------------
(In thousands)
Liabilities in respect of
employee rights
upon retirement (1) 8,647 9,214 2,834
Less amounts funded 7,825 7,791 2,396
----- ----- -----
822 1,423 438
Liabilities for unutilized
sick leave 235 235 72
----- ----- -----
1,057 1,658 510
===== ===== =====
(1) Including liabilities
for salaries to
retired employees 842 1,395 429
===== ===== =====
157
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15:- CONTINGENT LIABILITIES AND COMMITMENTS
a. A shareholder, who is also a supplier of raw materials to the
Company, has a first refusal right regarding the purchase of raw
materials from other suppliers, for a period of ten years commencing
in October 1988. The Company purchases materials from its
shareholder in the ordinary course of business (see Note 20f. with
respect to the amounts of purchases).
b. The Company is committed to pay royalties at a rate of 2.5% on sales
of trays assembled by certain machines leased to the Company.
c. 1. Tri-Wall Ltd. a consolidated subsidiary has filed a claim
against Kol-Bo Tagar Ltd. in order to realize the option of
acquisition of an asset, in accordance with a rental
agreement, and to receive a refund of amounts invested in the
rented property. After the claim was lodged, a counter claim
of NIS 11 million was made by Kol-Bo Tagar Ltd. against
Tri-Wall for breach of the rental agreement.
The decision of the arbitrator stated among other matters,
that Tri-Wall is entitled to realize the option. A manner to
realize it was formulated which also rejected the counter
claim of Kol-Bo Tagar. Kol-Bo Tagar presented a petition to
nullify the arbitrator's decision.
The deliberation in regard to the petition have not yet taken
place and evidence is to be heard.
2. The landowners cited in the aforementioned claim, from whom
Kol-Bo Tagar rents its asset, brought a claim against Kol-Bo
Tagar and Tri-Wall to cancel the option for acquisition of the
asset, which was granted to Kol-Bo Tagar, claiming that Kol-Bo
Tagar has breached the contract.
3. The Government of Israel brought a claim against Tri-Wall to
demolish the buildings that were built without building
permits (on the land mentioned in the claim see article 1. and
2. above).
On November 5, 1995, it was resolved to demolish the buildings
without permits (without conviction). The implementation of
the demolition order was postponed to 3 years from the
resolution date.
d. The Company is party to claims concerning employer liability. In the
opinion of the Company's legal advisors, two of the claims have
little prospect to of succeeding. In regard to another claim, a
provision in the amount determined by the Company's legal advisors
was made.
e. The Company was asked to return an amount received in respect of the
sale of Ofek and its subsidiaries. According to the opinion of
management, there is no substance to the request and no provision
has been made in the books of the Company.
158
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
f. The tax benefits and the investment grant resulting from the
approvals as "Approved Enterprises" (see Note 18a) are pending upon
the fulfillment of the conditions of the approvals. Through December
31, 1996 the subsidiaries have complied with the conditions of the
approvals.
g. As to guarantees among the companies of the Group - see Note 16.
h. As to future hedging transactions - see Note 2m.
NOTE 16:- CHARGES (ASSETS PLEDGED)
a. As collateral for the Company and subsidiaries' loans from banks,
the State of Israel and a shareholder, a fixed charge has been
placed, in an unlimited amount, on any unpaid share capital,
goodwill, equipment, machinery, insurance rights and rights to
marketable securities and the shares in Tri-Wall. A floating charge
has been placed on all other assets of the Group.
b. The Company is the guarantor for its investees for lines of credit
from banks, which will be at the disposal of the Group's companies,
from time to time.
As collateral for this guarantee, the Company and its subsidiaries
have assigned a debenture and placed a fixed charge in an unlimited
amount, as well as mortgaged the unpaid share capital, goodwill,
part of the plant and equipment, securities, cash and insurance
rights, and a floating charge on all the assets.
c. As collateral for the debentures and interest thereon, the Company
has placed a floating charge on all of the assets of the Company as
they exist in the present and as they will exist in the future,
including insurance rights thereon.
d. The Company obtained bank guarantees totaling NIS 1,263 thousand
($388 thousand) to secure the rental fees of the plant of Carmel
Containers, and NIS 90 thousand ($27.7 thousand) to secure other
liabilities.
159
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. The collateralized liabilities are as follows:
December 31, December 31, 1996
------------------- -----------------
1995 1996 Convenience
---- ---- translation into
Adjusted NIS U.S. dollars
------------------- -----------------
(In thousands)
Short-term loans and credits 13,550 31,433 9,668
Long-term liabilities, including
current maturities 54,254 61,996 19,070
------ ------ ------
67,804 93,429 28,738
====== ====== ======
NOTE 17:- SHARE CAPITAL
a. The Company's shares are traded on the American Stock Exchange in
the United States.
b. The share capital as of December 31, 1996 and 1995 is composed as
follows:
Issued and
Authorized outstanding
---------- -----------
Number of shares
--------------------------------
Ordinary shares of NIS 1
par value each 10,000,000 2,520,000
========== =========
The ordinary shares entitle their holders to voting rights, the
right to participate in meetings, the right to receive profits and
the right to participate in the excess of assets upon liquidation of
the Company.
c. Key employee equity incentive plan:
In August 1996, the Company's Board of Directors approved the plan
for the allocation of up to 100,000 options to employees,
convertible into 100,000 shares, exercisable at $ 8.50 per share
(the market price at the grant date was $10 per share).
Half of the options are exercisable after two years and the other
half are exercisable after three years. Through December 31, 1996,
64,000 options were allocated. The aggregate amount of deferred
compensation related to these options is NIS 312,000 ($96,000) which
will be accounted for over the three year vesting period.
160
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table is summary of activity for the Company's Stock Options
Plan:
Options Outstanding
-----------------------------------------------
Weighted
Numbers average
Available of Price per price
for grant options share per share
----------- --------- ----------- ----------
Balance as of
August 1996 -- -- -- --
Shares authorized 100,000 -- -- --
Options granted (8
employees) (64,000) 64,000 8.5 8.5
-------- ------ --- ---
Balance as of
December 31,1996 36,000 64,000 8.5 8.5
======== ====== === ===
d. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting
for Stock-Based Compensation", requires the use of option valuation
models that were not developed for use in valuing employee stock
options.
e. Pro forma information regarding net income on earnings per share is
required by FASB Statement No. 123, and has been determined as if
the Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these
options was estimated at the grant date using a Black - Scholes
option pricing model with the following weighted-average assumptions
for 1996: risk-free interest rates of 7.5%, a volatility factor of
the expected market price of the Company's common stock of 0.1, and
a weighted-average expected life of three years of the option.
The Black - Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period.
161
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pro forma information under FAS 123:
December 31, 1996
--------------------------------
Convenience
translation into
Adjusted NIS U.S. dollars
------------ ----------------
(In thousands except per share amounts)
Pro forma income 13,333 4,101
======== ========
Pro forma income per share 5.31 1.63
======== ========
The total compensation expense included in the income
statements for 1996 is NIS 21,526 ($6,666).
NOTE 18:- TAXES ON INCOME
a. Tax benefits available under various tax laws:
1. "Approved Enterprise": The production facilities of C.D.
Packaging (subsidiary) have been granted status as an
"Approved Enterprise" under the law for the Encouragement of
Capital Investments, 1959, as amended.
During the seven-year benefit period it is exempt from income
tax and subject to corporate tax, at a rate of 25%. The
benefit period for the main plant and for its expansion
commenced in 1996 and will terminate in 2001 and 2006,
respectively. The benefits detailed above are pending to
compliance with the terms stipulated in the Law and in the
related regulations, and as determined in the approvals,
according to which the investments in the "approved
enterprise" were carried out.
2. "Industrial Companies": The Company and its subsidiaries are
"Industrial Companies" under the Law for the Encouragement of
Industry (Taxation), 1969, as amended, and as such are
entitled to certain tax benefits, mainly accelerated
depreciation.
3. Income Tax (Inflationary Adjustments) Law, 1985: The
adjustments required by this law are designed to reflect
nominal results for tax purposes in terms of end of year NIS
(in accordance with the changes in the Israeli CPI).
b. Deferred income taxes:
1. Deferred taxes are computed in respect of differences between
the amounts included in these financial statements and those
to be considered for tax purposes.
162
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The main factors in respect of which deferred taxes have been
included are as follows:
Depreciation in respect of fixed assets in the adjusted
financial statements and for tax purposes; differences between
the value of inventories in the adjusted financial statements
and its value for tax purposes; differences in charging income
and expenses items in the adjusted financial statements and
for tax purposes (mainly provisions for accrued employee
rights); carryforward losses and deductions.
2. The remaining balance of carryforward tax losses amounts to
adjusted NIS 0 thousand (previous year - adjusted NIS 2,900
thousand).
3. The outstanding balance of carryforward tax losses in respect
of which no deferred taxes were recorded in the consolidated
financial statements, as of December 31, 1996 was adjusted NIS
0 thousand (December 31, 1995 - adjusted NIS 1,155 thousand).
163
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
c. Income tax reconciliation:
A reconciliation between the theoretical tax expense assuming all
income is taxed at the statutory rate applicable to income of the
Company and the actual tax expense is as follows:
Year ended
Year ended December 31, December 31, 1996
------------------------- -----------------
1994 1995 1996 Convenience
---- ---- ---- translation into
Adjusted NIS U.S. dollars
------------------------- -----------------
(In thousands)
Theoretical tax expense computed at the rate
applicable to an ordinary company - 36%
(1995 - 37%, 1994 - 38%) 7,771 10,594 8,237 2,533
Increase (reduction) of income taxes resulting from:
Tax adjustments in respect of inflation in Israel and others (148) 83 (157) (48)
Erosion resulting from income tax prepayments 418 64 324 100
Non-deductible expenses and other 312 306 296 91
Decrease in tax expense due to reduced tax rates in
companies which were granted the status of approved
enterprise (468) (358) (304) (93)
Carryforward losses and capital losses which have not
been recorded as an asset 364 155 -- --
Utilization of carryforward losses on which a deferred tax
asset had not been recorded in previous years (758) (1,662) (416) (128)
------ ------- ------ ------
Actual tax expense 7,491 9,182 7,980 2,455
====== ======= ====== ======
d. Taxes on income included in the statements of income:
Current taxes 7,363 9,200 6,567 2,020
Deferred taxes, net 128 (18) 1,413 435
-------- ------- ------ ------
7,491 9,182 7,980 2,455
======== ======= ====== ======
164
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. Deferred taxes:
Composition and changes in deferred income tax liabilities (assets) as
presented in the consolidated balance sheet:
In respect of balance sheet items
----------------------------------------------------------------
Provisions Allowance
Depreciable for employee for doubtful
assets Inventories rights debts Other
----------- ----------- ------------ ------------ ------
Adjusted NIS
-----------------------------------------------------------------
(In thousands)
Balance at January 1,
1995 14,086 192 (1,769) (1,277) (1,289)
Changes during 1995:
Amounts charged to
the statement of
income 991 320 (212) 573 (1,690)
------ --- ------ ------ ------
Balance as of
December 31, 1995 15,077 512 (1,981) (704) (2,979)
Changes during 1996:
Amounts charged to
the statement of
income 2,100 376 (697) (84) (282)
------ --- ------ ------ ------
Balance as of
December 31, 1996 17,177 888 (2,678) (788) (3,261)
====== === ====== ====== ======
In respect Total
of tax loss Valuation ----------------
carryforward allowance Total Convenience
------------ --------- ----- translation into
U.S. dollars
-----------------------------------------------------
Balance at January 1,
1995 -- -- 9,943
Changes during 1995:
Amounts charged to
the statement of
income 416 (416) (18)
---- ---- ------ -----
Balance as of
December 31, 1995 416 (416) 9,925 3,053
Changes during 1996:
Amounts charged to
the statement of
income (416) 416 1,413 435
---- ---- ------ -----
Balance as of
December 31, 1996 -- -- 11,338 3,488
==== ==== ====== =====
f. Income tax assessments:
Final tax assessments have been received as follows:
Carmel Systems - up to and including the 1989 tax year, and by force of
165
law, up to and including the 1990 tax year.
C.D. Packaging Systems Ltd. - up to and including the 1990 tax year.
Tri-Wall Containers (Israel) Ltd.- up to and including the 1992 tax year.
Solid Packaging Board Ltd. - have not been assessed since incorporation.
166
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES 19:- LINKAGE TERMS OF MONETARY BALANCES
December 31, 1995 December 31, 1996
--------------------------------------------- -------------------------------------------------
Linked to In foreign Linked to In foreign
the currency or the currency or
Consumer linked Consumer linked
Price Index thereto Unlinked Total Price-Index thereto Unlinked Total
----------- ----------- -------- ------- ------------ ----------- -------- -----
Adjusted NIS
------------------------------------------------------------------------------------------------
(In thousands)
Assets:
Current assets:
Cash and cash
equivalents -- -- 1,570 1,570 -- -- 820 820
Trade receivables -- 647 100,129 100,776 -- 3,320 88,570 91,890
Accounts
receivables 409 -- 5,634 6,043 2,246 -- 5,603 7,849
------ ------- ------- ------- ------ ------ ------- -------
409 647 107,333 108,389 2,246 3,320 94,993 100,559
====== ======= ======= ======= ====== ====== ======= =======
Liabilities:
Current liabilities:
Credit from banks
and others -- -- 16,867 16,867 -- -- 34,433 34,433
Trade payables -- 59,855 13,804 73,659 -- 51,683 31,921 83,604
Accounts payables
and accruals -- -- 33,055 33,055 -- -- 24,998 24,998
Debentures, liabilities to
banks and others 45,491 11,541 -- 57,032 48,229 16,545 -- 64,774
------ ------- ------- ------- ------ ------ ------- -------
45,491 71,396 63,726 180,613 48,229 68,228 91,352 207,809
====== ======= ======= ======= ====== ====== ======= =======
167
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
-----------------------------------------------------
Linked to In foreign
the currency or
Consumer linked
Price Index thereto Unlinked Total
----------- ----------- -------- -----
Convenience translation into U.S. dollars
-----------------------------------------------------
(In thousands)
Assets:
Current assets:
Cash and cash equivalents -- -- 252 252
Trade receivables -- 1,021 27,244 28,265
Accounts receivable 691 -- 1,723 2,414
------ ------ ------ ------
691 1,021 29,219 30,931
====== ====== ====== ======
Liabilities:
Current liabilities:
Credit from banks and others -- -- 10,591 10,591
Trade payables -- 15,898 9,818 25,716
Accounts payable and accruals -- -- 7,689 7,689
Debentures, liabilities to banks and others 14,836 5,089 -- 19,925
------ ------ ------ ------
14,836 20,987 28,098 63,921
====== ====== ====== ======
NOTE 20:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a. Long-term loans from related parties:
December 31, December 31, 1996
Weighted average ------------------- -----------------------
interest rate 1995 1996
---------------- ---- ---- Convenience translation
Linkage terms % Adjusted NIS into U.S. dollars
------------- ---------------- ------------------- -----------------------
(In thousands)
Shareholder Israeli CPI -
2,778 2,778 855
===== ===== ===
The date for repayment of the above loans has not yet been determined.
168
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
b. Current liabilities to related parties:
December 31, December 31, 1996
Weighted average ---------------- -----------------
interest rate 1995 1996 Convenience
----------------- ------- ------ translation into
Linkage terms % Adjusted NIS U.S. dollars
------------------ ----------------- ---------------- -----------------
(In thousands)
1. Trade payables:
Shareholders Foreign currency -
U.S. dollar Interest free 12,711 13,938 4,287
Related companies Foreign currency -
U.S. dollar Interest free 18,551 21,875 6,729
2. Accounts payable and accruals:
Shareholders Israeli CPI Interest free 984 1,339 412
c. Current assets from related parties:
Trade receivables:
Companies controlled by a shareholder Unlinked Interest free 1,017 266 82
Highest balance: 1,884 1,017 313
Other receivables:
Companies controlled by a shareholder Israeli CPI Interest free -- 436 134
Highest balance: 480 522 161
d. Guarantees:
1. The Company has provided a guarantee to the banks amounting to NIS
500 thousand in favor of C.D. Packaging (such guarantee is not to
exceed 50% of the Company's debt to the bank) and in favor of the
State of Israel in an unlimited amount, in respect of C.D.
Packaging's debt relating to the "Approved Enterprise".
2. The Company has provided a guarantee to the Custom Authorities
amounting to NIS 163 thousand in favor of Tri-Wall.
169
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e. Salaries and related benefits to interested parties:
Year ended
Year ended December 31, December 31, 1996
----------------------- -----------------------
1994 1995 1996
---- ---- ---- Convenience translation
Adjusted NIS into U.S. dollars
----------------------- -----------------------
(In thousands)
Salaries, related benefits and
severance pay to the general manager 1,098 1,263 1,388 427
===== ===== ===== ===
Directors' fees and reimbursement of
expenses to twelve members of the
Board of Directors 228 164 192 59
===== ===== ===== ===
f. Transactions with related parties, excluding directors:
The Company sells to subsidiaries, shareholders, and investees of
shareholders and purchases raw material from investees of shareholders,
shareholders and subsidiaries. Such sales, purchases and transactions are
as follows:
Companies
controlled by a
shareholder Shareholders Total Total
--------------- ------------ ----- ----------------
Convenience
translation into
Adjusted NIS U.S. dollars
--------------------------------------------------------------
(In thousands)
In 1996:
Expenses:
Purchases 30,234 47,662 77,896 23,961
Financing and
commissions -- 489 489 150
Lease fees and
equipment lease 262 -- 262 81
------ ------- ------- -------
30,496 48,151 78,647 24,192
====== ======= ======= =======
Revenues:
Sales 4,515 7,250 11,765 3,619
Lease fees and
equipment lease 373 -- 373 115
------ ------- ------- -------
4,888 7,250 12,138 3,734
====== ======= ======= =======
In 1995:
Expenses:
Purchases 73,370 52,526 125,896
Financing and
commissions -- 133 133
Lease fees and
equipment lease 384 -- 384
------ ------- -------
73,754 52,659 126,413
====== ======= =======
Revenues:
170
Sales 9,220 6,654 15,874
Lease fees and
equipment lease 349 -- 349
------ ------- -------
9,569 6,654 16,233
======= ======= =======
171
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Companies
controlled by a
shareholder Shareholders Total
------------------- ---------------- --------------
Adjusted NIS
-------------------------------------------------------
(In thousands)
In 1994:
Expenses:
Purchases 40,037 48,886 88,923
Financing -- 84 84
Lease fees 267 -- 267
------ ------ ------
40,304 48,970 89,274
====== ===== ======
Revenues:
Sales 10,052 7,613 17,665
====== ===== ======
172
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF INCOME
Year ended
Year ended December 31, December 31, 1996
------------------------------------------------ ---------------------
1994 1995 1996
-------------- -------------- -------------- Convenience
translation into
Adjusted NIS U.S. dollars
------------------------------------------------ ---------------------
(In thousands)
a. Revenues from sales, net:
Sales classified by
geographic distribution:
Local 314,814 372,090 360,863 111,001
Export:
South America 1,104 1,700 2,221 683
Europe 458 860 289 89
------- ------- ------- -------
316,376 374,650 363,373 111,773
======= ======= ======= ======
b. Cost of sales:
Materials consumed (1) 163,518 214,082 188,501 57,982
Salaries, wages and
employee benefits 46,088 49,398 53,933 16,590
Subcontracted work 3,984 3,890 3,662 1,126
Other manufacturing
costs 28,975 26,652 34,875 10,727
Depreciation 11,574 13,312 15,417 4,743
------- ------- ------- -------
254,139 307,334 296,388 91,168
Add (less) decrease
(increase) in inventories
of finished products 247 (3,959) 35 11
Add (less) decrease
(increase) in inventories
of work in progress 722 (359) (456) (140)
------- ------- ------- -------
255,108 303,016 295,967 91,039
======= ======= ======= ======
(1) See Note 20f with respect to purchases from shareholders.
173
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Year ended
December 31,
Year ended December 31, 1996
-------------------------------------- ----------------
1994 1995 1996
---- ---- ---- Convenience
translation into
Adjusted NIS U.S. dollars
-------------------------------------- ----------------
(In thousands)
c. Selling expenses:
Salaries and employee benefits 5,874 6,174 6,545 2,013
Advertising expenses 398 349 400 123
Depreciation and amortization 181 148 208 64
Other selling expenses (1) 5,822 7,215 7,981 2,455
------ ------ ------ -----
12,275 13,886 15,134 4,655
====== ====== ====== =====
(1) Including allowance for doubtful debts
506 1,040 2,046 629
====== ====== ====== =====
d. General and administrative expenses:
Salaries and employee benefits 11,790 12,024 12,316 3,788
Depreciation and amortization 1,204 1,327 1,435 441
Office maintenance and other expenses 5,326 5,846 5,907 1,818
------ ------ ------ -----
18,320 19,197 19,658 6,047
====== ====== ====== =====
e. Financial expenses, net:
Interest expenses and bank charges:
On short-term credit 1,510 2,666 4,376 1,346
On long-term loans, net 1,958 4,167 2,851 877
------ ------ ------ -----
3,468 6,833 7,227 2,223
Interest income 232 667 151 46
------ ------ ------ -----
3,236 6,166 7,076 2,177
Losses arising from inflationary
erosion of the Israeli currency 1,764 1,208 3,028 931
------ ------ ------ -----
5,000 7,374 10,104 3,108
====== ====== ====== =====
174
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Year ended
Year ended December 31, December 31, 1996
----------------------------------- -------------------
1994 1995 1996 Convenience
---- ---- ---- translation into
Adjusted NIS U.S. dollars
----------------------------------- -------------------
(In thousands)
f. Other income (expenses), net:
Loss on sale of an investee (875) (8) - -
Gain on sale of assets - 103 398 122
Other expenses (748) (63) (27) (8)
------ ------ ------ ------
(1,623) 32 371 114
====== ====== ====== ======
g. Reorganization plan expenses:
The extraordinary expense is in respect of reorganization plan of
the Company's plants.
NOTE 22:- DIFFERENCES BETWEEN ISRAELI AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
a. Discount expenses:
Discount on debentures is presented as a deferred charge, whereas
according to accounting principles generally accepted in the United
States, such discount should be deducted from the carrying value of
the debentures. The amount of discount on debentures, net of
amortization as of December 31, 1995 and December 31, 1996, is NIS
1,811 thousand and NIS 1,221 thousand ($ 376 thousand),
respectively.
b. Accrued severance pay, net:
The amounts funded in regard to liabilities in respect of employee
rights upon retirement are presented as a deduction from the
liabilities in Note 15d, whereas according to U.S. GAAP such amounts
funded would be presented in the balance sheet as a long-term
assets.
The amount funded in regard to liabilities in respect of employee
rights upon retirement as of December 31, 1995 and December 31,
1996, is NIS 7,825 thousand and NIS 7,791 thousand ($ 2,396
thousand), respectively.
Income from earnings on amounts funded is netted from severance pay
expenses whereas according to U.S. GAAP, such amounts should be
presented on a gross basis.
175
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
c. Effect of inflation:
The Company, in accordance with Israeli GAAP, comprehensively
includes the effect of price level changes in the accompanying
consolidated financial statements, as described in Note 2a. Such
Israeli accounting principles measure the effects of price level
changes in the inflationary Israeli economy and, as such, is
considered a more meaningful presentation than financial reporting
based on historical cost for Israeli and U.S. accounting purposes.
Accordingly, price level adjustments have not been reversed and
included in a reconciliation of Israeli accounting principles to
U.S. accounting principles (U.S. GAAP).
d. Treatment of deferred taxes on income:
1. Under Israeli Accounting, income taxes are determined under
the liability method of accounting.
2. Under the Israeli Law for Encouragement of Capital Investment,
1959, the companies who are entitled to a "Approved
Enterprise" benefits (C.D. Packaging Systems Ltd. and Tri-Wall
Containers (Israel) Ltd.) are generally taxed at a rate of 25%
of attributable income during "the period of benefits".
Dividends paid to shareholders from the profits of an
"approved enterprise" are subject to income tax at a rate of
15%. Shareholders that are companies are entitled to a 15% tax
credit if and when this dividend is paid to their
shareholders.
Under Israeli GAAP, income taxes are not provided on the
undistributed tax exempt profits of approved enterprise, where
such profits have been reinvested and will not be distributed
to the company shareholders.
Under U.S. GAAP, deferred income taxes should be provided on
the undistributed tax exempt profits of domestic subsidiaries
that arose in fiscal years beginning after December 15, 1992.
Both Tri-Wall and C.D. Packaging have immaterial profits from
approved enterprises, and therefore, in the reconciliation
there is no effect from providing deferred taxes on the
undistributed tax exempt profits of an approved enterprise.
e. Proportionate consolidation:
Under Israeli GAAP, jointly controlled entities are included in the
Company's consolidated financial statements according to the
proportionate consolidation method. Under U.S. GAAP, investments in
jointly controlled entities are accounted for by the equity method.
Proportionate consolidation is permitted by the U.S. Securities and
Exchange Commission rules applicable to foreign private issuers,
provided certain supplemental information is provided in the notes
to the financial statements. The supplemental information regarding
the jointly controlled entity is not material to the consolidated
financial statements of the Company.
176
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
f. Earning per share:
1. According to U.S. GAAP:
Options are always considered as common stock equivalents;
their dilutive effect on primary earnings per shares is
computed by applications of the "treasury stock" method.
According to Israeli GAAP (Opinion No. 55):
The dilutive effect of options and warrants is included in the
computation of primary earnings per share only if their
exercising is considered to be probable, based on the ordinary
relationship between the market price of the shares stemming
from the exercise of the warrants and the discounted present
value of the future proceeds derived from the exercise of the
options.
2. According to U.S. GAAP a disclosure is required for diluted
earnings per share even when the dilution is more than 3%,
while according to Israeli GAAP such a disclosure is not
required when the dilution is less than 5%.
The effect of the differences between Israeli and U.S. GAAP of
the abovementioned items on the financial statements is
insignificant.
g. Foreign currency cash flows:
According to U.S. GAAP, the statement of cash flows shall report the
effect of exchange rate changes on cash balances held in foreign
currencies as a part of the reconciliation of the change in cash and
cash equivalents during the period. Under Israeli GAAP, such effect
is included in cash flows from operating activities.
The difference between the two methods described above is
immaterial.
h. Base stock:
Pallets and spare parts are presented as base stock among fixed
assets, while new purchases charged as an expense. According to U.S.
GAAP, such amounts should be capitalized and depreciated over the
useful lives of the assets.
The effect of this difference on both income and equity is not
material.
177
CARMEL CONTAINER SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 23- INVESTEES
Percentage of
------------------
Name of the company Ownership Control
----------------------------- --------- -------
a. Subsidiaries:
C.D. Packaging Systems Ltd. 50 50.1
Tri-Wall Containers 100 100
(Israel) Ltd.
Solid Packaging Board Ltd. *) 50 50
b. Inactive companies:
Hadass Firing Range 50 50
Systems Ltd.
Roboraz Ltd. 100 100
Plaro Container Systems 100 100
(1989) Ltd.
Tri-Wall Pallets (1973) Ltd. 100 100
*) Percentage of control represents the percentage of control of C.D.
Packaging Systems Ltd. in its subsidiary.
178
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
179
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Table of Contents
Page
----
Report of Independent Public Accountants 181
Consolidated Balance Sheets 182
Consolidated Statements of Income 184
Consolidated Statements of Cash Flows 185
Consolidated Statements of Changes in Shareholders' Equity 187
Notes to Consolidated Financial Statements 188
180
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coral World International Ltd.;
We have audited the accompanying consolidated balance sheets of Coral World
International Ltd. (a Guernsey corporation) and subsidiaries (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of certain consolidated subsidiaries, which statements
reflect total assets and total revenues of 47% and 60%, respectively, in 1996,
52% and 49%, respectively, in 1995, and revenues of 40% in 1994, of the related
consolidated totals. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Coral World International Ltd. and subsidiaries as of
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
March 26, 1997
New York, New York
181
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS AS AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
Current assets:
Cash and cash equivalents ............................ $ 1,818 $ 5,018
Accounts receivable, net of allowance for
doubtful accounts of $217 in 1995 .................. 1,521 1,319
Inventories .......................................... 940 1,202
Prepaid expenses and other ........................... 61 460
Assets held for sale (Note 3b) ....................... 894 5,376
Note receivable - short-term (Note 2) ................ 375 --
------- -------
Total current assets ....................... 5,609 13,375
Note receivable - long-term (Note 2) ................. 1,500 --
Property and equipment, net (Note 3a) ................ 15,597 9,077
Other assets:
Severance funding (Note 5) ......................... 460 414
Deferred income taxes .............................. 292 109
Other .............................................. 764 1,264
------- -------
Total other assets ......................... 1,516 1,787
------- -------
TOTAL ASSETS ......................................... $24,222 $24,239
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
182
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES &
SHAREHOLDERS' EQUITY AS AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands)
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses ................ 2,497 $ 2,921
Notes payable - short-term (Note 4) .................. 1,231 956
-------- --------
Total current liabilities .................. 3,728 3,877
Notes payable - long-term (Note 4) ................... 1,805 2,756
Provision for severance benefits (Note 5) ............ 877 639
-------- --------
Total liabilities .......................... 6,410 7,272
-------- --------
MINORITY INTEREST .................................... 1,430 1,123
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Note 6):
A Management shares, $2 par value; authorized
5,000 shares; issued and outstanding 2,500
shares ............................................ 5 5
B Management shares, $2 par value; authorized
5,000 shares; issued and outstanding 2,500
shares ............................................ 5 5
C Preference shares, $2 par value; authorized
1,000 shares; issued and outstanding 1,000
shares ............................................ 2 2
Additional paid-in capital ........................... 17,550 17,550
Accumulated deficit .................................. (792) (1,274)
Cumulative translation adjustments ................... (388) (444)
-------- --------
Total shareholders' equity ................. 16,382 15,844
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 24,222 $ 24,239
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
183
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
REVENUE:
Marine park admissions ...................... $ 10,188 $ 11,001 $ 11,300
Store and restaurant sales .................. 7,043 7,974 7,359
Transportation revenue ...................... 2,078 1,945 1,575
Hotel revenue ............................... 332 518 545
-------- -------- --------
Total operating revenue ............. 19,641 21,438 20,779
EXPENSES:
Operating costs ............................. 13,585 17,196 16,061
General and administrative (includes
management fee to a related party of $17
in 1996, $50 in 1995, and $100 in 1994) .... 5,080 3,550 2,988
-------- -------- --------
Total operating expenses ............ 18,665 20,746 19,049
-------- -------- --------
Operating income ............................ 976 692 1,730
-------- -------- --------
OTHER INCOME (EXPENSE):
Other income ................................ 525 791 461
Net interest income (expense) ............... 82 49 (268)
Write-off of pre-opening costs .............. -- (1,617) --
Write-down of inventory, property and
equipment and investments ................. (351) (5,899) --
-------- -------- --------
Total other income (expense) ........ 256 (6,676) 193
-------- -------- --------
Income (loss) before provision (benefit)
for income taxes, and minority interest ... 1,232 (5,984) 1,923
Provision (benefit) for income taxes ........ 509 687 (76)
-------- -------- --------
Income (loss) before minority interest ...... 723 (6,671) 1,999
Minority interest ........................... 241 209 170
-------- -------- --------
NET INCOME (LOSS) ........................... $ 482 $ (6,880) $ 1,829
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
184
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss) ............................... $ 482 $(6,880) $ 1,829
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 1,463 1,716 1,648
Provision for doubtful accounts ................ (217) 24 46
Loss (gain) on sale of equipment ............... 44 (5) 40
Write-down of investment ....................... 107 -- 76
Write-off of pre-opening costs ................. -- 1,617 --
Write-down of inventory, property and
equipment ..................................... 191 5,899 --
Proceeds from insurance claim .................. 1,025 150 --
Minority interest .............................. 241 209 170
Net changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...... (363) 110 (467)
Decrease (increase) in inventories .............. 262 (134) (213)
Decrease in prepaid expenses and other .......... 399 43 26
(Increase) decrease in other assets ............. (291) (4) 316
(Decrease) increase in accounts payable
and accrued expenses ........................... (408) 722 (138)
Increase (decrease) in other liabilities ........ 238 (78) (207)
------- ------- -------
Net cash provided by operating activities ........ 3,173 3,389 3,126
------- ------- -------
Cash flows from investing activities:
Purchase of investments ......................... -- -- (342)
Purchase of land ................................ (5,018) -- --
Purchase of property and equipment .............. (2,733) (2,302) (1,598)
Proceeds from sale of property and
equipment ...................................... 1,910 21 220
------- ------- -------
Net cash used in investing activities ............ (5,841) (2,281) (1,720)
------- ------- -------
Cash flows from financing activities:
Investment in subsidiary ........................ -- -- 300
Capital contribution ............................ -- -- 701
Proceeds from notes payable ..................... 1,791 -- --
Repayment of notes payable ...................... (2,467) (2,057) (993)
------- ------- -------
Net cash (used in) provided by financing
activities ..................................... (676) (2,057) 8
------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents ................................ 144 (150) (152)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents ..................................... (3,200) (1,099) 1,262
Cash and cash equivalents, January 1 ............. 5,018 6,117 4,855
------- ------- -------
Cash and cash equivalents, December 31 ........... $ 1,818 $ 5,018 $ 6,117
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
185
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest ........................................ $313 $448 $564
==== ==== ====
Income taxes, net ............................... $638 $152 $125
==== ==== ====
The accompanying notes are an integral part of the consolidated financial
statements.
186
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
(Dollars in thousands)
ADDITIONAL PAID-IN CAPITAL
Balance, January 1 ......................... $ 17,550 $ 17,550 $ 16,187
Capital contribution* ...................... -- -- 1,363
-------- -------- --------
Balance, December 31 ....................... $ 17,550 $ 17,550 $ 17,550
======== ======== ========
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, January 1 ......................... $ (1,274) $ 5,606 $ 3,777
Net income (loss) .......................... 482 (6,880) 1,829
-------- -------- --------
Balance, December 31 ....................... $ (792) $ (1,274) $ 5,606
======== ======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, January 1 ......................... $ (444) $ 100 $ (483)
Foreign currency translation adjustment .... 56 (544) 583
-------- -------- --------
Balance, December 31 ....................... $ (388) $ (444) $ 100
======== ======== ========
* Includes $662 for the year ended December 31, 1994 for issuance by a
subsidiary of common stock to a shareholder of the Company at amounts less
than book value in connection with a realignment of interests among the
existing shareholders.
The accompanying notes are an integral part of the consolidated financial
statements.
187
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands)
Note 1 - Summary of Significant Accounting Policies
a. The Company:
As used in these financial statements, the term the "Company" refers
to Coral World International Ltd. ("CWI") and its subsidiaries. CWI
was incorporated on December 3, 1987 under the laws of the Island of
Guernsey, Channel Islands for purposes of owning and operating
marine parks in various locations. CWI is owned 50% by
Ampal-American Israel Corporation and 50% by Marine Parks Holding
Ltd.
The Company has two wholly-owned subsidiaries: Coral World Bahamas
Hotels (1984) Limited ("CWB") (see Note 2 for discussion of sale of
assets during 1996) and Coral World (V.I.) Inc. ("CWVI") (which
operated the St. Thomas facility until September 30, 1995 when
operations ceased) and four 92.1%-owned operating subsidiaries:
Coral World Australia Pty, Ltd. ("CWA"), Coral World Manly Pty,
Ltd., Red Sea Underwater Observatory Ltd. ("RSUO") and Maui Ocean
Center, Inc.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
During the last quarter of 1996, the Company entered into
negotiations with a potential buyer to recapitalize CWVI by selling
a share of the Company's holdings and for the Company and new
investor to then inject additional capital into CWVI in order to
commence reconstruction. Management plans to begin operating the
Park again as it believes tourism is recovering in St. Thomas. In
the event this deal does not materialize, the Company will continue
to maintain the Park and the related carrying costs and search for
alternative buyers.
Maui Ocean Center, Inc. ("MOC") is developing a new park in Maui,
Hawaii which is expected to open in December 1997.
b. Consolidation:
The consolidated financial statements include the accounts of the
Company. All material intercompany transactions have been
eliminated.
c. Inventories:
Inventories of store merchandise are stated at the lower of weighted
average cost or market.
d. Property and Equipment:
The Company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets on a straight-line basis. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of," these assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amounts of the assets may not be realizable. Furthermore, the assets
are evaluated for continuing value and proper useful lives by
comparison to expected future cash flows. For the year ended
December 31, 1996 the adoption of SFAS No. 121 did not have a
material effect on the financial statements of the Company.
188
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e. Taxation:
CWI is exempt from taxation; the subsidiaries are taxed under the
laws of the jurisdictions in which they operate. All tax paying
subsidiaries account for income taxes by use of the liability
method.
The Company has provided for taxes on its Israeli operations for the
years 1994 to 1996 where it enjoys a partial status of "Approved
Enterprise" under the Law for the Encouragement of Capital
Investments which results in lower effective tax rates. These
benefits are expected to terminate in 1998. Income taxes were not
provided on the operations of the St. Thomas and Australian
subsidiaries because they did not have taxable income. The Bahamas
(CWB) is exempt from taxation.
A reconciliation of income taxes between the statutory and effective
tax is as follows:
1996 1995 1994
---- ---- ----
Federal income tax at statutory rate ............ $-- $-- $--
Tax on foreign income in excess
of statutory rates ............................. 509 687 (76)
---- ---- ----
Total effective tax .......................... $509 $687 $(76)
==== ==== ====
f. Translation of Foreign Currencies:
Based on the guidelines of SFAS No. 52, "Foreign Currency
Translation," assets and liabilities of subsidiaries (for the
Israeli subsidiaries in 1996 and 1995 only) are translated using
year-end rates of exchange and revenues and expenses are translated
at the average rates of exchange during the reporting period.
Translation differences of these foreign companies' financial
statements are included in a cumulative translation adjustment
account of shareholders' equity. During 1995, as a result of changes
in economic conditions, the Israeli subsidiaries determined the
Israeli shekel to be their functional currency. For the years prior
to 1995, the Israeli subsidiaries were deemed to have the U.S.
dollar as their functional currency. Assets and liabilities of these
subsidiaries were translated using year-end rates of exchange,
except for property and equipment and certain investment and equity
accounts which were translated at rates of exchange prevailing on
the dates of acquisition. Revenues and expenses were translated at
average rates of exchange during the year. Revenue and expense items
relating to assets translated at historical rates were translated on
the same basis as the related asset. Translation gains and losses
for these subsidiaries were reflected in the consolidated statements
of income.
g. Cash and Cash Equivalents:
All highly liquid investments with original maturities of 90 days or
less are classified as cash and cash equivalents.
h. Reclassifications:
Certain prior year amounts have been reclassified to conform with
the current year's presentation.
189
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Note Receivable
On September 27, 1996, CWI's wholly-owned subsidiary CWB sold its
marine park to an unrelated party for $3.75 million. In 1995, in
anticipation of this sale, the Company adjusted the carrying value
of the property to $3.75 million and recorded a loss of $5.8
million, including the write-off of pre-opening costs. As a result
of the sale in 1996, the recorded loss was adjusted to $6.1 million.
The buyer paid $3.75 million consisting of a $1.875 million
downpayment and issued a note to CWB in the amount of $1.875 million
payable in five equal annual installments of $375 commencing on
September 27, 1997. Interest is payable monthly at the rate of 8%
per annum commencing on October 27, 1996.
Note 3 - Property and Equipment
a. Property and Equipment:
1996 1995
------- -------
Marine park improvements, land,
hotel, buildings, installations,
towers and bridges ............................. $18,755 $12,236
Equipment, furniture and fixtures ................ 1,469 1,436
------- -------
20,224 13,672
Less: Accumulated depreciation .................. 6,766 5,543
------- -------
13,458 8,129
Pre-construction costs, Maui Ocean
Center, Inc. .................................... 2,139 948
------- -------
$15,597 $ 9,077
======= =======
b. Assets Held for Sale:
This caption includes the assets of CWB and CWVI. For 1996, the
amounts were $178 and $716 respectively and for 1995, $3,750 and
$1,626, respectively.
Note 4 - Notes Payable
Repayment of notes payable is as follows:
(a) (b) (c) (d) (e) Total
------ ------ ------ ------ ------ ------
1997 $ 316 $ 220 $ 488 $ 207 $ -- $1,231
1998 317 220 -- -- 112 649
1999 158 110 -- -- 112 380
2000 -- -- -- -- 112 112
2001 -- -- -- -- 112 112
2002-2006 -- -- -- -- 552 552
------ ------ ------ ------ ------ ------
$ 791 $ 550 $ 488 $ 207 $1,000 $3,036
====== ====== ====== ====== ====== ======
(a) In February 1996, the Company borrowed $791 from a bank. As of December
31, 1996 interest terms on this loan have not yet been finalized.
Principal is payable quarterly, beginning February 1997 with the final
payment due in May 1999. The loan is secured by all of the assets of Coral
World Australia Pty Ltd. which amounted to approximately $8.2 million.
(b) In September 1991, the Company borrowed $2,450 from Ampal-American Israel
Corporation, which has been partially repaid. The remaining principal
balance and interest is payable quarterly. The loan bears interest at a
rate of Prime plus 2% (10.25% at December 31, 1996 and 10.5% at December
31, 1995 and 1994).
190
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) In December 1990, the Company borrowed $4,250 from a related party. The
loan bore interest at various rates (at December 31, 1995: $800 at 9.25%
and $1,600 at Libor plus 1.75%, which was 7.4375% on that date; at
December 31, 1994: $800 at 9.95%, $800 at 9.25% and $1,200 at 8.75%). On
September 27, 1996 the loan was renegotiated as a result of the sale of
CWB to an unrelated party. The loan bears interest at a rate based on the
30-day Libor rate plus 1 3/4%, payable monthly. At December 31, 1996 the
interest rate was 7.41%. The bank loan is secured by a floating charge
over the remaining assets of CWB, which amounted to $2.2 million.
(d) The Company had an obligation, secured by a mortgage, which bears interest
at a rate of 8.12% per annum. This obligation was collateralized by the
condominium at CWVI. On January 22, 1997, the condominium and related
furniture securing this mortgage was sold for $180 and the entire debt
then outstanding (inclusive of interest) of $230 was satisfied in full.
(e) On September 3, 1996, the Company borrowed $1,000 from a bank. The loan
bears interest at a rate based on Libor plus 1%. At December 31, 1996 the
interest rate was 6.625%. The bank loan is secured by a charge on part of
the leased property, which amounted to $2.15 million of RSUO.
Note 5 - Severance Obligations
In accordance with Israeli law employers are required to record a
liability for and to fund severance benefits for all full-time employees
in an amount equal to one month's salary for each year of employment.
Accordingly, the data shown below relates to RSUO:
1996 1995
----- -----
Provision for severance benefits ....................... $(877) $(639)
Deposits with insurance companies and bank ............. 460 414
----- -----
$(417) $(225)
===== =====
Note 6 - Shareholders' Equity
The "A" and "B" management shares are the only voting shares and hold
equal voting rights. The holders of a majority of the "A" management
shares elect one-half of the Board and the holders of a majority of the
"B" management shares elect the other half. The "C" Preference Shares have
no rights except to receive dividends, if declared.
191
CORAL WORLD INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Geographic Information
Substantially all of the CWI assets are engaged in the operation of underwater
observatories and marine parks from which it derives its revenues.
Geographic information is as follows:
Australia Caribbean* Israel Hawaii Total
---------------------------------------------------
December 31, 1996
- -----------------
Operating revenue $ 5,812 $ 2,355 $ 11,474 $ -- $ 19,641
Operating income (loss) 93 (1,731) 2,715 (101) 976
Total assets 5,529 3,062 8,116 7,515 24,222
Capital expenditures 179 29 1,323 6,220 7,751
Depreciation and amortization 654 366 443 -- 1,463
December 31, 1995
- -----------------
Operating revenue $ 4,980 $ 6,039 $ 10,419 $ -- $ 21,438
Operating (loss) income (293) (1,789) 2,774 -- 692
Total assets 5,914 7,274 9,868 1,183 24,239
Capital expenditures 447 583 1,031 538 2,599
Depreciation and amortization 547 715 396 -- 1,658
December 31, 1994
- -----------------
Operating revenue $ 5,427 $ 7,077 $ 8,275 $ -- $ 20,779
Operating income (loss) 159 (148) 1,719 -- 1,730
Total assets 6,770 15,788 9,192 680 32,430
Capital expenditures 100 167 898 433 1,598
Depreciation and amortization 558 697 393 -- 1,648
* Since September 1995, the St. Thomas facility has not conducted any
operations.
Headquarters' revenues, assets and operating losses were allocated pro
rata to each geographical area.
Note 8 - Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
(a) Note Receivable
The fair value of the note receivable is estimated by
discounting the future cash flow using the current rate at
which a similar loan would be made to borrowers with similar
credit ratings and for the same remaining maturities.
(b) Commitments
Due to the relatively short term of commitments discussed in
Note 9, their contract value is considered to be their fair
value.
(c) Notes Payable
The fair value of notes payable is estimated by discounting
the future cash flows using the current rates offered by
lenders for similar borrowings with similar credit ratings and
for the same remaining maturities.
192
1996 1995
----------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Financial assets:
Note receivable ................. $1,875 $1,940 $ -- $ --
====== ====== ========= ======
Financial liabilities:
Notes payable ................... $3,036 $3,173 $ 3,712 $4,090
====== ====== ========= ======
Note 9 - Commitments and Contingencies
Coral World Australia Pty Ltd. has provided a $79 guarantee in favor of the
Australian Minister of Transport.
CWA has commitments in relation to non-cancelable operating leases which expire
in 2008. These are payable at $94 annually from 1997 through 2001, and $656
thereafter.
A floating charge has been registered by RSUO on all its assets totalling
$18,146 in favor of the State of Israel to secure the repayment of investment
grants in the event of non-compliance with stipulated terms.
In September 1995, Coral World's marine park in St. Thomas (CWVI) was damaged by
two hurricanes and was closed. Insurance proceeds of $150 were received in 1995
and $1.025 million was received in April 1996. Coral World is in a dispute with
another insurance company and its agent with respect to its claim for up to $1.2
million of additional coverage. The outcome of this dispute is not determinable
at this time and no accounting recognition has been reflected in the
accompanying financial statements for any future additional insurance receipts.
In November 1995, MOC entered into an $8 million term loan agreement with Bank
Hapoalim B.M. Under the terms of the agreement MOC may borrow up to $8 million
before June 30, 1997 for the acquisition and development of Maui Ocean Center.
These borrowings will be repaid in 13 conservative quarterly principal payments
beginning on December 31, 1997 and ending on December 31, 2000, the maturity
date. Borrowings under the agreement will accrue interest at Libor plus 1.5%. As
of December 31, 1996, MOC has not drawn any amounts against this agreement.
193
[LETTERHEAD OF Somekh Chaikin]
Tirat Hacarmel, March 10, 1997
Auditors' Report to the Shareholders of
Granite Hacarmel Investments Limited
We have audited the accompanying balance sheets of Granite Hacarmel Investments
Limited (the Company) as at December 31, 1996 and 1995 and the consolidated
balance sheets of the Company and its subsidiaries as at such dates, and the
related statements of income, shareholders' equity and cash flows, for each of
the three years, the last of which ended December 31, 1996. These financial
statements are the responsibility of the Company's Board of Directors and of its
Management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of a consolidated subsidiary whose
assets constitute 3.6% and 4% of the total consolidated assets as at December
31, 1996 and 1995 respectively, and whose revenues constitute 3%, 2.7% and 2.8%
of the total consolidated revenues of the years ended December 31, 1996, 1995
and 1994 respectively. These financial statements of the subsidiary were audited
by another auditor whose report thereon was furnished to us. Our opinion,
insofar as it relates to amounts emanating from the financial statements of such
subsidiary, is based solely on the said report of the other auditor.
Furthermore, the data included in the financial statements relating to the net
asset value of the Company's investments in affiliates and to its equity in
their operation results, is based on the financial statements of such
affiliates, some of which were audited by other auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including standards prescribed by the Auditors Regulation (Manner of
Auditor's Performance) 1973. Such standards require that we plan and perform the
audit to obtain reasonable assurance that the financial statements are free of
material misstatement, whether due to error or intentional misrepresentation. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The above mentioned financial statements were prepared on the basis of the
historical cost convention, in historical values adjusted for the changes in the
general purchasing power of the Israeli currency, in accordance with opinions of
the Institute of Certified Public Accountants in Israel.
194
In our opinion, based on our audit and on the reports of the above mentioned
other auditors, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and the
consolidated financial position of the Company and its subsidiaries as at
December 31, 1996 and 1995 and the results of their operation, the changes in
the shareholders' equity and their cash flows for each of the three years, the
last of which ended December 31, 1996 in conformity with generally accepted
accounting principles. Furthermore, these statements have, in our opinion, been
prepared in accordance with the Securities Regulation (Preparation of Annual
Financial Statements) 1993.
The consolidated financial statements, stated in U.S. dollars in accordance with
U.S. generally accepted accounting principles, are translated according to the
principles prescribed by Statement of Financial Accounting Standards N. 52
(F.A.S.B. 52) Those statements are based on historical nominal amounts and are
included in Note 30. to the financial statements.
Without qualifying our opinion, we would like to bring to attention Note 27 to
the financial statements regarding the compromise agreement with the Controller
of Restrictive trade Practices pertaining to filling station owners and
operators; the Controller of Restrictive trade Practices' ruling of the
existence at a restrictive arrangement in regard to the refueling system for
automobile fleets; the proposal to shorten agreements made by a consolidated
company with filling station operators and owners; and with legislation proposed
by the Ministry of Energy dealing with the fuel market. At this time, it is not
possible to estimate the effect of the above on the fuel market in general and
on the Company in particular.
/s/ Somekh Chaikin
Certified Public Accountants (Israel)
195
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
Adjusted to the Index of December 1996
--------------------------------------
N December 31, December 31,
o ------------ ------------
t 1996 1995
e ---- ----
- Adjusted NIS. (thousands)
-------------------------
Current assets
- --------------
Cash and cash equivalents 10,156 20,464
Marketable securities 4 4,861 237
Compulsory Government loan 4.A. 158 624
Trade receivables 5 487,302 366,125
Accounts receivable 5 33,422 61,378
Inventories 6 299,270 316,706
--------- ---------
835,169 765,534
--------- ---------
Investments, long-term
loans and debit balances
Subsidiaries, affiliated
companies and others 7 131,584 64,980
Long-term loans 8 50,847 23,196
Compulsory Government loan -- 232
--------- ---------
182,431 88,408
--------- ---------
Fixed assets 9
------------
Cost 1,235,008 1,158,389
Less: Accumulated depreciation 628,715 573,323
--------- ---------
606,293 585,066
--------- ---------
Intangible assets and
---------------------
deferred charges, net 10 30,615 20,238
--------------------- --------- ---------
1,654,508 1,459,246
========= =========
196
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
Adjusted to the Index of December 1996
--------------------------------------
N December 31, December 31,
o ------------ ------------
t 1996 1995
e ---- ----
- Adjusted NIS. (thousands)
-------------------------
Current liabilities
-------------------
Credits from banks and others 11 252,262 157,013
Current portion of
convertible debentures 14 37,965 40,345
Trade payables 12 179,210 153,315
Accounts payable 13 125,196 69,871
------- -------
594,633 420,544
------- -------
Long-term liabilities
---------------------
Long-term loans 14 63,487 8,316
Debentures convertible into
shares of the company 14 179,604 229,846
Debentures convertible into
shares of a subsidiary 14 2,044 4,071
Customers' deposits 15 60,228 62,557
Liabilities for employee rights
upon retirement, net 16 9,227 8,437
Deferred taxes, net 17 2,645 5,701
Capital notes issued by
a consolidated company 215 314
------- -------
317,450 319,242
------- -------
Minority interest 9,517 9,207
------------------ ------- -------
Collaterals, commitments and contingent
---------------------------------------
liabilities 26,27
-----------
Shareholders' equity 732,908 710,253
-------------------- ------- -------
1,654,508 1,459,246
========= =========
J. Rosen - Chairman of the Board
M. Mor - Director
M. Erez - Managing Director
Date: March 10, 1997.
The accompanying notes are an integral part of the financial statements.
197
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Adjusted to the Index of December 1996
--------------------------------------
N Year ended December 31,
o -----------------------
t 1996 1995 1994
e ---- ---- ----
- Adjusted NIS. (thousands)
----------------------------------
Sales 2,909,342 2,700,100 2,373,783
Less: Government imposts 1,127,209 937,547 904,461
--------- --------- ---------
Net sales 1,782,133 1,762,553 1,469,322
Cost of sales 20 1,394,959 1,400,224 1,140,265
--------- --------- ---------
Gross profit 387,174 362,329 329,057
--------- --------- ---------
Selling and marketing expenses 21 236,175 * 204,085 * 194,231
General and administrative expenses 22 48,246 * 51,789 * 44,988
--------- --------- ---------
284,421 255,874 239,219
--------- --------- ---------
Income from operations 102,753 106,455 89,838
--------- --------- ---------
Financing expenses, net 23 (23,067) (14,503) (11,027)
Other income, net 24 7,415 * 2,675 * 6,312
--------- --------- ---------
(15,652) (11,828) (4,715)
--------- --------- ---------
Income before taxes on income 87,101 94,627 85,123
Taxes on income 25 35,671 39,786 25,205
--------- --------- ---------
Income after taxes on income 51,430 54,841 59,918
Company's share in income (loss)
of affiliates, net 666 (3,091) 816
Minority interest in income
of consolidated subsidiaries (1,471) (628) (351)
--------- --------- ---------
Net income 50,625 51,122 60,383
========= ========= =========
Earnings per ordinary share
(in adjusted NIS.):
Primary 0.41 0.42 0.49
==== ==== ====
Fully diluted 0.28 0.27 0.21
==== ==== ====
*Reclassified.
The accompanying notes are an integral part of the financial statements.
198
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Capital Premium Retained Total
Earnings
------- ------- -------- -----
Adjusted NIS. (thousands)
----------------------------------------------
Balance as at January 1, 1994 198,345 99,801 355,585 653,731
Changes in 1994:
Net income for the year -- -- 60,383 60,383
Proceeds from exercise
of stock options 3,112 14,691 -- 17,803
Dividend declared, net (*) -- -- (45,812) (45,812)
------- ------- ------- -------
Balance as at December 31, 1994 201,457 114,492 370,156 686,105
Changes in 1995:
Net income for the year -- -- 51,122 51,122
Dividend paid, net (*) -- -- (26,974) (26,974)
------- ------- ------- -------
Balance as at December 31, 1995 201,457 114,492 394,304 710,253
Changes in 1996:
Net income for the year -- -- 50,625 50,625
Dividend paid -- -- (27,970) (27,970)
------- ------- ------- -------
Balance as at December 31, 1996 201,457 114,492 416,959 732,908
======= ======= ======= =======
(*) Net of erosion of dividend declared in previous year.
The accompanying notes are an integral part of the financial statements.
199
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Year ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
--------------------------------
Cash flows from operating activities
- ------------------------------------
Net income 50,625 51,122 60,383
Adjustments to reconcile net income
to operating cash flows (A): 13,068 106,850 88,020
------- ------- -------
Net cash provided by operating activities 63,693 157,972 148,403
------- ------- -------
Cash flows from investing activities
- ------------------------------------
Acquisition of fixed assets (88,284) (84,950) (99,584)
Investment grant -- -- 604
Proceeds from sale of fixed assets 3,404 1,758 3,455
Dividend received from affiliates 1,458 -- --
Loan granted to an affiliated company -- -- (13,009)
Long-term loans granted (1) (13,662) (3,413) (2,114)
Collection of long-term loans 10,170 6,890 6,612
Investment in intangible and deferred charges (14,375) (5,567) (3,058)
Investment in an affiliated company (68,471) (5,718) --
Proceeds from redemption of compulsory
government loan 730 740 776
Proceeds from (investments in)
marketable securities, net (3,833) 5,632 7,439
Proceeds from (investment in) short-term deposit -- 37,260 (35,865)
Investment in capital note of an affiliated company -- -- (7,511)
Repayment of part of an investment in an
affiliated company -- -- 484
Reduction of investments in
companies by dividend received -- -- 6,910
Acquisition of shares in a subsidiary company (1,622) -- --
Acquisition of an affiliated company -- -- (101)
Repayment of capital notes of interested parties 11,075 30,991 --
Acquisition of an initially
consolidated company (B) (36) 2 --
------- ------- -------
Net cash used for investing activities (163,446) (16,375) (134,962)
------- ------- -------
C/F (99,753) 141,597 13,441
------- ------- -------
200
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Year ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
--------------------------------
B/F (99,753) 141,597 13,441
------- ------- -------
Cash flows from financing activities:
- -------------------------------------
Dividend paid (27,970) (74,638) (80,244)
Dividend paid to minority shareholders
in a consolidated subsidiary (305) (342) (138)
Short-term credit from banks, net 85,040 (34,850) 74,665
Short-term loans from others, net 10,000 (5,959) (5,177)
Long-term loans received 60,223 -- 333
Long-term loans repaid (2) (947) (1,376) (1,100)
Redemption of capital notes issued
by a consolidated company (77) -- (2,809)
Customers' deposits received 2,080 1,905 1,967
Customers' deposits repaid (627) (786) (1,151)
Redemption of debentures (37,972) (12,335) --
Expenses regarding conversion
of debentures into shares (3) -- -- (31)
------- ------- -------
Net cash provided by (used for)
financing activities 89,445 (128,381) (13,685)
------- ------- -------
(Decrease) Increase in cash and
cash equivalents (10,308) 13,216 (244)
Cash and cash equivalents at beginning of year 20,464 7,248 7,492
------- ------- -------
Cash and cash equivalents at end of year 10,156 20,464 7,248
======= ======= =======
The accompanying notes are an integral part of the financial statements.
201
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Year ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
------------------------------
(A)
Adjustments to reconcile net
- ----------------------------
income to operating cash flows:
-------------------------------
Income and expenses not requiring cash flows -
Depreciation and amortization 68,873 63,684 59,598
Deferred taxes, net (2,777) (7,223) (5,567)
Increase (Decrease) in liabilities for
employee rights upon retirement, net 913 (1,663) 3,757
Minority interest in income of
consolidated subsidiaries 1,471 628 352
Company's share in undistributed
loss of affiliates, net 880 4,971 1,022
Income from decrease in holding in
a consolidated subsidiary pursuant to
conversion of its debentures into shares -- -- (618)
Capital gains (310) (439) (1,192)
Erosion of investments in capital notes, net (172) (455) 1,203
Erosion of long-term loans,
debentures and capital notes issued (16,095) (11,592) (38,906)
Erosion of loans granted 1,212 729 (81)
(Increase) Decrease in value of compulsory
Government loan and securities, net (956) (212) 1,482
Erosion of customers' deposits (3,782) (2,417) (8,817)
Erosion of short-term deposit -- (1,241) (153)
Partial write-off of investment in
an affiliated company -- 3,318 --
Changes in assets and liabilities -
(Increase) Decrease in trade and
accounts receivable (1)(2) (134,631) 14,088 (5,914)
Decrease in inventories 17,436 51,894 46,036
Increase (Decrease) in trade
and accounts payable 81,006 (7,220) 35,818
-------- ------- ------
13,068 106,850 88,020
======== ======= ======
The accompanying notes are an integral part of the financial statements.
202
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
------------------------------------------------
Adjusted to the Index of December 1996
--------------------------------------
Year ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
----------------------------
(B)
Acquisition of an initially
- ---------------------------
consolidated company
- --------------------
Assets and liabilities of the said
company as at the acquisition date:
Working capital (not including
cash and cash equivalents) 26 (95) --
Fixed assets, net (5) (749) --
Long-term debt, net -- 846 --
Reserve for the loss of the affiliated
company as of the day of changeover to
a consolidated company -- 406 --
Goodwill (1,028) (406) --
Minority interest 971 -- --
------ ----- -----
(36) 2 --
====== ===== =====
Activities not requiring cash flow:
(1) In 1996, current receivables from customers were converted into long-term
loans in the amount of NIS.27,634 thousand (1995 - NIS.10,899 thousand,
1994 - NIS. 2,974 thousand).
(2) In 1996, the redemption of a loan received from an affiliated company in
the amount of NIS. 4,500 thousand was offset against a receivable from an
affiliated company.
(3) In 1994, 11,473,515 debentures (series 2) were converted into 2,294,703
ordinary shares. In 1995, 110 debentures were converted into 20 ordinary
shares.
The accompanying notes are an integral part of the financial statements.
203
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES
-----------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES
A. General
-------
1. The financial records of the Company and its consolidated
subsidiaries are maintained on a current basis in historical New
Israel Shekels. In accordance with Opinions issued by the
Institute of Certified Public Accountants in Israel, the
consolidated financial statements are stated in terms of December
1996 New Israel Shekels ("adjusted shekels") which reflect a
uniform purchasing power. Such shekel statements are henceforth
referred to as "adjusted statements".
The comparative figures (including the monetary items) in the
adjusted statements - (balance sheets, statements of income,
statements of changes in shareholders' equity, statements of cash
flows) - are also stated in terms of December 1996 adjusted
shekels.
2. The adjusted values presented in the adjusted statements do not
necessarily reflect realizable value or current economic value,
but rather the original historical value or the value including
excess of cost over net asset value related to specific assets,
adjusted for the changes in the general purchasing power of the
Israel currency, to permit comparison of the data on a uniform
basis.
3. The term "cost" used in the adjusted statements means cost in
adjusted shekels unless otherwise stated.
B. Basis of Adjustment - Consumer Price Index
------------------------------------------
The adjusted amounts are expressed in New Israel Shekels, the
purchasing power of which reflects the average price level of the
month of December 1996, based on the Consumer Price Index published by
the Central Bureau of Statistics ("Index"), on January 15, 1997 (see
Note 2.G.1.)
C. Principles of Adjustment
1. Balance Sheet
a. The non-monetary items (the balance sheet amounts which
represent their historical value at the time of their
acquisition or creation-see below) were adjusted for the
changes in the Index since their acquisition or creation and
until the balance sheet date. The following items were
treated as non-monetary items: fixed assets and related
accumulated depreciation, investments carried at cost,
inventories, except for inventories of crude oil and refined
products, (see Note 2.C.2) deferred charges and the related
accumulated amortization, and shareholders' equity.
204
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONTINUED)
b. The value of the investments in affiliated companies carried
on the equity basis was computed on the basis of the
adjusted statements of the affiliated companies.
c. Deferred taxes, net were computed on the basis of the
adjusted data.
d. Monetary items are stated in the adjusted statements at
their nominal value.
2. Statement of Income
-------------------
The items of the statement of income were adjusted in accordance
with the changes in the consumer price index as follows:
a. Amounts relating to non-monetary items in the balance sheet
(e.g. depreciation and amortization), or provisions included
in the balance sheet (e.g. severance indemnities, vacation
pay) were adjusted in accordance with the changes in the
corresponding balance sheet items.
b. Other amounts in the statement of income (e.g. sales,
purchases, other current costs), except for financing
expenses (income) net, are stated at their adjusted amounts
based on the index for the month of the related
transactions.
c. The net financing item, which cannot be independently
calculated, is derived from the other items in the statement
of income. The item includes, inter alia, amounts required
for the adjustment of various items in the statement of
income in respect of the inflationary component of the
financing included therein.
d. The Company's equity in the operating results of the
affiliated companies and the minority interest in the
results of consolidated subsidiaries were determined on the
basis of the adjusted statements of the investee companies.
e. Current taxes are composed of payments on account during the
year in addition to amounts payable as of the balance sheet
date (or net of refunds claimed as of the balance sheet
date). The payments on account were adjusted based on the
prevailing index on the date of each payment, while the
amounts payable (or claimed as refund) are included without
adjustment. Accordingly, the current taxes include the
expenses arising from the erosion of the payments on account
taxes from the date of payments to the balance sheet date.
Deferred taxes - see Note 2.J.
3. Comparative figures were adjusted to the December 1996 index.
205
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES
A. Principles of consolidation
---------------------------
1. The consolidated financial statements of the Company include the
consolidated financial statements of the Company and its
subsidiaries. The list of subsidiaries which are included in the
consolidated financial statements and the percent ownership and
control therein are included in a separate schedule to the
financial statements.
2. Intercompany balances and transactions of consolidated companies
have been eliminated.
B. Investments in subsidiary and affiliated companies
--------------------------------------------------
1. The investments in subsidiaries and affiliated companies are
reflected in the financial statements in accordance with their
equity adjusted to the balance sheet date together with the
balance of the excess cost or net of the balance of deferred
credits. Other investments are stated at cost which does not
exceed equity as of the balance sheet date. Subsidiary companies
own several other inactive and/or insignificant subsidiaries and
therefore are not consolidated and are carried at cost, which
does not exceed equity as at the balance sheet date.
2. The excess of cost of investments in consolidated subsidiaries,
which is not related to specific assets, over the value of net
assets acquired ("Goodwill"), is included in "Intangible assets
and deferred charges, net" and is amortized on the straight-line
method over a period of ten years.
The excess value of net assets acquired over cost of investments
in affiliated companies, which is not related to specific assets,
is set off against excess of cost included in "Intangible assets
and deferred charges, net" and is amortized on the straight line
method over a period of ten years.
3. The investements of the Company in capital notes of affiliated
companies are presented in the financial statements of the
Company in accordance with the requirements of the Securities
Authority regarding transactions between the Company and its
interested parties.
4. A list of affiliated companies is included in a schedule attached
to the financial statements.
C. Valuation of inventories
1. Inventory of crude oil and refined products
The major part of the crude oil and refined product inventories
of the wholly-owned subsidiary, Sonol Israel Limited ("Sonol"),
consists of Emergency inventories. The Emergency inventories are
valued based on current value, which does not exceed market value
in accordance with the lower of the changes in the exchange rate
determined by the Fuel Authority ("Fuel Authority rate") or the
dollar exchange rate. In all instances, the Emergency inventories
valued at the Fuel Authority rate are guaranteed by the
Government by way of setting Sonol's recovery price based on the
Fuel Authority rate in accordance with the Commodities and
Services Control Order (Arrangements in the Oil Economy - 1988).
206
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
The commercial inventories (crude oil and refined products) are
stated at the lower of cost or market.
The cost is determined by the first-in, first-out method.
2. Other inventories
-----------------
The inventories of luboils, spare parts and others are stated at
the lower of cost or market.
The cost is determined by the first-in, first-out method except
for spare parts which are valued by the moving average method.
D. Fixed assets
------------
Fixed assets are carried at cost, net of investment grants, or at cost
together with the addition of excess of cost over net asset value
related to specific assets. Betterments and improvements are charged
to assets while maintenance and repair expenses are charged as
incurred to the statement of income.
E. Depreciation and Amortization
-----------------------------
Depreciation is computed on the straight line method at annual rates
considered to be sufficient for depreciating the assets over their
estimated useful lives.
The annual rates of depreciation are as follows:
%
---
Buildings (including temporary
and rental buildings) 2 - 6.5
Machinery and equipment 5 - 15
Vehicles 15 - 20
Computers 20 - 25
Furniture and office equipment (reflected
in machinery and equipment) 6 - 10
The excess of cost over net asset value related to specific assets is
depreciated over the remaining useful life as determined at the time
the excess of cost was related to those assets.
Leasehold rights are amortized over the term of the lease.
F. Debentures convertible into shares
----------------------------------
1. Convertible debentures are presented in accordance with the
Opinion No. 53 of the Institute of Certified Public Accountants
in Israel on the basis of the probability of their conversion
into shares. Debentures are reflected in the financial statements
at their liability value.
207
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
2. Costs relating to the issuance of convertible debentures are
amortized over the remaining period until their maturity.
G. Foreign currency and linkage basis
----------------------------------
1. Assets (other than securities) and liabilities in foreign
currencies or linked thereto are stated at the exchange rates in
effect for the balance sheet date.
Assets (other than securities) and liabilities linked to the
Index, are stated according to the linkage conditions applying to
each balance.
The Index, the exchange rates and the rate of changes therein
were as follows:
December 31, Changes in %
------------ ------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Index 143.1 129.4 119.7 10.6 8.1 14.5
Exchange rate of
the U.S. dollar 3.251 3.135 3.018 3.7 3.9 1.1
2. Income and expenses in foreign currencies or linked thereto are
included in the appropriate items of the statements of income
based on the exchange rate in effect when such items were
recorded.
3. Exchange rate or linkage differences resulting from the
adjustment of assets and liabilities in foreign currency or of
assets and liabilities linked to the Index are included in the
statements of income in the appropriate items at the time
incurred.
H. Investments
-----------
1. Government loan
---------------
The investment in a Government Loan is reflected at its present
discounted value as calculated in accordance with directions
specified in the opinions of the Institute of Certified Public
Accountants in Israel. The change in the value of the Government
loan is included in the statement of income.
2. Marketable Securities
---------------------
The marketable securities are carried at their market value on
the date of the balance sheet. The changes in the value of the
securities are reflected in the statement of income.
208
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
I. Provision for doubtful receivables
----------------------------------
The Company provides specifically for receivables the collection of
which is doubtful in the opinion of the management.
J. Deferred taxes
--------------
Deferred taxes are computed for the purpose of the adjusted financial
statements in respect of those components which create the difference
between results measured in the adjusted financial statements and the
results measured for income tax purposes.
The deferred taxes are calculated according to the liability method at
tax rates that will be in effect when the deferred taxes will be
utilized, using tax rates that are known at the time of preparation of
the financial statements (See note 25.b.).
1. The main factors in respect of which deferred taxes have been
included are as follows:
a. Differences in depreciation and amortization for accounting
and tax purposes;
b. Differences between the value of inventories for accounting
and tax purposes;
c. Timing differences in recognition of income and expense
items for accounting and tax purposes (mainly linkage
differences on customers' deposits and provisions for
employee post-retirement benefits).
2. The main factors in respect of which deferred taxes have not been
computed:
a. Amounts of adjustment for the change in the purchasing power
of the New Israel Shekels relating to buildings and private
motor cars, in accordance with the rules determined by the
Institute of Certified Public Accoutants in Israel.
b. Investments in subsidiaries and affiliates, because it is
the Company's intention to hold these investments rather
than to sell them.
K. Recognition of income
---------------------
1. Products sales - Income from the sale of products is recorded
upon dispatch to the customer.
2. Rental income - Rental income is recorded upon receipt of
payment, proportionately to the relevant period.
209
NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)
L. Provision for linkage increments on customers' deposits
-------------------------------------------------------
The wholly-owned subsidiary, Supergas Israel Gas Distribution Company
Ltd. ("Supergas") is obligated under a Government decree to pay
customers terminating their gas purchasing agreement an amount equal
to the latest approved deposit authorized by the Ministry of Trade and
Industry, together with linkage increments from the date of the last
approval to the date of payment. In periods subsequent to the last
approval, Supergas provides for amending the amounts of the deposits
on the basis of the expected next updating that it will request.
Supergas provides for this liability on a discounted present value
basis.
M. Earning per share
-----------------
1. Primary earnings
----------------
The earnings per share are computed in accordance with the
Opinion No. 55 of the Institute of Certified Public Accountants
in Israel, based on the weighted average of shares outstanding,
taking into consideration the retroactive effect of the options.
2. Fully diluted earnings
----------------------
The fully diluted earnings per share are computed on the basis of
the computation of the primary earnings per share taking into
consideration theoretical conversion of the convertible
securities subject to an anti dilutive test as stated in the
aforementioned Opinion.
N. Foreign currency futures transactions
-------------------------------------
Sonol Israel Limited entered into a "free dollar transaction" with a
bank by which it acquired U.S. dollars bearing interest at flexible
rates, against an unlinked shekel loan, bearing interest at flexible
rates. The transaction may be closed at any time by netting the
liability against the asset. The accumulated effect of the transaction
is reflected in the statements of income.
O. Fair value of financial instruments
-----------------------------------
There is no significant difference between the fair value of the
financial instruments of the Company and their value as stated in the
balance sheet, except for debentures convertible into shares (see note
14).
210
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM IN THE ENERGY SECTOR
A. Sonol
-----
1. Amounts due to or from the Fuel Authority, to the extent still
provisional, are included each year in the accounts according to
estimates prepared by Sonol based on past experience. Differences
which subsequently arise are reflected in the results of the year
in which such differences are determined.
2. All costs and expenses related to the holding of Emergency
inventories are fully recoverable from the government while the
holding of Commercial inventories is at the risk of the oil
marketing companies.
3. Government retail price controls have been lifted from all fuel
products marketed through public stations with the exception of
benzine 95 and 96 octane.
211
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR
(CONTINUED)
4. Further to the recommendations of the committee previously
appointed by the Minister of Energy and Infrastructure, the
Minister of Energy has announced his intention to change the
policy regarding the holdings of Emergency Stocks of crude oil
and refined products and to separate them from the operating
inventories of the oil companies. To date, ownership of Emergency
Stocks of heavy fuel oil held at the Israel Electric Corporation
has been transferred to the Israel Electric Corporation.
For the period which commenced November 1996 and ended February
1997, the requirement to hold Emergency Stocks of heavy fuel oil
was graduelly cancelled. Also, the Government intends, in 1997,
to separate the storage of distillates included in the Emergency
Stocks from the storage of distillates used in current
operations, and in the future, to have tender offers to determine
the party who will hold the Emergecny Stocks in warehouses
specially designated by the State.
In the opinion of the Company, no negative effect on the
financial position and profitability of the subsidiary company,
Sonol, is expected as a result of the above changes.
5. In accordance with the Government ordinance issued by the
Minister of the Treasury and the Minister of National
Infrastructures regarding the supplying of aviation kerosene
(hereinafter "ATK") to the airline companies at Ben-Gurion
Airport, as of September 1, 1996, Aviations Services Ltd. (an
affiliated company) (hereinafter "Aviation Services") ceased to
be the sole supplier of ATK. Sonol was one of the suppliers of
ATK to Aviation Services for many years. As a result of the
cancellation of the right of Aviation Services to supply ATK,
Sonol will, like other fuel companies, become a direct supplier
of ATK to the airline companies at Ben-Gurion airport. The decree
also determined the prices for refueling services and for
infrastrcture services provided to the ariline companies at
Ben-Gurion airport. In accordance with agreements signed with the
budget division of the Finance Ministry and with the Airports
Authority, Aviation Services will provide the refueling services
and its subsidiary (50% owned), Aviation Properties Ltd., will
provide the infrastructure services. The agreements do not
provide Aviation Services with exclusivity in providing refueling
services at Ben-Gurion airport.
At this time, it is too early to determine the effect of these
changes on the fule market in general and on Sonol, in
particular.
6. On September 1, 1995 the Government published a decree the
purpose of which is to regulate infrastructure rates in the fuel
economy-decree for the Stability of Products and Services
(Temporary Order) (Infrastructure Rates in the Fuel Economy)
1995.
The decree establishes, inter alia, the various types of
infrastructure services and the maximum prices allowed, as well
as the method for updating the prices.
212
NOTE 3 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE REFORM FOR THE ENERGY SECTOR
(CONTINUED)
B. Supergas
--------
1. As of August 1, 1989 the Law of Arrangements in the State Economy
(Amended Statutes) - 1989, entered into effect which provides
inter-alia for the following:
a. Licensing of new gas marketing companies;
b. Direct sales of gas by the refineries to gas marketing
companies;
c. Allowing the cancellation of existing contracts between gas
suppliers and individual customers, at the customers'
election.
The above changes ("the Gas Reform") resulted in increased
competition, particularly in the more profitable bulk supply
sector. Such competition manifested itself primarily through
price discounting and increased customer credit. In January 1995,
a convention was signed between the Ministry of Energy and
several gas companies, among them Supergas, establishing
standards of service to their clients. In May 1995, price
controls in effect on the price of gas were lifted. Concurrently,
the companies who are parties to the convention have undertaken
not to deviate, when setting their prices to the consumer, from
an agreed upon formula for an interim period ending on December
31, 1996.
2. Supergas lodged a claim in the District Court for a declarative
judgement against the Ministry of Energy and Infrastructure, the
Fuel Authority, regarding two matters relating to the period
before the Gas Reform.
In its ruling, the Court accepted Supergas' claim on one matter
and rejected the second claim. The Government and Supergas
submitted an appeal to the Supreme Court and concurrently they
negotiated to compromise the dispute.
In December 1996, the parties reached a compromise agreement
which received the status of a Supreme Court ruling and under
whose terms the government paid to Supergas the amont of NIS.
5.2. million, net which has been netted in "Government imposts"
in the statement of income.
213
NOTE 4 - MARKETABLE SECURITIES
Consist of:
December 31,
----------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Shares 4,757 89
Convertible debentures 104 148
----- --
4,861 237
===== ===
NOTE 4.A. COMPULSORY GOVERNMENT LOAN
The compulsory Government loan is Hagalil Peace loan (Note 2.H.1). The
nominal value of the Hagalil Peace loan is linked, at the Company's
discretion, to 80% of the increase in the Index in addition to index
linked interest of 1% per annum, or to the increase in the
representative rate of exchange of the dollar, without interest. The
loans are redeemable in four annual payments commencing in the year
1993.
NOTE 5 - TRADE RECEIVABLES AND ACCOUNTS RECEIVABLE
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Trade receivables
-----------------
Consist of:
Customers - open accounts 401,232 312,009
Checks and notes receivable 37,656 27,289
Credit cards companies 48,826 30,533
Short-term loans and current portion
of long-term loans granted 10,352 6,745
Less - provision for doubtful receivables(*) (10,764) (10,451)
------- -------
487,302 366,125
======= =======
Accounts receivable
-------------------
Consist of:
Fuel Authority - 14,611
Government Institutions 217 192
Income receivable 7,282 9,823
Employees 807 1,169
Prepaid expenses 6,024 5,054
Income tax receivable 4,610 8,330
Future tax benefits, net(**) 4,365 4,644
Current portion of capital notes - 11,169
Others 10,117 6,386
------- -------
33,422 61,378
====== ======
(*) See note 2.I.
(**) See note 17.
214
NOTE 6 - INVENTORIES
Consist of:
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Crude oil and raw materials 53,210 81,847
Finished products 236,997 226,239
Materials and supplies 9,063 8,620
------- -------
299,270 316,706
======= =======
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Affiliated companies:
Share in equity 22,165 18,609
Goodwill and excess cost attributed, net 77,014 8,305
Less: accumulated amortization (3,903) (3,810)
Book value (1)(3) 95,276 23,104
Payments on account of shares (3) - 5,718
Long-term loans, net (3) 10,410 10,205
Capital note and capital reserve, net
of provision for loss (2) 7,379 7,434
------- ------
113,065 46,461
Affiliated companies - cost 179 179
Others - cost 18,340 18,340
------- ------
131,584 64,980
======= ======
215
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
(1) Cost of shares including retained
earning as of December 31, 1991 6,174 6,174
Changes, beginning 1.1.92:
Cost of shares acquired 94,779 20,590
Retained earnings (*) (6,019) (4,002)
Changes in capital reserves 342 342
------ ------
Book value 95,276 23,104
====== ======
(*) Dividend received in the current year 3,004 1,880
====== ======
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS (CONTINUED)
(2) Capital note is unsecured and non-negotiable, linked to the Index,
bears no interest and matures in the year 2001.
(3) A. The loans given by a subsidiary to the affiliated company Otzem
Promotion and Investments (1991) Ltd. ("Otzem") are mostly index
linked and partly index linked and bear interest at the rate of
5.5% p.a. The date of maturity is subject to the financial
capabilities of Otzem.
B. Due to the operating results of Otzem in 1995, the wholly-owned
subsidiary company, Granite Hacarmel Properties (1993)
Ltd.,("Granite Properties") wrote off amounts totalling NIS.
6,580 thousand, NIS. 3,318 thousand as a provision in "other
income, net" and NIS. 3,263 thousand as a writeoff of the balance
of goodwill, recorded on account of its investment in Otzem, now
included in the "Company's share in income (loss) of affiliates,
net".
C. On December 31, 1995 a closing agreement was signed with Nitzba,
Hevra Le'hitnahalut Ltd. ("Nitzba") whereby most of the assets of
Nitzba were transferred to a new company, Nitzba Holdings (1995)
Ltd. ("Nitzba Holdings"). The closing agreement also provided
that Granite Properties and Ashtrom Properties Ltd. ("Ashtrom")
will each aquire 10% of the outstanding share capital of Nitzba
Holdings for a payment of approximately NIS. 73,900 thousand
each, the most of which was paid in the current year. The cost of
the investment, including related expenses, amounted to NIS.
74,200 thousand approximately. In connection with this agreement,
it was also agreed that Granite
216
Properties and Ashtrom will each acquire 15% of the rights of
Nitzba in an orchard in Nes Ziona. Granite Properties' share,
including related expenses, is approximately NIS. 2,300 thousand.
The agreement and the closing agreement provide Granite
Properties and Ashtrom the right to appoint a quarter of all the
directors of Nitzba Holdings. In addition, Granite Properties and
Ashtrom were granted veto rights on several significant matters
requiring decisions by the directorate. Until such time that the
shares of Nitzba Holdings will be issued and registered for
trading on the stock exchange, no special decision will be taken
at the general meeting of its shareholders, unless all the
shareholders reach a prior unanimous decision to vote in favor of
such decision. Simultaneously with the execution of the closing
agreement, an agreement was signed between Granite Properties and
Ashtrom defining their relationship on all matters regarding
cooperation between them as shareholders in Nitzba Holdings.
NOTE 7 - SUBSIDIARIES, AFFILIATED COMPANIES AND OTHERS (CONTINUED)
Granite Properties transferred its rights in the said agreements
to a wholly owned subsidiary, with the exception of its rights in
the orchard in Nes Ziona as mentioned above.
5. See also Note 3.A.5.
NOTE 8 - LONG--TERM LOANS
a. Consist of:
December 31,
------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Loans to customers 58,851 29,100
Loans to employees 116 159
------ ------
58,967 29,259
Less: current portion 8,120 6,063
------ ------
50,847 23,196
====== ======
The years of maturity of the loans:
First year - current portion 8,120 6,063
Second year 9,929 7,059
Third year 6,419 3,363
Fourth year 3,582 1,247
Fifth year and thereafter and
without maturity date 30,917 11,527
------ ------
58,967 29,259
====== ======
217
b. Breakdown of loans by level of borrowers' balances:
December 31, 1996 December 31, 1995
Borrowers' ----------------- -----------------
balances Number of Total Number of Total
(NIS. thousands) loans NIS.thousands loans NIS.thousands
---------------- ----- ------------- ----- -------------
Less than 100 99 4,866 128 3,525
100 - 500 35 7,909 18 4,293
500 - 1000 10 7,544 4 3,293
Above 1000 15 38,648 8 18,148
--- ------ --- ------
159 58,967 158 29,259
=== ====== === ======
NOTE 8 - LONG--TERM LOANS CONTINUED)
c. Linkage terms and interest rates:
Unlinked Linked to Linked to Total
index foreign
currency
-------- --------- --------- -----
Interest rates: 0% 10-20% 0-4% 4-10% 0% 5-9%
-- ------ ---- ----- -- ----
Adjusted NIS. (thousands)
-------------------------
December 31, 1996
-----------------
Loans to:
Customers 2,035 4,087 24,642 20,788 2,402 4,897 58,851
Employees - - 116 - - - 116
----- ----- ------ ------ ----- ----- ------
2,035 4,087 24,758 20,788 2,402 4,897 58,967
===== ===== ====== ====== ===== =====
Less: current
portion 8,120
-----
50,847
======
December 31, 1995
-----------------
Loans to:
Customers 3,086 5,463 14,187 139 1,893 4,332 29,100
Employees - - 159 - - - 159
----- ----- ------ --- ----- ----- ------
3,086 5,463 14,346 139 1,893 4,332 29,259
===== ===== ====== ==== ===== =====
Less: current
portion 6,063
-----
23,196
======
218
NOTE 9 - FIXED ASSETS
a. Consist of:
Land Machinery
and and
Buildings Equipment Vehicles Others Total
--------- --------- -------- ------ -----
Adjusted NIS. (thousands)
-------------------------
Cost
----
Balance at beginning
of year 440,037 619,725 43,225 55,402 1,158,389
Additions 37,190 38,683 7,890 5,309 89,072
Disposals - (6,405) (6,046) (2) (12,453)
------- ------- ------ ------ ---------
Balance at end of year 477,227 652,003 45,069 60,709 *1,235,008
------- ------- ------ ------ ---------
Accumulated depreciation
------------------------
Balance at beginning
of year 121,542 391,774 26,700 33,307 573,323
Depreciation charged 12,043 43,864 4,868 3,976 64,751
Depreciation in
respect of disposals - (4,859) (4,500) - (9,359)
------- ------- ------ ------ ---------
Balance at end of year 133,585 430,779 27,068 37,283 628,715
------- ------- ------ ------ ---------
Depreciated balance as
of December 31, 1996 343,642 221,224 18,001 23,426 606,293
======= ======= ====== ====== =======
Depreciated balance as
of December 31, 1995 318,495 227,951 16,525 22,095 585,066
======= ======= ====== ====== =======
(*) Net of investment grants in the amount of NIS. 13,813 thousand.
b. Land and buildings include buildings on lease-hold lands, the cost of
which is NIS. 180,308 thousand, for various original periods of 49 -
98 years, ending in the years 1998 - 2072. Land and buildings at a
cost of NIS. 183,029 thousand have not yet registered in the name of
the Company or consolidated subsidiaries in the Land Registry Office.
The main reason for the lack of registration is that the land
settlement and sub-division process has not yet been arranged.
c. Land and buildings includes:
1. NIS. 21,103 thousand, for the acquisition of 50% of the rights of
Magor Holdings Ltd. (hereafter "Magor") in land and buildings in
a project in Holon. A contract was also signed for cooperation
and management of the project, pursuant to which "Magor" has
undertaken that the rental income, net of expenses from the
project, which the wholly- owned subsidiary will receive for 10
years, will be not less than NIS. 941 thousand per year, linked
to the Index.
219
NOTE 9 - FIXED ASSETS (CONTINUED)
2. NIS. 45,353 thousand, on account of acquisition of 50% of the
rights of Cible Israel Investments (1992) Ltd. (hereafter
"Cible") in land and buildings in a project in the new industrial
park of Rosh Haayin. Cible has undertaken that the rental income,
net of expenses, from the project which the wholly-owned
subsidiary will receive during the first seven years, will be not
less than NIS. 1,942 thousand for the first year and NIS. 2,513
thousand for each of the following six years. The above amounts
are linked to the Index. The guaranteed income period begins one
month after the completion of each of the buildings. Two out of
the five buildings built in the industrial park were completed in
January 1995 and the remaining three buildings were completed in
June 1995.
3. NIS. 21,498 thousand on account of acquisition of 17% of the
rights in land in Tel Aviv for the construction of an office
building and commercial area in a project, known as "Rubinstein
Towers". The said project is expected to be completed at the end
of year 1997. See also note 29.
d. Commitments and contingent liabilities - See note 26.
NOTE 10 - INTANGIBLE ASSETS AND DEFERRED CHARGES, NET
Consist of:
Balance to be amortized
as of December 31,
------------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Intangible assets:
------------------
Deferred rent 18,305 9,208
Goodwill in consolidated
subsidiaries (1) 4,306 1,666
Others 4,837 5,058
------ ------
27,448 15,932
Deferred charges:
-----------------
Expenses incurred in the issuance
of debentures by the Company (2) 5,255 7,033
Expenses incurred in the issuance
of debentures by a consolidated
subsidiary (2) 99 196
------ ------
32,802 23,161
Less: Deferred credit in a
consolidated subsidiary (1) 2,187 2,923
------ ------
30,615 20,238
====== ======
(1) For amortization see note 2.B.2
(2) For amortization see note 2.F.
NOTE 11 - CREDITS FROM BANKS AND OTHERS
Linkage terms and interest rates:
---------------------------------
December 31, 1996
-----------------
Unlinked linked Linked to Total
to foreign
Index currency
-------- ------ --------- -----
Interest rates: 14.3-20% 4.8% 6.4-7.5%
-------- ------ ---------
220
Adjusted NIS. (thousands)
---------------------------------------------
Overdrafts 2,322 - - 2,322
Short-term loans 222,975 - 16,255 239,230
Current portion of
long-term loans - 562 148 710
------- --- ------ -------
Total credits from banks 225,297 562 16,403 242,262
Credits from others 10,000 - - 10,000
------- --- ------ -------
235,297 562 16,403 252,262
======= === ====== =======
December 31, 1995
---------------------------------------------
Unlinked linked Linked to Total
to foreign
Index currency
-------- ------ --------- -----
Interest rates: 14% 2.5% 5.9-8.1%
Adjusted NIS. (thousands)
---------------------------------------------
Overdrafts 1,791 - - 1,791
Short-term loans 154,721 - - 154,721
Current portion of
long-term loans - 44 457 501
-------- ----- --------- -------
Total credits from banks 156,512 44 457 157,013
======== ===== ========= =======
NOTE 12 - TRADE PAYABLES
The liabilities represent open amounts and include NIS. 2,479 thousand
(1995 - NIS. 3,193 thousand) of balances to related parties.
NOTE 13 - ACCOUNTS PAYABLE
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Fuel Authority 41,724 -
Liabilities to employees and
other salary related liabilities 20,285 17,742
Institutions 37,165 32,720
Accrued expenses 9,229 7,749
221
Others 16,793 11,660
------- ------
125,196 69,871
======= ======
NOTE 14 - LONG-TERM LIABILITIES
A. Long-term loans
---------------
December 31, December 31,
------------ ------------
Rate of 1996 1995
interest ---- ----
% Adjusted NIS. (thousands)
-------- -------------------------
U.S. Dollar loans from banks 6.4-7.5 263 651
Index linked loans from banks 4.8 60,562 44
Customers' deposit - linked
to the index - 3,095 3,085
Customers' deposit - linked
to foreign currency - 54 60
Loan from affiliated company
- linked to the Index - - 4,977
Other loans - linked to the Index - 223 -
-------- -------- -----
64,197 8,817
Less: current portion 710 501
-------- -----
63,487 8,316
====== =====
Yearly installments:
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
First year - current portion 710 501
------ -----
Second year 60,083 137
Third year 24 57
Fourth year 8 -
Fifth year - -
No due date 3,372 8,122
------ -----
63,487 8,316
------ -----
64,197 8,817
====== =====
Accrued interest is included in "Accounts payable" in Current
liabilities.
222
NOTE 14 - LONG-TERM LIABILITIES (CONTINUED)
B. Debentures convertible into shares of the Company
-------------------------------------------------
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Debentures (Series 1)(*) 58,356 72,607
Debentures (series 2)(**) 157,169 195,545
------- -------
215,525 268,152
Less - current portion 35,921 38,306
------- -------
179,604 229,846
======= =======
Yearly installments:
December 31, 1996 December 31, 1995
----------------- -----------------
Series 1 Series 2 Series 1 Series 2
-------- -------- -------- --------
Adjusted NIS. (thousands)
---------------------------------------
First year - current portion 9,726 26,195 10,372 27,934
------ ------- ------ -------
Second year 9,726 26,195 10,372 27,935
Third year 9,726 26,195 10,372 27,935
Fourth year 9,726 26,195 10,372 27,935
Fifth year 9,726 26,195 10,373 27,935
Subsequent years 9,726 26,194 20,746 55,871
------ ------- ------ -------
48,630 130,974 62,235 167,611
------ ------- ------ -------
58,356 157,169 72,607 195,545
====== ======= ====== =======
(*) Registered debentures (Series 1) NIS. 1.- par value each. Every
NIS. 55.- par value of debentures are convertible into 10
ordinary shares NIS. 1.- par value each. The debentures bear
interest at an annual rate of 0.1%. The principal, interest and
the price for conversion into ordinary shares are linked to the
representative rate of exchange of the U.S. dollar and are
payable in 6 equal annual installments on November 30 in each of
the years commencing in 1997 and ending in 2002. As of the
balance sheet date, there were 41,249,852 outstanding debentures.
The market value of the debentures, as their price is quoted on
the Stock Exchange, is NIS. 48,469 thousand at balance sheet
date.
(**) Registered debentures (Series 2) NIS. 1.- par value each. Every
NIS. 5 par value of debentures are convertible into an ordinary
share of NIS. 1.- par value. The debentures bear interest at an
annual rate of 2.5%. The principal, interest and the price of
conversion into ordinary shares are linked to the representative
rate of exchange of the U.S. dollar and are payable in 6 equal
annual installments on November 30 in each of the years
commencing in 1997 and ending in 2002. As of the
223
balance sheet date, there were 121,006,657 outstanding
debentures. The market value of the debentures, as their price is
quoted on the Stock Exchange, is NIS.140,973 thousand at balance
sheet date.
Accrued interest is included in "Accounts Payable" in current
liabilities.
Regarding collaterals see Note 26.
NOTE 14 - LONG-TERM LIABILITIES (CONTINUED)
C. Debentures convertible into shares of a subsidiary
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Debentures (Series 1) 4,088 6,110
Less - current portion 2,044 2,039
----- -----
2,044 4,071
===== =====
Yearly installments:
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
First year - current portion 2,044 2,039
----- -----
Second year 2,044 2,036
Third year - 2,035
----- -----
2,044 4,071
----- -----
4,088 6,110
===== =====
Pursuant to a public offering prospectus in May 1990, the subsidiary
company, Vulcan Batteries Ltd. ("Vulcan"), issued 4,516,750
convertible debentures (Series 1) at par value. The debentures are
linked to the Index for April 1990, and bear interest at an annual
rate of 0.1%. From the date of issue until December 31, 1996 755,560
debentures have been converted into shares. As of the balance sheet
date there were 1,880,595 outstanding debentures (Series 1). The
market value of the debentures, as their price is quoted on the Stock
Exchange, is NIS.3,799 thousand at balance sheet date.
The debentures are payable in two equal yearly installments (after two
payments of the first 50% installment in December 1995 and 1996) in
December
224
1997 and 1998 and are convertible at any time until December 26, 1998
into Vulcan's ordinary shares of NIS. 1.- par value at a conversion
rate of 200% (1 share for every NIS. 2.- par value of debentures
converted, subject to adjustments).
The conversion of the debentures into shares may dilute Sonol's
holding in Vulcan to 79% (instead of 83.9% as on the balance sheet
date).
Regarding collaterals - see Note 26.
D. All the aforementioned debentures are listed for trading on the
Tel-Aviv Stock Exchange.
NOTE 15 - CUSTOMERS' DEPOSITS
a. Customer deposits are calculated based on the updated price approved
by the Ministry of Trade and Industry in the decree dated January 7,
1997.
b. Customers' deposits held by Supergas include NIS. 41,845 thousand
(1995 - NIS. 43,774 thousand) of linkage increments accrued on those
deposits (Note 2.L.).
NOTE 16 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET
December 31, December 31,
------------ ------------
1996 1995
---- ----
Adjusted NIS. (thousands)
-------------------------
Provision for severance pay, net (a) 5,254 5,318
Less: deposits in approved funds (*) 1,439 1,436
----- -----
3,815 3,882
Provision for early retirement pension (**)(b) 3,638 2,914
Provision for redemption of unutilized
sick leave (c) 1,774 1,641
----- -----
9,227 8,437
===== =====
(*) The deposits can be withdrawn subject to law. Accrued income on the
deposits is included in the statements of income.
(**) Excluding NIS.1,208 thousand (1995 - NIS. 1,085 thousand) current
early retirement pension which is included in "Accounts payable".
a. The liabilities of the Company and its subsidiaries in respect of
pension
225
and severance indemnities are fully covered by provisions for
severance indemnities, by deposits in approved funds and in managers'
insurance policies. The deposits in approved funds and in manager's
insurance plans are not included in the financial statements as they
are not under the control of the Company.
b. The provision for pension benefits in case of early retirement of
employees is computed at the discounted present value of the future
liabilities of the Company for such retired employees. The Company's
liability for early retirement is generally up to the time when the
employee reaches retirement age and is measured as a fixed percentage
of the maximum amount due to the employee from the pension fund. The
rate of capitalization for computing the provision is 4.5% per annum.
c. In accordance with the labor agreements between subsidiaries and their
employees, retiring employees (men at age 65 and women at age 60 - 65)
are entitled to receive a partial redemption of unutilized sick leave,
subject to a ceiling of 50 days. A provision based on an actuarial
calcualtion has been made in the financial statements for covering the
aforesaid liabilities. The actuarial calculation is based, inter alia,
on a capitalization rate of 3%.
NOTE 17 - DEFERRED TAXES, NET
a. Consist of:
Regarding current Regarding non-
Balance Sheet current Balance
items Sheet items Total
----------------- --------------- --------
Adjusted NIS. (thousands)
----------------------------------------------
Balance as of January 1, 1995 (3,748) 12,028 8,280
Changes in 1995 ( 896) (6,327) (7,223)
----- ------ ------
Balance as of December 31, 1995 (4,644) 5,701 1,057
Changes in 1996 279 (3,056) (2,777)
----- ------ ------
Balance as of December 31, 1996 (4,365) 2,645 (1,720)
===== ====== ======
b. Presented in the balance sheet:
December 31, December 31,
------------ ------------
1996 1995
---- ----
226
Adjusted NIS. (thousands)
Deferred Taxes in long-term liabilities 2,645 5,701
Future tax benefits in current assets (4,365) (4,644)
----- -----
(1,720) 1,057
===== =====
NOTE 18 - LINKAGE OF MONETARY BALANCES
December 31, 1996 December 31, 1995
----------------- -----------------
Linked Linked to Unlinked Linked Linked to Unlinked
to foreign (*) to foreign (*)
index currency index currency
----- -------- ----- --------
Adjusted NIS. (thousands) Adjusted NIS. (thousands)
------------------------- -------------------------
Assets:
Cash and cash equivalent -- 6,620 3,536 -- 12,911 7,553
Marketable securities 104 -- 4,757 148 -- 89
Compulsory Government
loan -- 158 -- -- 856 --
Trade receivables 3,173 48,525 435,604 -- 755 365,370
Accounts receivable 6,203 704 16,126 10,024 21,761 19,895
Investment in
capital notes and loans 17,789 -- -- 17,639 -- --
Long-term loans 39,673 6,402 4,772 13,444 4,479 5,273
------- ------- ------- ------- ------- -------
66,942 62,409 464,795 41,255 40,762 398,180
======= ======= ======= ======= ======= =======
Liabilities:
Credits from banks
and others -- 16,255 235,297 -- -- 156,512
Trade payables 3,922 129,907 45,381 6,810 110,391 36,114
Accounts payable 15,232 42,401 67,563 13,982 434 55,455
Long-term liabilities
(including current
portion) and debentures 67,968 215,842 -- 14,216 268,863 --
Customers' deposits(**) 60,228 -- -- 62,557 -- --
Capital notes -- -- 215 -- -- 314
------- ------- ------- ------- ------- -------
147,350 404,405 348,456 97,565 379,688 248,395
227
======= ======= ======= ======= ======= =======
(*) Partly bearing interest.
(**) Against the Customers' deposit amounts, Supergas holds fixed assets on loan
to its customers, which are adjusted to the Index in the financial
statements. Regarding the linkage of Customers' deposits - see Note 15.
Against the excess of foreign currency linked liabilities over assets in the
amount of NIS. 342,000 thousand, Sonol holds fuel and refined products inventory
amounting to NIS. 249,000 thousand, which is mainly Emergency inventory valued
according to the changes in the rate of exchange of the U.S. dollar as explained
in note 2.C.1.
As of December 31, 1996 the balance from free dollar aquisitions from a bank
amounted to NIS.113,785 thousand(1995 - NIS. 34,615 thousand) - see note 2.N.
NOTE 19 - CAPITAL
a. Nominal values.
---------------
Consists of:
Authorized Issued and Paid(*)
---------- ------------------
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
NIS. (thousands) NIS. (thousands)
---------------- ----------------
225,000,000 Ordinary
shares of NIS. 1.- each 225,000 225,000 122,674 122,674
======= ======= ======= =======
(*) 122,674,476 ordinary shares.
In the year 1995 the share capital has been increased by conversion of
110 debentures into 20 shares.
b. Stock options (Series 2)
------------------------
In accordance with a public offering prospectus dated February 1992
and with a prior resolution of issuance to the Company's shareholders,
the Company issued 39,984,124 stock options (Series 2). Each stock
option entitles the holders to acquire an ordinary share of NIS. 1.-
par value each in consideration for a payment of the exercise price of
NIS. 4.80 (linked to the consumer price index. The last day for
exercising options (Series 2) is February 28, 1997.
Up to December 31, 1995 16 stock options have been exercised. The
balance of
228
stock options outstanding is 39,984,108 options, which ceased to be
exercisable on February 28, 1997 and ceased to be traded on the Stock
Exchange.
c. Earnings per ordinary share
---------------------------
1. The net income used in computing earnings per NIS. 1.- par value
of shares:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
The net income used in computing
primary earnings per share 50,625 51,122 60,383
Add (Deduct) - theoretical
income (loss) deriving from:
Exercise of options (series 2) 9,434 5,650 1,398
Conversion of debentures (series 1) (2,244) (1,435) ( 6,361)
Conversion of debentures (series 2) (3,714) ( 788) (12,615)
------ ------ ------
Net income used in computing
diluted earnings per share 54,101 54,549 42,805
====== ====== ======
NOTE 19 - CAPITAL (CONTINUED)
2. The par value of shares used in computing earning per NIS. 1.-
par value share:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Share capital used in computing
primary earnings per share 122,674 122,674 122,674
Add - theoretical share capital
that may derive from:
Exercise of options (series 2) 39,984 39,984 39,984
Conversion of debentures (series 1) 7,500 8,750 10,000
Conversion of debentures (series 2) 24,201 28,235 28,235
------- ------- --------
The total share used in computing
diluted earnings per share 194,359 199,643 200,893
======= ======= ========
3. For examining the probability of conversion or exercise of
convertible securities, the present value was computed using a
capitalization rate of 4.5% (12.95 - 4.5%, 12.94 - 4%) for
securities linked to the Index and 5.5% (12.95 - 6%, 12.94 - 7%)
for securities linked to the exchange
229
rate of the U.S. dollar.
NOTE 20 - COST OF SALES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Materials used:
Crude oil and refined
petroleum products (1)(2) 1,262,140 1,268,406 995,357
Raw materials and
auxiliary materials 36,498 41,393 44,541
Finished luboil
products purchased 6,696 3,398 3,095
--------- --------- ---------
1,305,334 1,313,197 1,042,993
--------- --------- ---------
Labor and sub-contract work
Labor (including
related expenses) 13,154 12,806 11,737
Sub-contract work -
(refining and terminal
charges) (1) 3,145 6,608 23,403
--------- --------- ---------
16,299 19,414 35,140
--------- --------- ---------
Production costs 55,173 53,244 47,863
--------- --------- ---------
Depreciation 3,330 3,233 3,240
--------- --------- ---------
Batteries 14,823 11,136 11,029
--------- --------- ---------
Total cost of sales 1,394,959 1,400,224 1,140,265
========= ========= =========
Decrease in inventories ( 17,879) ( 51,894) ( 46,036)
========= ========= =========
(1) Sonol changed the mix of its purchases of imported crude oil and
refined products, increasing its purchases of refined products
from the Oil Refineries while decreasing purchases and refining
of imported crude oil.
(2) Financing income deriving from the erosion of dollar linked
credit used as a source of financing purchases of oil inventories
are included in Cost of Sales.
NOTE 21 - SELLING AND MARKETING EXPENSES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
230
Salaries 60,288 47,137 47,444
Advertising and promotion 12,811 13,094 10,735
Depreciation and amortization 58,574 53,620 51,631
Maintenance of buildings,
plants and filling stations 34,033 36,248 40,287
Rent 35,182 19,686 6,582
Other expenses 35,287 34,300 37,552
------- ------- -------
236,175 204,085 194,231
======= ======= =======
NOTE 22 - GENERAL AND ADMINISTRATIVE EXPENSES
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Salaries 27,244 28,108 28,261
Depreciation and amortization 3,284 3,248 2,447
Consulting, legal and audit 5,555 4,572 5,754
Provision for doubtful accounts
and bad debts 2,192 4,074 ( 583)
Other expenses 9,971 11,787 9,109
------- ------- -------
48,246 51,789 44,988
======= ======= =======
NOTE 23 - FINANCING INCOME (EXPENSES), NET
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
From dollar linked debentures
convertible to shares 10,192 4,491 31,689
Long-term debt 3,200 2,547 8,849
Profit (loss) from securities, net 967 150 ( 1,482)
Financing income from
other receivables 14,287 21,475 21,493
Erosion of other monetary
assets and liabilities, net (51,713) (43,166) (71,576)
------- ------- -------
(23,067) (14,503) (11,027)
======= ======= =======
NOTE 24 - OTHER INCOME, NET
231
Consist of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Rent 4,024 2,334 974
Dividends received 840 1,820 1,778
Management fee 1,904 750 682
Part of a loan to an affiliated
company written off - (3,318) -
Others 647 1,089 2,878
----- ----- -----
7,415 2,675 6,312
===== ===== =====
NOTE 25 - TAXES ON INCOME
a. The Company and most of its subsidiaries are taxed under the Income
Tax Law (Inflationary Adjustments) - 1985, effective as of the tax
year 1985, which introduced the measurement of results for income tax
purposes in real terms. The various adjustments required by the above
mentioned law are made in order to align taxation to a real income
basis. Nevertheless, the adjustments of the nominal income according
to the Income Tax Law are not always identical to the inflationary
adjustments made in the financial statements in accordance with the
opinion of the Institute of Certified Public Accountants in Israel. As
a result, differences arise between the adjusted income in the
statement of income and the adjusted income for income tax purposes.
Regarding deferred taxes for these differences, see Note 2.J.
The subsidiary, Vulcan, having the status of an approved enterprise,
is entitled to a reduced income tax rate in accordance with the Law
for the Encouragement of Capital Investments - 1959. The period of
benefits relating to a part of its production facilities has ended and
for the remaining facilities, the period of benefits will end in the
year 2001. As of the date of the financial statements, Vulcan received
final letters of approval for all the investment plans which it has
carried out.
NOTE 25 - TAXES ON INCOME (CONTINUED)
b. The provision for taxes on income in the statements of income consists
of:
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
232
Adjusted NIS. (thousands)
-------------------------
Current taxes including
inflationary erosion of
advance tax payments 38,773 44,987 30,772
Deferred taxes, net (*) (2,777) **(7,223) (5,567)
------ ------ ------
35,996 37,764 25,205
Provisions (Overprovisions)
pertaining to prior years ( 325) ** 2,022 -
------ ------ ------
35,671 39,786 25,205
====== ====== ======
(*) Pursuant to the amendment of the Income Tax Law as of December 22,
1992 the rate of company tax decreased from 39% in 1993, by 1% per
year, to a rate of 36% in 1996.
(**) These provisions were included in deferred taxes.
c. Final tax assessments
---------------------
Supergas has received final tax assessement through the tax year 1994
and Vulcan has received final tax assessments through the tax year
1993. The Company, Aloc, Sonapco, Sprint, Chem Ami and Yad Mordechai
have received final tax assessments through tax year 1991. Sonol has
received final tax assessments through the tax year 1990.
d. Reconciliation between the theoretical tax on the reported income and
---------------------------------------------------------------------
the tax on income charged in the statements of income
-----------------------------------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Taxes at statutory rate 36% 37% 38%
==== ==== ====
Adjusted NIS. (thousands)
The theoretical tax at the
applicable tax rate 31,356 35,012 32,349
Erosion of advanced tax payments 1,459 2,106 2,594
Differences in the definition of
capital and assets for tax
purposes and others, net 3,181 2,668 (9,738)
Overprovisions in respect of prior years ( 325) - -
------ ------ ------
35,671 39,786 25,205
====== ====== ======
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES
233
A. Floating and fixed charges
--------------------------
December 31, 1996 Collateralized by
----------------- -----------------
Adjusted NIS. (thousands)
-------------------------
Short-term bank Floating charges on
credits 2,322 current assets of the
main subsidiaries.
Short-term Loans from banks 239,230 Floating charges on
current assets of Sonol.
Accounts payable and credit Floating charges on
balances including accrued current assets of Sonol
interest on short-term
bank loans 824
Long-term bank loans 60,825 Floating charge on
current assets of Sonol
and fixed charges on all
the assets of Vulcan and
fixed charges on part of
the fixed assets of
Milchen Sonol Agency Ltd.
Investment grants - Floating charges on all
Vulcan's assets guaran-
teeing the fulfillment of
the terms related to the
receipt of such grants.
Although final approval
has been received the
charges have not yet been
cancelled.
Convertible debentures of 4,088 Senior floating charge
a subsidiary equal in standing to all
other senior floating
charges on all the assets
of Vulcan.
Convertible debentures Floating charge
(Including interest) 215,525 subordinated to other
floating charges on all
the assets of the
Company.
Guarantee of a subsidiary 3,300 Floating charge on all
234
(see note 26.D.8) the assets of the
subsidiary.
B. Liabilities and contingencies
-----------------------------
1. Indemnification and Insurance of senior officers
------------------------------------------------
The Articles of Association of the Company enable the
indemnification and insurance of directors and senior officers
according to the law. The Company insures, subject to provisions
of the law, the directors' and senior officers' liability.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
2. Pending litigation
------------------
a. Claims (mainly legal claims) arising in the normal course of
business have been lodged against subsidiaries and
affiliated companies. Regarding part of the said claims
appropriate provisions have been made. In the opinion of the
companies' managements, based on the opinion of legal
counsel, the provisions made are sufficient to cover the
reasonable costs.
b. A claim in the amount of approximately NIS. 5.5 million has
been lodged against Sonol. The plaintiffs are requesting,
inter alia, the enforcement of an operating agreement of a
station being operated by another party, who, according to
them, transferred to them, with Sonol's consent, the
operation of the station. The district court rejected the
claim and the plaintiffs appealed to the Supreme Court. A
date for hearing has not yet been determined.
c. A claim has been submitted against Sonol by a customer
owning land leased to Sonol on which a station was built,
the substance of which is the cancellation of all agreements
between Sonol and the plaintiff and a monetary claim against
Sonol in the amount of approximately NIS. 5.5 million. In
the opinion of Sonol's legal counsel the claim's prospects
(as far as the amount of the claim is concerned) are weak.
d. As a result of arbitration proceedings between the Fuel
Authority and the Agents' organization and station owners,
in which Sonol was not a party, the arbitrator ruled that
the Fuel Authority is to reimburse the station owners for
the depreciation on their investments in stations. The
arbitrator's ruling has been confirmed by the district
court. The Fuel Authority has, in turn, demanded that the
fuel marketing companies pay for the
235
depreciation (where applicable) to the station owners since
it claims that the depreciation component was previously
recognized by the Fuel Authority within the framework of the
Price Structure. In the opinion of Sonol's legal counsel,
there is no basis for the Fuel Authority's demand.
e. Two third party proceedings have been filed by the
Government against Sonol regarding claims filed against the
Government by station owners for the reimbursement of the
investment in the construction of stations, in accordance
with the arbitration ruling made in hearings conducted
between the station owners organization and the Government,
of which Sonol was not a party to. The total amounts to NIS.
4.2 million and it is the opinion of the company's legal
counsel, that there is no basis for these claims as related
to Sonol.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
f. Three claims were lodged against an affiliated company and
against its shareholders, which include Sonol. The total
claims of approximately NIS. 51 million pertain to the sale
of fuel products pursuant to restrictive trade practices (as
the plaintiff claims) among the fuel companies. In the
opinion of the legal counsels of Sonol and the affiliated
company, the companies have a sound defense against the
claims.
g. A station operator, who received operating rights within the
framework of the invalid arrangement between the invalids
and the rehabilitation department of the Ministry of
Defense, the Israel Lands Authority and the fuel companies,
has filed a claim in court against Sonol for a ruling
declaring the cancellation of agreements between him and
Sonol claiming then to be restrictive trade agreements in
accordance with the Law for Restrictive Trade Agreements. In
the opinion of Sonol's legal counsel, it is too early to
determine the defense's prospects at this early state of
deliberations.
h. In August 1994, Vulcan received a purchase tax assessment in
the amount of approximately NIS. 1.7 million, net of the tax
effect, representing tax differences, linkage increments,
interest and fines for the period of January 1990 through
May 1994. In September 1994, Vulcan submitted an appeal
against the aforesaid assessment, which in July 1995, was
dismissed. In September 1995, Vulcan submitted an appeal
against the dismissal to the District Court. In the
Company's opinion, based on the opinion of its legal
236
counsel, there is a reasonable chance that Vulcan's position
will be accepted by the court. Should Vulcan's protest be
dismissed by the District Court, Vulcan will also be
assessed for tax differences for the period from June 1994
and thereafter. No provision has been provided in Vulcan's
financial statements for the above.
i. The subsidiary, Sonol, has notified a customer, who is also
its agent, of the cancellation of agency and transport
agreements with him. The cancellation, takes effect, in
accordance with the agreement, 18 months from the
notification date. The agent, who owes Sonol approximately
NIS. 8.3 million notified that it is deducting approximately
NIS. 6.6 million from his liability on account of damages
which he claims were caused to him by Sonol. This contention
is rejected by Sonol which is considering taking legal
action against the agent. Sonol holds various guarantees
given by the agent to secure his liabilities to Sonol. At
this time, no estimate can be made regarding the outcome of
this dispute.
j. A competing fuel company has filed a claim in the district
court requesting a ruling that all of Sonol's agreements
with filling stations are restrictive trade agreements and
therefore,invalid. The court is currently deliberating
whether to cancel the claim and, as of the balance sheet
date, no decision has been reached.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
C. The consolidated subsidiary companies are committed as follows:
---------------------------------------------------------------
1. Commitments: Adjusted NIS. (thousands)
-------------------------
Acquisition of fixed assets 77,684
Suppliers of fuel, luboils and parts 129,029
Rental leases and obligations in
accordance with signed agreements with agencies
for the use of their outlets for marketing
Sonol's products over various periods(*) 335,228
Lease obligation for a computer
and other equipment over
periods of up to five years 695
237
(*) The rental liability for each of the years
following December 31, 1996 is as follows:
1997 24,847
1998 23,228
1999 23,025
2000 21,457
2001 17,027
2002 and thereafter 225,644
-------
335,228
=======
2. For royalties to a foreign company for technical knowledge
provided, for a period of ten years beginning in 1993.
3. Commitments for investments:
a. In 1996 the company signed a conditional agreement by way of
a consolidated company for its participation in a limited
partnership to establish a tourist attraction. The
investment by the consolidated company (including loans and
guarantees) is expected to reach an amount of up to NIS.
13,000 thousands linked to the representative rate of the
U.S. dollar, for which it will obtain a 35% share in the
limited partnership.
b. In 1996, an amount of NIS. 2,000 thousands was invested by a
consolidated company in Motorica Ltd., a company for the
production of protective helmets for bicycle riders, in
return for 51% of its share capital. Within the framework of
the agreement signed between the parties, the consolidated
company commited itself to make a loan available to Motorica
Ltd. for up to NIS. 3,250 thousands linked to the
representative rate of the U.S. dollar.
c. In 1996, a consolidated company entered into a contractual
agreement with the company, A.P.S.K. Hom Tov (1993) Ltd.
(hereafter A.P.S.K.) subject to pre-conditions not yet
fulfilled, the consolidated company intends to invest
approximately NIS. 4,700 thousands linked to the
representative rate of the U.S. dollar in return for 50.1%
of A.P.S.K.'s share capital. Non fulfillment of the
pre-existing conditions may cause the retroactive
cancellation of the agreement.
NOTE 26 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
D. The consolidated subsidiaries have
----------------------------------
238
contingent liabilities in respect of:
-------------------------------------
Adjusted NIS. (thousands)
-------------------------
1. Acquisition of crude oil or refined products -
open letter of credits. 4,477
2. The subsidiary Supergas has given a guarantee
in favor of a bank regarding a loan given by
the bank to a partnership (in which Supergas
is a partner). 496
3. Various guarantees. 2,486
4. Granite Properties (1993) Ltd. is a guarantor
to a bank on account of payments made by the bank
to a third party. The company cannot estimate the
expected profit in the year 1997 when the guarantee
related financial transaction will terminated. 7,145
5. Sonol is a guarantor to a bank on account
of loans given by the bank to a filling station
owner who has leased the station to Sonol. 2,698
6. Sonol is a guarantor to a bank
on account of a loan given by the bank to one of
Sonol's agencies. 830
7. Sonol has given a guarantee to one of
its customers on account of a tender
for the supply of fuel products. 2,000
8. Vulcan has given a guarantee to a government
agency assuring the supply of its products. The
guarantee is collateralized by a floating charge
on all the assets of Vulcan. 3,300
9. Sonol is a guarantor to a bank on account of a
loan given by the bank to an affiliated company
for financing acquired equipments. 813
10. Sonol has guaranteed compensation to one of its
suppliers for any damages caused to the supplier
as a result of the temporary remedy given to Sonol
by the court, if it becomes evident that there was
no basis for Sonol's request from the court. 1,000
239
11. Guarantees given to Customs and Excise
Department for payment of customs duty,
purchase and other taxes that may be
due to that Department by the Company,
Sonol and a related Company. Unlimited account
NOTE 27 - RULING BY THE CONTROLLER OF RESTRICTIVE TRADE PRACTICES AND PROPOSED
LAWS FOR THE FUEL SECTOR
A. An appeal filed by Sonol, together with appeals filed by the Paz and
Delek fuel marketing companies, against the June 1993 ruling by the
Controller of Restrictive Trade Practices declaring that exclusive
agreements entered into between the fuel marketing companies and
filling station operators are restrictive trade agreements, is now
pending in the Court of Restrictive Trade Practices in Jerusalem.
The Controller of Restrictive Trade Practices, on December 14, 1995
amended the above ruling following a compromise arrangement reached
between Sonol and Paz in their above mentioned appeals. Under the
terms of the compromise arrangement, Sonol will release 36 stations
not subject to an "Accepted Leasing Agreement" as defined in the
arrangement and the Controller of Restructive Trade Practices will
rescind his ruling regarding other stations in which Sonol is party to
such an "Accepted Leasing Agreement". Several apeals were filed in the
supreme court against this arrangement, which were rejected on
December 2, 1996. The court ruled that the Controller of Restrictive
Trade Practices had the authority to enter into the above arrangement
and that it is in effect. As a result, Sonol released the 36 stations
from the exclusive agreements it had with them and is in the process
of rescinding its appeal.
B. Sonol and "Delek" the Israel Fuel Corporation Ltd.(hereinafter
"Delek") jointly own the rights to the "Dalkan 2000", a computerized
system for marketing fuel products (primarely to automobile fleets).
On January 26, 1997 the Controller of Restructive Trade Practices
ruled that the joint marketing arrangement of the "Dalkan 2000" system
by Sonol and Delek is a restrictive trade agreement. As a result of
the position taken by the Controller, both Sonol and Delek agreed to
divide the "Dalkan 2000" system between themselves so that each
company will operate an independent system in a manner that will
enable customers, in accordance with their own preference, to enter
into an agreement with either of the companies. The implementation of
the seperation agreement will be carried out in stages from September
1997 to December, 1998.
C. A private legislative proposal dealing with the shortening of the
terms
240
of exclusive agreements entered into between the fuel marketing
companies and filling station owners and operators has passed its
first reading in the Knesset. The Economics Committee of the current
Knesset has decided that the rule of "Continuity" will be in effect
and shall continue dealing with this proposal.
D. A draft proposal of legislation by the Ministry of Energy and
Infrastructure regarding the term of exclusive contracts between the
fuel marketing companies and station owners has been forwarded to
government ministries, the president of the Supreme Court and law
faculties for their comments.
At this time, it is too early to estimate the effects of the said
developments on the overall Israeli fuel market in general, and on Sonol in
particular.
NOTE 28 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
a. Income and expenses from interested and related parties.
--------------------------------------------------------
1. Consist of:
Year ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS. (thousands)
-------------------------
Interested Related Interested Related Interested Related
parties parties parties parties parties parties
------- ------- ------- ------- ------- -------
Finance expenses - - 244 - 1,515 446
Finance income - 469 299 641 - 376
Income from
Management Services - 2,006 - 722 - 790
2. Transactions with interested and related parties are conducted in
the normal course of business and according to normal credit
terms and do not exceed 10 % of the company's transactions. The
Company has been granted an exemption in accordance with
paragraph 64(3)D of the Securities Regulations [Preparation of
Annual Financial Statements(correction)]-1995 from the
requirement to disclose transactions with interested parties and
affiliated companies made during the normal course of business of
the Company.
3. Sonol purchases most of the fuel products from the Oil Refineries
Ltd. which is obligated to supply its products to the fuel
marketing companies at the refineries gate price which is under
Government control.
241
b. Benefits to interested parties
------------------------------
Year ended December 31,
-----------------------
Number 1996 1995 1994
of ---- ---- ----
persons Adjusted NIS. (thousands)
------- -------------------------
1. Interested party
employed in the company 1 1,220 2,101* 1,176
2. Directors 13*** 455** 729 86
* Includes former interested party who completed his term during
the year.
** Includes NIS. 188 thousand over provision from the year 1995.
*** In 1994 - 2 directors.
NOTE 28 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(CONTINUED)
c. Balances with interested and related parties
--------------------------------------------
December 31, 1996 December 31, 1995
----------------- -----------------
Adjusted NIS. (thousands)
-------------------------
Interested Related Interested Related
parties parties parties parties
------- ------- ------- -------
Current assets:
Trade receivables 424 3,352 21,775 5,752
Accounts receivable - 227 - 919
--- ----- ------ -----
424 3,579 21,775 6,671
=== ===== ====== =====
The largest balance with
interested parties
during the year 12,426 21,775
====== ======
Current liabilities:
Credits from banks
and others 10,000 - - -
Trade payables - 2,479 - 3,193
Accounts payable 1,099 245 - 178
------ ----- ------ -----
11,099 2,724 - 3,371
====== ===== ====== =====
242
The largest balance
with interested
parties during
the year 11,099 -
====== ======
Long-term liabilities - 4,977
===== =====
NOTE 29 - SUBSEQUENT EVENT
On February 20, 1997 an agreement was signed between Granite Properties
together with its partners in the project known as "Rubinstein Towers" and
Revadim (Properties) Ltd. (Hereafter "Revadim"), a subsidiary of Bank
Hapoalim Ltd., according to which Revadim acquired a material part of the
land and building in the project "Rubinstein Towers". Granite Properties
will receive approximately NIS. 36 million. Inasmuch, as the building has
not yet been completed and the final cost has not yet been determined, it
is not possible at this stage to estimate the expected gain on the
transaction. The property will be transferred to the buyer at the end of
1997.
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS
The financial records of the Company and its consolidated subsidiaries are
maintained on a current basis in historical nominal New Israel Shekels.
The translated consolidated financial statements, stated in U.S. dollars,
have been prepared for use in connection with the preparation of the
financial statements of a U.S. shareholder.
The functional currency of the Company is the U.S. Dollar. Despite the
significant reduction in Israel's rate of inflation, the Company has
continued to prepare its consolidated financial statements in U.S. dollars
in accordance with translation principles identical to those prescribed by
Statement of Financial Accounting Standards No. 52 ("F.A.S.B. 52"), based
on the historical nominal amounts.
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
Translated to U.S. Dollars
December 31,
------------
1996 1995
---- ----
Current assets
--------------
Cash and cash equivalents 3,122 5,906
243
Marketable securities 1,512 69
Compulsory Government loans 49 180
Trade receivables 149,908 105,603
Accounts receivable 10,461 17,824
Inventories 92,511 91,979
------- -------
257,563 221,561
------- -------
Investments, long-term loans and debit balances
-----------------------------------------------
Subsidiaries, affiliated companies and others 34,243 14,950
Long-term loans 15,640 6,689
Compulsory Government loans - 67
Future tax benefits (II) 186 -
------- -------
50,069 21,706
------- -------
Fixed assets
------------
Cost 229,688 205,978
Less: Accumulated depreciation 99,173 88,015
------- -------
130,515 117,963
------- -------
Intangible assets and deferred charges, net 8,749 5,578
------------------------------------------- ------- -------
446,896 366,808
======= =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
December 31,
------------
1996 1995
---- ----
Current liabilities
-------------------
Credits from banks and others 77,595 45,287
Current portion of convertible debentures 11,387 11,278
Trade payables 55,125 44,221
Accounts payable 38,601 20,325
------- -------
182,708 121,111
------- -------
Long-term liabilities
---------------------
Long-term loans 19,527 2,401
244
Debentures convertible into shares
of the company (I) 53,657 64,139
Debentures convertible into shares
of a subsidiary 629 1,174
Customers' deposits 18,526 18,044
Liabilities for employee rights upon retirement, net 2,838 2,433
Deferred taxes, net (II) - 485
Capital notes issued by a consolidated company 66 92
------- -------
95,243 88,768
------- -------
Minority interest 2,618 2,362
----------------- ------- -------
Shareholders' equity:
Capital 55,735 55,735
Capital reserves (II) 36,006 36,006
Retained earnings 74,586 62,826
------- -------
166,327 154,567
------- -------
446,896 366,808
======= =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Revenues:
Sales 871,819 769,755 615,220
Less: Government imposts 337,685 266,939 234,058
------- ------- -------
Net sales 534,134 502,816 381,162
Other income, net 2,777 * 811 * 3,502
------- ------- -------
536,911 503,627 384,664
------- ------- -------
Costs and expenses:
Cost of sales 417,201 398,125 294,435
Selling, general and
administrative expenses 68,147 57,831 49,101
Depreciation and amortization 12,756 * 10,874 * 10,400
245
Financing expenses, net 7,418 4,209 328
------- ------- -------
505,522 471,039 354,264
------- ------- -------
Operating income before taxes on income 31,389 32,588 30,400
Taxes on income 10,554 11,663 6,558
------- ------- -------
Operating income after taxes on income 20,835 20,925 23,842
Company's share in income (loss)
of affiliates, net 2 (759) (58)
Minority interest in income
of consolidated subsidiaries (557) (285) (223)
------- ------- -------
Net income 20,280 19,881 23,561
======= ======= =======
* Reclassified.
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
(In thousands)
Translated to U.S. Dollars
--------------------------
Retained
Capital Reserves(II) Earnings Total
------- ------------ -------- -----
Balance as at January 1, 1994: 54,965 32,371 60,585 147,921
Changes in 1994:
Net income for the year - - 23,561 23,561
Conversion of debentures into shares 770 3,635 - 4,405
Dividend - - (20,094) (20,094)
------ ------ ------ -------
Balance as at December 31, 1994 (III) 55,735 36,006 64,052 155,793
Changes in 1995:
Net income for the year - - 19,881 19,881
246
Dividend paid (III) - - (21,107) (21,107)
------ ------ ------ -------
Balance as at December 31, 1995 (III) 55,735 36,006 62,826 154,567
Changes in 1996:
Net income for the year - - 20,280 20,280
Dividend paid - - (8,520) (8,520)
------ ------ ------ -------
Balance as at December 31, 1996 55,735 36,006 74,586 166,327
====== ====== ====== =======
NOTE 30 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)
(I) During 1992, the company completed an initial public offering of
shares, options and debentures, as well as a second public offering
of debentures and options to purchase debentures.
The proceeds of the public offerings have been allocated to the
securities issued on the basis of their fair market prices at the
beginning of trading on the stock exchange. As a result, the
debentures are carried at their discounted values as follows:
U.S. Dollars (thousands)
------------------------
December 31,
------------
1996 1995
---- ----
Debentures (Series 1 and 2) - face value 66,295 77,344
Discount (Series 1) (*) 1,880 2,515
------ ------
64,415 74,829
Less current portion 10,758 10,690
------ ------
53,657 64,139
====== ======
(*) The discount is being amortized over the remaining period
until their maturity.
See note 14.B.
(II) In the initial public offering in February 1992, the company issued
stock options to employees. The excess of the value of the options
granted over the cost to the employees in the amount $ 1,296
(thousand) was charged to the statement of income and credited to
capital reserves. On this amount the company recorded deferred tax
benefits in the amount of $ 548 (thousand) which is recognized for
tax purposes when such options are transferred to
247
the employees and income tax is paid thereon. As of the balance
sheet date, the balance of deferred tax benefits is $ 120
(thousand).
(III) As mentioned in the 1994 Financial Statements, the Board of
Directors, subsequent to that balance sheet date, passed a
resolution regarding the payment of an interim dividend. The
dividend of $ 13,263 thousand which was paid in 1995, while
reflected in the 1994 Israel Shekel Financial Statements is included
together with the $ 7,844 thousand dividend paid for 1995 in the
translated dollar statements in accordance with Generally Accepted
Accounting Principles.
(IV) The Company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of",
these assets are reviewed on a quarterly and annual basis for
impairment whenever events or changes in circumstances indicate that
the carrying amounts of the assets may not be reasonable.
Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For
the year ended December 31, 1996 the adoption of SFAS 121 did not
have a material effect on the Company.
LIST OF THE MAIN SUBSIDIARIES AND AFFILIATES
--------------------------------------------
Holding and Control
at balance sheet date
---------------------
%
-
Consolidated Subsidiaries
- -------------------------
Sonol Israel Ltd. 100
Vulcan Batteries Ltd. 84
Sprint Motors Ltd. 100
Sprint Motors Agencies (1995) Ltd. 100
Milchen Sonol Agency Ltd. 67
Sonol J-M Ltd. 70
Sonol Dan Ltd. 100
Allied Oils and Chemicals Ltd. 100
Sonol Yad Mordechai (1972) Ltd. 59
Chem Ami Ltd. 100
Sonapco Bank Street Corporation 100
Supergas Israel Gas Distribution Company Ltd. 100
Supergas Hanegev Ltd. 65
Supergas Rehovot 89 Ltd. 90
Supergas Heating (1984) Ltd. 100
248
Granite Hacarmel Holdings (1993) Ltd. 100
Granite Hacarmel Properties (1993) Ltd. 100
Granite Hacarmel O.Y. Holdings Ltd. 100
Granite Hacarmel Development Holdings Ltd. 100
Granite Hacarmel Development Ltd. 100
Granite Hacarmel Industries Holdings Ltd. 100
Granite Hacarmel Industries Ltd. 100
Granite Hacarmel Y.A. Holdings Ltd. 100
Granite Hacarmel NZV Holdings Ltd. 100
Granite Hacarmel Motoricka Holdings Ltd. 100
Motoricka Ltd. 51
Sonol Agencies Shovas (1996) Ltd. 60
Affiliated Companies
- --------------------
Aviation Services Ltd. 22.5
Tanker Services Ltd. 25
United Petroleum Export Company Ltd. 25
Otzem Promotion and Investments Ltd. 50
Yarok Az Ltd. 22.9
Lev Magor Management and Services Ltd. 50
Park Cible Management and Holdings Ltd. 50
Nitzba Holdings (1995) Ltd. 10
The above list does not include inactive and/or immaterial affiliated companies
and other companies.
249
[LOGO] HAGGAI WALLENSTEIN, DOV & Co. CPA(Isr).
MORIAH HOTELS LTD.
1996 CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1996
250
MORIAH HOTELS LTD.
------------------
1996 CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
C O N T E N T S
---------------
Page
----
AUDITORS' REPORT 252
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets 253-254
Statements of income 255
Statements of changes in shareholders' equity 256
Statements of cash flows 257-258
Notes to the consolidated financial statements 259-274
March 6, 1997
251
[LOGO] HAGGAI WALLENSTEIN, DOV & Co. CPA(Isr).
AUDITORS' REPORT
----------------
To the shareholders of
MORIAH HOTELS LTD.
------------------
We have audited the accompanying consolidated balance sheets of MORIAH HOTELS
LTD. (an Israeli corporation) (hereinafter - the company) and its subsidiaries
as at December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996, expressed in US dollars. These
financial statements, which differ from the statutory financial statements
issued in Israel, as set forth in note 1 to the financial statements, are the
responsibility of the board of directors and company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
company's board of directors and management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MORIAH HOTELS LTD.
and its subsidiaries as at December 31, 1996 and 1995, and the consolidated
results of operations, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying consolidated
financial statements translated into US dollars have been computed on the basis
set forth in note 1a. to the consolidated financial statements.
/s/ Haggai Wallenstein, Dov & Co.
HAGGAI WALLENSTEIN, DOV & CO.
Certified Public Accountants (Isr.)
Ramat-Gan,
March 6, 1997
252
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
In thousands
------------
December 31
-----------
Note 1996 1995
---- ---- ----
US $ US $
---- ----
FIXED ASSETS 3
- ------------
Cost 99,838 82,473
Less - accumulated depreciation 33,648 29,311
------ ------
66,190 53,162
------ ------
LAND 4 639 546
- ----
------ ------
INVESTMENTS AND LONG-TERM
- -------------------------
RECEIVABLES 5 2,063 1,979
----------- ------ ------
CURRENT ASSETS:
- ---------------
Inventory of food and beverage 534 495
Debtors and debit balances 6 12,496 10,745
Cash and cash equivalents 948 7,831
------ ------
13,978 19,071
------ ------
DEFERRED CHARGES, net of
- ----------------
amortization 7 82 83
------ ------
------ ------
82,952 74,841
====== ======
SHAREHOLDERS' EQUITY: 8
- ---------------------
Share capital 458 458
Capital surplus 23,343 23,343
Retained earnings 32,903 31,953
------ ------
56,704 55,754
------ ------
LONG-TERM LIABILITIES:
- ----------------------
Liability for employee rights upon
retirement, net of amount funded 9 621 495
Deferred income taxes 1,259 2,790
Loans (net of current maturities) 10 500 858
Liabilities in respect of holiday rights 16b.(5) 6,856 4,975
------ ------
9,236 9,118
------ ------
CURRENT LIABILITIES:
- --------------------
Short-term bank loans and credit 11 5,671 50
Current maturities of long-term
loans and other liabilities 12 533 626
Creditors and credit balances 13 10,808 9,293
------ ------
17,012 9,969
------ ------
------ ------
82,952 74,841
253
====== ======
The accompanying notes are an integral part of the financial statements.
/s/ R. Feinstein /s/ A. Mader
- ---------------------- --------------------
R. Feinstein A. Mader
Chairman of the Board Managing Director
Date of approval of the financial statements : March 6, 1997
254
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
In thousands
------------
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
Income from hotel services 63,866 70,189 65,920
Cost of services 52,848 54,176 49,981
------- ------- -------
Gross profit 11,018 16,013 15,939
------------ -------
Selling, administrative and general expenses 11,403 11,076 9,520
------- ------- -------
Income (loss) from ordinary operations (385) 4,937 6,419
--------------------------------------
Financial income (expenses) - net 104 236 (869)
------- ------- -------
(281) 5,173 5,550
------- ------- -------
Other income (expenses):
Owners' share in income from hotels operated
and managed by subsidiaries - net (443) (120) (782)
Capital gains (losses) on sale of fixed assets - net 26 (51) 30
------- ------- -------
(417) (171) (752)
------- ------- -------
------- ------- -------
Income (loss) before taxes on income (698) 5,002 4,798
------------------------------------
Taxes on income - income (expense) see note 14 1,648 (738) (1,006)
------- ------- -------
Net income for the year 950 4,264 3,792
----------------------- ======= ======= =======
The accompanying notes are an integral part of the financial statements.
255
MORIAH HOTELS LTD.
------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
In thousands
------------
Capital surplus
Share capital (note 8b.) Retained earnings Total
------------- ---------- ----------------- -----
US $ US $ US $ US $
------ ------ ------ ------
Balance at January 1, 1994 458 23,343 23,897 47,698
- --------------------------
Changes in 1994 -
- ---------------
net income -- -- 3,792 3,792
------ ------ ------ ------
Balance at December 31, 1994 458 23,343 27,689 51,490
- ----------------------------
Changes in 1995 -
- ---------------
net income -- -- 4,264 4,264
------ ------ ------ ------
Balance at December 31, 1995 458 23,343 31,953 55,754
- ----------------------------
Changes in 1996 -
- ---------------
net income -- -- 950 950
------ ------ ------ ------
Balance at December 31, 1996 458 23,343 32,903 56,704
- ---------------------------- ====== ====== ====== ======
The accompanying notes are an integral part of the financial statements.
256
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
In thousands
------------
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 950 4,264 3,792
Adjustments required to reflect the cash flows
from operating activities (see appendix) 4,779 6,620 4,797
------- ------- -------
Net cash provided by operating activities 5,729 10,884 8,589
----------------------------------------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of fixed assets (17,659) (5,612) (3,093)
Investment in land (93) (59) (78)
Proceeds from sale of fixed assets 84 127 105
------- ------- -------
Net cash used in investing activities (17,668) (5,544) (3,066)
------------------------------------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Payment of long-term rent payable (170) (170) (70)
Repayment of long-term loans (395) (394) (637)
Short-term bank loans and credit - net 5,621 (436) (2,929)
------- ------- -------
Net cash provided by (used) in financing activities 5,056 (1,000) (3,636)
--------------------------------------------------- ------- ------- -------
------- ------- -------
Increase (decrease) in cash and cash equivalents (6,883) 4,340 1,887
- ------------------------------------------------
Balance of cash and cash equivalents at beginning
- -------------------------------------------------
of year 7,831 3,491 1,604
------- -------- -------- --------
Balance of cash and cash equivalents at end of year 948 7,831 3,491
- --------------------------------------------------- ======== ======== ========
The accompanying notes are an integral part of the financial statements.
257
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
APPENDIX TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------
In thousands
------------
Adjustments required to reflect the cash flows from operating activities:
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
Income and expenses not involving cash flows:
Depreciation and amortization 4,574 3,726 4,018
Capital gain (loss) on disposal of fixed assets - net (26) 51 (30)
Severance pay - net 126 91 118
Linkage and exchange differences on long-term loans 68 52 277
Deferred income taxes - net (1,648) 738 934
------ ------ ------
3,094 4,658 5,317
------ ------ ------
Changes in operating asset and liability items:
Increase in inventory of food and beverage (39) (6) (8)
Increase in non-current customers' debt (338) (1,001) (1,649)
Increase (decrease) in debtors and debit balance (1,380) 937 (1,905)
Increase in long-term liabilities in respect
of holiday rights 1,927 2,534 2,298
Decrease (increase) in creditors and credit balances 1,515 (502) 744
------ ------ ------
1,685 1,962 (520)
------ ------ ------
------ ------ ------
4,779 6,620 4,797
====== ====== ======
The accompanying notes are an integral part of the financial statements.
258
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. G e n e r a l
-------------
a. Moriah Hotels Ltd. and all its subsidiaries are registered in Israel
and maintain books of account in both Israeli currency and US
dollars. The US dollar accounting records are based on the
translation of Israeli currency transactions at daily exchange
rates.
b. These financial statements, which have been prepared in addition to
the statutory financial statements issued in Israel (hereinafter the
Israeli statements), include adjustments required according to
American standards of financial accounting and reporting, as
follows:
(1) Financial expenses incurred in respect of fixed assets during
construction period - approximately U.S. $ 3,294,000 - which
in the Israeli statements were charged to income, have been
capitalized to cost of assets.
(2) In the Israeli statements, the amount of investment and
drawback grants is deducted from the cost of the assets in
respect of which they have been received. In these financial
statements, the amount of the grants received through
September 30, 1985, net of appropriate reserve for
equalization of taxes on income, is included in the balance
sheet among capital surplus.
(3) Expenses of a subsidiary for repair of fire damages to its
hotel - approximately U.S. $ 1,930,000 - have been presented
as investment in acquisition of fixed assets, while the excess
of receipts from insurance companies over the book value of
the parts of the hotel so damaged has been credited to income.
In the Israeli statements, the amount expended was charged as
repairs, while the receipts from insurance companies were set
off against these expenses.
c. Since the end of 1993, the subsidiary Moriah Eilat Resort Hotel
Limited operates a members' club - "Moriah Plaza Club" (hereafter -
the club) - in its hotel. According to the club programme, members
enter into an agreement with the subsidiary for the acquisition of
rights for one week holiday a year, during a 49 year period, at
prices and terms as stipulated in the agreement (see also note
16b.(5)).
d. On November 19, 1995, the hotel operated by the subsidiary Moriah
Tel-Aviv Hotel Ltd. was closed for renovations. The renovations,
which were financed by the subsidiary, took about 6 1/2 months.
Accordingly, the operating results for 1996 and 1995 reflect results
from that hotel for periods of about 7 months and 10 1/2 months,
respectively.
259
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies
-------------------------------
a. Principles of consolidation:
(1) The consolidated financial statements include the accounts of
Moriah Hotels Ltd. (the company), all subsidiary companies in
which the company holds controlling interest and Moriah
Gardens Hotel operated and managed by a subsidiary (note
16b.(2)).
(2) Intercompany balances and transactions have been eliminated in
consolidation.
b. Fixed assets:
(1) Fixed assets are stated at cost, including capitalized
expenses; operating equipment is carried by the base stock
method.
(2) Financial expenses in respect of loans and credit applied to
finance the construction or acquisition of fixed assets -
incurred until the fixed assets are put into operation - are
charged to cost of such assets.
(3) Depreciation is computed by the straight-line method, on basis
of the estimated useful life of the assets, at the following
annual rates:
%
---
Buildings (excluding land, hotel renovation expenses,
air conditioning units and elevators) 0.6-2.5
Hotel renovation expenses approximately 9.5 *
Air conditioning units and elevators 6.5-10
Equipment, furniture and fixtures 6.5-20
Vehicles 15-20
Installations in leasehold premises 10
* Based on the term of the lease of a hotel by the
subsidiary Moriah Tel-Aviv Hotel Ltd., which is shorter
than the estimated useful life of the renovations.
260
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies (continued)
-------------------------------
c. Land -
The land is stated at cost with the addition of planning expenses
and taxes.
d. Unquoted shares -
These shares are stated at cost.
e. Inventory of food and beverage -
The inventory of food and beverage is valued at cost, which is lower
than market value. Cost is determined on "first in - first out"
basis.
f. Provision for doubtful accounts -
The provision has been made as a fix percentage of trade
receivables.
g. Cash equivalents -
Cash equivalents are considered by the group to be highly liquid
investments, which include short-term (up to 3 months) bank
deposits.
h. Deferred charges:
(1) Capital increase costs - These costs are stated at cost and
are not amortized.
(2) Initial marketing and promotion expenses - These expenses were
amortized in 3 equal annual installments.
(3) Pre-operation expenses - These expenses were amortized in 3
equal annual installments which commenced upon the beginning
of operation of the subsidiaries' hotels.
261
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Significant accounting policies (continued)
-------------------------------
i. Deferred taxes :
(1) Deferred taxes are computed in respect of differences between
the amounts presented in these statements and those taken into
account for tax purposes.
The main factors in respect of which deferred taxes are
computed are :
Differences between the depreciated balance of fixed
assets in these financial statements and for tax
purposes;
Differences in recognition of other income and expenses
(mainly provisions for employee rights) in these
financial statements and for tax purposes;
Balances of carryforward tax losses and deductions.
Deferred tax balances are computed at the tax rate expected to
be in effect at time of release to income from the deferred
tax accounts. The amount of deferred taxes presented in the
income statement reflects changes in the above balances during
the year.
(2) Taxes which would apply in the event of disposal of
investments in subsidiaries have not been taken into account
in computing the deferred taxes, as it is the company's policy
to hold these investments, not to realize them.
j. Long-lived assets -
The company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the related
assets. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of.",
these assets are reviewed on a quarterly and annual basis for
impairment whenever events of changes in circumstances indicate that
the carrying amounts of the assets may not be reasonable.
Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For
the year ended December 31, 1996 the adoption of SFAS 121 did not
have a material effect on the company.
k. Recognition of income -
Income from hotel services and from sales of food and beverages is
recognized when the services or sales are performed.
262
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
3. Fixed assets
------------
a. Composition of assets, grouped by major classifications, and changes
therein during 1996, are as follows:
Balance at Changes during the year
beginning -------------------------- Balance at
of year Additions Retirements end of year
------- --------- ----------- -----------
US $ US $ US $ US $
------ ------ ------ ------
In thousands
---------------------------
Cost (1) :
Buildings, including on
leasehold land (2) 51,370 13,011 -- 64,381
Equipment, furniture
and fixtures 27,891 5,945 179 33,657
Vehicles 718 52 115 655
------ ------ ------ ------
79,979 19,008 294 98,693
====== ======
Operating equipment -
base stock 419 553
Advances on account of
fixed assets 2,075 592
------ ------
82,473 99,838
====== ======
Accumulated depreciation:
Buildings 13,191 2,273 -- 15,464
Equipment, furniture
and fixtures 15,867 2,206 142 17,931
Vehicles 253 94 94 253
------ ------ ------ ------
29,311 4,573 236 33,648
====== ====== ====== ======
Depreciated balance :
Buildings, including on
leasehold land 38,179 48,917
Equipment, furniture
and fixtures 12,024 15,726
Vehicles 465 402
------ ------
50,668 65,045
Operating equipment -
base stock 419 553
Advances on account of
fixed assets 2,075 592
------ ------
53,162 66,190
====== ======
(1) Cost of fixed assets is net of investment grants in an amount of $
8,197,000 received from the State of Israel in respect of the "approved
enterprise" status (see note 14a. below).
(2) Expenses capitalized in 1996 in cost of buildings are:
US $
------------
In thousands
------------
Cost of services 129
Financial expenses 673
---
802
---
263
---
Total financial expenses capitalized in cost of buildings incurred during
the periods of construction amount US $ 3,423,000.
264
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
3. Fixed assets (continued)
------------
b. Certain hotel buildings are located on land leased through the years
2004-2020, with an option to renew the lease (for periods of up to
49 years).
c. As to pledges on the assets - see note 15.
4. Land
----
The land in the "Lamed" zone in Tel-Aviv (lots 44, 45 in block 6609 with
an area of approximately 20 dunams) is mortgaged (see notes 15 and 16).
5. Investments and long-term receivables
-------------------------------------
Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Unquoted shares 1 1
Galilee Peace Loan 1 1
----- -----
2 2
Non current customers' debts *
(net of current maturities) 2,061 1,977
----- -----
2,063 1,979
===== =====
* These debts, in respect of acquisition of holiday rights (see note
1c.) on long-term credit, are linked to the Israeli CPI, bear
interst of approximately 4.75% per annum and mature in the following
years:
December 31
-----------
1996 1995
----- -----
US $ US $
----- -----
In thousands
-------------------
First year - current maturities 1,029 775
----- -----
Second year 515 494
Third year 515 494
Fourth year 515 494
Fifth year 516 495
----- -----
- long-term portion 2,061 1,977
----- -----
3,090 2,752
===== =====
265
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
6. Debtors and debit balances
--------------------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Trade (b. bellow) 8,977 7,938
------ ------
Other :
Government departments 794 741
Employees 123 147
Prepaid expenses 887 443
Advances to suppliers 142 139
Amounts due from hotel owners * 576 592
Deferred income taxes 715 598
Sundry (including income receivable) 282 147
------ ------
3,519 2,807
------ ------
------ ------
12,496 10,745
====== ======
* See note 16b(2) and (4)
b. T r a d e :
Including current maturities
of long-term receivables 1,029 775
----- -----
----- -----
Net of provision for doubtful accounts 233 198
----- -----
----- -----
7. Deferred charges, net of amortization
-------------------------------------
Composed as follows:
Amortized balance
December 31
Accumulated -----------
Cost amortization 1996 1995
---- ------------- ---- ----
US $ US $ US $ US $
---- ---- ---- ----
Share issue costs 82 -- 82 82
Initial marketing and
promotion expenses 450 450 -- --
Pre-operation expenses 28 28 -- 1
--- --- --- ---
560 478 82 83
=== === === ===
266
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
8. Shareholders' equity
--------------------
a. The authorized, issued and paid share capital at December 31, 1996
and 1995 is composed of 503,865 ordinary shares of NIS 1.00 par
value.
b. Capital surplus represents mainly share premium.
9. Employee rights upon retirement
-------------------------------
a. The companies' pension and severance pay liability to their
employees is covered mainly by regular deposits with recognized
pension and severance pay funds and by purchase of insurance
policies. The amounts funded as above are not reflected in the
balance sheet since they are not under the control and management of
the companies.
b. The balance sheet accrual for severance pay and retirement grants
reflects that part of the liability not covered by the funds and
insurance policies mentioned in a. above.
c. The balances accrued and funded at balance sheet date are as
follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Accrued severance pay and retirement grant 719 584
Less - portion funded 98 89
--- ---
621 495
=== ===
10. Long-term loans
---------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Loans from the Tourist Industry
Development Corporation Ltd. 884 1,211
Less - current maturities 384 353
----- -----
500 858
===== =====
267
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
10. Long-term loans (continued)
---------------
b. The long-term loans from the Tourist Development Corporation Ltd.
are linked to the Israeli CPI and bear annual interest of about 4%.
The loans are secured by a guarantee provided by Bank Hapoalim B.M.
(charges in an unlimited amount have been registered on the assets
of the company and the subsidiaries in favor of Bank Hapoalim B.M.
as security for this guarantee, see also note 15a.).
c. The loans are repayable in the following years subsequent to the
balance sheet date:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
First year - current maturities 384 353
----- -----
Second year 375 340
Third year 125 327
Fourth year -- 191
----- -----
- long-term portion 500 858
----- -----
----- -----
884 1,211
===== =====
d. All long-term loans are secured (see note 15 below).
11. Short-term bank loans and credit
--------------------------------
a. Composed as follows:
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Overdraft accounts 25 50
L o a n s 5,646 --
----- -----
5,671 50
===== =====
b. The short-term bank loans are unlinked and bear annual interest of
approximately 16%.
c. The short-term bank credit is secured.
268
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
12. Current maturities of long-term loans and other long-term liabilities
---------------------------------------------------------------------
Composed as follows:
--------------------
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Long-term loans 384 353
Hotel rental payable -- 170
Liability in respect of holiday rights 149 103
--- ---
533 626
=== ===
13. Creditors and credit balances
-----------------------------
Composed as follows:
--------------------
December 31
-----------
1996 1995
---- ----
US $ US $
----- -----
In thousands
-------------------
Suppliers 3,954 3,538
Advances from customers 728 551
Government institutions 174 --
Payroll and related expenses payable 3,964 3,465
Sundry creditors and accrued expenses 1,988 1,739
------ ------
10,808 9,293
====== ======
14. Taxes on income
---------------
a. "Approved enterprises" -
The expansion plans of the hotels owned by the company and by the
subsidiary Moriah Eilat Resort Hotel Limited have been accorded
"approved enterprise" status under the Law for the Encouragement of
Capital Investments, 1959. The period of tax benefits (except for
the entitlement to claim accelerated depreciation) has not yet
commenced as the companies have not yet earned taxable income.
The entitlement to the above benefits is conditional upon the
companies fulfilling the conditions stipulated by the law,
regulations published thereunder and the instruments of approval for
the specific investments in approved enterprises. In the event of
failure to comply with these conditions, the benefits may be
canceled and the companies may be required to refund the amount of
the benefits, in whole or in part, with the addition of linkage
differences and interest. To date of issue of these financial
statements, the companies have fulfilled these conditions.
269
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
14. Taxes on income (continued)
---------------
b. "Industrial companies" -
As owners of hotels, the company and its subsidiaries are
"industrial companies" under the Law for the Encouragement of
Industry (Taxation), 1969. In accordance with section 23 of the
abovementioned law, the company submits consolidated tax returns
with its subsidiaries that are also "industrial companies".
c. Taxation under inflationary conditions - Under the Income Tax
(Adjustments for Inflation) Law, 1985, the results for tax purposes
are measured in real terms, in accordance with the changes in the
consumer price index.
d. Losses and deductions carried forward to future years :
(1) The carryforward losses and deduction for inflation aggregate
US $ 18,150,000 at December 31, 1996; December 31, 1995 - US $
11,770,000. The balance of carryforward losses in respect of
which deferred taxes have not been computed is approximately
US $ 3,080,000 at December 1996; December 31, 1995 -
approximately US $ 1,860,000.
(2) Carryforward capital losses are approximately US $ 500,000 at
December 31, 1996 and 1995.
e. Taxes on income included in the income statements:
For the years ended December 31,
1996 1995 1994
---- ---- ----
US $ US $ US $
---- ---- ----
In thousands
------------
For the reported year - deferred
taxes - income (expense) 1,648 (738) (934)
For previous years - expense -- -- (72)
------ ------ ------
1,648 (738) (1,006)
====== ====== ======
15. Pledges
-------
a. As collateral for loans and credit received and for third party
guarantees, the company and its subsidiaries have mortgaged their
real estate (including leasehold rights) and have registered fixed
charges (specific security interest) on equipment, furniture and
vehicles (including insurance rights) and floating charges (security
interest in the assets as they exist from time to time) on all their
assets, including goodwill.
b. The company and the subsidiaries have registered floating charges on
all their assets in favor of the State of Israel as security for
compliance with the terms attaching to investment grants received by
them.
270
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments
--------------------------------------
a. Contingent liabilities:
(1) In respect of indirect taxes on imported goods released under
"conditional exemption" - contingent upon the compliance with
the terms of the instruments of approval for the approved
enterprises (see also note 14a.). The amount of this liability
cannot be determined.
(2) In respect of a bank guarantee equivalent in Israeli currency
to $500,000 and a charge in an amount equivalent to $1,000,000
on land in the "Lamed" zone, which serve as a collateral for
the fulfillment of the obligations under the agreement for the
renting of the Tel-Aviv Plaza Hotel by the subsidiary Moriah
Tel-Aviv Hotel Ltd. (see b.(1) below).
(3) As a collateral for the fulfillment of liabilities of the
company and of the subsidiary Moriah Eilat Resort Hotel
Limited, these companies have provided bank guarantees as
follow:
Amount
--------------
$ in thousands
--------------
In favour of
------------
The Tourist Industry Development Corporation Ltd. 615
Customers of the "Moriah Plaza Club" 130
Amot Investments Ltd. 40
Shekem Ltd. 730
The Practical Engineer and Technician House 100
(4) In 1996, two legal claims were lodged against the subsidiary
Moriah Tel-Aviv Hotel Ltd., alleging breach of agreements in
respect of the renovation and refurbishment of its hotel
building. One claim was for $ 1,850,000 and the other for
$460,000.
The parties, with the court's consent, have agreed to submit
the claim for $ 1,850,000 to an arbitrator appointed by both
parties, after an increase of the amount claimed to
$2,310,000; the claimants are allowed to increase the amount
claimed still further after the subsidiary files its statement
of defense.
With regard to the other claim, the subsidiary has filed a
counterclaim for over $ 2,770,000; it intends to file a
counterclaim with respect to the claim of $ 2,310,000 as well.
The subsidiary's legal counsel is of the opinion that the
subsidiary's chances to prevail are fair; however, since the
matter is in a preliminary stage, the legal counsel cannot
predict the outcome of these claims.
In view of the legal counsel's opinion, no provision has been
made for these claims.
271
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments
--------------------------------------
b. Commitments:
(1) The subsidiary Moriah Tel-Aviv Hotel Ltd. is a party to an
agreement for renting the Tel-Aviv Plaza Hotel for a period
ending December 29, 2006. The projected rental payments for
the next five years are as follows (the rent is linked to the
exchange rate of the US dollar):
US dollars in thousands
-----------------------
1997 1,000
1998 2,400
1999 2,500
2000 2,500
2001 2,700
As security for the fulfillment of the terms of that
agreement, the company has given collateral's in an amount
equivalent to US $ 1,500,000.
(2) On July 9, 1995, the subsidiary Moriah Eilat Resort Hotel
Limited signed an agreement for the operation and management
of the Moriah Gardens Hotel (hereafter - the hotel) in the
Dead Sea area on behalf of Mivtachim Gardens Ltd. The
agreement entered into effect retroactively as of March 31,
1995.
The agreement stipulates, inter alia:
(a) The agreement is in force for 10 years less one day and
expires on December 29, 2005. In the event that the
subsidiary acquires shares of Mivtachim Gardens Ltd.
(the owner), it will be entitled to extend the agreement
for two additional 5 year periods.
(b) In consideration for managing the hotel the subsidiary
is entitled to annual management fees of 25% of the
operating profit of the hotel (as defined by the
agreement), but not less than 2% of the annual revenues
(even in the event the hotel incurs an operating loss).
The subsidiary is further entitled to additional
management fees of 3% of any amount of operating profit
in excess of US $ 1,600,000 in any year.
272
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments (continued)
--------------------------------------
b. Commitments (continued) :
(3) An agreement between the subsidiary Moriah Tiberias Hotel Ltd.
and Sea of Galilee Hotels Ltd. for the leasing of the Tiberias
Plaza Hotel for a ten year period (less one day) ending
February 27, 2001. Under certain circumstances, enumerated in
the lease agreement, the lease can be terminated by either
party at 6 months' notice (to date of issue of these financial
statements, no such notice was given). Annual rental is the
Israeli currency equivalent of US $ 600,000. The payment of
the said rental and the fulfillment of all the subsidiary's
obligations under the agreement are secured by an
unconditional bank guarantee of $ 300,000 and by guarantee
provided by the company.
(4) The subsidiary Moriah-Hotel Management Ltd. operates several
hotels under agreements with owners. These agreements
stipulate, inter alia, as follows:
(a) The agreements are for 10 years less one day and expire
on December 30, 2005. In the event the subsidiary
acquires shares in agreements, or any one of the
agreements, for two additional five year periods.
(b) Annual management fees for each hotel are 25% of the
operating profit of the hotel (as defined by the
agreements), but not less than 2.5% of the annual
revenues of each hotel or US $ 75,000, whichever is the
higher. The subsidiary is further entitled to additional
management fees of 3% of any amount of operating profit
in excess of US $ 1,000,000 in any year.
273
MORIAH HOTELS LTD. AND ITS SUBSIDIARIES
---------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
16. Contingent liabilities and commitments (continued)
--------------------------------------
b. Commitments (continued) :
(5) The subsidiary Moriah Eilat Resort Hotel operates a holiday
club - Moriah Plaza Club - and enters into agreements for the
sale of holiday rights to members of the club. Each agreement
is in force for 49 years and entitles the buyer to one week's
holidays a year in the hotel owned by the subsidiary. The
holiday rights do not confer on holder possession or any
proprietary rights and do not place any restrictions on the
operations of the subsidiary's hotel.
The holiday rights are marketed exclusively by a marketing
company, for a commission computed as a fixed percentage of
proceeds from its sales of such rights.
The liability in respect of holiday rights - US $7,005,000
(net of marketing commission); December 31, 1995 - US
$5,078,000 is presented in the balance sheets under long-term
liabilities as a separate item..
(6) In November 1995, the company and the Radisson Sas Hotels
Worldwide chain (hereafter - Radisson) entered into an
agreement whereunder the company and its subsidiaries have
been granted the exclusive right to use the Radisson trade
name and trademark in the region, in consideration for
payments as determined by the agreement (the amounts due to
Radisson are determined based on total revenues and on the
amount of reservations obtained through Radisson). The
agreement expires on December 31, 2014, with an option of
renewal for another 10 years (under certain circumstances, as
detailed in the agreement, the company can terminate the
agreement before expiration date, but in any event not before
January 1, 1999).
274
OPHIR HOLDINGS LTD.
(An Israeli corporation)
1996 ANNUAL REPORT
275
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
1996 ANNUAL REPORT
TABLE OF CONTENTS
Page
----
AUDITORS' REPORT 277-278
- ----------------
FINANCIAL STATEMENTS - OF THE COMPANY AND
- -----------------------------------------
CONSOLIDATED - IN ADJUSTED NEW ISRAELI SHEKELS (NIS):
-----------------------------------------------------
Balance sheets 279-280
Statements of income 281
Statements of changes in shareholders' equity 283
Statements of cash flows 285-288
Notes to financial statements 289-328
---------------
-------------------------
---------------
276
Kesselman Coopers
& Kesselman & Lybrand
REPORT OF INDEPENDENT AUDITORS
To the shareholders of
OPHIR HOLDINGS LTD.
We have audited the financial statements of Ophir Holdings Ltd. (hereafter - the
Company) and the consolidated financial statements of the Company and its
subsidiaries: balance sheets at December 31, 1996 and 1995 and statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of consolidated subsidiaries, whose
assets at December 31, 1996 and 1995 constitute approximately 25% and 31%,
respectively, of total consolidated assets, and whose revenues for the years
ended December 31, 1996, 1995 and 1994 constitute approximately 13%, 25% and
50%, respectively, of total consolidated revenues and gains. The financial
statements of those subsidiaries were audited by other auditors, whose reports
have been furnished to us, and our opinion, insofar as it relates to amounts
included for the foregoing subsidiaries, is based solely on the reports of the
other auditors. We did not audit the financial statements of certain associated
companies, the Company's interest in which as reflected in the balance sheets at
December 31, 1996 and 1995 is adjusted NIS 99,979,000 and adjusted NIS
67,285,000, respectively, and the Company's share in excess of profits over
losses of which is a net amount of adjusted NIS 9,685,000 in 1996, adjusted NIS
2,163,000 in 1995 and adjusted NIS 3,235,000 in 1994, the data at December 31,
1995 and for the year then ended have been restated, as explained in note 1m.
The financial statements of those companies were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for those companies, is based solely on the reports of the
other auditors.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audits to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
277
Coopers
& Lybrand
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing power
of Israeli currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed nominal Israeli currency data of the
Company, on the basis of which its adjusted financial statements were prepared,
are presented in note 13.
In our opinion, based upon our audits and the reports of the other auditors
referred to above, the aforementioned financial statements present fairly, in
all material respects, the financial position-of the Company and consolidated -
at December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the Company and consolidated - for each
of the three years in the period ended December 31, 1996, in conformity with
accounting principles generally accepted in Israel. Also, in our opinion, the
abovementioned financial statements have been prepared in accordance with the
Israeli Securities (Preparation of Annual Financial Statements) Regulations,
1993.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of nominal
historical net income or loss and shareholders' equity to the extent summarized
in note 14.
The special condensed consolidated financial statements which are presented in
note 14 have been translated into U.S. dollars for the convenience of one of the
Company's shareholders, in accordance with the principles set forth in Statement
No. 52 of the Financial Accounting Standards Board of the United States. In our
opinion, the translation has been properly made.
/s/ Kesselman & Kesselman
Tel-Aviv, Israel Kesselman & Kesselman
March 13, 1997 Certified Public Accountants (Isr.)
278
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
BALANCE SHEETS
IN ADJUSTED NEW ISRAELI SHEKELS
Consolidated The Company
-------------------------------- -------------------------------
December 31, December 31
-------------------------------- -------------------------------
Note 1996 1995 1996 1995
------ -------------- ----------------- ---------------- --------------
In thousands In thousands
-------------------------------- -------------------------------
Assets 7c
------
CURRENT ASSETS: 11
- ---------------
Cash and cash equivalents 1,970 929 1,960 905
Short-term loans receivable from
associated companies (the
Company - and from subsidiaries) 10b 8,988 8,312 50,683 53,918
Short-term investments 12a 5,222 7,708 5,222 7,708
Accounts receivable 12b 3,179 721 1,021 538
Building under construction, net of
advances from purchaser 5b(3) 14,825
Capital notes from shareholders 10b 8,000 8,000
Deferred income taxes 1h;9b 4,600
------- ------- ------- -------
Total current assets 46,784 17,670 66,886 63,069
----- ------- ------- ------- -------
LAND - BUSINESS INVENTORY 1e;2b 11,004
- ---- ------------------ -------
INVESTMENTS: 11
- ------------
Subsidiaries 2 32,903 31,894
Associated companies 3 236,398 *219,908 189,233 *172,504
Other companies 4 11,347 10,838 11,347 10,838
Capital notes from shareholders 10b 8,847 8,847
------- ------- ------- -------
247,745 239,593 233,483 224,083
------- ------- ------- -------
FIXED ASSETS, net of accumulated
- ------------
depreciation 5 104,865 103,012 63,339 39,236
======= ======= ======= =======
410,398 360,275 363,708 326,388
======= ======= ======= =======
/s/ U. Levit )Chairman of the
- --------------------------------
U. Levit ) Board of Directors
/s/ Y. Kaplan )
- --------------------------------
Y. Kaplan )Managing Director
Date of approval of the financial statements: March 13, 1997
279
Consolidated The Company
---------------------------- ---------------------------
December 31, December 31
---------------------------- ---------------------------
Note 1996 1995 1996 1995
------- ---------- ----------------- --------------- -----------
In thousands In thousands
---------------------------- ---------------------------
Liabilities and shareholders' equity 7c
CURRENT LIABILITIES: 11
- --------------------
Bank credit 12c 42,166 33,110 40,161 28,123
Short-term loans from shareholders 10b 34,894 28,749 34,894 28,749
Accounts payable and accruals 11,498 2,568 3,836 968
Payables in respect of acquisition of
land - business inventory 2b 11,004
Deferred income taxes 1h;9b 884 1,106 884 1,106
------- ------- ------- -------
Total current liabilities 100,446 65,533 79,775 58,946
----- ------- ------- ------- -------
LONG-TERM LIABILITIES:
- ----------------------
Bank loans (net of current maturities) 6;11 124,265 132,905 99,545 106,658
Deferred income taxes 1h;9b 1,299 1,053
------- ------- ------- -------
Total long-term liabilities 125,564 133,958 99,545 106,658
----- ------- ------- ------- -------
COMMITMENTS AND CONTINGENT
- --------------------------
LIABILITIES 7
----------- ------- ------- ------- -------
Total liabilities 226,010 199,491 179,320 165,604
-----
SHAREHOLDERS' EQUITY 8 184,388 *160,784 184,388 *160,784
- -------------------- ------- ------- ------- -------
410,398 360,275 363,708 326,388
======= ======= ======= =======
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
280
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
STATEMENTS OF INCOME
IN ADJUSTED NEW ISRAELI SHEKELS
Consolidated
-----------------------------------------
Note 1996 1995 1994
------ --------- --------------- ---------------
In thousands
-----------------------------------------
REVENUES AND GAINS:
- -------------------
From lease of buildings 10a 5,109 5,172 5,351
Profits of subsidiaries - net 2
Share in profits of associated companies - net 3 10,477 *3,254 4,002
Gain on dilution of holding in associated companies resulting
from sale and issuance of shares to a third party - net 18,797 1,359 51
Gain resulting from sale of investments in associated companies 13,009
Gain from increase in value of quoted shares, which were state
at cost in the past 4,777
Gain from sale and increase in value of quoted shares - net 7,443 15
Dividend received from another company 104 278
Management fees from associated companies (the Company -
and from a subsidiary) 10a 1,116 951 693
------ ----- -----
48,612 18,457 14,889
------ ----- -----
EXPENSES AND LOSSES:
- --------------------
Depreciation of buildings 896 940 907
Losses of subsidiaries - net 2
Write-down of investment in other companies 4 2,500 1,138
General and administrative expenses 10a 2,035 1,704 1,959
Loss from sale of fixed assets 389
Loss from decrease in value of quoted shares 2,486
Financial expenses - net 10a;12f 7,561 6,183 5,768
------ ----- -----
15,867 9,965 8,634
------ ----- -----
INCOME BEFORE TAXES ON INCOME 32,745 8,492 6,255
- -----------------------------
TAXES ON INCOME 9 5,742 3,236 2,481
- --------------- ------ ----- -----
NET INCOME FOR THE YEAR 27,003 5,256 3,774
- ----------------------- ====== ===== =====
The Company
--------------------------------------------
Note 1996 1995 1994
------ -------------- -------------- --------------
In thousands
--------------------------------------------
REVENUES AND GAINS:
- -------------------
From lease of buildings 10a
Profits of subsidiaries - net 2 1,331 1,598
Share in profits of associated companies - net 3 9,204 *2,448 3,328
Gain on dilution of holding in associated companies resulting
from sale and issuance of shares to a third party - net 18,797 1,359 51
Gain resulting from sale of investments in associated companies 12,982
Gain from increase in value of quoted shares, which were state
at cost in the past 4,777
Gain from sale and increase in value of quoted shares - net 7,443 15
Dividend received from another company 104 278
Management fees from associated companies (the Company -
and from a subsidiary) 10a 1,031 1,034 688
------ ----- -----
281
43,449 14,160 8,859
------ ----- -----
EXPENSES AND LOSSES:
- --------------------
Depreciation of buildings
Losses of subsidiaries - net 2 1,737
Write-down of investment in other companies 4 2,500 1,138
General and administrative expenses 10a 447 366 512
Loss from sale of fixed assets
Loss from decrease in value of quoted shares 2,486
Financial expenses - net 10a;12f 6,140 4,843 1,009
------ ----- -----
11,573 6,347 3,258
------ ----- -----
INCOME BEFORE TAXES ON INCOME 31,876 7,813 5,601
- -----------------------------
TAXES ON INCOME 9 4,873 2,557 1,827
- --------------- ------ ----- -----
NET INCOME FOR THE YEAR 27,003 5,256 3,774
- ----------------------- ====== ===== =====
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
282
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
IN ADJUSTED NEW ISRAELI SHEKELS
Share Capital Retained
capital surplus earnings
------------ ----------------- -----------------
In thousands
-------------------------------------------------
BALANCE AT JANUARY 1, 1994 2,269 48,543 108,113
- --------------------------
CHANGES DURING 1994:
- --------------------
Net income 3,774
Erosion of capital notes issued to the Company by shareholders (1,382)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (198)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1994 2,269 48,543 110,307
- ----------------------------
CHANGES DURING 1995:
- --------------------
Net income *5,256
Erosion of capital notes issued to the Company by shareholders (718)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (129)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1995 2,269 48,543 114,716
- ----------------------------
CHANGES DURING 1996:
- --------------------
Net income 27,003
Erosion of capital notes issued to the Company by shareholders (847)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (177)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies
----- ------ -------
BALANCE AT DECEMBER 31, 1996 2,269 48,543 140,695
- ---------------------------- ===== ====== =======
Differences from
translation of foreign
currency financial Total
statements of a subsidiary
and associated companies
(note 1b(4))
---------------------------- ----------------
In thousands
---------------------------------------------
BALANCE AT JANUARY 1, 1994 1,294 160,219
- --------------------------
CHANGES DURING 1994:
- --------------------
Net income 3,774
Erosion of capital notes issued to the Company by shareholders (1,382)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (198)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (4,723) (4,723)
------ -------
283
BALANCE AT DECEMBER 31, 1994 (3,429) 157,690
- ----------------------------
CHANGES DURING 1995:
- --------------------
Net income *5,256
Erosion of capital notes issued to the Company by shareholders (718)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (129)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (1,315) (1,315)
------ -------
BALANCE AT DECEMBER 31, 1995 (4,744) 160,784
- ----------------------------
CHANGES DURING 1996:
- --------------------
Net income 27,003
Erosion of capital notes issued to the Company by shareholders (847)
Company's share in erosion of capital note issued by an
associated company to a subsidiary (177)
Differences from translation of foreign currency financial
statements of a subsidiary and associated companies (2,375) (2,375)
------ -------
BALANCE AT DECEMBER 31, 1996 (7,119) 184,388
- ---------------------------- ====== =======
* Restated, see note 1m.
The accompanying notes are an integral part of the financial statements.
284
OPHIR HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
Consolidated
-------------------------------------------
1996 1995 1994
--------------- -------------- ------------
In thousands
-------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 27,003 **5,256 3,774
Adjustments required to reflect the cash flows from operating activities* (29,459) (5,468) 1,057
------- ------ ------
Net cash provided by (used in) operating activities (2,456) (212) 4,831
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sale of shares in associated companies 17,559 1,564
Proceeds from sale of fixed assets 713
Acquisition of fixed assets (28,185) (38,114) (17,086)
Advance from purchaser of building under construction 9,459
Proceeds from realization of short-term investments 18,144
Investment in associated companies (including capital notes and loans) (4,989) (969)
Investments in other companies (3,009) (2,019) (10,462)
Decrease (increase) in short-term loans granted to associated
companies (the Company - and subsidiaries) (676) (1,139) (7,591)
Collection of capital notes from an associated company 1,075 1,451 32,067
Proceeds from redemption of Government Compulsory Loan 24
Investment in quoted shares of an interested party (118)
------- ------ ------
Net cash used in investing activities (3,064) (25,102) (4,135)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Long-term bank loans received 43,403
Discharge of long-term bank loans (5,983) (9,555) (10,236)
Increase (decrease) in short-term loans from shareholders - net 6,145 (518) (20)
Increase (decrease) in short-term bank credit - net 6,399 18,353 (42,034)
------- ------ ------
Net cash provided by (used in) financing activities 6,561 8,280 (8,887)
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,041 (17,034) (8,191)
- ------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 929 17,963 26,154
- ---------------------------------------------- ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,970 929 17,963
- ---------------------------------------- ======= ====== ======
The Company
----------------------------------------
1996 1995 1994
----------------------------------------
In thousands
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income for the year 27,003 **5,256 3,774
Adjustments required to reflect the cash flows from operating activities* (31,725) (6,547) (1,495)
------- ------ ------
Net cash provided by (used in) operating activities (4,722) (1,291) 2,279
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sale of shares in associated companies 17,559 1,564
Proceeds from sale of fixed assets
Acquisition of fixed assets (24,153) (28,066) (11,181)
Advance from purchaser of building under construction
Proceeds from realization of short-term investments 18,144
285
Investment in associated companies (including capital notes and loans) (76,598)
Investments in other companies (3,009) (2,019) (10,462)
Decrease (increase) in short-term loans granted to associated
companies (the Company - and subsidiaries) 3,235 54,466 (25,928)
Collection of capital notes from an associated company 1,075 1,451 12,006
Proceeds from redemption of Government Compulsory Loan
Investment in quoted shares of an interested party (118)
------- ------ ------
Net cash used in investing activities (5,293) (31,058) (35,683)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Long-term bank loans received 29,987
Discharge of long-term bank loans (1,122) (3,132) (4,941)
Increase (decrease) in short-term loans from shareholders - net 6,145 (518) (20)
Increase (decrease) in short-term bank credit - net 6,047 18,942 186
------- ------ ------
Net cash provided by (used in) financing activities 11,070 15,292 25,212
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,055 (17,057) (8,192)
- ------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 905 17,962 26,154
- ---------------------------------------------- ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,960 905 17,962
- ---------------------------------------- ======= ====== ======
286
OPHIR HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
IN ADJUSTED NEW ISRAELI SHEKELS
Consolidated
-------------------------------------------
1996 1995 1994
--------------- -------------- ------------
In thousands
-------------------------------------------
* Adjustments required to reflect the cash flows from operating activities:
-------------------------------------------------------------------------
Losses (profits) of subsidiaries - net
Share in profits of associated companies - net (10,477) **(3,254) (4,002)
L e s s - dividend received from associated companies 4,750 5,586 5,958
-------
Depreciation 946 948 910
Deferred income taxes - net (4,576) (561) 1,870
Accrued interest on capital notes of associated company - net (170) (246) (531)
Gain on dilution of holding in associated companies resulting from sale and
issuance of shares to a third party (31,779) (1,359) (51)
Gain from increase in value of quoted shares which were stated at cost
in the past (4,777)
Loss from sale of fixed assets 389
Loss (gain) from sale and decrease (increase) in value of quoted
shares - net 2,486 (7,443) (15)
Writed-down of investment in other companies 2,500 1,138
Linkage differences on principal of loan to associated company 419
Linkage differences on (erosion of) principal of long-term bank loans - net (2,358) 347
------- ------ -----
(35,931) (7,549) 128
------- ------ -----
Changes in operating asset and liability items:
- -----------------------------------------------
Decrease (increase) in accounts receivable (2,458) 1,555 902
Increase (decrease) in accounts payable and accruals 8,930 526 27
------- ------ -----
6,472 2,081 929
------- ------ -----
------- ------ -----
(29,459) (5,468) 1,057
======= ====== =====
The Company
----------------------------------------
1996 1995 1994
----------------------------------------
In thousands
----------------------------------------
* Adjustments required to reflect the cash flows from operating activities:
-------------------------------------------------------------------------
Losses (profits) of subsidiaries - net (1,331) (1,598) 1,737
Share in profits of associated companies - net (9,204) **(2,448) (3,328)
L e s s - dividend received from associated companies 3,560 4,375 4,469
-------
Depreciation 50 8 3
Deferred income taxes - net (222) (687) 1,793
Accrued interest on capital notes of associated company - net (170) (246) (531)
Gain on dilution of holding in associated companies resulting from sale and
issuance of shares to a third party (31,779) (1,359) (51)
Gain from increase in value of quoted shares which were stated at cost
in the past (4,777)
Loss from sale of fixed assets
Loss (gain) from sale and decrease (increase) in value of quoted
shares - net 2,486 (7,443) (15)
Writed-down of investment in other companies 2,500 1,138
Linkage differences on principal of loan to associated company 419
Linkage differences on (erosion of) principal of long-term bank loans - net (364) 142
------- ------ ------
(34,110) (8,624) (139)
------- ------ ------
287
Changes in operating asset and liability items:
- -----------------------------------------------
Decrease (increase) in accounts receivable (483) 1,677 (1,387)
Increase (decrease) in accounts payable and accruals 2,868 400 31
------- ------ ------
2,385 2,077 (1,356)
------- ------ ------
------- ------ ------
(31,725) (6,547) (1,495)
======= ====== ======
** Restated, see note 1m.
As to purchase of land - business inventory - by a subsidiary using credit
granted by the seller, which is not reflected in these statements; see note 2b.
The accompanying notes are an integral part of the financial statements.
288
OPHIR HOLDINGS LTD.
(An Israeli Corporation)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ------ -------------------------------
The significant accounting policies applied on a consistent basis, are as
follows, see also m. below:
a. General:
--------
1) Ophir Holdings Ltd. (hereafter - the Company) is a holding
company which also owns commercial buildings under
construction designated for rent and sale.
The subsidiary, Ophir Financing Ltd., is engaged in granting
loans (mainly to interested parties and related parties) and
receiving loans (mainly from interested parties and related
parties), see note 10a.
The subsidiary, Merkazim Investments Ltd., is a holding and
investment company engaged in the renting of commercial
buildings. It also owns a commercial building udner
construction, which is designated for sale, in respect of
which a sale agreement has already been signed, see note
5b(3).
The Company and its subsidiaries receive management services
from shareholders in consideration of management fees.
As to the subsidiary New Horizons (1993) Ltd., see note 2b.
As to the activities of the associated companies, see note 3b.
2) Definitions:
------------
Subsidiary - a company controlled or owned to the extent of
over 50%.
Associated company - a company or limited partnership
controlled or owned, directly or indirectly, to the extent of
over 25%, which is not a subsidiary, or to the extent of 25%
or under but meets the criteria set by Opinion 22 of the
Institute of Certified Public Accountants in Israel (hereafter
- the Israeli Institute) and the investment therein is
accounted for by the equity method.
The group - the Company and its subsidiaries and associated
companies.
Interested parties - as defined in the Israeli Securities
(Preparation of Annual Financial Statements) Regulations,
1993.
Related parties - as defined in Opinion 29 of the Israeli
Institute.
b. Adjusted financial statements:
------------------------------
1) The financial statements have been prepared on the basis
of historical cost adjusted to reflect the changes in
the general purchasing power of Israeli currency, in
accordance with Opinions of the Israeli Institute. All
figures in the financial statements are presented in
adjusted new Israeli shekels (NIS) which have a uniform
purchasing power (December 1996 adjusted NIS) - based
upon the changes in the Israeli consumer price index;
hereafter - the Israeli CPI (see also note 11b).
289
The adjustment of the financial statements is based on
the accounts of the Company and its Israeli
subsidiaries, maintained in nominal NIS. Condensed
nominal Israeli currency data of the Company, on the
basis of which its adjusted financial statements were
prepared, are presented in note 13.
The components of the income statement were, for the
most part, adjusted as follows: the components relating
to transactions carried out in the reported year were
adjusted on the basis of the index for the month in
which the transaction was carried out, while those
relating to non-monetary balance sheet items (mainly -
depreciation) were adjusted on the same basis as the
related balance sheet item. The financing component
represents financial income and expenses in real terms
and the erosion of balances of monetary items during the
year.
2) As mentioned in (1) above, these financial statements
have been drawn up in accordance with the principles of
adjustment prescribed by Opinions of the Israeli
Institute, on the basis of the changes in the Israeli
CPI. As to subsidiary and associated companies whose
financial statements are drawn up in foreign currency,
see (4) below.
3) The adjusted amounts of non-monetary assets do not
necessarily represent realization value or current
economic value, but only the original historical values,
adjusted to reflect the changes in the general
purchasing power of Israeli currency. In these financial
statements, the term "cost" signifies cost in adjusted
Israeli currency.
4) A subsidiary and associated companies whose financial
-----------------------------------------------------
statements are drawn up in foreign currency
-------------------------------------------
For purposes of consolidation or inclusion on the equity
basis, the amounts (in foreign currency terms) included
in the statements of the above companies were treated as
follows:
Balance sheet items at the end of the year and the
results of operations for the year were translated at
the exchange rate of the U.S. dollar (hereafter - the
dollar) as compared to Israeli currency at the end of
the year. Balance sheet items at the beginning of the
year and changes in shareholders' equity items during
the year were translated at the relevant exchange rate
at the beginning of the year or at the date of each
change and then adjusted on the basis of the changes in
the Israeli CPI through the end of the year.
Differences resulting from the above treatment are
carried as a separate item under adjusted shareholders'
equity ("differences from translation of foreign
currency financial statements of a subsidiary and
associated companies").
c. Principles of consolidation:
----------------------------
1) The consolidated financial statements include the accounts of
the Company and its subsidiaries. The companies included in
consolidation are listed in note 2a.
2) Intercompany balances and transactions have been eliminated.
290
d. Marketable securities
---------------------
These securities (except for investment in shares constituting
"permanent investment", see f(3), are stated at market value.
The changes in value of the above securities are carried to income.
e. Land - business inventory
-------------------------
The land is presented at cost which - in managements' estimation -
is lower than market value.
f. Investments:
------------
1) Subsidiaries
------------
In the Company's accounts, the investments in these companies
are accounted for by the equity method.
2) Associated companies:
---------------------
a) The investments in these companies are accounted for by
the equity method.
b) The excess of cost of the investment in associated
companies over the Company's shares in their equity in
net assets at date of acquisition ("excess of cost of
investment") represents an amount not attributed to
specific assets (goodwill). The amount attributed to
goodwill is amortized in equal annual instalments over a
period of 10 years, commencing in the year of
acquisition.
3) Other companies
---------------
The investments in the shares of these companies, including
investments in quoted shares, which the Company intends to
hold for a long period ("permanent investment"), are stated at
cost, net of write-down for decrease in value which is not of
a temporary nature.
g. Fixed assets:
-------------
1) These assets are stated at cost. The balance of the
depreciated cost of a building torn down in order to build a
new building was carried to cost of the new building.
2) The assets are depreciated by the straight-line method, on
basis of their estimated useful life.
Annual rates of depreciation are as follows:
%
-
Buildings leased out 2-4
Office furniture and equipment and
machinery and equipment (including
computer and peripheral equipment) 6-7;15;20
291
h. Deferred income taxes:
----------------------
1) Deferred taxes are computed in respect of differences between
the amounts present in these statements and those taken into
account for tax purposes. As to the factors in respect of
which deferred taxes have been idncluded - see note 9b.
Deferred tax balances are computed at the tax rate expected to
be in effect at time of release to income from the deferred
tax accounts. The amount of deferred taxes presented in the
income statement reflects changes in the above balances during
the year.
2) Taxes which would apply in the event of disposal of
investments in subsidiaries and associated companies have not
been taken into account in computing the deferred taxes, as it
is the Company's policy to hold these investments, not to
realize them.
3) The Company will incur an additional tax liability at the rate
of 15% in the event of distribution of dividend from income
derived from "approved enterprises" of certain associated
companies. This additional tax liability was not taken into
account, since it is the Company's policy not to cause such
additional tax liability upon distribution of dividends. If
the Company resolves to distribute dividends to its
shareholders, it will distribute them from dividends it
receives from the abovementioned associated companies, the
income of which is derived from "approved enterprises", so
that the Company will not incur any additional tax liability
in respect of receipt of the dividend.
i. Capital notes issued to or by interested parties and related parties
--------------------------------------------------------------------
The erosion of such capital notes, which are not linked and most of
which do not bear interest, is carried to retained earnings in the
statements of changes in shareholders' equity.
j. Cash equivalents
----------------
The group considers all highly liquid investments, which include
short-term (up to 3 months) bank deposits, to be cash equivalents.
k. Net income per NIS 1 of par value of ordinary shares
----------------------------------------------------
The financial statements do not include data regarding net income
per NIS 1 of par value of shares, since that data would not provide
significant additional information to that otherwise provided by the
financial statements.
l. Format of income statements
---------------------------
In view of the nature of the Company's activities - holding of
companies which operate in different fields - the Company is of the
opinion that concentrated presentation of all revenue and gain items
as a group, and of all expense and loss items in a separate group is
more suitable to reflect its activities.
292
m. Restatement
-----------
The financial statements for the year ended December 31, 1995 were
restated in order to reflect, with retroactive effect, the changes
in the method of recognition of revenue, by an associated company.
The effect of this restatement on the financial statements is as
follows:
1) Balance sheet at December 31, 1995 :
As Effect As reported
previously of in these
reported restatement financial
statements
--------------- ------------------------------
Adjusted NIS in thousands
----------------------------------------------
a) Consolidated:
-------------
Investments in associated companies 222,611 (2,703) 219,908
Shareholders' equity - retained
earnings (163,487) 2,703 (160,784)
-------- ----- --------
59,124 -,- 59,124
======== ======== ========
b) The company:
------------
Investment in associated companies 175,207 (2,703) 172,504
Shareholders' equity - retained
earnings (163,487) 2,703 (160,784)
-------- ----- ---------
11,720 -,- 11,720
======== ======== =========
2) Net income for 1995:
Consolidated and
the Company
-------------------------
Adjusted NIS in thousands
-------------------------
Net income, as previously reported 7,959
Effect of restatement - share in
profits of associated companies (2,703)
------
Net income, as reported in
these financial statements 5,256
======
293
NOTE 2 - SUBSIDIARIES:
- ------ -------------
a. Subsidiaries consolidated are as follows:
Wholly-owned:
Maoz Financial Investments Ltd. - inactive (hereafter - Maoz)
Merkazim Investments Ltd. (a wholly-owned subsidiary of Maoz;
hereafter - Merkazim)
Merkazim New York, Inc. (a wholly-owned subsidiary of
Merkazim;hereafter - Merkazim New York)
Ophir Financing Ltd.
80% owned:
New Horizon (1993) Ltd. (hereafter - New Horizon), see b.
below.
b. Subsidiary consolidated for the first time
------------------------------------------
New Horizon, which commenced activities in 1996, was consolidated
for the first time in that year. In December 1996, New Horizon
purchased several properties for sale from a related party.
The data of New Horizon as included in the December 31, 1996
consolidated balance sheet are as follows:
Adjusted NIS in
thousands
------------------
Land - business inventory 11,004
Payables in respect of acquisition of land-
business inventory (11,004)
=======
-,-
=======
c. The investments are composed as follows:
The Company
-----------------
December 31
-----------------
1996 1995
-----------------
Adjusted NIS
in thousands
-----------------
Cost of shares 186 186
Accumulated undistributed profits* 32,616 31,618
Differences from translation of foreign
currency financial statement 101 90
------ ------
32,903 31,894
====== ======
* Net of erosion of intercompany capital notes 9,091 7,916
====== ======
294
NOTE 3 - INVESTMENTS IN ASSOCIATED COMPANIES:
- ------ ------------------------------------
a. The investments are composed as follows:
Consolidated The Company
-----------------------------------------------
December 31 December 31
-----------------------------------------------
1996 1995 1996 1995
------------ ----------- ------------- --------
Adjusted NIS in thousands
-----------------------------------------------
Equity in net assets:
Cost of shares 7,911 *11,078 6,942 10,109
L e s s - amortization excess of cost
-------
of investment (1) (844) *(314) (844) *(314)
Share in accumulated undistributed
profits (including accumulated
erosion of capital notes)(2) 64,902 **41,216 65,530 **41,643
Differences from translation of foreign
currency financial statements of
associated companies (7,119) (4,744) (7,220) *(4,834)
------- ------- ------- -------
64,850 47,236 64,408 46,604
Capital notes of Mivnat Holdings Ltd.
(including accrued interest) (3) 171,090 *172,165 124,825 *125,900
Capital note of Teledata
Communications Ltd. (4) 458 507
------- ------- ------- -------
236,398 219,908 189,233 172,504
======= ======= ======= =======
* Reclassified.
** Reclassified and restated, see note 1m.
(1) The exess cost of investment represents goodwill. The original
amount of the goodwill was adjusted NIS 6,553,000 and its
unamortized balance at December 31, 1996 and 1995 was adjusted
NIS 3,909,000 and adjusted NIS 6,642,000, respectively.
(2) Including gain on dilution of holding in an associated
companies resulting from sale and issuance of shares to a
third party.
(3) One capital note - in the amount of adjusted NIS 6,281,000
(par value - NIS 3,163,000) - is unlinked, bears annual
interst at the rate of 4% and is redeemable upon demand but
not later than March 23, 2013. The other capital notes
(including accrued interest), with a total par value of NIS
113,000 - consolidated and NIS 81,634,000 - the Company, are
unlinked, do not bear interest, and are redeemable upon
demand, but - not later than March 23, 2015 and part - not
later than March 23, 2018.
(4) This capital note is unlinked, bears interest of NIS 1 per
annum and is redeemable on call, but not before July 1, 2008.
295
b. Following are details relating to the associated companies:
1) Teledata Communications Ltd.(hereafter - Teledata):
----------------------------
a) Teledata, which is a subsidiary of Investment Company of
Bank Hapoalim Ltd. (a major shareholder of the Company)
- is engaged in design, development, production,
marketing and servicing of telecommunication equipment.
The percentages of holdings in Teledata are as follows:
Consolidated and
the Company
--------------------------------
December 31
--------------------------------
1996 1995
--------------------------------
% %
----- -----
The Company 16.17 19.00
===== =====
Investment Company of Bank
Hapoalim Ltd. - directly 29.19 31.00
===== =====
b) In 1996, the Company sold 250,000 ordinary shares of
Teledata and derived a profit of adjusted NIS 9,037,000.
In 1995, the Company sold 51,000 ordinary shares of
Teledata and derived a profit of adjusted NIS 726,000.
c) Teledata has adopted a plan to grant share options to
key employees and directors. During 1996 and 1995, some
of the options were exercised and the Company had a
profit of adjusted NIS 556,000 and adjusted NIS 27,000,
respectively.
d) Teledata's shares are traded in the United States on the
Nasdaq National Market. The market value of the Teledata
shares held by the Company at December 31, 1996 and 1995
is adjusted NIS 130,449,000 and adjusted NIS 43,214,000,
respectively.
296
e) Following are condensed data from the consolidated financial
statements of Teledata - presented in dollars:
December 31
-------------------------
1996 1995
----------- -------------
U.S. dollars in thousands
-------------------------
Balance sheets:
---------------
Assets:
-------
Current assets 62,514 48,881
Investments and long-term
receivables 7,389 5,358
Fixed assets - net 6,112 5,086
Other assets - net 195 267
------ ------
76,210 59,592
====== ======
Liabilities and shareholders' equity:
-------------------------------------
Current liabilities 15,485 8,977
Long-term liabilities - net 974 1,267
Minority interest 599 167
Shareholders' equity 59,152 49,181
------ ------
76,210 59,592
====== ======
1996 1995 1994
------ ------ ------
U.S. dollars in thousands
-------------------------------
Statements of income:
---------------------
Revenues 57,089 32,127 28,252
-------- ======= ======= =======
Net income (loss) for the year 6,991 (1,188) 619
------------------------------ ======= ======= =======
2) Memco Software Ltd. (hereafter - Memco):
-------------------
a) In September 1994, the Company purchased shares conferring
upon it 10% holding in Memco, which is engaged in development,
production and marketing of computer software to secure Unix
computer systems.
b) In July 1995, the Company exercised its option to purchase
additional shares in Memco, conferring upon it an additional
10% of the holding therein in consideration of $ 1,250,000. As
a result of the increase in holding, the Company commenced
accounting for its investment in Memco by the equity method.
c) In July 1995, Memco issued share capital to others. As a
result, the Company's holding in Memco was reduced to 18% and
the Company derived a gain of approximately adjusted NIS
754,000.
297
d) Memco has initiated a key employee stock option plan. As a
result of exercise of some of the options issued under that
plan, the Company's holding in Memco was further diluted. In
1996, the Company had a gain of approximately adjusted NIS
184,000 as a result of exercise of the options; such exercise
in 1995 caused the Company a loss of approximately adjusted
NIS 156,000.
e) In October 1996, Memco offered 3,000,000 shares to the public
in the United States, together with 365,000 shares offered by
its shareholders (including the Company), at $ 15 per share.
The underwriters of this offering exercised their option to
purchase 450,000 shares from Memco and 54,750 shares from its
shareholders. The net proceeds in this offering were
approximately $ 46 million. Following this offering, the
Company's holdings in Memco decreased from about 17.7% to
about 13.1%; the capital gain resulting from the public
offering of Memco shares and from the sale of the Company's
shares therein, approximately adjusted NIS 22,002,000, is
included in 1996 income. Future sale of Memco shares by the
Company is restricted by U.S. law and by the underwriting
agreement. To the date of the U.S. offering, the Company had
the power to appoint two out of the seven directors of Memco.
Close to the date of the offering, the Company and other
shareholders of Memco reached an agreement for cooperation at
shareholders' meetings. Moreover, a voting agreement has been
signed with most Memco shareholders, whereunder the Company is
entitled to recommend a director on its behalf. In view of the
above, the investment in Memco is still presented by the
equity method.
f) Memco's shares are traded in the United States on the Nasdaq
National Market. The market value of Memco's shares held by
the Company at December 31, 1996 is adjusted NIS 112,800,000.
g) Following are condensed data from the consolidated financial
statements of Memco - presented in dollars:
December 31
--------------------
1996 *1995
--------------------
U.S. $ in thousands
Balance sheets:
---------------
Assets:
-------
Current assets 62,770 10,518
Fixed assets - net 1,222 585
Other assets - net 523 239
------ ------
64,515 11,342
====== ======
Liabilities and shareholders'
-----------------------------
equity:
-------
Current liabilities 7,652 2,221
Long-term liabilities - net 3,923 5,619
Shareholders' equity 52,940 3,502
------ ------
64,515 11,342
====== ======
Statements of income (loss):
----------------------------
1996 *1995 1994
------ ------- ------
Adjusted NIS in thousands
-----------------------------
Revenues 15,312 1,549 440
-------- ====== ====== ======
Net income (loss)
-----------------
for the year 3,384 (2,463) (483)
------------ ====== ====== ======
298
* Restated.
299
3) Mivnat Holdings Ltd (hereafter - Mivnat):
-------------------
a) Mivnat was established in March 1993, by the Company, the
subsidiary Merkazim and others, some of which are interested
parties, for the purpose of acquiring the Israeli Government's
shares in Industrial Buildings Company Ltd.; hereafter -
Industrial Buildings (to the extent of 51.26% of the fully
diluted issued and paid share capital of Industrial
Buildings). Mivnat purchased the said shares in March 1993 for
approximately adjusted NIS 829 million.
At December 31, 1996 and 1995, Mivnat holds approximately
52.2% of the issued and paid shares of Industrial Buildings.
Industrial Buildings is engaged in initiation, and
construction, of buildings for industry, designated for rental
and sale, and in the management of land development and
infrastructure preparation for residence and industry.
b) The shares of Industrial Buildings are traded on the Tel-Aviv
Stock Exchange. The market value of the holdings of the
Company and Merkazim in the shares of Industrial Buildings
(which are held through Mivnat and which are Mivnat's only
asset) at December 31, 1996 and 1995 is approximately adjusted
NIS 124.7 million and adjusted NIS 159.7 million,
respectively.
c) The percentages of holding in Mivnat at December 31, 1996 and
1995 are as follows:
%
-
Consolidated - the Company and Merkazim 25.00
=====
The Company 18.75
=====
d) Claims have been filed in 1989-1996 against Industrial
Buildings by insurance companies, a banking institution,
contracting companies and others for a total amount of
approximately NIS 30 million (effective as of the date of
filing of the claims). In the opinion of the management of
Industrial Buildings, based - in most cases - on the opinions
of its legal counsel, Industrial Buildings has good defense
against the claims. Therefore, provisions were made only in
respect of a part of those claims in the financial statements
of Industrial Buildings.
In 1996, Industrial Buildings instituted legal proceedings for
the collection of debts in arrears in the approximate amount
of adjusted NIS 13.5 million. No provision for doubtful
accounts has been made in respect of these debts.
e) Mivnat has guaranteed repayment of long-term loans received by
the Company and Merkazim.
300
f) Mivnat has registered liens on all its assets and rights in
favor of those who granted long-term loans to all its
shareholders.
g) As to the pledge in respect of the investment of the Company
and Merkazim in Mivnat, see note 7c(3).
h) Following are condensed data from the consolidated financial
statements of Mivnat:
December 31
----------------------
1996 1995
-------- --------
Adjusted NIS in thousands
-------------------------
Balance sheets:
---------------
Assets:
-------
Current assets 218,131 117,495
Investments and long-term
receivables 223,707 239,184
Fixed assets - net 2,037,803 1,898,580
Other assets - net 1,483 1,972
--------- ---------
2,481,124 2,257,231
========= =========
Liabilities and shareholders' equity:
-------------------------------------
Current liabilities 406,651 271,802
Long-term liabilities - net 1,395,406 1,360,066
Minority interest 438,998 436,225
Shareholders' equity 240,069 189,138
--------- ---------
2,481,124 2,257,231
========= =========
1996 1995 1994
-------- -------- ---------
Adjusted NIS in thousands
---------------------------------
Statements of income:
---------------------
Revenues 178,630 161,383 134,401
-------- ======= ======= =======
Net income for the year 20,733 19,568 15,208
----------------------- ======= ======= =======
4) Shmey-Bar Real Estate 1993 Ltd., Shmey-Bar (T.H.) 1993 Ltd. and
---------------------------------------------------------------
Shmey-Bar (I.A.) 1993 Ltd. (hereafter - Shmey-Bar companies)
--------------------------
The Company, along with a group of companies, one of which is an
interested party, established the Shmey-Bar companies on December 9,
1993. These companies were established for the purpose of dealing in
real estate. They purchased real estate in Tel-Aviv, Haifa,
Beer-Sheva, Kiryat Shemona, Eilat, etc., all from Hamashbir
Hamerkazi Israel Cooperative Wholesale Society Ltd.
Shmey-Bar companies commenced operations in 1994.
The Company holds 1/6 of the ownership and control in each of the
Shmey-Bar companies.
301
5) Derdan (Financing) Ltd. (hereafter - Derdan)
-----------------------
Derdan was established in June 1993 by the Company along with a
group of companies, one of which is an interested party, for the
purpose of financing the purchase of rights in real estate which
Hamashbir Hamerkazi Israel Cooperative Wholesale Society Ltd. has
granted the associated company Shmey-Bar (I.A.) 1993 Ltd. (see (4)
above).
Derdan commenced operations in 1994. The Company's share in Derdan
is 25%.
6) Clark/67 Associates L.P. - limited partnership
------------------------
In August 1994, the subsidiary Merkazim New York and others
established a limited partnership in the United States (hereafter -
the partnership). The U.S. subsidiary's share in the partnership is
50%. The partnership acquired a commercial building in New Jersey,
U.S.A. for a total cost of approximately $ 2.3 million. The
partnership invested approximately $ 1 million in renovating the
building. To finance the acquisition and renovation as above, the
subsidiary took a bank loan of $ 3.6 million.
7) Memadim Investments Ltd. (hereafter - Memadim)
------------------------
Memadim was established in the last quarter of 1995 by the Company,
along with a group of companies one of which is an associated
company, for the purpose of trading in real estate. The Company
directly holds 10% of the ownership and control of Memadim and an
associated company holds 40% of the ownership and control of
Memadim.
NOTE 4 - INVESTMENTS IN OTHER COMPANIES:
- ------ -------------------------------
Consolidated and
the Company
------------------
December 31
------------------
1996 1995
------ ------
Adjusted NIS
in thousands
------------------
Dovrat, Shrem - Keren Shakim 92 Ltd. -
"Keren Shakim" (a) 2,041 2,041
Mahalachim Investment in Technology
Ltd. - "Mahalachim" (b) 2,995 2,995
C.B. Carmel Biosensor Ltd. - "C.B."(c) 757 1,795
Industrial Buildings - quoted shares (d) 4,007 4,007
Mainsoft Corporation - "Mainsoft" (e) 1,547
------ ------
11,347 10,838
====== ======
302
(a) The Company holds 500,000 of the 20,000,000 shares offered by
Keren Shakim. The main activity of Keren Shakim is investment
in business and securities. Its investments consist mainly of
long and medium term investments, primarily in Israel.
(b) Mahalachim is a venture capital fund. The Company holds shares
conferring upon it a 5% holding in this company.
(c) The Company holds preferred shares convertible into ordinary
shares, conferring upon it a 21.26% holding in this company.
C.B. is engaged in development of products for measurement of
the concentration of glucose in the blood without using the
present mechanical methods.
In 1995, the Company invested adjusted NIS 1,873,000 in C.B.
and in 1996 - adjusted NIS 462,000.
At December 31, 1996 and 1995, the investment is presented net
of write down of adjusted NIS 2,638,000 and adjusted NIS
1,138,000, respectively, in respect of decline in its value.
(d) In March 1994, the Company purchased shares conferring upon it
0.2% in Industrial Buildings. The Company does not account for
these shares by the equity method because of immateriality
(see also note 3b(3)).
(e) In June 1996, the Company purchased shares conferring upon it
4.3% in Mainsoft. Mainsoft is engaged in the development,
production and marketing of software and development tools for
developers of software.
In December 1996, the Company decided to write down the
investment in Mainsoft by approximately adjusted NIS
1,000,000.
303
NOTE 5 - FIXED ASSETS:
- ------ ------------
a. Composition of assets, grouped by major classifications, and changes
therein during 1996, are as follows:
Cost Accumulated depreciation
-------------------------------------------------------------------------------------------
Balance at Additions In respect of
beginning during retirements Balance Balance at Additions
of year the year during the at end begining during
year of year of year the year
--------------- -------------- -------------- ------------- --------------- ---------------
Adjusted NIS in thousands
--------------------------------------------------------------------------------------------
Consolidated:
- -------------
Building - leased out
(including land) 79,753 4,032 1,736 82,049 15,977 896
Land and buildings under
construction 39,198 23,716 62,914
Machinery and equipment 405 405 39
Office furniture and
equipment (including
computer) 49 32 81 11 11
------- ------- ------- ------- ------- -------
119,000 28,185 1,736 145,449 15,988 946
======= ======= ======= ======= =======
Less - building under
----
construction designated
for sale 24,284
-------
121,165
=======
The Company:
- ------------
Land and building under
construction 39,198 23,716 62,914
Machinery and equipment 405 405 39
Office furniture and
equipment (including
computer) 49 32 81 11 11
------- ------- ------- ------- -------
39,247 24,153 63,400 11 50
======= ======= ======= ======= =======
Accumulated depreciation
------------------------------ Depreciated
In respect of balance
retirements Balance December 31
during the at end ---------------------
year of year 1996 1995
--------------- --------------- ------------- ---------
Adjusted NIS in thousands
--------------------------------------------------------
Consolidated:
- -------------
Building - leased out
(including land) 634 16,239 65,810 63,776
Land and buildings under
construction 62,914 39,198
Machinery and equipment 39 366
Office furniture and
equipment (including
computer) 22 59 38
------- ------- ------- -------
634 16,300 129,149 103,012
======= ======= =======
Less - building under
----
304
construction designated
for sale 24,284
-------
104,865
=======
The Company:
- ------------
Land and building under
construction 62,914 39,198
Machinery and equipment 39 366
Office furniture and
equipment (including
computer) 22 59 38
------- ------- -------
61 63,339 39,236
======= ======= =======
305
b. The companies' rights in real estate are as follows:
Accumulated
Cost depreciation
--------------------- --------------------
December 31 December 31
--------------------- --------------------
1996 1995 1996 1995
--------------------- --------------------
Adjusted NIS Adjusted NIS
in thousands in thousands
--------------------- --------------------
The Company:
------------
Land jointly leased with another
company for 44 years ending
October 31, 2037 - the Company's
share - 70%(1) 19,108 8,450
Building under construction,
jointly owned with an
interested party and another
company - the Company's share -
33%(1)(2) 43,806 30,748
------- -------
T o t a l - the Company 62,914 39,198
--------- ------- -------
Merkazim:
---------
Buildings (including under
construction) on freehold land (3)33,836 29,820 2,832 2,670
Buildings jointly owned with
an interested party - Merkazim's
share - 50% 9,489 9,489 2,113 1,953
Buildings on land leased for
49 years ending March 24, 2022 -
80% of lease fees are capitalized 24,238 24,238 6,146 5,776
Buildings on land leased for
49 years ending March 31, 2022 -
80% of lease fees are capitalized 1,720 621
Buildings on land leased for
49 years ending March 31, 2025 -
80% of lease fees are capitalized 4,879 4,879 1,282 1,215
Buildings on land leased for
49 years ending March 31, 2021 9,607 9,607 3,866 3,742
------- ------- ------- -------
Total - Merkazim 82,049 79,753 16,239 15,977
----- ------- ------- ------- -------
Total - consolidated 144,963 118,951 16,239 15,977
----- ======= ======= ======= =======
(1) As to commitments relating to continuation of construction, see note
7a(1) and (2).
(2) In February 1997, the Company entered into an agreement with an
interested party regarding sale of the Company's share in a building
under construction for approximately NIS 70 million. Since the
construction has not yet been completed and the eventual costs of
completion are not known, it is not possible to estimate the
anticipated capital gain the Company will derive from this
transaction.
306
(3) Including a building under construction the cost of which is
adjusted NIS 24,284,000, an agreement for the sale of which adjusted
NIS 38 million was signed in December 1996. Since, at December 31,
1996, the conditions for the sale had not all been fulfilled, the
subsidiary has not yet recognized the gain on the sale -
approximately adjusted NIS 7 million. The building is presented as a
current asset in the balance sheet at December 31, 1996, net of the
advance received from the purchaser - adjusted NIS 9,459,000.
The registration of the Company's land in its name in the Land Registry has
not yet been completed.
The buildings of Merkazim are leased out for long periods (up to 8 years);
the lessees of some of these buildings have been granted a purchase option
realizable during, or at termination of, the lease period.
NOTE 6 - LONG TERM BANK LOANS:
- ------ ---------------------
a. The loans are linked to the Israeli CPI and bear interest at the
annual rate of 3.25%-4.4%.
b. The loans mature in the following years after the balance sheet
dates:
Consolidated The Company
---------------------- --------------------
December 31 December 31
---------------------- --------------------
1996 1995 1996 1995
---------- ----------- ----------- --------
Adjusted NIS Adjusted NIS
in thousands in thousands
---------------------- --------------------
First year - current maturities 16,635 13,977 14,984 8,993
------- ------- ------- -------
Second year 18,207 19,858 16,820 14,875
Third year 19,889 14,302 18,501 9,320
Fourth year 6,332 23,426 4,944 18,443
Fifth year 6,332 9,907 4,944 4,924
Sixth year and thereafter
(through 2013) 73,505 65,412 54,336 59,096
------- ------- ------- -------
124,265 132,905 99,545 106,658
======= ======= ======= =======
140,900 146,882 114,529 115,651
======= ======= ======= =======
c. As to pledges to secure the loans and limitations relating to them,
see note 7c.
307
NOTE 7 - COMMITMENTS, CONTINGENT LIABILITIES, PLEDGES AND LIMITATIONS IN RESPECT
- ------ -----------------------------------------------------------------------
OF LIABILITIES:
---------------
a. Commitment:
-----------
1) In August 1994, the Company and a third party established a
joint venture for the erection of an industrial and commercial
building on jointly purchased land. The Company's share in the
joint venture is 70%. The estimated cost of the erection of
the building is approximately $ 10 million, see note 5b.
2) In 1994, the Company and an interested party acquired 50% of a
lot for the purpose of construction of an office building. The
Company's share in this land is 33%. The construction was
carried out as a joint venture between the parties. The
building was sold after December 31, 1996, see note 5b(2).
3) The Company is committed to invest approximately adjusted NIS
4,976,000 in a joint venture (see also note 3b(7)) with
interested parties and others (the Company's share is 10%).
The joint venture will acquire land for construction of
buildings for lease. The Company's share in the cost of the
buildings is approximately $ 30 million.
4) As to commitment to a related party with respect to land owned
by the subsidiary, New Horizon, see note 2b.
b. Contingent liabilities:
-----------------------
1) The Company and Merkazim have each provided guarantees to
secure the long-term bank loans of the other.
2) The Company has provided a guarantee to a bank to secure a
long-term loan received by Merkazim.
3) In June 1994, the Company received a land appreciation tax
assessment in the amount of approximately adjusted NIS 1.9
million in respect of Validor Hotel in Herzlia, held on lease
and sub-let to a bank which is an interested party (see also
note 10a). In management's opinion, based on the opinion of
its legal counsel and on negotiations with the land
appreciation tax authroties, the Company will not be subject
to the above land appreciation tax; consequently, no provision
has been made in respect of this matter.
4) In March 1995, a lawsuit for commission of approximately
adjusted NIS 598,000 in respect of acquisition of real estate
was brought against the Company. In management's opinion, this
suit is without merit, so that the Company will not incur any
expenses in respect thereof.
5) In view of the negotiations with the income tax authorities
regarding deductibility of interest expenses of a subsidiary,
a provision in the amount management, based on the opinion of
its legal and professional advisors, considers it is likely to
pay is included in the accounts. So far, the subsidiary has
not received tax assessments.
6) The Company has provided guarantees for 10% of the debts of an
associated Company to banks. The guarantee is limited to
adjusted NIS 97,530,000 ($ 30,000,000), see a(3) above.
308
c. Pledge and limitations in respect of liabilities:
-------------------------------------------------
1) To secure repayment of long-term and short-term loans from a
bank in a total amount at Decmber 31, 1996 of adjusted NIS
105,479,000 - consolidated and adjusted NIS 79,107,000 - the
Company, the Company and Merkazim have undertaken the
following obligations towards the bank:
a) Any amount due the Company or Merkazim from their
investment in the associated company Mivnat will be
first used to repay the loans.
b) The Company's shareholders' equity will not fall below
adjusted NIS 60.9 million, the total consolidated
liabilities will not go over 3.25 times the
shareholders' equity and the annual net income will not
fall below an average of adjusted NIS 5.9 million for
the three preceding years.
2) Limitations similar to those mentioned in (1) (b) above, but
with different amounts, were also imposed on other
shareholders of Mivnat in respect of the loans they received.
If they do not uphold the limitations, the lenders will
consider it a breach of the terms of the loans by the Company
as well.
3) To further secure repayment of the loans, the Company and
Merkazim have mortgaged all their assets and rights in Mivnat.
4) As security for repayment of short-term bank loans received as
part of the bank's financial backing of construction of a
building, the Company has pledged its rights in the said
building, which is owned jointly with a company which is an
interested party and with another company. The balance of the
loans at December 31, 1996 is adjusted NIS 350,000.
5) As security for repayment of short-term bank loans received as
part of the bank's financial backing of construction of a
building, the Company has pledged its rights in the said
building. The balance of the loans at December 31, 1996 is
adjusted NIS 6,111,000.
NOTE 8 - SHARE CAPITAL
- ------ -------------
Composed at December 31, 1996 and 1995 as follows:
Number of shares Amount in NIS
------------------- -----------------------
Issued Issued
and and
Authorized paid Authorized paid
---------- ------- ---------- --------
Ordinary shares of NIS 0.001
par value 160,000 100,000 160.0000 100.0000
======= ======= ======== ========
Deferred shares of NIS 0.0001
par value* 3 3 0.0003 0.0003
======= ======= ======== ========
* The deferred shares confer upon their holders the right to
receive their par value upon liquidation of the Company.
309
NOTE 9 - TAXES ON INCOME:
- ------ ----------------
a. Measurement of results for tax purposes under the Income Tax
------------------------------------------------------------
(Inflationary Adjustments) Law, 1985 (hereafter - the inflationary
------------------------------------------------------------------
adjustments law)
----------------
Under the inflationary adjustments law - results for tax purposes
are measured in real terms, in accordance with the changes in the
Israeli CPI. The Company and its Israeli subsidiaries are taxed
under this law.
b. Deferred income taxes:
----------------------
1) The Company creates deferred taxes in respect of the increase
in value of marketable securities. The amount of deferred
taxes presented among current liabilities at December 31, 1996
and 1995 is adjusted NIS 884,000 and adjusted NIS 1,106,000,
respectively.
2) Merkazim recognized deferred taxes in its accounts as a
non-current liability, in respect of fixed assets, as follows:
Consolidated
----------------
1996 1995
----- ------
Adjusted NIS
in thousands
----------------
Balance at beginning of year 1,053 927
Changes during the year -
recognized in statement of income 246 126
----- -----
Balance at end of year 1,299 1,053
===== =====
The provisions of Opinion 40 of the Israeli Institute, see c.
below, are taken into account in the above computation.
3) At December 31, 1996, Merkazim created deferred taxes in
respect of land appreciation tax paid in 1996 in relation to a
building under construction the gain on sale of which will be
recognized in 1997, (which are included under current assets),
see note 5b(3).
4) The deferred taxes are computed at the rate of 36%.
310
c. Undepreciated balance of cost of fixed assets - the portion in
--------------------------------------------------------------
respect of which deferred taxes have not been provided
------------------------------------------------------
The balance of undepreciated cost of certain depreciable fixed
assets includes the amounts detailed below which will not be allowed
for tax purposes by way of depreciation or as cost upon realization
of the assets. These amounts are regarded as permanent differences
(in respect of which no deferred taxes are to be provided) in
accordance with Opinion 40 of the Israeli Institute:
Consolidated
----------------
1996 1995
----- ------
Adjusted NIS
in thousands
----------------
Balance at beginning of year 21,967 22,465
Decrease in the above balance due
to depreciation charge for the year (472) (498)
------- -------
Balance at end of year 21,495 21,967
======= =======
d. Taxes on income included in the income statements:
--------------------------------------------------
1) As follows:
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
--------------------------------
Consolidated:
-------------
Current 10,318 3,797 611
Deferred, see also b. above (4,576) (561) 1,870
------- ------- -------
5,742 3,236 2,481
======= ======= =======
The Company:
------------
Current 5,095 3,244 34
Deferred, see also b. above (222) (687) 1,793
------- ------- -------
4,873 2,557 1,827
======= ======= =======
Current taxes are computed at the tax rates applicable to companies:
1996 - 36%; 1995 - 37%; 1994 - 38%.
311
2) Following is a reconciliation of the theoretical tax expense,
assuming all income is taxed at the regular tax rates
applicable to companies in Israel (see (1) above), and the
actual tax expense:
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
--------------------------------
Consolidated:
- -------------
Income before taxes on income as reported in the
income statements 32,745 8,492 6,255
Less - share in profits of associated companies 10,477 3,254 4,002
---- ------- ------- -------
Balance - income 22,268 5,238 2,253
------- ======= ======= =======
Theoretical tax expense 8,016 1,938 856
Increase (decrease) in taxes resulting from permanent
differences - the tax effect:
Disallowable deductions 1,911 588 369
Taxes on dividends received from associated company 1,652 837 933
Tax exempt income - decrease in shareholding in associated
companies following issuance of their shares to a third party (6,767) (230) (19)
Sundry - net* 930 (63) 870
Increase in taxes in respect of inflationary deduction
and tax losses incurred in the reported year for which
deferred taxes were not provided 166
Decrease in taxes resulting from utilization, in
the reported year, of carryforward inflationary
deduction and tax losses for which deferred taxes
were not provided in previous years (528)
------- ------- -------
Taxes on income for the reported year 5,742 3,236 2,481
======= ======= =======
The Company:
- ------------
Income before taxes on income, as reported in the
income statements 31,876 7,813 5,601
Less - profits of subsidiaries and share in profits of associated
----
companies (1994 - net of losses of subsidiaries) 10,535 4,046 1,591
------- ------- -------
Balance - income 21,341 3,767 4,010
------- ======= ======= =======
Theoretical tax expense 7,683 1,394 1,524
Increase (decrease) in taxes resulting from permanent
differences - the tax effect:
Disallowable deductions 2,372 422
Taxes on dividends received from associated company 1,223 656 559
Tax exempt income - decrease in shareholding in associated
companies following issuance of their shares to a third party (6,767) (230) (19)
Sundry - net* 362 59 291
Increase in taxes in respect of inflationary deduction
and tax losses incurred in the reported year for which
deferred taxes were not provided 256
Decrease in taxes resulting from utilization, in the
reported year, of carryforward inflationary deduction
and tax losses for which deferred taxes were not
provided in previous years (528)
------- ------- -------
Taxes on income for the reported year 4,873 2,557 1,827
======= ======= =======
* Resulting mainly from the difference in computation of linkage to the
Israeli CPI for financial statement and tax purposes.
312
e. Tax liability relating to long-term lease of buildings
------------------------------------------------------
In March 1993, Merkazim notified the tax authorities that it has
leased buildings for a ten year period and that options to extend
the leases for a further ten year period or to purchase the property
at the end of the original lease period were granted to companies
related to the original lessees at the time of signing the leases.
The Company received a legal opinion stating that the above leases
are subject to income tax and not land appreciation tax. Merkazim
reported to the tax authorities on this basis.
Based on the abovementioned legal opinion, management of Merkazim is
of the opinion that no additional tax liability will arise in
respect of this matter.
f. Tax assessments
---------------
The Company has received final tax assessments through tax year
1984.
Maoz has received final tax assessments through tax year 1990. Ophir
Financing Ltd. has received final tax assessments through tax year
1987. Merkazim has received final tax assessments through tax year
1992. New Horizon has not been assessed for tax purposes since
incorporation.
NOTE 10 - TRANSACTIONS AND BALANCES WITH INTERESTED PARTIES AND RELATED PARTIES:
- ------- ----------------------------------------------------------------------
a. Transactions with interested parties and related parties:
---------------------------------------------------------
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
-------------------------------
Income (expenses):
- ------------------
Consolidated:
-------------
Lease fees for buildings - from interested
parties (1) 3,032 2,967 2,938
====== ====== ======
Interest accrued on a capital note of an
associated company 170 255 530
====== ====== ======
Management fees from an associated company 1,116 951 693
====== ====== ======
General and administrative expenses:
Management fees to shareholders
(2 companies) (3) (4) (917) (921) (916)
====== ====== ======
Lease fees in respect of Validor
Hotel in Herzlia (1) (2) (154) (729) (995)
Less - income from sublease of the
----
above hotel to a bank - interested
party (1) (2) 154 729 995
------ ------ ------
-,- -,- -,-
====== ====== ======
Financial expenses - to a bank -
interested party - net (311) (131) (1)
====== ====== ======
313
1996 1995 1994
------ ------ ------
Adjusted NIS in thousands
---------------------------
The Company:
- ------------
Interest accrued on a capital note of an
associated company 170 255 530
===== ===== ====
Management fees from a subsidiary and an
associated company 1,031 1,034 688
===== ===== ====
General and administrative expenses:
Lease fees in respect of Validor
Hotel in Herzlia (1) (2) (154) (729) (955)
Less - income from sublease of the above
----
hotel to a bank - interested party (1) (2) 154 729 955
----- ----- ----
-,- -,- -,-
===== ===== ====
Financial expenses - to a bank -
interested party - net (311) (131) (17)
===== ===== ====
(1) In management's opinion, the lease fees are similar to those
generally prevailing for similar leases.
(2) See also note 7b(3).
(3) See note 1a(1).
(4) The management fees are paid at the end of each quarter in a fixed
amount linked to the Israeli CPI in accordance with a shareholders'
agreement.
b. Balances:
---------
1) Current receivables:
--------------------
a) Cash and cash equivalents in a bank which is an
interested party amount to adjusted NIS 28,000 and
adjusted NIS 874,000 at December 31, 1996 and
1995, respectively - consolidated and the Company.
b) Loans receivable from associated companies (the
-----------------------------------------------
Company - and from subsidiaries):
---------------------------------
At December 31, 1996 and 1995, the loans are
linked to the Israeli CPI and bear interest at the
annual rates of 0%-4%, and are composed as
follows:
Consolidated The Company
--------------- ---------------
December 31 December 31
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Adjusted NIS in thousands
-------------------------------------
Associated companies 8,989 8,312 8,989 8,312
Subsidiaries 41,694 45,606
----- ----- ------ ------
314
8,989 8,312 50,683 53,918
===== ===== ====== ======
315
2) Capital notes from shareholders
-------------------------------
The capital notes are unlinked and bear annual interest of NIS 1.
The capital notes were repaid on January 1, 1997, therefore, they
are presented among current assets in the balance sheet at December
31, 1996.
3) Current liabilities:
--------------------
a) Short-term loans from shareholders
----------------------------------
The loans at December 31, 1996 and 1995 are linked to the
Israeli CPI and bear interest at the annual rate of 2.9% or
4%.
b) As to the land designated for building - jointly owned with an
interested party, see note 5.
c) As to investments in associated companies, some of which are
interested parties, see note 3.
d) As to investments in quoted shares of an interested party, see
note 12a.
316
NOTE 11 - LINKAGE OF MONETARY BALANCES:
- ------- -----------------------------
a. As follows:
December 31, 1996 December 31, 1995
----------------------------------- ------------------------------------
In, or Linked to the In, or Linked to the
linked Israeli Unlinked linked Israeli Unlinked
to, the CPI to, the CPI
U.S. dollar U.S. dollar
----------- ------------- -------- ----------- ------------- ---------
Adjusted NIS in thousands Adjusted NIS in thousands
----------------------------------- ------------------------------------
Consolidated:
- -------------
Assets:
-------
Current assets:
Cash and cash equivalents 1,587 383 929
Short-term loans receivable from associated
companies 8,988 8,312
Short-term investments 5,222 7,708
Accounts receivable 417 2,762 294 427
Capital notes from shareholders (including
amount presented among current assets) 8,000 8,847
------- ------- ------- ------- -------
1,587 9,405 16,367 8,606 17,911
======= ======= ======= ======= =======
Liabilities:
------------
Current liabilities:
Short-term bank credit 25,531 19,133
Short-term loans from shareholders 34,894 28,749
Accounts payable and accruals 3 7,725 3,770 39 2,529
Payables in respect of acquisition of land -
business inventory 11,004
Long-term bank loans (including current
maturities) 140,900 146,882
------- ------- ------- ------- ------- -------
3 194,523 29,301 39 175,631 21,662
======= ======= ======= ======= ======= =======
317
December 31, 1996 December 31, 1995
----------------------------------- ------------------------------------
In, or Linked to the In, or Linked to the
linked Israeli Unlinked linked Israeli Unlinked
to, the CPI to, the CPI
U.S. dollar U.S. dollar
----------- ------------- -------- ----------- ------------- ---------
Adjusted NIS in thousands Adjusted NIS in thousands
----------------------------------- ------------------------------------
The Company:
- ------------
Assets:
-------
Current assets:
Cash and cash equivalents 1,587 373 905
Short-term loans receivable from associated
companies and from subsidiaries 50,683 53,918
Short-term investments 5,222 7,708
Accounts receivable 1,021 294 244
Capital notes from shareholders (including amount
presented among current assets) 8,000 8,847
------- ------- ------- ------- -------
1,587 50,683 14,616 54,212 17,704
======= ======= ======= ======= =======
Liabilities:
------------
Current liabilities:
Short-term bank credit 25,177 19,130
Short-term loans from shareholders 34,894 28,749
Accounts payable and accruals 3 63 3,770 28 940
Long-term bank loans (including current maturities) 114,529 115,651
------- ------- ------- ------- ------- -------
3 149,486 28,947 28 144,400 20,070
======= ======= ======= ======= ======= =======
318
b. Data regarding the exchange rate and the Israeli CPI:
-----------------------------------------------------
Exchange rate Israeli
of one U.S. CPI*
dollar
------------- -------------
At end of year:
---------------
1996 NIS 3.251 346.5 points
1995 NIS 3.135 313.3 points
1994 NIS 3.018 289.8 points
1993 NIS 2.986 253.2 points
Increase during the year:
-------------------------
1996 3.7% 10.6%
1995 3.9% 8.1%
1994 1.1% 14.5%
* Based on the index for the month ending on each balance sheet
date, on the basis of 1987 average = 100.
NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
- ------- ----------------------------------------------
Balance sheets:
---------------
Consolidated The Company
--------------------------------------
December 31 December 31
--------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Adjusted NIS Adjusted NIS
in thousands in thousands
--------------------------------------
a. Short-term investments:
-----------------------
DSP Group, Inc. - quoted shares 5,126 7,566 5,126 7,566
Quoted shares of an interested
party 96 142 96 142
------ ------ ------ ------
5,222 7,708 5,222 7,708
====== ====== ====== ======
b. Accounts receivable:
--------------------
Associated companies 627 294 627 294
Other 2,552 427 394 244
------ ------ ------ ------
3,179 721 1,021 538
====== ====== ====== ======
c. Bank credit:
------------
Short-term credit* 25,531 19,133 25,177 19,130
Current maturities of long-term
loans, see note 6 16,635 13,977 14,984 8,993
------ ------ ------ ------
42,166 33,110 40,161 28,123
====== ====== ====== ======
* The interest rate as at December 31, 1996 is 15.2%.
319
d. Concentrations of credit risks
------------------------------
At December 31, 1996 and 1995, the group held cash and cash
equivalents in the total amount of adjusted NIS 1,970,000 and
adjusted NIS 929,000 respectively, all of which were deposited with
Israeli banks. Therefore the Company does not anticipate losses in
respect of these items.
e. Fair value of financial instruments
-----------------------------------
The financial instruments of the group consist of non-derivative
assets: cash and cash equivalents, short-term loans granted to
associated companies, short-term investments accounts receivable,
capital notes from shareholders and non-derivative liabilities:
short-term bank credit, short-term loans from shareholders, accounts
payable and accruals, payables in respect of acquisition of land -
business inventory and long-term bank loans. In view of their
nature, the fair value of financial instruments included in the
working capital of the group is usually identical or close to their
carrying value. The fair value of long-term bank loans also
approximates the carrying value, since they bear interest at rates
close to prevailing market rates.
Income statements
-----------------
f. Financial expenses - include financial expenses in respect of
------------------
long-term loans, as follows:
December 31
------------------------
1996 1995 1994
---- ---- ----
Adjusted NIS in thousands
-------------------------
Consolidated 6,008 5,888 6,062
===== ===== =====
The Company 4,852 4,635 4,003
===== ===== =====
320
NOTE 13 - NOMINAL DATA OF THE COMPANY:
- ------- ----------------------------
a. Balance sheet data:
-------------------
Nominal NIS
in thousands
----------------
December 31
----------------
1996 1995
---- ----
Assets
------
Current assets:
---------------
Cash and cash equivalents 1,960 818
Short-term loans receivable from associated
companies and subsidiaries 50,683 48,756
Short-term investments 5,222 6,970
Accounts receivable 1,021 487
Capital notes from shareholders 8,000
------- -------
66,886 57,031
------- -------
Investments:
------------
Associated companies 139,557 *121,989
Other companies 8,213 7,793
Capital notes from shareholders 8,000
------- -------
147,770 137,782
------- -------
Fixed assets, net of accumulated depreciation 59,140 33,508
------------ ======= =======
273,796 228,321
======= =======
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
--------------------
Bank credit 40,161 25,431
Short-term loans from shareholders 34,894 25,997
Accounts payable and accruals 3,971 875
Deferred income taxes 884 1,000
------- -------
79,910 53,303
------- -------
Long-term liabilities:
----------------------
Bank loans (net of current maturities) 99,545 96,447
Excess of Company share in losses of subsidiaries
over the investment therein 26,304 22,210
------- -------
125,849 118,657
======= =======
T o t a l liabilities 205,759 171,960
--------- ------- -------
Shareholders' equity, see c. below 68,037 *56,361
--------------------- ------ -------
------- -------
273,796 228,321
======= =======
* Restated, see note 1m.
321
b. Operating results data:
-----------------------
Nominal NIS in thousands
-------------------------------
1996 1995 1994
------ ----- ------
Revenues and gains:
-------------------
Share in profits of associated companies - net 7,723 **2,177 684
Gain on dilution of holding in associated companies
resulting from sale and issuance of shares to a
third party - net 18,356 1,160
Gain from increase in value of quoted shares, which
were stated at cost in the past 5,443
Gain from sale and increase in value of investments
in associated companies 12,883
Gain from sale and increase in value of quoted
shares - net 8,078 13
Dividend received from another company 104 241
Management fees from associated companies and
from a subsidiary 994 896 555
------- ------- -------
40,060 12,552 6,695
------- ------- -------
Expenses and losses:
--------------------
Losses of subsidiaries - net 4,082 2,353 15,749
Loss on dilution of holding in an associated
company resulting from issuance of shares
to a third party - net 30
Write-down of investment in other companies 2,500 1,000
General and administrative expenses 432 316 405
Loss from decrease in value of quoted shares 1,748
Financial expenses - net 14,622 10,315 3,007
------- ------- -------
23,384 13,984 19,191
======= ======= =======
Income (loss) before taxes on income 16,676 (1,432) (12,496)
------------------------------------
Taxes on income 5,000 2,500 1,500
--------------- ------- ------- -------
Net income (loss) for the year - nominal 11,676 (3,932) (13,996)
------------------------------ ======= ======= =======
c. Changes in shareholders' equity:
--------------------------------
Nominal NIS in thousands
-----------------------------------------------
Share Capital Retained
capital surplus earnings Total
----------- ----------- ------------ --------
Balance at January 1, 1994 * 31,084 43,205 74,289
--------------------------
Changes during 1994 - loss (13,996) (13,996)
-------------------------- --------- ------- ------- -------
Balance at December 31, 1994 * 31,084 29,209 60,293
----------------------------
Changes during 1995 - loss **(3,932) **(3,932)
-------------------------- --------- ------- ------- -------
Balance at December 31, 1995 * 31,084 25,277 56,361
----------------------------
Changes during 1996- net income 11,676 11,676
------------------------------- --------- ------- ------- -------
Balance at December 31, 1996 * 31,084 36,953 68,037
---------------------------- ========= ======= ======= =======
322
* Represents an amount less than nominal NIS 1,000.
** Restated, see note 1m.
323
NOTE 14 - SPECIAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
- ------- ----------------------------------------------------
a. General:
--------
1) As stated in note 1b, the primary financial statements
of the Company are drawn up in Israeli currency adjusted
for the changes in the Israeli CPI.
For incorporation in the financial statements of the
Company's U.S. shareholder, Ampal-American Israel
Corporation ("Ampal"), the Company also prepared these
special condensed consolidated financial statements
(hereafter - the special statements), see below.
2) Through December 31, 1992, Ampal translated the nominal
Israeli currency data of the Company on the basis of
which the primary financial statements were prepared
into dollars for the purpose of inclusion in its
financial statements. The translation was made in
accordance with the principles of remeasurement set
forth in Statement No. 52 of the Financial Accounting
Standards Board of the United States ("FASB") for
entities operating in a highly inflationary economy.
The rate of inflation in Israel has decreased
considerably in recent years. In view of the above, in
1993, Ampal decided that translation into dollars should
be made in accordance with the principles applicable to
economies no longer considered highly inflationary.
3) These special statements have been prepared for the
purpose of translation into dollars and inclusion in the
Ampal consolidated financial statements in accordance
with instructions of Ampal, as follows:
(a) The special statements are drawn up in Israeli
currency (NIS) terms.
(b) For determining the applicable Israeli currency
balances as of January 1, 1993, non-monetary
assets and shareholders' equity items at December
31, 1992 were remeasured into dollars and
translated into Israeli currency at the dollar
exchange rate as of that date ($1 = NIS 2.764).
(c) Transactions that took place after January 1, 1993
are reflected in the special statements in their
original nominal NIS values.
(d) The financial data of associated companies, the
financial statements of which are drawn up in
dollars, were translated into Israeli currency at
the exchange rate at December 31 of each year.
4) For the convenience of Ampal, these special statements
have been translated into dollars in accordance with the
principles set forth in Statement No. 52 of the FASB.
324
b. Following are the special statements:
1) Consolidated balance sheets at December 31, 1996 and 1995:
----------------------------------------------------------
Translated into
U.S. dollars,
New Israeli shekels see a(4) above
------------------- -----------------
December 31 December 31
------------------- -----------------
1996 1995 1996 1995
-------- -------- -------- --------
In thousands In thousands
-------------------- ------- ------------
Assets
------
Current assets:
- ---------------
Cash and cash equivalents 1,970 840 606 268
Short-term loans receivable from
associated companies 8,988 7,516 2,765 2,398
Short-term investments 5,222 6,970 1,606 2,223
Accounts receivable 3,179 652 978 208
Building under construction, net of
advances from purchaser 10,465 3,219
Capital notes from shareholder 8,000 2,461
Deferred income taxes 4,600 1,415
------- ------- ------- -------
42,424 15,978 13,050 5,097
------- ------- ------- -------
Investments:
- ------------
Associated companies 171,594 *154,291 52,782 *49,216
Other companies 8,213 7,793 2,526 2,486
Capital notes from shareholders 8,000 2,552
------- ------- ------- -------
179,807 170,084 55,308 54,254
------- ------- ------- -------
Fixed assets, net of accumulated depreciation 82,259 61,192 25,303 19,519
- ------------ ======= ======= ======= =======
304,490 247,254 93,661 78,870
======= ======= ======= =======
Liabilities and shareholders' equity
------------------------------------
Current liabilities:
- --------------------
Bank credit 42,166 29,940 12,970 9,551
Short-term loans from shareholders 34,894 25,997 10,733 8,293
Accounts payable and accruals 11,644 2,322 3,580 741
Payables in respect of acquisition of
land - business inventory 11,004 3,385
Deferred income taxes 884 1,000 272 319
------- ------- ------- -------
100,592 59,259 30,940 18,904
------- ------- ------- -------
Long-term liabilities:
- ----------------------
Bank loans (net of current maturities) 124,265 120,181 38,223 38,335
Deferred income taxes 7,947 1,799 2,447 574
------- ------- ------- -------
132,212 121,980 40,670 38,909
======= ======= ======= =======
Total liabilities 232,804 181,239 71,610 57,813
-----------------
Shareholders' equity 71,686 *66,015 22,051 *21,057
- -------------------- ------- ------- ------- -------
304,490 247,254 93,661 78,870
======= ======= ======= =======
* Restated, see note 1m.
325
2) Consolidated income statements for 1996, 1995 and 1994:
-------------------------------------------------------
Translation into U.S. dollars
New Israeli shekels see a(4) above
------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------
In thousands In thousands
-------------------------------- --------------------------------
Revenues and gains:
- -------------------
From lease of buildings 5,072 4,453 4,196 1,591 1,438 1,397
Share in profits of associated
companies - net 9,773 *2,774 1,601 2,264 *169 919
Gain on dilution of holding in
an associated companies resulting
from sale and issuance of shares
to a third party - net 30,395 1,160 9,536 385
Gain from increase in value of
quoted shares, which were
stated at cost in the past 5,443 1,808
Gain from sale and increase in
value of quoted shares - net 8,078 13 2,682 4
Dividend received from another
company 104 241 33 80
Management fees from
associated companies 1,074 100 559 337 33 186
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
46,418 16,806 11,812 13,761 4,787 4,314
------- ------- ------- ------- ------- -------
Expenses and losses:
- --------------------
Depreciation of buildings 15 349 5 116
Loss from decrease in value of
quoted shares 1,748 549
Loss on dilution of holding in
an associated company resulting
from issuance of shares to
a third party - net 30 10
Write-down of investment in
other companies 2,500 1,000 784 331
General and administrative expenses 2,100 1,477 1,561 659 490 518
Financial expenses - net 22,762 16,008 21,709 7,141 5,327 7,210
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
29,110 18,500 23,649 9,133 6,153 7,854
======= ======= ======= ======= ======= =======
Income (loss) before taxes on income 17,308 (1,694) (11,837) 4,628 (1,366) (3,540)
- ------------------------------------
Taxes on income (11,637) (3,000) (1,946) (3,651) (953) (646)
- --------------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Loss for the year 5,671 (4,694) (13,783) 977 (2,319) (4,186)
- ----------------- ======= ======= ======= ======= ======= =======
* Restated, see note 1m.
326
3) Statements of changes in shareholders' equity for the years ended
-----------------------------------------------------------------
December 31, 1996, 1995 and 1994:
---------------------------------
New Israeli shekels
-------------------------------------------------------
Share Share Retained
capital premium earnings Total
--------- --------- ---------- -------
In thousands
-------------------------------------------------------
Balance at January 1, 1994 434 31,220 52,838 84,492
--------------------------
Changes during 1994 - loss (13,783) (13,783)
------------------- ------- ------- ------- -------
Balance at December 31, 1994 434 31,220 39,055 70,709
----------------------------
Changes during 1995 - loss *(4,694) *(4,694)
-------------------------- ------- ------- ------- -------
Balance at December 31, 1995 434 31,220 34,361 66,015
----------------------------
Changes during 1996 - net income 5,671 5,671
-------------------------------- ------- ------- ------- -------
Balance at December 31, 1996 434 31,220 40,032 71,686
---------------------------- ======= ======= ======= =======
* Restated, see note 1m.
Translated into U.S. dollars, see a(4) above
---------------------------------------------------------------------
Share Share Retained Translated Total
capital premium earnings differences
----------- ------------- ---------------------------- --------------
In thousands
---------------------------------------------------------------------
Balance at January 1, 1994 157 10,477 17,537 (532) 27,639
--------------------------
Changes during 1994:
--------------------
Loss (4,186) (4,186)
Translation differences (24) (24)
------- ------- ------- ------- -------
Balance at December 31, 1994 157 10,477 13,351 (556) 23,429
----------------------------
Changes during 1995:
--------------------
Loss *(2,319) *(2,319)
Translation differences (53) (53)
------- ------- ------- ------- -------
Balance at December 31, 1995 157 10,477 11,032 (609) 21,057
----------------------------
Changes during 1996:
--------------------
Net income 977 977
Translation differences 17 17
------- ------- ------- ------- -------
Balance at December 31, 1996 157 10,477 12,009 (592) 22,051
---------------------------- ======= ======= ======= ======= =======
* Restated, see note 1m.
327
4) Reconciliation of nominal/historical net income and
---------------------------------------------------
shareholders' equity under Israeli generally accepted
-----------------------------------------------------
accounting principles (GAAP) to U.S. GAAP:
------------------------------------------
New Israeli shekels
----------------------------------
1996 1995 1994
-------- -------- --------
In thousands
----------------------------------
(a) Net income (loss) for the year:
-------------------------------
Net income (loss) - historical/nominal
amount (see note 13) 11,676 *(3,932) (13,996)
------- -------- -------
Reconciliation to U.S. GAAP - effect of
application of principles applicable
to economies no longer considered
highly inflationary:
Depreciation (405) (384) (339)
Share in profits of associated companies 1,193 (378) 552
Deferred income taxes (6,793)
------- -------- -------
(6,005) (762) 213
======= ======== =======
Net income (loss) for the year, as per (2) above 5,671 *(4,694) (13,783)
======= ======== =======
(b) Shareholders' equity at December 31, 1996,
------------------------------------------
1995 and 1994:
--------------
Shareholders' equity - historical/ nominal
amount (see note 13) 68,037 *56,361 60,293
Reconciliation to U.S. GAAP:
Effect, at beginning of year, of application
of principles applicable to economies no
longer considered highly inflationary 9,654 10,416 10,203
Effect of reconciliation of net income for the
year to U.S. GAAP (see(a) above) (6,005) (762) 213
------- -------- -------
Shareholders' equity, as per (3) above 71,686 66,015 70,709
======= ======== =======
* Restated, see note 1m.
---------------
-------------------------
---------------
328
ORLITE INDUSTRIES (1959) LTD
FINANCIAL STATEMENTS
at 31 December 1996
329
ORLITE INDUSTRIES (1959) LTD
FINANCIAL STATEMENTS
at 31 December 1996
In New Israeli Shekels adjusted to December 1996
CONTENTS
Page
----
Auditors' Report 331
Balance Sheets 332
at 31 December 1996 and 1995
Statements of Income
for the years 1996, 1995 and 1994 333
Statement of Changes in Shareholders' Equity
for the three years ended 31 December 1996 334
Statements of Cash Flows
for the years 1996, 1995 and 1994 335
Notes to the Financial Statements 337-349
Statements in Nominal Amounts 350-352
330
Certified Public Accountants
27-29 Hamered St. P.O. Box 50180 Tel: 972-3-5140808
68125 Tel-Aviv 61500 Tel-Aviv 972-3-5192555
Israel Israel Fax: 972-3-5101918
972-3-5175280
AUDITORS' REPORT TO THE SHAREHOLDERS OF
ORLITE INDUSTRIES (1959) LTD
We have audited the balance sheets of Orlite Industries (1959) Ltd (hereinafter
- - the Company) at 31 December 1996 and 1995 and the related statements of
income, shareholders' equity and cash flows for each of the three years ended 31
December 1996, 1995 and 1994, expressed in New Israeli Shekels (hereinafter
NIS). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973, and, accordingly we have performed such auditing
procedures as we considered necessary in the circumstances. For purposes of
these financial statements there is no material difference between generally
accepted Israeli auditing standards and auditing standards generally accepted in
the US These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israeli currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company at 31 December 1996 and
1995 and the results of its operations, the changes in shareholders' equity and
cash flows for each of the three years ended 31 December 1996, 1995 and 1994, in
conformity with accounting principles generally accepted in Israel, consistently
applied.
Also, in our opinion, based on our audit, the financial statements of the
company, on the basis of historical cost convention, present fairly the
financial position of the Company at 31 December 1996 and 1995 and the results
of its operations, the changes in shareholders' equity for each of the three
years ended 31 December 1996, 1995 and 1994, in conformity with accounting
principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of historical
net income and shareholders' equity to the extent summarized in Note 19 to the
financial statements.
These financial statements have been prepared in accordance with the Securities
Regulations (Preparation of Financial Statements), 1993.
/s/Braude Bavly
BRAUDE BAVLY CPA
24 February 1997
331
ORLITE INDUSTRIES (1959) LTD
BALANCE SHEETS
AT 31 DECEMBER 1996 and 1995
In NIS adjusted to December 1996
31 December
Note 1996 1995
Current assets
Cash and cash equivalents 3 1,527,850 11,723,988
Short-term deposits 4 14,942,577 --
Trading securities 6,214,942 296,185
Accounts receivable - customers 5 10,966,965 15,374,566
Inventories and work in process, net of
customers' process payments 6 5,985,261 7,505,858
Debtors and debit balances 7 401,173 811,266
---------- ----------
40,038,768 35,711,863
---------- ----------
Severance pay fund, net of severance pay provision 8 44,200 455,068
---------- ----------
Investments and long-term receivables 9 1,827,177 1,509,731
---------- ----------
Long-term deposits -- 14,800,837
---------- ----------
Property, plant and equipment 10 30,824,667 25,129,916
---------- ----------
---------- ----------
72,734,812 77,607,415
========== ==========
Current liabilities
Current maturities of long-term loans 770,106 780,196
Suppliers, employees and others 11 7,983,136 13,467,722
Advances from customers 6 1,383,146 4,292,613
---------- ----------
10,136,388 18,540,531
---------- ----------
Long-term loans 12 310,213 1,115,750
---------- ----------
Deferred income taxes, net 18B 2,250,000 2,543,509
---------- ----------
Shareholders' equity
Share capital 13 28,219,732 28,219,732
Share premium 16,475,998 16,475,998
Capital fund 532,667 532,667
Retained earnings 14,809,814 10,179,228
---------- ----------
60,038,211 55,407,625
---------- ----------
---------- ----------
72,734,812 77,607,415
========== ==========
/s/Uri Levitt /s/Shimon Shaham
------------------------- --------------------------
Uri Levitt Shimon Shaham
Chairman of the Board General Manager
Date of approval of the financial statements - 24 February 1997
The accompanying notes are an integral part of the financial statements
332
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF INCOME
For the years 1996, 1995 and 1994
In NIS adjusted to December 1996
Note 1996 1995 1994
Sales
Local 63.731,692 78,781,043 72,911,606
Export 1,825,345 1,349,952 677,847
----------- ----------- -----------
65,557,037 80,130,995 73,589,453
Cost of sales 14 52,964,715 61,376,098 55,176,500
----------- ----------- -----------
Gross profit 12,592,322 18,754,897 18,412,953
----------- ----------- -----------
Selling and marketing expenses 15 2,244,910 2,355,028 2,739,064
General and administrative expenses 16 4,432,633 4,494,258 4,971,735
----------- ----------- -----------
6,677,543 6,849,286 7,710,799
----------- ----------- -----------
----------- ----------- -----------
Income from ordinary operations 5,914,779 11,905,611 10,702,154
----------- ----------- -----------
Financing income (expenses), net 879,400 136,826 36,791
Gain (loss) from trading securities 426,848 2,973 (2,957,579)
----------- ----------- -----------
1,306,248 139,799 (2.920,788)
----------- ----------- -----------
----------- ----------- -----------
Income from operations after financing income 7,221,027 12,045,410 7,781,366
Gain (loss) from other income 17 (30,127) 79,557 4,413
----------- ----------- -----------
Income from operations before taxes on income 7,190,900 12,124,967 7,785,779
Taxes on income 18 2,616,654 5,094,250 4,214,060
----------- ----------- -----------
Net income after taxes on income 4,574,246 7,030,717 3,571,719
----------- ----------- -----------
Company's share in net income
(losses) of an affiliated company 261,830 (91,389) (597,744)
Amortization of the debit differential of an
affiliated company (205,490) -- --
----------- ----------- -----------
56,340 (91,389) 597,744
=========== =========== ===========
Net income for the year 4,630,586 6,939,328 2,973,975
=========== =========== ===========
Income for NIS I par value of share capital
Net income for the year 0.37 0.57 0.25
=========== =========== ===========
Number of shares for calculation
of income per share 13 12,085,000 12,085,000 12,085,000
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
333
ORLITE INDUSTRIES (1959) LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED 31 DECEMBER, 1996
In NIS adjusted to December 1996
Share Share Capital Retained
capital premium fund earnings Total
Balance at 1 January 1994 23,327,038 6,552,757 -- 7,195,408 37,075,203
Conversion of options
into share capital 4,892,694 9,923,241 -- -- 14,815,935
Bonus shares to employees 532,667 -- 532,667
Net income for the year - 1994 -- -- 2,973,975 2,973,975
Dividend paid -- -- -- (3,611,871) (3,611,871)
---------- ---------- ------- ---------- ----------
Balance at 1 January 1995 28,219,732 16,475,998 532,667 6,557,512 51,785,909
Net income for the year - 1995 -- -- -- 6,939,328 6,939,328
Dividend paid -- -- -- (3,317,612) (3,317,612)
---------- ---------- ------- ---------- ----------
Balance at 1 January 1996 28,219,732 16,475,998 532,667 10,179,228 55,407,625
Net income for the year - 1996 -- -- -- 4,630,586 4,630,586
---------- ---------- ------- ---------- ----------
Balance at 31 December 1996 28,219,732 16,475,998 532,667 14,809,814 60,038,211
========== ========== ======= ========== ==========
The accompanying notes are an integral part of the financial statements
334
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF CASH FLOWS
FOR THE YEARS 1996, 1995 AND 1994
In NIS adjusted to December 1996
1996 1995 1994
Cash flows from operating activities
Net income 4,630,586 6,939,328 2,973,975
Adjustments required to reflect the cash flows
from operating activities (schedule) * 891,004 (1,626,768) 8,204,265
------------ ---------- ------------
Net cash provided by operating activities 5,521,590 5,312,560 11,178,240
------------ ---------- ------------
Cash flows from investment activities
Short-term deposits - 7,613,049 (4,705,274)
Trading securities, net (5,692,633) 8,404,887 1,397,691
Long-term deposits - - (14,409,498)
An affiliated company - 709,193 (2,929,896)
Limited partnership (243,825) - -
Acquisition of property, plant
and equipment (9,142,263) (6,255,156) (2,515,690)
Realization of property, plant
and equipment 191,384 150,755 46,481
------------ ---------- ------------
Net cash provided by (used in) investment
activities (14,887,337) 10,622,728 (23,116,186)
------------ ---------- ------------
Cash flows from financing activities
Dividend paid - (6,929,483) -
Proceeds from exercise of option notes - - 14,815,935
Repayment of long-term loans (830,391) (868,192) (765,911)
------------ ---------- ------------
Net cash provided by (used in) financing
activities (830,391) (7,797,675) 14,050,024
------------ ---------- ------------
Increase (decrease) in cash
and cash equivalents (10,196,138) 8,137,613 2,112,078
Balance of cash and cash equivalents
at the beginning of the year 11,723,988 3,586,375 1,474,297
------------ ---------- ------------
Balance of cash and cash equivalents
at the end of the year 1,527,850 11,723,988 3,586,375
=========== ========== ===========
The accompanying notes are an integral part of the financial statements
335
ORLITE INDUSTRIES (1959) LTD
STATEMENTS OF CASH FLOWS
For the years 1995, 1994 and 1993
In NIS adjusted to December 1995
Schedule - Adjustments required to reflect the cash flow from operating
activities
1996 1995 1994
Income and expenditures not involving cash flow:
Depreciation 3,259,708 3,187,605 2,708,024
Liabilities for employee rights upon retirement 410,868 (31,035) 203,618
Loss (gain) from trading securities (226,124) 9,101 3,132,205
Capital gain from realization of fixed assets (3,580) (79,557) (4,413)
Increase (decrease) in deferred taxes (293,509) (66,064) 317,775
Company's share in net income (losses) of an
affiliated company 261,830) 91,389 597,744
Amortization of the debit differential of an
affiliated company 205,490 -- --
Erosion of investment in an affiliated company -- 132,701 243,633
Interest on loan to an affiliated company (17,281) -- --
Revaluation of long-term deposits (141,740) (33,825) (357,513)
Devaluation (erosion) of long-term loans 14,764 49,232 (121,553)
Bonus shares, to employers - capital fund -- -- 532,667
Changes in operating assets and liability items:
Decrease (increase) in customers 4,407,601 (1,837,812) (3,229,369)
Decrease (increase) in debtors and debit balances 410,093 (231,931) (458,286)
Increase in work in process 2,124,538 20,190 18,550
Decrease (increase) in inventory of raw
materials and parts (816,867) 136,893 (875,185)
Increase (decrease) in customers advances (2,696,541) (5,087,509) 4,687,017
Increase (decrease) in suppliers (2,688,132) 680,926 455,065
Increase (decrease) in other creditors (2,796,454) 1,432,928 354,286
---------- ---------- ----------
891,004 (1,626,768) 8,204,265
========== ========== ==========
336
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 1 Adjusted Financial Statements
a. General
The financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general
purchasing power of Israeli currency, in accordance with Opinions
of the Institute of Certified Public Accountants in Israel.
All figures in the financial statements (including comparative
figures) are presented in adjusted New Israeli Shekels (NIS)
which have a uniform purchasing power (December 1996 adjusted
NIS), based upon the changes in the consumer price index
(hereinafter - CPI or index).
The adjustment of the financial statements is based on the
accounts of the company, maintained in nominal NIS.
The adjusted amounts of non-monetary assets do not necessarily
represent realization value or current economic value but only
the original historical values, adjusted to reflect the changes
in the general purchasing power of Israeli currency. In these
financial statements, the term "cost" signifies cost in adjusted
Israeli currency.
b. Rules of adjustments
The components of the income statement were, for the most part,
adjusted as follows:
o Components relating to transactions carried out during the
year--sales, purchases, labour costs, etc, were adjusted on
the basis of the index for the month in which the
transaction was carried out.
o Components relating to non-monetary balance sheet items
(mainly changes in inventories, work in process and
depreciation) were adjusted on the same basis as the related
balance sheet item.
o The financing component represents financing income and
expenses in real terms and the erosion of balances of
monetary items during the year.
c. Exchange rates and adjustments to the CPI
The amounts in adjusted NIS reflect the changes in the general
purchasing power of Israeli currency during December 1996 and are
adjusted to the index published on 15 January 1997.
337
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 1 Adjusted Financial Statements (Continued)
c. Exchange rates and adjustments to the CPI (Continued)
Below are the data of the exchange rates of the US dollar, the
German mark at the end of the month and the index for the month
and changes during the year:
Exchange rates
US German
Dollar Mark Index
NIS NIS Points
December
1996 3.251 2.097 143.1
1995 3.135 2.188 129.4
1994 3.018 1.949 119.7
1993 2.986 1.737 104.6
Changes during the year % % %
1996 3.7 (4.2) 10.6
1995 3.9 12.3 8.1
1994 1.1 12.2 14.4
NOTE 2 Significant Accounting Policies
a. Cash and cash equivalents
Cash and cash equivalents include short-term deposits which do
not exceed three months from the time of the deposit.
b. Short-term investments - trading securities
These securities are stated at market value.
c. Inventories
Inventories are valued at cost not exceeding market value. Cost
is determined on the moving average basis.
d. Work in process
Work in process includes the adjusted cost of materials and of
other operation expenditure (wages, fringe and social benefits,
manufacturing cost, depreciation, etc) relating to work not yet
sold or supplied. In work, adjusted cost of which (including the
expected cost), exceeds its realization value, the excess cost is
currently charged to the related item in the statement of income.
The realization value is calculated on the basis of the order
price, taking into consideration the rate of performance process
of each work, separately.
e. Property, plant and equipment
1) These assets are stated at cost, net of accumulated
depreciation. The assets are depreciated by the
straight-line method, on the basis of their estimated useful
life.
338
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 2 Significant Accounting Policies (Continued)
e. Property, plant and equipment (Continued)
2) The company's policy is to record long-lived assets at cost,
amortizing these costs over the expected useful life of the
related assets. In accordance with Statement of Financial
Accounting Standards No 121 ("SFAS 121") "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of", these assets are reviewed on a quarterly
and annual basis for impairment whenever events or changes
in circumstances indicate that the carrying amounts of the
assets may not be reasonable. Furthermore, the assets are
evaluated for continuing value and proper useful lives by
comparison to expected future cash flows. For the year ended
31 December 1996, the adoption of SFAS 121 did not have a
material effect on the company.
f. Affiliated company
Investment in an affiliated company is presented on the basis of
the equity method.
g. Revenue recognition
Sales of work are recorded when completed and delivered and as
costs sales are recorded as costs of related work. The company
also records as sales, partial deliveries of long-term work. The
cost of partial deliveries of this kind of work, is determined
according to the engineering and cost accounting computations of
the company; their sales value is determined by the rate of the
delivered goods to the total goods ordered.
h. Deferred taxes
Deferred taxes are computed in respect of differences between the
amounts presented in these statements and those taken into
account for tax purposes.
Deferred tax balances are computed at the tax rate expected to be
in effect at the time of release to income from the deferred tax
accounts. The amount of deferred taxes presented in the income
statement reflects changes in the above balances during the year.
i. Net income per NIS 1 of par value of shares
Net income per NIS 1 is computed in accordance with Opinions of
the Institute of Certified Public Accountants in Israel.
NOTE 3 Cash and Cash Equivalents
Comprise:
Interest Rate December 31
% 1996 1995
Bank - current account 15,443 105,827
Short-term deposits, unlinked 13 1,512,407 11,618,161
---------- ----------
1,527,850 11,723,988
========== ==========
339
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 4 Short-Term Deposits
Deposits with banks, linked to the index, bearing interest of 3% -
3.24% p.a. and for redemption in 1997.
NOTE 5 Accounts Receivable - Customers
a. Comprise:
31 December
1996 1995
Customers -In NIS 10,045,653 14,252,337
-In Foreign Currency 215,200 422,911
Checks receivable 706,112 699,318
---------- ----------
10,966,965 15,374,566
========== ==========
b. Major customers:
Customer A 3,034,953 7,794,832
Customer B 4,781,582 3,903,869
c. The company normally extends credit to customers from one to
three months.
NOTE 6 Inventories and Advances from Customers
Comprise:
31 December
1996 1995
Total inventories 7,285,261 8,592,932
========== ==========
Total advances from customers (2,683,146) (5,379,687)
========== ==========
Current Assets Current Liabilities
31 December
1996 1995 1996 1995
Inventory parts and material 5,554,378 4,8961,028
Work-in-process 1,474,591 3,349,935
Advance to suppliers for inventory 256,292 381,969
---------- ----------
7,285,261 8,592,932
Less - advances from customers (1,300,000) (1,087,074)
---------- ----------
5,985,261 7,505,858
========== ==========
Advances from customers received against
goods ordered and costs have not yet been
invested
(1,383,146) (4,292,613)
========== ==========
340
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 7 Debtors and Debit Balances
Comprise:
31 December
1996 1995
Prepaid expenses 165,106 190,952
Manufacturing and marketing pallets
of wood and carton 56,520 497,952
Employees 52,360 14,750
Deposits for loans to employees 51,587 83,783
Others 75,600 23,829
------- -------
401,173 811,266
======= =======
NOTE 8 Severance Pay Fund Net of Severance Pay Provision
a. Comprises:
31 December
1996 1995
Severance pay fund 2,863,566 2,792,974
Less - severance pay provision 2,819,366 2,337,906
--------- ---------
44,200 455,068
========= =========
The company may only make withdrawals from the severance pay
funds for the purpose of paying severance pay.
b. The company makes deposits for securing pension rights in
"Mivtachim" Workers' Social Insurance Fund, Ltd. and in insurance
policies for its employees.
These amounts are not reflected in the balance sheet since they
are not under the control and management of the company.
c. The company deposited sums with another severance pay fund in
order to cover its liability for severance pay for the period
before joining the pension plan in June 1979 and to cover
supplementary pay, when it is required from time to time to make
additional payments.
341
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 9 Investments and Long-Term Receivables
Comprises:
31 December
1996 1995
Investment in an affiliated company
Investment in 50% of share capital 838,008 838,008
Debit differential(1) 821,960 821,960
---------- ----------
1,659,968 1,659,968
Company's share in accumulated losses (242,902) (504,732)
Amortization of debit differential (205,490) --
---------- ----------
1,211,576 1,155,236
---------- ----------
Loan to an affiliated company(2) 371,776 354,495
---------- ----------
Limited partnership for manufacturing and
marketing pallets of wood and carton(3) 243,825
---------- ----------
1,827,177 1,509,731
========== ==========
----------
1 Debit differential - amortized over a period of four years,
beginning in 1996.
2 Loan to an affiliated company - linked to the index and bearing
interest at 4.5% per annum. Redemption date has not yet been set.
3 Limited partnership - in September 1996 the company reached
agreement to set up a limited partnership for manufacturing and
marketing pallets of wood and carton. Its share in the
partnership is 50%. The partnership pledged to purchase the
company's previous investment in that activity, for US$150
thousand.
NOTE 10 Property, Plant and Equipment
a.1 Comprised at 31 December 1996:
Buildings and Machinery Computer and
service equipment and office
installations tools equipment Vehicles Total
Cost
Balance at beginning of year 16,880,150 36,541,933 3,484,148 1,299,507 58,205,738
Acquisitions 8,848,692 1,238,661 731,375 230,779 11,049,507
Disposals -- (382,938) -- (354,214) (737,152)
----------- ----------- ----------- ----------- -----------
Total cost 25,728,842 37,397,656 4,215,523 1,176,072 68,518,093
----------- ----------- ----------- ----------- -----------
Accumulated depreciation
Balance at beginning of year 7,604,886 24,732,999 2,672,424 529,418 35,539,727
Depreciation 665,631 2,147,326 269,788 176,963 3,259,708
Disposals -- (271,552) -- (277,796) (549,348)
----------- ----------- ----------- ----------- -----------
Total accumulated depreciation 8,270,517 26,608,773 2,942,212 428,585 38,250,087
----------- ----------- ----------- ----------- -----------
Depreciated balance at
31 December 1996 17,458,325 10,788,883 1,273,311 747,487 30,268,006
=========== =========== =========== ===========
Payments on account of fixed assets
being erected 556,661
-----------
Total fixed assets 30,824,667
===========
342
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 10 Property, Plant and Equipment (Continued)
a.2 Balance at 31 December 1995:
Buildings and Machinery Computer and
service equipment and office
installations tools equipment Vehicles Total
Depreciated balance at 31 December 1995 9,275,264 11,808,934 811,724 770,089 22,666,011
========== ========== ========== ==========
Payments on account of fixed assets
being erected 2,463,905
----------
Total fixed assets 25,129,916
==========
Rates of depreciation 4% 10%-20% 6%-25% 15%
b. The buildings are erected on land leased from the Israel Land
Authority (hereinafter -ILA) up to the years 2008-2032, with an
extension right for additional 49 years. Capitalized lease costs
of NIS 1,603,148 are included in the item "Buildings and service
installations."
In December 1995, the company purchased buildings on land leased
for a total cost of NIS 8,203,979. The land, 5.7 dunams, on which
buildings totaling 2,170 square meters, is to be leased until
2011-2145 with an extension right for an additional 49 years.
c. Additional commitments for acquisition of fixed assets are NIS
650 thousands.
NOTE 11 Suppliers, Employees and Others
Comprise:
31 December
1996 1995
Suppliers and service providers* 3,960,265 6,648,397
Employees and institutions for salaries, etc. 2,558,586 2,681,104
Provision for employees' vacation 1,023,439 1,071,956
Tax authorities 183,440 2,314,277
Accrued expenses 237,700 499,191
Creditors and credit balances 19,706 252,797
---------- ----------
7,983,136 13,467,722
========== ==========
* Include:
-Supplier balances in foreign currency
German marks 943,866 1,012,967
U.S. dollars 51,873 188,383
Pounds sterling 13,069 42,801
---------- ----------
1,008,808 1,244,151
========== ==========
- -Significant suppliers:
Supplier A 211,787 518,654
Supplier B 177,975 361,620
343
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 12 Long-Term Loans
a. Comprise:
31 December
1996 1995
Loans from banks 1,080,319 1,895,946
Less - current maturities 770,106 780,196
---------- ----------
310,213 1,115,750
========== ==========
b. Repayment by year:
First year - current maturities 770,106
Second year 310,213
----------
1,080,319
==========
c. Loan terms:
Interest rate 31 December
% 1996 1995
Linked to the dollar 4.9; 6.5 687,714 1,204,075
Linked to the CPI 3.5 392,605 691,871
---------- ----------
1,080,319 1,895,946
========== ==========
d. Pledges:
Loans from banks are guaranteed by charges on fixed assets (see
Note 21).
344
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 13 Share Capital
a. Nominal
Registered Issued and Fully Paid
31 December
1996 1995
Ordinary shares of NIS 1 par value 12,085,000 12,085,000 12,085,000
========== ========== ==========
b. On 1 September 1996, the Board of Directors of the Company
decided to allot 146,000 share options to five of its employees,
in accordance with the Income Tax Ordinance as confirmed by the
Income Tax Commissioner. Each option warrant will be realizable
as one regular share of NIS 1. The basis of realization will be
NIS 2.40 per option, the stock exchange closing rate on 1
September 1996.
The option warrants will be realizable as follows:
At the end of the second year: 31 August 1998 1/3
At the end of the third year: 31 August 1999 1/3
At the end of the fourth year: 31 August 2000 1/3
The bearer of the option will only be eligible to exercise his
option if he is employed by the Company on the above dates.
As the Company only allotted the options on 30 December 1996,
there is no effect on the computation of income for NIS 1 par
value of share capital in these financial statements.
NOTE 14 Cost of Sales
Comprise:
1996 1995 1994
Consumption of raw materials 24,648,002 32,462,012 29,065,189
Wages and social benefits 18,646,591 20,068,976 17,775,355
Maintenance of property, plant and
equipment 1,637,723 2,010,329 1,916,115
Electricity 759,615 801,075 705,671
Municipal taxes 481,006 616,429 534,899
Outside work - subcontractors 462,560 715,441 791,553
Rent for buildings 446,386 520,536 486,340
Insurance 376,398 515,156 613,776
Laboratory services 354,825 146,868 297,673
Office and data processing 291,013 358,018 371,622
Depreciation 2,648,873 2,844,242 2,416,216
Other manufacturing expenses 87,185 296,826 183,541
---------- ---------- ----------
50,840,177 61,355,908 55,157,950
Decrease in work in process 2,124,538 20,190 18,550
---------- ---------- ----------
52,964,715 61,376,098 55,176,500
========== ========== ==========
345
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 15 Selling and Marketing Expenses
Comprise:
1996 1995 1994
Wages and social benefits 1,411,700 1,327,087 1,592,591
Transportation 237,883 302,328 273,153
Advertising and sales promotion 210,812 216,785 137,288
Overseas travel 209,975 132,036 117,506
Marketing advice 121,206 307,724 554,762
Office and data processing 53,334 69,068 63,764
---------- ---------- ----------
2,244,910 2,355,028 2,739,064
========== ========== ==========
NOTE 16 General and Administrative Expenses
Comprise
1996 1995 1994
Wages and social benefits 3,025,398 3,164,357 3,284,707
Remuneration of directors 373,033 298,146 223,016
Professional fees 331,297 394,275 637,438
Office and data processing 224,583 252,435 503,795
Communications 208,534 226,748 212,599
Depreciation of office equipment
and computer 269,788 157,897 110,180
---------- ---------- ----------
4,432,633 4,495,258 4,971,735
========== ========== ==========
NOTE 17 Gain (loss) from Other Income
Comprises:
1996 1995 1994
Rent of buildings (after
depreciation of NIS 164,084) (33,707) -- --
Gain from realization of fixed
assets 3,580 79,557 4,413
---------- ---------- ----------
(30,127) 79,557 4,413
========== ========== ==========
346
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 18 Taxes on Income
a. Taxes on income included in the income statement
1996 1995 1994
Current taxes 2,910,163 5,160,314 3,896,285
Deferred taxes, net (293,509) (66,064) 317,775
---------- ---------- ----------
2,616,654 5,094,250 4,214,060
========== ========== ==========
Under the Income Tax (Inflationary Adjustments) Law 1985, results
for tax purposes are measured in real terms, in accordance with
the changes in the CPI.
b. Deferred taxes comprise:
31 December
1996 1995
Depreciable fixed assets 2,481,229 2,716,026
Provisions for employee benefits (352,527) (281,998)
Other - from monetary assets 121,298 109,481
---------- ----------
2,250,000 2,543,509
========== ==========
c. Following is a reconciliation of the theoretical tax expense,
assuming all income is taxed at the regular tax rates:
31 December
1996 1995 1994
Tax rates 36% 37% 38%
========== ========== ==========
Theoretical tax expense at tax rates 2,588,724 4,486,238 2,958,596
Increase (decrease) in taxes
resulting from:
Differences from definition of
depreciable assets 66,967 311,132 665,345
Erosion of tax advances 115,445 151,707 154,822
Tax exempt income (190,800) (272,812) --
Non-deductible expenses 123,840 169,483 719,923
Taxes in respect of previous years (152,282) 32,176 --
Other 64,760 216,326 (284,626)
---------- ---------- ----------
2,616,654 5,094,250 4,214,060
========== ========== ==========
d. The company received final tax assessments up to and including
tax year 1994.
347
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 19 Interested Parties
a. Balances with interested parties (as defined by the Israeli
Securities Authority):
31 December
1996 1995
Assets
Cash and cash equivalents 1,489,146 6,275,016
Short-term deposits 12,069,483 --
Affiliated company 1,583,352 1,509,731
Long-term deposits -- 12,022,100
Liabilities
Current maturities of long-term loans 770,106 780,196
Long-term loans 310,213 1,115,750
Guarantees
To cover advances received from the Ministry of
Defense and from others 10,687,850 8,430,036
b. The company performs transactions with various entities in the
Bank Hapoalim Ltd group, in the ordinary course of business,
under terms which do not differ from those with others, who are
not related parties.
c. Salaries and social benefits:
1996 1995
To -
Managing director 473,885 514,231
8 directors who are not public representatives 294,577 221,175
2 directors who are public representatives 63,577 77,411
NOTE 20 Contingent Liabilities and Commitments
The company has commitments and contingent liabilities, as follows:
a. Long-term rental contracts to 1998
with option for 5 additional
years NIS 310 thousands a year
b. In respect of acquisition of fixed
assets See Note 10 c.
c. In respect of guarantees:
o To cover advances from customers NIS 4,920,223
o To cover guarantees on quality
of work NIS 5,757,627
d. Contingent liabilities
The company is obliged to pay to the Chief Scientist at the
Ministry of Industry and Trade royalties of 3% from the sales of
the products developed up to the amounts of the grants received
(on a dollar linked basis). The balance of liabilities therefrom
is $75,500.
348
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 21 Liens
Liens have been placed on company assets, as follows:
Date of Lien Beneficiary Details Amount
29.6.89 Bank Hapoalim Ltd. Mortgage on block 3580, parcel 50, including all Up to loan and guarantee
building and insurance rights amount
11.7.89 Bank Hapoalim Ltd. Lien on contractual rights of company in block Up to loan and guarantee
3850 parcel 49, lot 21/2 amount
17.11.95 Bank Otsar Hahayal Ltd Short-term deposits Up to guarantee amounts
NOTE 22 Post Balance Sheet Events
a. On 17 February 1997, the company received notice that on 13
February 1997 the Ness-Ziona Workers' Council had decided to
authorize a work dispute between the employees and manage of the
Company. The Council allowed a week for negotiations between
them; if there would be no progress in these negotiations, the
dispute would take effect on 23 February 1997.
As of the date of these financial statements, no progress has
been made.
b. The company has insurance coverage for damages caused by employee
strikes.
c. The demands of the employees do not include any claims for
previous periods.
d. In the opinion of management, based on legal opinion received,
the above decision of the Ness-Ziona Workers' Council is not yet
legally a work dispute. In any case it will have no material
effect on future financial results of the Company.
349
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts
a. Balance sheets of 31 December 1996 and 1995
31 December
1996 1995
Current assets
Cash and cash equivalents 1,527,850 10,601,565
Short-term deposits 14,942,577 --
Trading securities 6,214,942 267,829
Accounts receivable - customers 10,966,965 13,902,647
Inventories and work in process, net of
customers' progress payments 5,677,746 6,334,134
Debtors and debit balances 401,173 733,597
---------- ----------
39,731,253 31,839,772
---------- ----------
Severance pay fund net of severance pay provision 44,200 411,501
---------- ----------
Investments and long-term receivables 1,686,717 1,365,194
Long-term deposits -- 13,383,845
---------- ----------
Property, plant and equipment 21,192,522 14,679,096
---------- ----------
62,654,692 61,679,408
========== ==========
Current liabilities
Current maturities of long-term loans 770,106 705,502
Suppliers, employees and others 7,983,136 12,178,359
Advances from customers 1,383,146 3,881,650
---------- ----------
10,136,388 16,765,511
---------- ----------
Long-term loans 310,213 1,008,931
---------- ----------
Deferred income taxes, net 1,145,000 1,275,000
---------- ----------
Shareholders' equity
Share capital 12,085,000 12,085,000
Share premium 11,761,763 11,761,763
Capital fund 418,776 418,776
Retained earnings 26,797,552 18,364,427
---------- ----------
51,063,091 42,629,966
---------- ----------
62,654,692 61,679,408
========== ==========
350
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts (Continued)
b. Statements of income for the years ended 31 December 1996, 1995
and 1994
1996 1995 1994
Sales
Local 60,965,362 67,747,413 56,165,707
Export 1,727,132 1,164,521 518,767
----------- ----------- -----------
62,692,494 68,911,934 56,684,474
Cost of sales (Schedule A) 48,791,720 51,443,278 41,844,204
----------- ----------- -----------
Gross profit 13,900,774 17,468,656 14,840,270
----------- ----------- -----------
Expenses
Selling and marketing expenses
(Schedule B) 2,140,709 2,033,228 2,119,499
General and administrative
expenses (Schedule C) 4,197,909 3,835,879 3,830,410
----------- ----------- -----------
6,338,618 5,869,107 5,949,909
----------- ----------- -----------
Income from ordinary operations 7,562,156 11,599,549 8,890,361
Financing income(expenses), net 3,460,514 2,566,534 1,053,748
----------- ----------- -----------
Income from operations after
financing income 11,022,670 14,166,082 9,944,109
Gain from other income 48,694 92,958 32,105
----------- ----------- -----------
Income from operations before
taxes on income 11,071,364 14,259,040 9,976,214
Taxes on income 2,664,718 4,504,096 3,415,000
----------- ----------- -----------
Net income after taxes on income 8,406,646 9,754,944 6,561,214
Company's share in net income
(losses)
of an affiliated company 212,296 (93,323) (500,000)
Amortization of the debit
differential
of an affiliated company (185,817) -- --
----------- ----------- -----------
Net income for the year 8,433,125 9,661,621 6,061,214
=========== =========== ===========
Income for NIS 1 par value of
share capital:
Net income for the year 0.70 0.80 0.50
=========== =========== ===========
Number of shares for calculation
of income per share 12,085,000 12,085,000 12,085,000
=========== =========== ===========
351
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
NOTE 23 Statements In Nominal Amounts (Continued)
c. Schedules to the statements of income
Schedule A - Cost of sales:
1996 1995 1994
Consumption of raw materials 23,127,180 27,870,745 22,271,746
Work 17,869,712 17,314,328 14,238,123
Outside work 439,318 618,561 608,794
Maintenance of property, plant
and equipment 1,565,190 1,736,728 1,511,607
Electricity 728,841 691,270 551,142
Municipal taxes 463,104 536,497 421,351
Rent for buildings 431,642 451,494 382,804
Insurance 362,389 448,356 483,485
Office and data processing 279,306 309,284 291,946
Laboratory services 343,106 127,387 234,302
Other manufacturing expenses 84,304 257,456 144,466
Depreciation 1,438,704 1,232,097 1,091,843
----------- ----------- -----------
47,132,796 51,594,203 42,231,609
Decrease (increase) in work in
process 1,658,924 (150,925) (387,405)
----------- ----------- -----------
48,791,720 51,443,278 41,844,204
=========== =========== ===========
Schedule B - Selling and marketing expenses:
1996 1995 1994
Wages and social benefits 1,336,180 1,136,221 1,220,869
Transportation 227,656 263,272 216,917
Advertising and sales promotion 204,702 173,925 106,642
Overseas travel 203,254 115,485 93,508
Marketing advice 117,693 284,728 431,427
Office and data processing 51,224 59,597 50,136
----------- ----------- -----------
2,140,709 2,033,228 2,119,499
=========== =========== ===========
Schedule C - General and administrative expenses:
1996 1995 1994
Wages and social benefits 2,895,334 2,716,124 2,542,917
Professional fees 321,224 341,397 490,205
Remuneration of directors 358,154 257,333 176,297
Office and data processing 214,891 217,346 392,098
Communications 201,725 196,995 167,217
Depreciation of office
equipment and computer 206,581 106,684 61,676
----------- ----------- -----------
4,197,909 3,835,879 3,830,410
=========== =========== ===========
352
ORLITE INDUSTRIES (1959) LTD
NOTES TO THE FINANCIAL STATEMENTS
In NIS
c. Statement of changes in shareholders' equity for the years ended
31 December 1995
Share Share Capital Retained
capital premium fund earnings Total
Balance at 1 January 1994 8,337,949 4,161,459 -- 8,662,836 21,162,244
Conversion of options into share
capital 3,747,051 7,600,304 11,347,355
Bonus shares to employees 418,776 -- 418,776
Net income for the year 1994 -- -- -- 6,061,214 6,061,214
Dividend paid -- -- -- (3,021,250) (3,021,250)
----------- ----------- ----------- ----------- -----------
Balance at 1 January 1995 12,085,000 11,761,763 418,776 11,702,800 35,968,339
Net income for the year 1995 -- -- -- 9,661,621 9,661,621
Dividend paid -- -- -- (2,999,994) (2,999,894)
----------- ----------- ----------- ----------- -----------
Balance at 1 January 1996 12,085,000 11,761,763 418,716 18,364,427 42,629,966
Net income for the year 1996 -- -- -- 8,433,125 8,433,125
----------- ----------- ----------- ----------- -----------
Balance at
31 December 1996 12,085,000 11,761,763 418,716 26,797,552 51,063,091
=========== =========== =========== =========== ===========
353
ORLITE INDUSTRIES (1959) LTD
Note to the Financial Statements
in US Dollars
Summary of Accounting Policy
The financial report figures of the previous years have been neither audited nor
reviewed. The current year figures have been audited by the company auditors.
a. Translation of the financial statements into US Dollars
The primarily financial statements of the company, which were originally
prepared in adjusted New Israeli Shekels were translated into US dollars
based on the following principles in accordance with guidelines received
from a shareholder corporation (Ampal-American Israel Corp), at whose
request the financial statements were translated into US dollars.
1. Until and including as of September 1992
a) Non-monetary items were translated at the representative rate in
effect on the date of the transaction-except for the receipts in
foreign currency for share capital which were translated and
presented at the amount of foreign currency actually received.
b) All other assets and liabilities were translated at the
representative rate of exchange in effect on the balance sheet
date.
c) Amounts included in the statement of profit and loss were
translated as follows:
(1) income and expenditure at the representative rate in effect
of the date of the transaction.
(2) Differences arising from translation to foreign currency
were included in financing income of expenses.
d) Translation of adjustments arose from the effect of the change in
the exchange rate of the US dollar during the year were recorded
to a separate item in the equity section of the balance sheet.
2. As of 1 October 1992
Based on the guidelines of statement of financial Accounting Standards
No 52 "Foreign Currency Translation," the Company determined that the
economy in Israel should no longer be considered hyper-inflationary.
Therefore, the financial statements translation system has been
changed accordingly:
a) Opening balances as of 30 September 1992 were taken from the data
translated to US dollars as described above, and translated into
NIS at the exchange rate effective on 30 September 1992.
b) As of 1 October 1992, the nominal NIS data of assets and
liabilities were translated at the rate of exchange at the end of
the reporting year (31 December 1993).
354
ORLITE INDUSTRIES (1959) LTD
Note to the Financial Statements
in US Dollars
c) The nominal NIS data of revenues and expenses were translated at
average rates during the reporting year.
This translation should not, except where otherwise indicated in the
financial statements, be construed as a representation that the
Israeli currency amounts actually represent, or could be converted
into US dollars.
b. Long-lived assets
The company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful life of the related assets. In
accordance with Statement of Financial Accounting Standards No 121 ("SFAS
121") "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of", these assets are reviewed on a
quarterly and annual basis for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
reasonable. Furthermore, the assets are evaluated for continuing value and
proper useful lives by comparison to expected future cash flows. For the
year ended 31 December 1996, the adoption of SFAS 121 did not have a
material effect on the company.
355
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
BALANCE SHEET AS AT DECEMBER 31, 1996
-------------------------------------
IN U.S. DOLLARS
---------------
31/12/1996 31/12/1995
---------- ----------
CURRENT ASSETS
- --------------
Raw materials and parts 1,706,609 1,348,851
Work in progress 439,729 985,163
----------- -----------
2,146,338 2,334,014
Less - customers' progress payments 399,877 313,557
----------- -----------
1,746,461 2,020,457
Cash and cash equivalents 469,963 3,381,679
Short term deposits 4,596,302 --
Marketable securities 1,911,702 85,432
Severance pay fund net of
severance pay provision 13,596 131,260
Customers 3,373,413 4,434,656
Debtors and debit balances 123,400 234,003
----------- -----------
12,234,837 10,287,487
----------- -----------
AFFILIATE COMPANY 457,292 450,250
----------------- ----------- -----------
LONG TERM DEPOSITS -- 4,269,169
------------------ ----------- -----------
PROPERTY, PLANT AND EOUIPMENT 7,037,070 5,390,718
----------------------------- =========== ===========
19,729,199 20,397,624
=========== ===========
CURRENT LIABILITIES
- -------------------
Current maturities of long - term loans 236,883 225,040
Suppliers, employees and others 2,455,594 3,889,644
Customers advances 425,452 1,238,166
----------- -----------
3,117,929 5,352,850
----------- -----------
LONG TERM LIABILITIES 95,421 321,828
- --------------------- ----------- -----------
PROVISION FOR EQUALIZATION OF TAXES
- -----------------------------------
ON INCOME 352,199 406,698
--------- ----------- -----------
SHAREHOLDER'S EOUITY
- -------------------
Share capital paid-in 6,142,267 6,142,267
Share premium 4,207,885 4,207,885
Capital reserve 137,623 137,623
Retained earnings 7,337,658 4,705,235
Less - translation loss (1,661,783) (876,762)
----------- -----------
16,163,650 14,316,248
=========== ===========
19,729,199 20,397,624
=========== ===========
/s/ SHIMON SHACHAM /s/ MOSHE MOR /s/ URI LEVITT
- --------------------------- --------------------- ------------------------
SHIMON SHACHAM MOSHE MOR URI LEVITT
GENERAL MENAGER & DIRECTOR DIRECTOR CHAIRMAN OF DIRECTORATE
356
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
1996 1995 1994
----------- ----------- -----------
SALES - Local 19,128,189 22,464,625 18,664,901
- Export 541,896 387,166 170,337
----------- ----------- -----------
19,670,085 22,751,791 18,835,238
COST OF SALES - SCHEDULE A 15,308,647 17,142,329 13,991,775
----------- ----------- -----------
Gross profit 4,361,438 5,609,462 4,843,463
----------- ----------- -----------
SELLING EXPENSES AND MARKETING
- - SCHEDULE B 671,658 678,789 705,609
GENERAL AND ADMINISTRATIVE EXPENSES 1,317,115 1,275,765 1,274,907
- - SCHEDULE C ----------- ----------- -----------
1,988,773 1,889,554 1,980,516
----------- ----------- -----------
Income from operations before
financing expenses 2,372,665 3,654,908 2,862,947
FINANCING-INCOME (EXPENSES)-SCHEDULE D 1,085,614 480,662 292,306
----------- ----------- -----------
Income from operations after
financing expenses 3,458,279 4,135,570 3,155,253
GAIN FROM OTHER INCOMES 15,278 26,804 9,269
----------- ----------- -----------
Income before taxes on income 3,473,557 4,162,374 3,164,522
TAXES ON INCOME (NOTE 14) 836,069 1,496,421 1,134,369
----------- ----------- -----------
NET INCOME FROM ORDINARY ACTIVITIES 2,637,488 2,665,953 2,030,153
Decreased investment
in an affiliated company (5,065) (27,110) (166,890)
----------- ----------- -----------
NET INCOME FOR THE YEAR 2,632,423 2,638,843 1,863,263
=========== =========== ===========
357
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
SCHEDULE A
- ----------
COST OF SALES
- -------------
1996 1995 1994
---------- ----------- -----------
Consumption of raw materials 7,256,269 9,251,412 7,393,544
Work 5,606,712 5,725,302 4,725,272
Outside work - subcontractors 137,838 204,994 202,039
Maintenance of property,
Plant and equipment 491,086 578,059 501,286
Electricity 228,678 229,191 169,951
Municipal - taxes and insurance 259,003 325,130 300,298
Other manufacturing expenses 269,530 278,253 266,403
Office and data processing 87,634 102,588 96,780
Depreciation 451,401 459,215 445,930
---------- ----------- -----------
14,788,151 17,154,144 14,101,503
Add (less): decrease (increase)
in work in progress 520,496 (11,815) (122,728)
---------- ----------- -----------
15,308,647 17,142,329 13,991,775
========== ========== ==========
358
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF INCOME
-------------------
IN U.S. DOLLARS
---------------
1996 1995 1994
---------- ---------- ----------
SCHEDULE B
- ----------
SELLING EXPENSES
- ----------------
Wages and social benefits 419,233 379,114 407,313
Advertising and sales promotion 101,153 154,766 178,842
Transportation and export deliveries 71,428 86,862 72,023
Overseas travel 63,772 38,265 30,808
Office and data processing 16,072 19,782 16,623
---------- ---------- ----------
671,658 678,789 705,609
========== ========== ==========
SCHEDULE C
- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
- -------------------------- --------
Wages and social benefits 908,426 905,508 845,372
Office and data processing 67,422 71,900 130,087
Professional fees 100,786 113,710 162,791
Communications 63,292 64,874 55,449
Depreciation of computer, office
equipment and vehicles 64,816 35,663 22,798
Remuneration of directors 112,373 84,110 58,410
---------- ---------- ----------
1,317,115 1,275,765 1,274,907
========== ========== ==========
SCHEDULE D
- ----------
FINANCING-INCOME (EXPENSES)
- ---------------------------
Interest, linkage differences,
and other financing expenses (80,609) (140,519) (653,738)
Financial income 1,166,223 621,181 946,044
---------- ---------- ----------
1,085,614 480,662 292,306
========== ========== ==========
359
ORLITE INDUSTRIES (1959) LTD.
-----------------------------
STATEMENT OF CHANGES IN SHAREHOLDERS' EOUITY
--------------------------------------------
FOR THE PERIOD FROM JANUARY 1, 1994 TO DECEMBER 31, 1996
--------------------------------------------------------
Translation Capital Share Share Retained
loss rezerve capital premium earnings Total
----------- ------- ------- ------- -------- -----
Balance at
January 1,1994 (917,058) -- 4,893,246 1,681,399 2,205,283 7,862,870
Conversion of options
into share capital - -- 1,249,021 2,526,486 -- 3,775,507
Capital found 137,623 -- -- -- 137,623
Difference - result
of translation (24,489) -- -- -- (24,489)
Net income for the
Year 1994 -- -- -- -- 1,863,263 1,863,263
Proposed dividend -- -- -- -- (1,001,077) (1,001,077)
---------- ------- --------- --------- --------- ----------
Balance at (941,547) 137,623 6,142,267 4,207,885 3,067,469 12,613,697
January 1,1995
Difference- result 64,785 -- -- -- -- 64,785
of translation
Dividend paid -- -- -- -- (1,001,077) (1,001,077)
Net income for the
Year 1995 -- -- -- -- 2,638,843 2,638,843
---------- ------- --------- --------- --------- ----------
Balance at
January 1,1996 (876,762) 137,623 6,142,267 4,207,885 4,705,235 14,316,248
Difference-result
of translation (785,021) -- -- -- -- (785,021)
Net income for
the year 1996 -- -- -- -- 2,632,423 2,632,423
---------- ------- --------- --------- --------- ----------
Balance at
December 31,1996 (1,661,783) 137,623 6,142,267 4,207,885 7,337,658 16,163,650
========== ======= ========= ========= ========= ==========
360
TRINET VENTURE CAPITAL LTD.
---------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996
-----------------------
361
TRINET VENTURE CAPITAL LTD.
---------------------------
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
--------------------------------------------
CONTENTS
--------
AUDITORS' REPORT 363-364
BALANCE SHEETS 365
STATEMENTS OF OPERATIONS 366
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY 367
STATEMENTS OF CASH FLOWS 368-369
NOTES TO FINANCIAL STATEMENTS 370-382
362
Deloitte Touche
Tohmatsu
- ---------------------- --------------------------------------------------
Ital Brightoman [logo] 3 Daniel Frisch Street Telephone 972(3) 692-4111
& Co. Tel Aviv 64731, ISRAEL Facsimile 972(3) 696-0130
P.O.B. 16593, Tel-Aviv 61164
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRINET VENTURE CAPITAL LTD.
---------------------------
We have audited the accompanying balance sheets of Trinet Venture Capital Ltd.
("the Company") as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' deficiency and cash flows for each of the
two years in the period ended December 31, 1996 and for the period from
commencement of operations (February 1, 1994) through December 31, 1994,
expressed in Israeli currency. These financial statements are the responsibility
of the Company's Board of Directors and management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Board of Directors and management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
We did not audit the financial statements of certain subsidiaries and
affiliates, the investments in which are recorded using the equity method of
accounting. These financial statements were examined by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for the foregoing subsidiaries and affiliates, is based solely
upon the reports of the other auditors.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted for changes in the general purchasing power of the
Israeli currency in accordance with opinions issued by the Institute of
Certified Public Accountants in Israel. Condensed financial information in
nominal historical values, which serves as the basis for the adjusted financial
statements, appears in Note 12 to the financial statements.
The Company has not prepared consolidated financial statements. Consolidated
financial statements are required in accordance with Opinion No. 57 of the
Institute of Certified Public Accountants in Israel.
363
In our opinion, based on our audits and the reports of other auditors, except
for omission of consolidated financial statements as mentioned in the preceding
paragraph, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of operations, changes in shareholders' deficiency and
cash flows for each of the two years in the period ended December 31, 1996 and
for the period from commencement of operations (February 1, 1994) through
December 31, 1994, in conformity with accounting principles generally accepted
in Israel.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
required and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
The financial information in U.S. dollars and in accordance with generally
accepted accounting principles in the United States is based on nominal
historical amounts in Israeli currency and is presented in Note 13. Such
financial information includes investments valued at $12,858,000 and $4,068,000
as of December 31, 1996 and 1995, respectively (92% and 97% of total assets,
`espectively), whose values have been estimated by the Board of Directors and
management in the absence of readily ascertainable market values. We have
reviewed the procedures used by the Board of Directors and management in
arriving at their estimates of value of such investments and have inspected
underlying documentation, and, in the circumstances, we believe the procedures
are reasonable and the documentation appropriate. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investments existed, and the differences could be material.
/s/Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
364
TRINET VENTURE CAPITAL LTD.
BALANCE SHEETS
Adjusted to NIS of December 1996
(in thousands of NIS)
As of December 31,
------------------
Note 1996 1995
---- ---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents 11 96
Related company 3 596 405
Other current assets 25 8
-------- --------
632 509
-------- --------
INVESTMENTS
Subsidiaries and affiliates 4 8,367 5,545
Other companies 5 8,632 6,881
-------- --------
16,999 12,426
-------- --------
-------- --------
17,631 12,935
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Short-term bank credit -- 7
Shareholder and related party 6 -- 18,238
Other current liabilities 7 589 32
-------- --------
589 18,277
-------- --------
CAPITAL NOTES 8 21,465 --
-------- --------
SHAREHOLDERS' DEFICIENCY
Share capital 9 1 1
Capital reserves 1,866 --
Deficit (6,290) (5,343)
-------- --------
(4,423) (5,342)
-------- --------
-------- --------
17,631 12,935
======== ========
February 20, 1997 /s/Moshe Mor /s/Moshe Bar-Niv
- ----------------- --------------------- -----------------------
Date approved Moshe Mor Moshe Bar-Niv
Chairman of the Board Chief Executive Officer
of Directors and Director
The accompanying notes are an integral part of the financial statements.
365
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF OPERATIONS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
------------ ------------
Note 1996 1995 1994(*)
---- ---- ---- -------
INCOME
Gains on changes in ownership
interests in subsidiaries 4 7,781 -- --
Financing, net 36 -- --
------ ------ ------
7,817 -- --
------ ------ ------
EXPENSES
General and administrative 10 943 1,581 330
Financing, net -- 108 209
------ ------ ------
943 1,689 539
====== ====== ======
Income (loss) before income taxes 6,874 (1,689) (539)
Income taxes 2E 550 -- --
------ ------ ------
Income (loss) after income taxes 6,324 (1,689) (539)
Equity in operating results of
subsidiaries and affiliates (7,271) (2,583) (532)
------ ------ ------
Net loss (947) (4,272) (1,071)
====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
366
TRINET VENTURE CAPITAL LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
Adjusted to NIS of December 1996
(in thousands of NIS)
Share Capital
capital reserves Deficit Total
------- -------- ------- -----
Issuance of shares 1 -- -- 1
Net loss for the period from
commencement of operations
through December 31, 1994 (*) -- -- (1,071) (1,071)
------ ------ ------ ------
Balance - December 31, 1994 1 -- (1,071) (1,070)
Net loss -- -- (4,272) (4,272)
------ ------ ------ ------
Balance - December 31, 1995 1 -- (5,343) (5,342)
Translation adjustments and other -- (131) -- (131)
Effect of changes in the CPI
on unlinked capital notes -- 1,997 -- 1,997
Net loss -- -- (947) (947)
------ ------ ------ ------
Balance - December 31, 1996 1 1,866 (6,290) (4,423)
====== ====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
367
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF CASH FLOWS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
-------------- ------------
1996 1995 1994(*)
---- ---- -------
CASH FLOWS - OPERATING ACTIVITIES
Net loss (947) (4,272) (1,071)
Adjustments necessary to present net cash
used for operating activities
(Appendix A) (160) 3,732 817
------ ------ ------
Net cash used for operating activities (1,107) (540) (254)
------ ------ ------
CASH FLOWS - INVESTMENT ACTIVITIES
Investments in subsidiaries, affiliates and
other companies (4,195) (6,806) (8,735)
------ ------ ------
Net cash used for investment activities (4,195) (6,806) (8,735)
------ ------ ------
CASH FLOWS - FINANCING ACTIVITIES
Issuance of shares -- -- 1
Capital notes from shareholder and
related party 5,224 -- --
Credit from shareholder and related party -- 7,317 9,108
Short-term bank credit, net (7) 5 --
------ ------ ------
Net cash provided by financing
activities 5,217 7,322 9,109
------ ------ ------
------ ------ ------
Decrease in cash and cash equivalents (85) (24) 120
Cash and cash equivalents at beginning of
period 96 120 --
------ ------ ------
Cash and cash equivalents at end of period 11 96 120
====== ====== ======
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
368
TRINET VENTURE CAPITAL LTD.
STATEMENTS OF CASH FLOWS
Adjusted to NIS of December 1996
(in thousands of NIS)
From
commencement
operations
For the year ended through
December 31, December 31,
-------------- ------------
1996 1995 1994(*)
---- ---- -------
APPENDIX A - ADJUSTMENTS NECESSARY TO PRESENT
CASH FLOWS USED FOR OPERATING
ACTIVITIES
Items not involving cash flows:
Gains on changes in ownership interests in
subsidiaries (7,781) -- --
Equity in operating results of subsidiaries
and affiliates 7,271 2,583 532
------ ------ ------
(510) 2,583 532
------ ------ ------
Changes in assets and liabilities:
Decrease (increase) in receivable from
related company (191) 1,187 220
Increase in other current assets (17) (7) --
Increase (decrease) in other current
liabilities 558 (31) 65
------ ------ ------
350 1,149 285
------ ------ ------
------ ------ ------
(160) 3,732 817
====== ====== ======
APPENDIX B - NON-CASH TRANSACTIONS
In 1995, a liability to shareholder and related party in the amount of NIS 1,591
was offset against the receivable from related company.
Effective January 1, 1996, the current liabilities to a shareholder and a
related party were converted to unlinked, non-interest bearing capital notes
(see Note 8).
(*) See Note 1A.
The accompanying notes are an integral part of the financial statements.
369
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTSHh
AS OF DECEMBER 31, 1996Mc
(in thousands of NIS)
NOTE 1 - GENERAL
A. The Company was incorporated and registered on February 1, 1994 and
commenced operations shortly thereafter. The Company was established
for the purpose of investing in high-tech companies and projects that
are at the stages of manufacturing development or of production and
marketing of developed products, and to generate profits from its
activities and holdings in those companies.
B. Definitions
(1) The Company - Trinet Venture Capital Ltd.
(2) Subsidiary - A company controlled by the Company in
terms of holding a majority of its
voting rights.
(3) Affiliate - A company not controlled by the Company,
the investment in which is presented
according to the equity method of
accounting ("equity basis").
(4) Other company - A company, the investment in which is
presented at cost.
(5) Shareholders - Hapoalim Technologies Ltd., owner of 50%
of the Company's shares.
- Ampal Industries (Israel) Ltd., owner of
50% of the Company`s shares.
(6) Related party - Investment Company of Bank Hapoalim
Ltd., which owns 100% of the shares of
Hapoalim Technologies Ltd., as well as
"related parties" as defined in Opinion
No. 29 of the Institute of Certified
Public Accountants in Israel.
(7) Related company - Trinet Investments in High-Tech Ltd.
(8) NIS - New Israeli shekel
(9) Dollar - U.S. dollar.
370
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Financial statements in adjusted values
(1) General
In accordance with certain opinions of the Institute of Certified
Public Accountants in Israel, the Company has prepared its
financial statements on the basis of cost, adjusted for changes
in the purchasing power of the NIS. Condensed financial data in
nominal NIS, on the basis of which the adjusted financial
statements were prepared, is presented in Note 12.
(2) Principles of adjustment
(a) Balance sheet
Non-monetary items (i.e. investments and shareholders'
equity) have been adjusted for changes in the Israeli
Consumer Price Index ("CPI") from the month of the
transaction to the last month of the reporting period.
Investments in subsidiaries and affiliates reported on the
equity basis have been presented based upon the adjusted
financial statements of such companies.
The adjusted values of non-monetary assets do not
necessarily represent the values of such assets, in the
marketplace or to the business, but rather the cost thereof
adjusted for changes in the purchasing power of the NIS.
Monetary items (items whose amounts reflect current or
realizable values) have been presented in the adjusted
balance sheet at their nominal amounts as of the balance
sheet date.
(b) Statement of operations
Items in the statement of operations (other than financing)
representing transactions during the reporting period have
been adjusted on the basis of changes in the CPI from the
month of the transaction to the CPI for the last month of
the reporting period.
Amounts related to non-monetary items and to various balance
sheet accruals have been adjusted based on the related
balance sheet amounts.
The Company's equity in the results of subsidiaries and
affiliates has been determined based on the adjusted
financial statements of those companies.
371
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
A. Financial statements in adjusted values (cont.)
(2) Principles of adjustment (cont.)
(b) Statement of operations (cont.)
Financing income or expenses is derived from the other items
in the financial statements. This includes, inter alia,
amounts required to reconcile other components in the
statement of operations for the element of inflation that is
included therein.
(c) The comparative figures in the financial statements have
been adjusted to NIS of December 1996.
B. Cash and cash equivalents Cash and cash equivalents include bank
deposits for immediate withdrawal or for a stated period not exceeding
three months from the date of investment.
C. Investments in subsidiaries and affiliates The Company's investments
in subsidiaries and affiliates are presented on the equity basis. In
this regard, investments are presented at original cost plus the
equity in the operating results of the subsidiaries and affiliates or
other changes in shareholders' equity which have occurred since
acquisition. The excess cost of the investments over their net book
value at acquisition ("excess investment cost") which has not been
allocated to specific assets, is amortized on the straight-line method
over five years.
Differences arising between the Company's investments in subsidiaries
and affiliates (which have been adjusted based on changes in the CPI)
and the Company's equity in the net assets of subsidiaries and
affiliates (based on financial statements in dollars) are charged to a
separate component of shareholders' equity.
D. Investments in other companies Investments in quoted securities are
presented in accordance with opinion No. 44 of the Institute of
Certified Public Accountants in Israel. Investments in other companies
are presented at cost.
E. Deferred income taxes Deferred income taxes are computed for timing
differences between the amounts of assets and liabilities as reported
in the financial statements and their amounts for income tax purposes.
The deferred taxes are computed at tax rates that are expected to
apply when the deferred taxes are realized.
The Company has provided deferred taxes for the future realization of
an investment in an affiliated company, as it is management's
intention to realize such investment. The Company has not provided
deferred taxes for the future realization of investments in other
affiliates and other companies, as it is the intention of management
to retain such investments.
372
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
F. Linkage basis
(1) Balances which are linked to the CPI are presented on the basis
of the relevant CPI (according to the terms of the transaction).
(2) Data in respect of the CPI
Percentage "Known" Percentage
At end CPI "in respect increase CPI at increase
of year of" December during period year-end during period
------- ------------ ------------- -------- -------------
1996 143.1 10.6% 142.0 11.0%
1995 129.4 8.1% 127.9 7.7%
1994 (*) 119.7 13.0% 118.7 12.7%
(*) See Note 1A.
NOTE 3 - RELATED COMPANY
The balance is unlinked and bears annual interest at Prime + 2%. As of
December 31, 1996, the interest rate was 18.2%.
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Net book value at acquisition date 5,775 4,692
Payment on account of investment 425 --
Excess investment cost 3,458 3,968
------ ------
Total cost of shares 9,658 8,660
Accumulated losses (133) (2,544)
Accumulated amortization of excess
investment cost (1,027) (571)
Translation adjustments and other (131) --
------ ------
8,367 5,545
====== ======
373
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES (cont.)
B. (1) In 1994, the Company signed an agreement to acquire 51% of
the issued and outstanding shares of Imagenet Ltd. ("Imagenet")
in consideration for $700,000. Imagenet began operations on June
1, 1995 and is engaged in research and development activities
related to computer systems, software and hardware. During 1995,
the Company invested an additional $800,000 in Imagenet in
exchange for 15% of Imagenet's shares. As a result of these
purchases, the Company's holdings in the shares of Imagenet
reached 66% at the end of 1995.
In April 1996, Imagenet issued 7% of its shares to a trustee.
Approximately 3% of these shares were to be currently issued to
Imagenet's employees and approximately 4% are to be issued in the
future to Imagenet's employees.
During 1996, shares that represent approximately 26.7% of its
issued and outstanding shares were issued by Imagenet to outside
investors in consideration for $2.5 million (net of issuance
expenses).
As the result of the abovementioned share issuances in 1996, the
Company's holdings in Imagenet were reduced to 49.17% and the
Company reported a gain of NIS 3,644 from changes in its
ownership interest in Imagenet.
(2) Pursuant to an agreement to acquire shares in Smart-Link Ltd.
("Smart"), which is engaged in development of unique products in
the field of multimedia and computers, the Company invested
$900,000 in 1995 in exchange for 51% of Smart's issued and
outstanding shares. During 1996, the Company increased its
holdings in Smart to 60.1% by investing an additional $600,000 in
Smart's shares.
In November 1996, Smart issued 27.3% of its shares to various
investors in consideration for $3 million. As a result, the
Company's holdings in Smart were reduced to 43.7% and the Company
reported a gain of NIS 4,137 from changes in its ownership
interest in Smart.
In December 1996, Smart reached an agreement with a U.S.
investor, pursuant to which the investor would invest $1 million
in Smart's share capital. $100 thousand of the total investment
was received in 1996, another $600 thousand was received in
January 1997, and the balance is to be received in April 1997. In
light of the above, the Company's holdings in Smart will decrease
to approximately 40.6%.
(3) During 1996, Imagenet and Smart, after making a determination
that their functional currency is the dollar, began to prepare
their financial statements in dollars. In prior periods, the two
companies had prepared their financial statements in Israeli
shekels adjusted for changes in the CPI. The effect of the above
change on the Company's financial statements for prior periods is
not material and, therefore, the Company has not restated the
comparative figures in these financial statements.
374
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 4 - INVESTMENTS IN SUBSIDIARIES AND AFFILIATES (cont.)
(4) In December 1996, the Company invested $130,000 as a payment
on account of a total investment of $1 million in
consideration for an aggregate of 62.22% of the shares of
Nulan Technologies Ltd. ("Nulan"). Nulan is engaged in
development, production and marketing of communications and
multimedia products. The balance of the investment for
Nulan's shares was made in January 1997.
NOTE 5 - INVESTMENTS IN OTHER COMPANIES
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Peptor Ltd. 2,533 1,321
Comfy Interactive Films Ltd. 3,864 3,325
Logal Software and Educational Systems Ltd. 2,235 2,235
----- -----
8,632 6,881
===== =====
B. Additional details
Peptor Ltd. ("Peptor")
The investment as of the balance sheet date amounted to $679,750 for
2.02% of the investee's shares. Peptor develops innovative medicines
within the framework of a medical research program.
Comfy Interactive Films Ltd. ("Comfy")
The investment as of the balance sheet date amounted to $1,053,040 for
7.24% of the investee's shares. Comfy is engaged in the development,
manufacturing and marketing of products which give children access and
integration to computerized systems through animated films.
Logal Software and Educational Systems Ltd. ("Logal")
The investment as of the balance sheet date amounted to $600,661 for
5.73% of the investee's shares. Logal develops and markets
computer-integrated educational systems for scientific instruction in
educational institutions.
In February 1996, Logal completed an initial public offering of
1,900,000 shares on the NASDAQ Market in the United States at a price
of $8 per share. As a result, the Company's holdings in Logal were
diluted to 5.73%.
375
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 6 - SHAREHOLDER AND RELATED PARTY
As of December 31,
------------------
1996 1995
------ ------
A. Composition:
Ampal Industries (Israel) Ltd. - shareholder -- 9,119
Investment Company of Bank Hapoalim Ltd. -
related party -- 9,119
------- ------
-- 18,238
======= ======
B. Effective January 1, 1996, the above balances were converted to
unlinked, non-interest bearing capital notes (see Note 8).
NOTE 7 - OTHER CURRENT LIABILITIES
Composition: As of December 31,
------------------
1996 1995
------ ------
Deferred income taxes 550 --
Accrued expenses 39 32
------ ------
589 32
====== ======
NOTE 8 - CAPITAL NOTES
Effective on January 1, 1996, balances in the amount of NIS 18,238 due to a
shareholder and a related party (see Note 6) were converted to unlinked,
non-interest bearing capital notes. During 1996, additional nominal amounts
of NIS 3,227 were received in consideration for capital notes with
identical terms.
The effect of changes in the CPI on the unlinked capital notes are
presented in capital reserves.
376
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 9 - SHARE CAPITAL
As of December 31,
-----------------------
1996 and 1995
-----------------------
Issued and
Authorized paid up
---------- -------
Number of shares:
Ordinary shares of NIS 1 par value each 25,000 1,000
====== ======
NOTE 10 - GENERAL AND ADMINISTRATIVE EXPENSES
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
A. Composition: 1996 1995 1994(*)
---- ---- -------
Professional services 255 189 330
Management fees to
related company (see B below) 609 1,388 --
Other 79 4 --
------ ------ ------
943 1,581 330
====== ====== ======
(*) See Note 1A.
B. In May 1995, the Company and the related company reached agreement
regarding fees for management services provided by the related company
to the Company, including management fees of NIS 776 for such services
for the period ended December 31, 1994. The management fees are linked
to the CPI. In addition, under conditions defined in an agreement
between the parties, the related company is entitled to additional
management fees derived, inter alia, from pre-tax gains on realization
of investments by the Company after covering all shareholder
investments in the Company.
377
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 11 - INCOME TAXES
A. The Company is subject to the provisions of the Income Tax Law
(Inflationary Adjustments) - 1985.
B. As of December 31, 1996, the Company had tax loss carryforwards of
approximately NIS 3,000.
C. The Company has not received any final income tax assessments since
incorporation.
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY
IN NOMINAL HISTORICAL NIS
A. Condensed balance sheets:
As of December 31,
------------------
1996 1995
---- ----
Current assets 632 460
------- -------
Investments
Subsidiaries and affiliates 7,871 4,761
Other companies 7,530 5,468
------- -------
15,401 10,229
------- -------
------- -------
16,033 10,689
======= =======
Current liabilities 589 16,526
------- -------
Capital notes 21,465 --
------- -------
Shareholders' deficiency (6,021) (5,837)
------- -------
16,033 10,689
======= =======
378
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY
IN NOMINAL - HISTORICAL NIS
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
: 1996 1995 1994(*)
---- ---- -------
B. Condensed statements of operations:
Revenues
Gains on changes in ownership
interests in subsidiaries 8,264 -- --
------ ------ ------
8,264 -- --
------ ------ ------
Expenses
General and administrative 908 1,343 269
Financing, Net (73) 1,066 637
------ ------ ------
835 2,409 906
------ ------ ------
------ ------ ------
Income (loss) before income taxes 7,429 (2,409) (906)
Income taxes 550 -- --
------ ------ ------
Income (loss) after income taxes 6,879 (2,409) (906)
Equity in operating results of
subsidiaries and affiliates (7,063) (2,142) (381)
------ ------ ------
Net loss (184) (4,551) (1,287)
====== ====== ======
(*) See Note 1A.
C. Statement of changes in shareholders' deficiency:
Total
Share shareholders'
capital Deficit deficiency
------- ------- ----------
Issuance of shares 1 -- 1
Loss for the period from
commencement of operations
through December 31, 1994(*) -- (1,287) (1,287)
------ ------ ------
Balance - December 31, 1994 1 (1,287) (1,286)
Net loss -- (4,551) (4,551)
------ ------ ------
Balance - December 31, 1995 1 (5,838) (5,837)
Net loss -- (184) (184)
------ ------ ------
Balance - December 31, 1996 1 (6,022) (6,021)
====== ====== ======
(*) See Note 1A.
379
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
A. Basis of presentation:
(1) The Company's functional currency is the NIS. Pursuant to the
request of a shareholder, the financial information of the
Company in nominal historical NIS, as presented in Note 12, has
been remeasured into U.S. dollars in accordance with the
principles of Statement No. 52 of the Financial Accounting
Standards Board of the United States, "Foreign Currency
Translation".
(2) The Company's investments in subsidiaries and affiliates in the
abovementioned nominal historical financial information have been
presented at the equity basis.
The Company's objective is to achieve long-term capital
appreciation from its portfolio of venture capital investments in
new and developing companies and other special investment
situations. In accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"), such portfolio
investments should be reflected at value, defined as the quoted
market price for securities for which market quotations are
readily available, or as an estimate of fair value as determined
in good faith by the Board of Directors and management.
In accordance with the above policy, the following condensed
financial information reflects investments in quoted securities
at market value and investments in privately held portfolio
securities at cost until significant developments affecting the
portfolio company provide a basis for a change in valuation. In
this regard, the fair value of private securities is adjusted to
reflect meaningful third-party transactions in the private market
or to reflect significant progress or deterioration in the
development of the company's business, such that cost is no
longer reflective of fair value. Unrealized appreciation or
depreciation in the value of investments is reflected in
earnings.
(3) Deferred income taxes in the condensed financial information
below have been recorded on the unrealized appreciation of
investments, net of deferred tax benefits in respect of loss
carryforwards for tax purposes.
380
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(in thousands of NIS)
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
(cont.)
B. Condensed balance sheets (in thousands of dollars):
As of December 31,
------------------
1996 1995
------ ------
Current assets 194 147
------ ------
Investments 13,715 4,068
------ ------
------ ------
13,909 4,215
====== ======
Current liabilities
Deferred income taxes 1,832 --
Other current liabilities 12 5,272
1,844 5,272
------ ------
Capital notes 6,603 --
------ ------
Shareholders' equity (deficiency) 5,462 (1,057)
------ ------
------ ------
13,909 4,215
====== ======
C. Condensed statements of operations (in thousands of dollars):
From
commencement
For the of operations
year ended through
December 31, December 31,
------------ ------------
: 1996 1995 1994(*)
---- ---- -------
Revenues
Unrealized appreciation on
portfolio investments 8,571 -- --
Financing, net 24 -- --
------ ------ ------
8,595 -- --
------ ------ ------
Expenses
General and administrative 285 446 89
Financing, net -- 354 210
------ ------ ------
285 800 299
------ ------ ------
------ ------ ------
Income (loss) before income taxes 8,310 (800) (299)
Income taxes (1,832) -- --
------ ------ ------
Net income (loss) 6,478 (800) (299)
====== ====== ======
(*) See Note 1A.
381
TRINET VENTURE CAPITAL LTD.
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
NOTE 13 - CONDENSED FINANCIAL INFORMATION OF THE COMPANY IN U.S. DOLLARS AND IN
ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
(cont.)
D. Statement of changes in shareholders' equity (deficiency) (in
thousands of dollars):
Total
Retained shareholders'
Share earnings Capital equity
capital (deficit) reserves (deficiency)
------- --------- -------- ------------
Issuance of shares 1 -- -- 1
Net loss for the period from
commencement of operations
through December 31, 1994(*) -- (299) -- (299)
Translation adjustments -- -- (1) (1)
------ ------ ------ ------
Balance - December 31, 1994 1 (299) (1) (299)
Net loss -- (800) -- (800)
Translation adjustments -- -- 42 42
------ ------ ------ ------
Balance - December 31, 1995 1 (1,099) 41 (1,057)
Net income -- 6,478 -- 6,478
Translation adjustments -- -- 41 41
------ ------ ------ ------
Balance - December 31, 1996 1 5,379 82 5,462
====== ====== ====== ======
(*) See Note 1A.
382
[Letterhead of Deloitte Touche Tohmatsu-Igal Brightman & Co.]
AUDITORS' REPORT TO THE SHAREHOLDERS
------------------------------------
OF AM-HAL LTD.
--------------
We have audited the accompanying balance sheets of AM-HAL Ltd. ("the Company")
as of December 31, 1996 and 1995, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Board of Directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
The statutory financial statements of the Company (not presented separately
herein) were prepared in accordance with generally accepted accounting
principles ("GAAP") in Israel and in terms of new Israeli shekels ("NIS") with a
constant purchasing power as explained in Note 2B. The accompanying financial
statements have been prepared at the request of a shareholder in terms of NIS
with a constant purchasing power and in accordance with United States GAAP. See
Note 2F(2) for a discussion of the differences between Israeli and U.S. GAAP as
applicable to the Company's financial statements.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995 and the results of its operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles in the United States.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
383
[LETTERHEAD of Shlomo Ziv & Co.]
AUIDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL ENGINEERING (1994) LTD.
---------------------------------------
We have audited the balance sheets of Ampal Engineering (1994) Ltd. as at
December 31, 1996 and 1995, the related statements of income, statements of
changes in shareholders' equity and the statements of cash-flows for each of the
three years, the latest ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 7 to the financial
statements.
384
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
/s/ SHLOMO ZIV & Co.
Tel-Aviv, March 18, 1997 SHLOMO ZIV & Co.
Certified Public Accountants (Isr.)
385
[Letterhead of Cohen, Eyal, Yehoshua & Co.]
AMPAL ENTERPRISES LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the balance sheets of Ampal Enterprises Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
three years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data
on the basis of which the adjusted financial statements were prepared, are
presented in Note 5.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles. Also, in our opinion,
the financial statements based on nominal data (Note 5) present fairly, in
nominal terms, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996, on the
basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Cohen, Eyal, Yehoshua & Co.
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
386
[Letterhead of Fahn, Kanne & Co.]
Number: 52
Tel-Aviv, March 10, 1997
AUDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL FINANCIAL SERVICES LTD.
---------------------------------------
We have audited the balance sheets of AMPAL FINANCIAL SERVICES LTD. as of
December 31, 1996 and 1995 and the related statements of income and
shareholders' equity and cash flows for the three years in the period ended
December 31, 1996, expressed in New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for changes in the general purchasing power of the Israeli currency, in
accordance with opinions issued by the Institute of Certified Public Accountants
in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note l3 to the financial statements.
In our opinion, the abovementioned financial statements present fairly the
financial position of the Company as of December 31, 1996 and 1995 and the
results of its operations, the changes in its shareholders' equity and its cash
flows for each of the three years in the period ended December 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 13) present fairly, in conformity with generally accepted accounting
principles, the financial position of the Company as of December 31, 1996 and
1995, the results of its operations, the changes in shareholders' equity, and
its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding this difference is summarized in Note 13 to the financial statements.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
387
[LETTERHEAD of Shlomo Ziv & Co.]
AUIDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL HOLDINGS (1991) LTD.
----------------------------------------
We have audited the balance sheets of Ampal Holdings (1991) Ltd. as at December
31, 1996 and 1995, the related statements of income, statements of changes in
shareholders' equity and the statements of cash-flows for each of the three
years, the latest ended December 31, 1996, expressed in New Israeli Shekels.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 8 to the financial
statements.
388
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
Tel-Aviv, March 6, 1997 SHLOMO ZIV & Co.
/s/ SHLOMO ZIV & Co.
Certified Public Accountants (Isr.)
389
[Letterhead of Fahn, Kanne & Co]
Number: 480
Tel-Aviv, March 10, 1997
AUDITORS' REPORT TO THE SHAREHOLDERS OF
AMPAL INDUSTRIES (ISRAEL) LTD.
---------------------------------------
We have audited the balance sheets of AMPAL INDUSTRIES (ISRAEL) LTD. as of
December 31, 1996 and 1995 and the related statements of income and
shareholders' equity and cash flows for the three years in the period ended
December 31, 1996, expressed in New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The data included in the Company's financial statements relating to the equity
in an investee company and relating to the Company's share in the results of its
operations are based on financial statements which were audited by other
auditors.
The above statements have been prepared on the basis of historical cost as
adjusted for changes in the general purchasing power of the Israeli currency, in
accordance with opinions issued by the Institute of Certified Public Accountants
in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 18 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the
abovementioned financial statements present fairly the financial position of the
Company as of December 31, 1996 and 1995 and the results of its operations, the
changes in its shareholders' equity and its cash flows for each of the three
years in the period ended December 1996, in conformity with accounting
principles generally accepted in Israel, consistently applied. Also, in our
opinion, the financial statements based on nominal data (Note 18) present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1996 and 1995, the results
of its operations, the changes in shareholders' equity, and its cash flows for
each of the three years in the period ended December 31, 1996, on the basis of
the historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding this difference is summarized in Note 19 to the financial statements.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
390
[LETTERHEAD OF HAFT & HAFT & CO INCL. STRAUSS, LAZER & CO.]
AMPAL (ISRAEL) LTD.
-------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the accompanying consolidated balance sheets of Ampal (Israel)
Ltd. as of December 31, 1996 and 1995, and the related statements of profit and
loss, changes in shareholders' equity and cash flows for each of the two years
ended on those dates, expressed in New Israeli Shekels. These financial
statements are the responsibility of the Company's Board of Directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973. For purposes of these financial statements, there
is no material difference between generally accepted Israeli auditing standards
and auditing standards generally accepted in the U.S. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether originating
in an error in the financial statements or in a misrepresentation included
therein. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Board of Directors and the Company's management as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted to reflect changes in the general purchasing power of
the Israeli currency in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements of the Company were
prepared, is presented in Note 25.
We did not audit the financial statements of certain subsidiaries, whose assets
constitute approximately 31% and 32% of consolidated total assets as of December
31, 1996 and 1995, respectively, and whose revenues constitute approximately 48%
and 34% of consolidated total revenues for the years ended on those dates
respectively. Those statements were audited by other auditors whose reports have
been furnished to us and our opinion, insofar as it relates to the amounts
included in respect of the aforementioned subsidiaries, is based solely on the
reports of the other auditors. Also, the financial statements of included
companies which were presented at their book equity, were examined by other
auditors.
391
In our opinion, based on our audits and the reports ofthe other auditors, the
financial statments present fairly, in all material respects, the financial
position of the Company on a consolidated basis as of December 31, 1996 and
1995, and the results of operations, changes in shareholders' equity and cash
flows of the Company on a consolidated basis for each of the two years ended on
December 31, 1996 and 1995, in accordance with generally accepted accounting
principles in Israel.
Also, in our opinion, the unconsolidated financial statements based on nominal
data (Note 25) present fairly, in nominal terms, the unconsolidated financial
position of the Company as at December31, 1996 and 1995, and the results of its
operations, the changes in shareholders' equity , and its cash flows for each of
the three years in the period ended December 31, 1996, on the basis of the
historical cost convention.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 25F to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ H.H.S.L. Haft & Haft & Co.
H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
March 10, 1997
392
AMPAL PROPERTIES LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the balance sheets of Ampal Properties Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
two years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data
on the basis of which the adjusted financial statements of the Company were
prepared, is presented in Note 8.
The data in the financial statement relating to investment in an unconsolidated
subsidiary and to the Company's share in the losses of included companies,
amounting to N.I.S. 8,194 thousand are based on financial statements audited by
other auditors.
In our opinion, based on our audits and the report of the other auditors, the
financial statements present fairly, in all material respects, the financial
position of the Company at December31, 1996 and 1995, and the results of its
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996, in accordance with generally
accepted accounting principles. Also, in our opinion, the financial statements
based on nominal data (Note 8) present fairly, in nominal terms, the financial
position of the Company as at December 31, 1996 and 1995, the results of its
operations, changes in shareholders' equity, and its cash flows for each of the
three years in the period ended December 31, 1996, on the basis of the
historical cost convention.
393
Without qualifying our opinion, we call attention to the Company's accumulated
losses, which substantially exceed its capital.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 8E to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - l983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ Cohen, Eyal, Yehoshua & Co.
Cohen, Eyal, Yehoshua & Co.
Certified Public Accountants (Isr.)
March 10, 1997
394
[LETTERHEAD OF MORRIS BRANKIN & Co.]
Independent Auditors' Report
----------------------------
To the Shareholders of
BANK HAPOALIM (CAYMAN) LTD.
We have audited the accompanying balance sheets of Bank Hapoalim (Cayman) Ltd.
(a subsidiary of Bank Hapoalim B.M.) as at December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity and cash flows,
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Hapoalim (Latin
America) Casa Bancaria S.A., a 50% owned investee (1993: wholly owned
subsidiary) whose net investment and net loss constitute $1,605,408
(1993:$3,142,765) and loss of $(90,338) (1993:$(320,922); 1992:$(111,070)) of
the respective total assets and revenues. These statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the
investee, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
395
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly in all material respects,
the financial position of Bank Hapoalim (Cayman) Ltd. as at December 31, 1994
and 1993, and its results of operations, changes in shareholders' equity and its
cash flows for the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
January 25, 1995
(Except for note 9b /s/ Morris Brankin & Co.
for which the date is
March 7, 1995)
396
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
COUNTRY CLUB KFAR-SABA LIMITED
------------------------------
We have audited the financial statements of Country Club Kfar-Saba Limited
(hereinafter - the Company), and the consolidated financial statements of the
Company and it's joint venture investee as follows:
- - Balance sheets of the Company as at December 31, 1996, December 31, 1995.
- - Statements of income, shareholders equity and cash flow for the company for
the two years ended December 31, 1996 and for the consolidated entity for
the year 1995.
These statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 22 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 2H.
397
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
COUNTRY CLUB KFAR-SABA LIMITED
------------------------------
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in shareholders' equity and
cash flows for each of the years in the period ended December 31, 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 22) present fairly, in conformity with generally accepted accounting
principles, the financial position of the Company as at December 31, 1996 and
1995, and the results of its operations, the changes in shareholders' equity,
and its cash flows for each of the three years in the period ended December
31, 1996, on the basis of the historical cost convention.
Pursuant to section 211 of the companies ordinance (new version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the aforementioned financial statements is given to the best
of our information and the explanations received by us and as shown by the books
of the company.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income (loss) and shareholders' equity to the extent
summarized in Note 23 to the financial statements.
Porat & Co
/s/ Porat & Co
Certified Public Accountants (Isr.)
Ramat Gan, March 2, 1997
398
[LETTERHEAD OF FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.]
Report of Independent Public Accountants
----------------------------------------
To the Shareholders of Epsilon Investment House Ltd.
We have audited the Consolidated Balance Sheets of Epsilon Investment House
Ltd., (an Israeli corporation) (hereinafter - "the Company") and its subsidiary
as of December 31, 1996 and 1995, and the related Consolidated Statements of
Income and the Changes in Shareholders' Equity for each of the two years in the
period ended December 31, 1996 and 1995, translated into U.S. Dollars. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these Financial Statements, based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the Financial Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall Financial Statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Statement of Cash Flows for the period has not been included in the
Financial Statements.
In our opinion, the above mentioned excepted, the Financial Statements referred
to above present fairly, in all material respects, the financial position of the
Company and its subsidiary, as of December 31, 1996 and 1995 and the results of
their operations and the changes in their shareholders' equity, for each of the
two years in the period ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying Consolidated
Financial Statements translated into U.S. Dollars have been computed on the
basis set forth in Note 2.2 to the Consolidated Financial Statements.
/s/ FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
Certified Public Accountants
399
[LETTERHEAD OF CR.R. VILLARMARZO Y ASOC.]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors and Stockholders
Hapoalim (Latin America) Casa Bancaria S.A.
We have audited the accompanying balance sheets of Hapoalim (Latin America) Casa
Bancaria S.A. at December 31, 1994, 1993 and 1992; the related statements of
income, cash flows and changes in equity for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As mentioned in Note 1.5, the historical cost of land, buildings and equipment,
expressed in Uruguayan peso, has been revalued as established by the Uruguayan
Central Bank.
In our opinion, except for the situation discussed in the preceding paragraph,
the financial statements referred to above present fairly, in all material
respects, the financial position of Hapoalim
400
(Latin America) Casa Bancaria S.A. at December 31, 1994, 1993 and 1992, the
results of operations, the cash flows and changes in equity for the years then
ended in conformity with generally accepted accounting principles in the United
States.
We have also reviewed the accompanying statements expressed in U.S. dollars. In
our opinion, they have been properly translated on the basis described in Note
1.8.
CR. R. VILLARMARZO Y ASOC.
Ernst & Young International
January 25, 1995
/s/ Luis F. Montone
----------------------------- -------------------------------
TIMBRES PROFESIONALES
INCLUIDOS EN EL ORlGINAL
-----------------------------
401
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
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Hod Hasharon Sport Center (1992) Limited Partnership
----------------------------------------------------
We have audited the balance sheet of Hod Hasharon Sport Center (1992) Limited
Partnership as at December 31, 1996 and 1995, the related statements of income,
partners' capital and cash flows for each of the two years in the period then
ended, expressed in New Israel Shekels. These financial statements are the
responsibility of the partnership management.
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted
statements appear in Note 19 to the financial statements. These amounts have
been translated into U.S. dollars using the method described in Note 2D.
402
[LETTERHEAD OF PORAT & Co.]
Report of Independent Public Accountants
----------------------------------------
of
--
Hod Hasharon Sport Center (1992) Limited Partnership
----------------------------------------------------
In our opinion, based on our audit the above mentioned financial statements
present fairly the financial position of the partnership as at December 31, 1996
and 1995, the results of its operations, the changes in partners' capital and
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with accounting principles generally accepted in Israel, consistently
applied. Also, in our opinion, the financial statements based on nominal data
(Note 19) present fairly, in conformity with generally accepted accounting
principles, the financial position of the partnership as at December 31, 1996
and 1995, and the results of its operations, the changes in partners' capital
and its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Pursuant to section 211 of the companies ordinance (new version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the aforementioned financial statements is given to the best
of our information and the explanations received by us and as shown by the books
of the company.
Porat and Co.
/s/ Porat and Co.
Certified Public Accountants (Isr.)
Ramat Gan, February 27, 1997
403
[LETTERHEAD OF KOST LEVARY & FORER]
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
MIVNAT HOLDING LTD.
We have audited the balance sheets of Mivnat Holding Ltd. ("the Company")
and the consolidated balance sheets of the Company and its subsidiary (the
"Consolidated") as of December 31, 1995 and 1996 and the related statements of
income, changes in shareholders' equity and cash flows - the Company and the
Consolidated - for each of the three years in the period ended December 31,
1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli auditors Regulations (Mode
of Performance), 1973. For purposes of these financial statements, there is no
material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentations. We believe that our audits provide a reasonable basis
for our opinion.
The financial statements have been prepared on the basis of the historical
cost adjusted to reflect the changes in the general purchasing power of the
Israeli currency, in accordance with Opinion No. 36 of the Institute of
Certified Public Accountants in Israel. A summary of the Company's nominal
financial statements which served as a basis for the adjusted financial
statements is presented in Note 27.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of - the Company and the
Consolidated - as of December 31, 1995 and 1996, and the related results of
operations, changes in shareholders' equity and cash flows - the Company and the
Consolidated - for each of three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles in Israel. Also, in our
opinion, the Consolidated financial statements based on nominal data (Note 25)
present fairly, in conformity with generally accepted accounting principles, the
Consolidated financial position as of December 31, 1996 and 1995, and the
related Consolidated results of its operations, changes in shareholders' equity,
and its cash flows for each of the three years in the period ended December 31,
1996, on the basis of the historical cost convention.
Accounting principles generally accepted in Israel differ in certain
respects from accounting principles generally accepted in the United States.
Financial statements based on the application of the latter and their
translation into U.S. dollars based on the principles set forth in SFAS 52, are
presented in Note 25 to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version), 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
/s/ KOST, LEVAR and FORER
Tel-Aviv, Israel KOST, LEVAR and FORER
March 10, 1997 Certified Public Accountants (Israel)
404
[LETTERHEAD HAFT & HAFT & Co.]
[LETTERHEAD NEXIA INTER-NATIONAL]
NIR LTD.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
SPECIAL PURPOSE STATEMENT
-------------------------
We have audited the accompanying balance sheets of Nir Ltd. as at December 31,
1996 and 1995, the related statements of profit and loss, the statement of
changes in shareholders' equity and the statement of cash flows for each of the
three years in the period ended December 31, 1996, expressed in New Israeli
Shekels. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors Regulations (Auditor's
Mode of Performance), 1973. For purposes of these financial statements, there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether originating in
an error in the financial statements or misstatement contained therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect changes in the general purchasing power of
the Israel currency in accordance with pronouncements issued by the Institute of
Certified Public Accountants in Israel. Condensed nominal Israeli currency data,
on the basis of which the adjusted financial statements were prepared, is
presented in Note 17.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996, in
accordance with generally accepted accounting principles.
Also in our opinion, the financial statements based on nominal data (Note 17)
present fairly, in nominal terms, the financial position of the Company as at
December 31, 1996 and 1995, and the results of it operations, the changes in
shareholders' equity, and its cash flows for each of the three years in the
period ended December 31, 1996, on the basis of the historical cost convention.
405
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The data
regarding the method of translation to U.S. dollars and the abovementioned
differences are summarized in Note 17E to the financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
requested and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
/s/ H.H.S.L. Haft & Haft & Co.
----------------------------------
H.H.S.L. Haft & Haft & Co.
Certified Public Accountants (Isr.)
March 10, 1997
406
[Letterhead Shlomo Ziv & Co.]
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PARADISE INDUSTRIES LTD.
---------------------------------------
We have audited the balance sheets of Paradise Industries Ltd. as at December
31, 1996 and 1995, the related statements of income, statements of changes in
shareholders' equity and the statements of cash-flows for each of the three
years, the latest ended December 31, 1996, expressed in New Israeli Shekels.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors Regulations
(Auditor's Mode of Performance), 1973 and accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, either originating within the financial statements
themselves, or due to any misleading statement included therein. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentations. We believe that our
audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency,
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel. Condensed statements in historical values which formed
the basis of the adjusted statements appear in Note 25 to the financial
statements. These amounts have been translated into U.S. Dollars, using the
method described in Note 2.D., for the convenience of one of the Company's
shareholders, in accordance with the principles set forth in statement No. 52 of
the Financial Accounting Standards Board of the United States.
407
In our opinion, the above mentioned financial statements present fairly, in
conformity with generally accepted accounting principles, in all material
respects, the financial position of the Company as at December 31, 1996 and
1995, the results of its operations, the changes in its shareholders' equity and
cash-flows for each of the three years, the latest ended December 31, 1996 in
conformity with accounting principles generally accepted in the United States
and in Israel (as applicable to the financial statements of the Company, such
accounting principles are practically identical).
Pursuant to Section 211 of of the Companies Ordinance (New Versions) 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above statements is given according to the
best of our information and the explanations received by us and as shown by the
Company's books.
Without qualifying our aforementioned opinion, we draw your attention to Note
23, regarding a claim filed against the Company related to advertising done by
the Company.
Tel-Aviv, March 10, 1997 SHLOMO ZIV & CO.
/s/ Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
408
[LETTERHEAD OF REUVENI, HARTUV, TEPPER & CO.]
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
---------------------------------------
PRI HA'EMEK (CANNED AND FROZEN FOOD) 88 LTD.
--------------------------------------------
We have audited the accompanying balance sheets of Pri Ha'emek (Canned and
Frozen Food) 88 Limited (hereinafter the Company) as at December 31, 1995 and
1994, the consolidated balance sheets as at December 31, 1995 and 1994, and the
statements of profit and loss, changes in shareholders' equity and cash flows of
the Company and consolidated for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's Board of Directors and of its Management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Generally Accepted Auditing Standards,
including those prescribed under the Auditors' Regulations (Auditor's Mode of
Performance), 1973. Those standards require us to plan and perform the audit
with the aim of obtaining a reasonable degree of assurance that the financial
statements are free of material misstatement, whether caused by an error in the
financial statements or caused by misleading information included therein. An
audit includes examining, on a test basis, evidence supporting the amounts and
information in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's Board
of Directors and Management, as well as evaluating the fairness of the overall
presentation of the financial statements. We are satisfied that our audit
provides a fair basis for our opinion. For purposes of these financial
statements, there is no material difference between generally accepted Israeli
auditing standards and auditing standards generally accepted in the U.S.
The above mentioned financial statements have been prepared in New Israeli
Shekels and remeasured into U.S. Dollars in accordance with the principles of
remeasurement set forth in Statement No. 52 of the Financial Accounting
Standards Board of the U.S.A. (See Note 1).
In our opinion, based on our audit, the above mentioned financial statements
present fairly, in conformity with Generally Accepted Accounting Principles in
all material respects the financial position of the Company and consolidated as
at December 31, 1995 and 1994, and the results of the operations, the changes in
shareholders' equity and the cash flows of the Company and consolidated for each
of the three years in the period ended December 31, 1995.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income (loss) and shareholders' equity to the extent
summarized in Note 20 to the financial statements.
409
AUDITOR'S REPORT TO THE SHAREHOLDERS OF
PRI HA-EMEK (CANNED AND FROZED FOOD) 88 LTD.
(CONTINUED)
Pursuant to Section 211 of the Companies Ordinance (New Edition) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the above financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
Without qualifying our above opinion, we draw attention to note 1(2) to the
financial statements, concerning the potential importance of matters reflected
in this note on the continuance of the Company's activities as a going concern
and its ability to pay its debts as they fall due.
/s/ Reuveni, Hartuv, Tepper & Co.
Certified Public Accountants (Isr).
Tel-Aviv, March 24, 1996.
410
[LETTERHEAD of DOV KAHANA & CO.]
Auditors' Report to the Shareholders
------------------------------------
of
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Red Sea Marineland Holding (1973) Ltd.
--------------------------------------
We have examined the Balance Sheets of Red Sea Marineland Holding (1973) Ltd. as
at December 31, 1995 and 1994. Our examination was made in accordance with
generally accepted auditing standards, including those prescribed under the
Auditors Regulations (Auditor's Mode of Performance) 1973, and accordingly we
have applied such auditing procedures as we considered necessary in the
circumstances.
Information as to the effect of the changes in the general purchasing power of
the Israeli currency on the financial statements in accordance with opinions of
the Institute of Certified Public Accountants in Israel, has not been included
in the above statements.
In our opinion, except for the omission of the information referred to in the
preceding paragraph, the above Balance Sheets present fairly, in conformity with
generally accepted accounting principles, the financial position of the company
as at December 31, 1995 and 1994, on the basis of the historical cost
convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above Balance Sheets is given according to
the best of our information and the explanations received by us and as shown by
the books of the company.
Ramat-Gan, Israel, March 11, 1996
/s/ Dov Kahana & Co.
Dov Kahana & Co.
Certified Public Accountants (Isr.)
411
[LETTERHEAD OF FAHN, KANNE & Co.]
Number: 990
AUDITORS' REPORT TO THE SHAREHOLDERS OF
RED SEA MARINELAND HOLDING (1973) LTD.
---------------------------------------
We have audited the balance sheet of Red Sea Marineland Holding (1973) Ltd. as
of December 31, 1996. These financial statements are the responsibility of the
Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
Information as to the effect of the changes in the general purchasing power of
the Israeli currency on the financial statements in accordance with opinions of
the Institute of Certified Public Accountants in Israel, has not been included
in the above statements.
In our opinion, except for the omission of the information referred to in the
preceding paragraph, the above Balance Sheet present fairly, in conformity with
generally accepted accounting principles, the financial position of the Company
as at December 31, 1996, on the basis of the historical cost convention.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
state that we have obtained all the information and explanations we have
required and that our opinion on the above Balance Sheet is given according to
the best of our information and the explanations received by us and as shown by
the books of the Company.
/s/ Fahn, Kanne & Co
Fahn, Kanne & Co
Certified Public Accountants (Isr.)
Tel Aviv, Israel, March 17, 1997
412
[LETTERHEAD OF FAHN, KANNE & Co.]
Number: 991
AUDITORS' REPORT TO THE SHAREHOLDERS OF
RED SEA UNDERWATER OBSERVATORY LTD.
---------------------------------------
We have audited the balance sheet of Red Sea Underwater Observatory Ltd.
(hereinafter: "the Company") and the consolidated balance sheet of the Company
and its subsidiaries as of December 31, 1996, and the related consolidated and
company statements of income, changes in shareholders' equity and cash flows for
the year then ended, expressed in New Israeli Shekels. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973. For purposes of these financial
statements, there is no material difference between generally accepted Israeli
auditing standards and auditing standards generally accepted in the U.S. These
standards require that we plan and perform the audit to obtain reasonable
assurance that the financial statements are free of material misstatement,
whether accidental or intentional. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The above statements were prepared on the basis of historical cost as adjusted
for changes in the general purchasing power of the Israeli shekel, in accordance
with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements of the Company in historical values, which formed the basis
of the adjusted statements, appear in Note 14 to the financial statements. These
amounts were translated into U.S. dollars using the method described in Note 15.
The financial statements of subsidiaries operating abroad, whose assets
constitute approximately 62% of the total assets contained in the consolidated
balance sheet and whose sales constitute approximately 37% of the total revenues
contained in the consolidated statement of income for the year ended December
31, 1996, were audited by other auditors.
In our opinion, based on our audit and the reports of other auditors, as
mentioned above, the financial statements present fairly the financial position
of the Company and Consolidated as of December 31, 1996, and the results of
operations, changes in shareholders' equity and cash flows for the Company and
Consolidated for the year then ended, in conformity with accounting principles
generally accepted in Israel, consistently applied. Also, in our opinion, the
financial statements based on nominal data (Note 14) present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1996 and the results of its operations for the
year ended December 31, 1996, on the basis of the historical cost convention.
In addition, in our opinion, the condensed financial statements translated into
U.S. Dollars (Note 15) are presented fairly in conformity with S.F.A.S. 52.
/s/ Fahn, Kanne & Co.
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel Aviv, Israel, March 17, 1997
413
[LETTERHEAD OF DOV KAHANA & CO.]
AUDITORS' REPORT
----------------
TO THE SHAREHOLDERS OF
----------------------
RED SEA UNDER WATER OBSERVATORY LTD.
------------------------------------
We have audited the Balance Sheets of Red Sea Under Water Observatory Ltd.
(hereinafter "the Company") and the Consolidated Balance Sheet of the Company
and its subsidiaries as at December 31, 1995 and 1994, the related statements
of income and shareholders' equity and cash flows of the Company for each of the
three years, Consolidated for each of the two years, in the period ended
December 31, 1995, expressed In New Israeli Shekels. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
The above statements have been prepared on the basis of historical cost as
adjusted for the changes in the general purchasing power of the Israel currency
in accordance with opinions issued by the Institute of Certified Public
Accountants in Israel.
Condensed statements of the Company in historical values which formed the basis
of the adjusted statements appear in Note 14 to the financial statements. These
amounts have been translated into U.S. dollars using the method described in
Note 15.
The Financial Statements of subsidiaries operating abroad, whose assets
constitute app. 41% of the total assets contained In the Consolidated Balance
Sheet (31.12.94: app. 42%) and whose sales constitute app. 38% of the total
sales contained in the Consolidated Statement of Income for the year ended
December 31, 1995 (1994: app. 43%), have been audited by other auditors.
In our opinion, based on our audit and the reports of other auditors, as above
mentioned, the financial statements present fairly the financial position of the
Company and Consolidated as at December 31, 1995 and 1994, the results of
operations, the changes in shareholders' equity and cash flows of the Company
for each of the three years, Consolidated for each of the two years, in the
period ended December 31, 1995, in conformity with accounting principles
generally accepted in Israel, consistently applied. Also, in our opinion, the
condensed financial statements based on nominal data (Note 14) present fairly,
in conformity with generally accepted accounting principles in Israel and in the
US., the financial position of the Company as at December 31, 1995 and 1994, and
the results of its operations for each of the three years in the period ended
December 31, 1995, on the basis of the historical cost convention. As applicable
to these condensed financial statements, such accounting principles are
substantially identical in all material respects.
Also in our opinion the Condensed Translated Statements into U.S. Dollars (Note
15) are presented fairly in conformity with S.F.A.S. 52.
/s/ D. Kahana & Co.
Ramat Gan, Israel, March 21, 1996 Dov Kahana & Co.
Certified Public Accountants (Isr.)
414
[LETTERHEAD OF FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.]
Report of Independent Public Accountants
----------------------------------------
To the Shareholders of Renaissance Investment Co. Ltd.
We have audited the Consolidated Balance Sheets of Renaissance Investment Co.
Ltd., (an Israeli corporation) (hereinafter - "the Company") and its subsidiary
as of December 31, 1995 and 1996, and the related Consolidated Statements of
Income and the Changes in Shareholders' Equity for each of the two years in the
period ended December 31, 1995 and 1996, translated into U.S. Dollars. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these Financial Statements, based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the Financial Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall Financial Statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Statement of Cash Flows for the period has not been included in the
Financial Statements.
In our opinion, the above mentioned excepted, the Financial Statements referred
to above present fairly, in all material respects, the financial position of the
Company and its subsidiary, as of December 31, 1996 and 1995 and the results of
their operations and the changes in their shareholders' equity, for each of the
two years in the period ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
Also, in our opinion, the translated amounts in the accompanying Consolidated
Financial Statements translated into U.S. Dollars have been computed on the
basis set forth in Note 2.2 to the Consolidated Financial Statements.
/s/ FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
FRIEDMAN, SHAPIRA, GOLDSTEIN, SITERMAN & CO.
Certified Public Accountants
Tel Aviv March 20, 1997
415
[LETTERHEAD OF KOST LEVARY & FORER]
Messrs. Ampal Ltd.
- ------------------
Re: Financial statements of Shmay-Bar Real Estate 1993 Ltd.
("the Company") translated into U.S. dollars
-------------------------------------------------------
As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 1996 and 1995,
which were audited by us, and on which we expressed our opinion on February 18,
1997, have been provided to you.
We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 1996 and 1995, and the related translated U.S.
dollar statements of income for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.
Full financial statement disclosures and statements of cash flows that are
as required by generally accepted accounting principles have not been presented
and as such, the translated U.S. dollar financial statements mentioned above are
to be read in conjunction with the primary annual audited financial statements
of the Company, as of December 31, 1996 and their accompanying Notes.
416
[LETTERHEAD OF KOST LEVARY & FORER]
In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U.S. dollar
financial position of the Company as of December 31, 1996 and 1995, and the
related translated U.S. dollar results of its operations for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
States and in Israel are substantially identical in all material respects.
Also, in our opinion, the translation of the aforementioned nominal figures
into U.S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 3.
The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.
Sincerely,
/s/ KOST, LEVARY and FORER
Tel-Aviv, Israel KOST, LEVARY and FORER
March 10, 1997 Certified Public Accountants (Israel)
417
[LETTERHEAD OF KOST LEVARY & FORER]
Messrs. Ampal Ltd.
- ------------------
Re: Financial statements of Shmay-Bar (T.H) 1993 Ltd.
("the Company") translated into U.S. dollars
-------------------------------------------------
As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 1996 and 1995,
which were audited by us, and on which we expressed our opinion on February 18,
1997, have been provided to you.
We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 1996 and 1995, and the related translated U.S.
dollar statements of income for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.
Full financial statement disclosures and statements of cash flows that are
as required by generally accepted accounting principles have not been presented
and as such, the translated U.S. dollar financial statements mentioned above are
to be read in conjunction with the primary annual audited financial statements
of the Company, as of December 31, 1996 and their accompanying Notes.
418
[LETTERHEAD OF KOST LEVARY & FORER]
In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U.S. dollar
financial position of the Company as of December 31, 1996 and 1995, and the
related translated U.S. dollar results of its operations for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
Sates and in Israel are substantially identical in all material respects.
Also, in our opinion, the translation of the aforementioned nominal figures
into U.S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 3.
The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.
Sincerely
Tel-Aviv, Israel /s/ KOST, LEVARY and FORER
March 10, 1997 KOST, LEVARY and FORER
Certified Public Accountants (Israel)
419
[LETTERHEAD OF ALMAGOR & Co. CPA (ISR)]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Teledata Communications Ltd.
We have audited the accompanying consolidated balance sheets of Teledata
Communications Ltd. (the "Company") at December 31, 1996 and 1995 and the
related statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of a consolidated subsidiary, whose
assets constitute approximately 5% and 2% of the total consolidated assets at
December 31, 1996 and 1995, respectively, and whose total revenues constitute
approximately 11%, 13% and 22% of the consolidated total revenues for the years
ended December 31, 1996, 1995 and 1994, respectively. Those statements were
audited by other accountants whose reports have been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for the
abovementioned subsidiary, is based solely on the reports of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Auditors' (Mode of Performance)
Regulations (Israel), 1973. Such auditing standards are substantially identical
to generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management, as
well as evaluating the overall financial statements presentation. We believe
that our audits and the reports of the other auditors provide a reasonable basis
for our opinion.
In our opinion, based on our audit and the reports of other independent auditors
as stated above, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries at December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with accounting principles
generally accepted in the United States.
/s/ BDO Almagor & Co.
BDO Almagor & Co.
Certified Public Accountants
Ramat-Gan, Israel,
February 16, 1997
420
[LETTERHEAD OF Deloitte Touche Tohmatsu-Igal Brightman & Co.]
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRINET INVESTMENTS IN HIGH-TECH LTD.
---------------------------------------------
We have audited the accompanying balance sheets of Trinet Investments in
High-Tech Ltd. as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' deficiency and cash flows for each of the
three years in the period ended December 31, 1996, expressed in Israeli
currency. These financial statements are the responsibility of the Company's
Board of Directors and management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the U.S.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Board of Directors and management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost, adjusted for changes in the general purchasing power of the
Israeli currency in accordance with opinions issued by the Institute of
Certified Public Accountants in Israel. Condensed financial information in
nominal historical values, which serves as the basis for the adjusted financial
statements, appears in Note 10 to the financial statements.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of its operations, changes in shareholders' deficiency
and cash flows for each of the three years in the period ended December 31,
1996, in conformity with accounting principles generally accepted in Israel.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all of the information and explanations which we
required and that our opinion on the financial statements is given based on the
best of the information and explanations which we received and as reflected in
the books of the Company.
The financial information presented in U.S. dollars and in accordance with
generally accepted accounting principles in the United States is based on
nominal historical amounts in Israeli currency and is presented in Note 11 to
the financial statements.
/s/ Igal Brightman & Co.
Igal Brightman & Co.
Certified Public Accountants
Tel Aviv, February 20, 1997
421
[LETTERHEAD OF Kesselman & Kesselman]
AUDITORS' REPORT
To the shareholders of
U.D.S. ULTIMATE DISTRIBUTION SYSTEMS LTD.
We have audited the financial statements of U.D.S. Ultimate Distribution Systems
Ltd. (hereafter - the Company) and the consolidated financial statements of the
Company and its subsidiary: balance sheets at December 31, 1996 and 1995 and
statements of loss, change in shareholders' equity and cash flows for each of
the years ended on those dates. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
Our audits were performed in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulations, 1973. Those standards require that we plan and perform
the audit to obtain reasonable assurance that the financial statements are free
of material misstatement, whether caused by an error in the financial statements
or by misleading information included therein. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Company's Board of Directors and management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a fair basis for our opinion.
The aforementioned financial statements have been prepared on the basis of
historical cost adjusted to reflect the changes in the general purchasing power
of Israeli currency, in accordance with Opinions of the Institute of Certified
Public Accountants in Israel. Condensed nominal Israeli currency data, on the
basis of which the adjusted financial statements were prepared, are presented in
note 11.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position - of the Company and consolidated - at
December 31, 1996 and 1995 and the results of operations, changes in
shareholders' equity and cash flows - of the Company and consolidated - for each
of the years ended on those dates, in conformity with generally accepted
accounting principles in Israel.
422
[LETTERHEAD OF Coopers & Lybrand]
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have no effect on the determination of
nominal/historical net income and shareholders' equity, see note 12.
The nominal Israeli currency consolidated data which are presented in note 12
have been translated into U.S. dollars for the convenience of one of the
Company's shareholders, in accordance with the principles set forth in Statement
No. 52 of the Financial Accounting Standards Board of the United States. The
translation has been properly made.
Tel-Aviv, Israel
March 5,1997
/s/ Kesselman & Kesselman
423
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 31st day of March,
1997.
AMPAL-AMERICAN ISRAEL CORPORATION
By /s/ Lawrence Lefkowitz
---------------------------------------------
Lawrence Lefkowitz, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons (who included a majority
of the Board of Directors) on behalf of the Registrant and in the capacities
indicated on March 31, 1997.
Signatures Title Date
- ---------- ----- ----
Arie Abend Director
Michael Arnon Director
Stanley I. Batkin Director
Yaacov Elinav Director
Harry B. Henshel Director
Irwin Hochberg Director
Herbert Kronish Director
Lawrence Lefkowitz Director
Hillel Peled Director
Shimon Ravid Director
Evelyn Sommer Director
Michael W. Sonnenfeldt Director
Raz Steinmetz Director
By /s/ Lawrence Lefkowitz March 31, 1997
- ---------------------------------------------------------
Lawrence Lefkowitz, individually, as President
(Principal Executive Officer) and as
attorney-in-fact for the Foregoing Persons
By /s/ Alan L. Schaffer March 31, 1997
- ---------------------------------------------------------
Alan L. Schaffer, Vice President-Finance and Treasurer
(Principal Financial Officer)
By /s/ Alla Kanter March 31, 1997
- --------------------------------------------------------
Alla Kanter, Vice President-Accounting and Controller
(Principal Accounting Officer)
424
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
TO
FORM 10-K
FOR ANNUAL AND TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
----------------------
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact name of Registrant as specified in its Charter)
================================================================================
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